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2011 Federal Tax Form 1040ez

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2011 Federal Tax Form 1040ez

2011 federal tax form 1040ez 1. 2011 federal tax form 1040ez   Importance of Records Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Benefits of Recordkeeping Kinds of Records To Keep How Long To Keep Records Introduction A farmer, like other taxpayers, must keep records to prepare an accurate income tax return and determine the correct amount of tax. 2011 federal tax form 1040ez This chapter explains the benefits of keeping records, what kinds of records you must keep, and how long you must keep them for federal tax purposes. 2011 federal tax form 1040ez Tax records are not the only type of records you need to keep for your farming business. 2011 federal tax form 1040ez You should also keep records that measure your farm's financial performance. 2011 federal tax form 1040ez This publication only discusses tax records. 2011 federal tax form 1040ez The Farm Financial Standards Council has produced a publication that provides a detailed explanation of the recommendations of the Council for financial reporting and analysis. 2011 federal tax form 1040ez For information on recordkeeping, you can purchase and download Financial Guidelines for Agricultural Producers at www. 2011 federal tax form 1040ez ffsc. 2011 federal tax form 1040ez org. 2011 federal tax form 1040ez For more information, contact Countryside Marketing, Inc. 2011 federal tax form 1040ez in the following manner. 2011 federal tax form 1040ez Call 262-253-6902. 2011 federal tax form 1040ez Send a fax to 262-253-6903. 2011 federal tax form 1040ez Write to: Farm Financial Standards Council N78 W14573 Appleton Ave. 2011 federal tax form 1040ez , #287 Menomonee Falls, WI 53051. 2011 federal tax form 1040ez Topics - This chapter discusses: Benefits of recordkeeping Kinds of records to keep How long to keep records Useful Items - You may want to see: Publication 51 (Circular A), Agricultural Employer's Tax Guide 463 Travel, Entertainment, Gift, and Car Expenses See chapter 16 for information about getting publications. 2011 federal tax form 1040ez Benefits of Recordkeeping Everyone in business, including farmers, must keep appropriate records. 2011 federal tax form 1040ez Recordkeeping will help you do the following. 2011 federal tax form 1040ez Monitor the progress of your farming business. 2011 federal tax form 1040ez   You need records to monitor the progress of your farming business. 2011 federal tax form 1040ez Records can show whether your business is improving, which items are selling, or what changes you need to make. 2011 federal tax form 1040ez Records can help you make better decisions that may increase the likelihood of business success. 2011 federal tax form 1040ez Prepare your financial statements. 2011 federal tax form 1040ez   You need records to prepare accurate financial statements. 2011 federal tax form 1040ez These include income (profit and loss) statements and balance sheets. 2011 federal tax form 1040ez These statements can help you in dealing with your bank or creditors and help you to manage your farm business. 2011 federal tax form 1040ez Identify source of receipts. 2011 federal tax form 1040ez   You will receive money or property from many sources. 2011 federal tax form 1040ez Your records can identify the source of your receipts. 2011 federal tax form 1040ez You need this information to separate farm from nonfarm receipts and taxable from nontaxable income. 2011 federal tax form 1040ez Keep track of deductible expenses. 2011 federal tax form 1040ez   You may forget expenses when you prepare your tax return unless you record them when they occur. 2011 federal tax form 1040ez Prepare your tax returns. 2011 federal tax form 1040ez   You need records to prepare your tax return. 2011 federal tax form 1040ez For example, your records must support the income, expenses, and credits you report. 2011 federal tax form 1040ez Generally, these are the same records you use to monitor your farming business and prepare your financial statements. 2011 federal tax form 1040ez Support items reported on tax returns. 2011 federal tax form 1040ez   You must keep your business records available at all times for inspection by the IRS. 2011 federal tax form 1040ez If the IRS examines any of your tax returns, you may be asked to explain the items reported. 2011 federal tax form 1040ez A complete set of records will speed up the examination. 2011 federal tax form 1040ez Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. 2011 federal tax form 1040ez You can choose any recordkeeping system suited to your farming business that clearly shows, for example, your income and expenses. 2011 federal tax form 1040ez You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. 2011 federal tax form 1040ez See  chapter 2. 2011 federal tax form 1040ez If you are in more than one business, you should keep a complete and separate set of records for each business. 2011 federal tax form 1040ez A corporation should keep minutes of board of directors' meetings. 2011 federal tax form 1040ez Your recordkeeping system should include a summary of your business transactions. 2011 federal tax form 1040ez This summary is ordinarily made in accounting journals and ledgers. 2011 federal tax form 1040ez For example, they must show your gross income, as well as your deductions and credits. 2011 federal tax form 1040ez In addition, you must keep supporting documents. 2011 federal tax form 1040ez Purchases, sales, payroll, and other transactions you have in your business generate supporting documents such as invoices and receipts. 2011 federal tax form 1040ez These documents contain the information you need to record in your journals and ledgers. 2011 federal tax form 1040ez It is important to keep these documents because they support the entries in your journals and ledgers and on your tax return. 2011 federal tax form 1040ez Keep them in an orderly fashion and in a safe place. 2011 federal tax form 1040ez For instance, organize them by year and type of income or expense. 2011 federal tax form 1040ez Electronic records. 2011 federal tax form 1040ez   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. 2011 federal tax form 1040ez When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. 2011 federal tax form 1040ez An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. 2011 federal tax form 1040ez The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. 2011 federal tax form 1040ez All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. 2011 federal tax form 1040ez Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. 2011 federal tax form 1040ez The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. 2011 federal tax form 1040ez You still have the responsibility of retaining any other books and records that are required to be retained. 2011 federal tax form 1040ez The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. 2011 federal tax form 1040ez This test is not considered an examination and the results must be shared with you. 2011 federal tax form 1040ez If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. 2011 federal tax form 1040ez If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copybooks and records in a manner that allows you and the IRS to determine your correct tax. 2011 federal tax form 1040ez For details on electronic storage system requirements, see Rev. 2011 federal tax form 1040ez Proc. 2011 federal tax form 1040ez 97-22. 2011 federal tax form 1040ez You can find Rev. 2011 federal tax form 1040ez Proc. 2011 federal tax form 1040ez 97-22 on page 9 of Internal Revenue Bulletin 1997-13 at  www. 2011 federal tax form 1040ez irs. 2011 federal tax form 1040ez gov/pub/irs-irbs/irb97-13. 2011 federal tax form 1040ez pdf. 2011 federal tax form 1040ez Travel, transportation, entertainment, and gift expenses. 2011 federal tax form 1040ez   Specific recordkeeping rules apply to these expenses. 2011 federal tax form 1040ez For more information, see Publication 463. 2011 federal tax form 1040ez Employment taxes. 2011 federal tax form 1040ez   There are specific employment tax records you must keep. 2011 federal tax form 1040ez For a list, see Publication 51 (Circular A). 2011 federal tax form 1040ez Excise taxes. 2011 federal tax form 1040ez   See How To Claim a Credit or Refund in chapter 14 for the specific records you must keep to verify your claim for credit or refund of excise taxes on certain fuels. 2011 federal tax form 1040ez Assets. 2011 federal tax form 1040ez   Assets are the property, such as machinery and equipment, you own and use in your business. 2011 federal tax form 1040ez You must keep records to verify certain information about your business assets. 2011 federal tax form 1040ez You need records to figure your annual depreciation deduction and the gain or (loss) when you sell the assets. 2011 federal tax form 1040ez Your records should show all the following. 2011 federal tax form 1040ez When and how you acquired the asset. 2011 federal tax form 1040ez Purchase price. 2011 federal tax form 1040ez Cost of any improvements. 2011 federal tax form 1040ez Section 179 deduction taken. 2011 federal tax form 1040ez Deductions taken for depreciation. 2011 federal tax form 1040ez Deductions taken for casualty losses, such as losses resulting from fires or storms. 2011 federal tax form 1040ez How you used the asset. 2011 federal tax form 1040ez When and how you disposed of the asset. 2011 federal tax form 1040ez Selling price. 2011 federal tax form 1040ez Expenses of sale. 2011 federal tax form 1040ez   The following are examples of records that may show this information. 2011 federal tax form 1040ez Purchase and sales invoices. 2011 federal tax form 1040ez Real estate closing statements. 2011 federal tax form 1040ez Canceled checks. 2011 federal tax form 1040ez Bank statements. 2011 federal tax form 1040ez Financial account statements as proof of payment. 2011 federal tax form 1040ez   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. 2011 federal tax form 1040ez These include account statements prepared for the financial institution by a third party. 2011 federal tax form 1040ez These account statements must be legible. 2011 federal tax form 1040ez The following table lists acceptable account statements. 2011 federal tax form 1040ez IF payment is by. 2011 federal tax form 1040ez . 2011 federal tax form 1040ez . 2011 federal tax form 1040ez THEN the statement must show the. 2011 federal tax form 1040ez . 2011 federal tax form 1040ez . 2011 federal tax form 1040ez Check Check number. 2011 federal tax form 1040ez Amount. 2011 federal tax form 1040ez Payee's name. 2011 federal tax form 1040ez Date the check amount was posted to the account by the financial institution. 2011 federal tax form 1040ez Electronic funds  transfer Amount transferred. 2011 federal tax form 1040ez Payee's name. 2011 federal tax form 1040ez Date the transfer was posted to the account by the financial institution. 2011 federal tax form 1040ez Credit card Amount charged. 2011 federal tax form 1040ez Payee's name. 2011 federal tax form 1040ez Transaction date. 2011 federal tax form 1040ez    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. 2011 federal tax form 1040ez You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. 2011 federal tax form 1040ez Tax returns. 2011 federal tax form 1040ez   Keep copies of your filed tax returns. 2011 federal tax form 1040ez They help in preparing future tax returns and making computations if you file an amended return. 2011 federal tax form 1040ez Keep copies of your information returns such as Form 1099, Schedule K-1, and Form W-2. 2011 federal tax form 1040ez How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. 2011 federal tax form 1040ez Keep records that support an item of income or a deduction appearing on a return until the period of limitations for the return runs out. 2011 federal tax form 1040ez A period of limitations is the period of time after which no legal action can be brought. 2011 federal tax form 1040ez Generally, that means you must keep your records for at least 3 years from when your tax return was due or filed or within 2 years of the date the tax was paid, whichever is later. 2011 federal tax form 1040ez However, certain records must be kept for a longer period of time, as discussed below. 2011 federal tax form 1040ez Employment taxes. 2011 federal tax form 1040ez   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. 2011 federal tax form 1040ez Assets. 2011 federal tax form 1040ez   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. 2011 federal tax form 1040ez You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure your basis for computing gain or (loss) when you sell or otherwise dispose of the property. 2011 federal tax form 1040ez   You may need to keep records relating to the basis of property longer than the period of limitation. 2011 federal tax form 1040ez Keep those records as long as they are important in figuring the basis of the original or replacement property. 2011 federal tax form 1040ez Generally, this means as long as you own the property and, after you dispose of it, for the period of limitations that applies to you. 2011 federal tax form 1040ez For example, if you received property in a nontaxable exchange, you must keep the records for the old property, as well as for the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. 2011 federal tax form 1040ez For more information on basis, see chapter 6. 2011 federal tax form 1040ez Records for nontax purposes. 2011 federal tax form 1040ez   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. 2011 federal tax form 1040ez For example, your insurance company or creditors may require you to keep them longer than the IRS does. 2011 federal tax form 1040ez Prev  Up  Next   Home   More Online Publications
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The 2011 Federal Tax Form 1040ez

2011 federal tax form 1040ez 4. 2011 federal tax form 1040ez   Transportation Table of Contents Parking fees. 2011 federal tax form 1040ez Advertising display on car. 2011 federal tax form 1040ez Car pools. 2011 federal tax form 1040ez Hauling tools or instruments. 2011 federal tax form 1040ez Union members' trips from a union hall. 2011 federal tax form 1040ez Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. 2011 federal tax form 1040ez These expenses include the cost of transportation by air, rail, bus, taxi, etc. 2011 federal tax form 1040ez , and the cost of driving and maintaining your car. 2011 federal tax form 1040ez Transportation expenses include the ordinary and necessary costs of all of the following. 2011 federal tax form 1040ez Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. 2011 federal tax form 1040ez Tax home is defined in chapter 1. 2011 federal tax form 1040ez Visiting clients or customers. 2011 federal tax form 1040ez Going to a business meeting away from your regular workplace. 2011 federal tax form 1040ez Getting from your home to a temporary workplace when you have one or more regular places of work. 2011 federal tax form 1040ez These temporary workplaces can be either within the area of your tax home or outside that area. 2011 federal tax form 1040ez Transportation expenses do not include expenses you have while traveling away from home overnight. 2011 federal tax form 1040ez Those expenses are travel expenses discussed in chapter 1 . 2011 federal tax form 1040ez However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. 2011 federal tax form 1040ez See Car Expenses , later. 2011 federal tax form 1040ez Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. 2011 federal tax form 1040ez However, there may be exceptions to this general rule. 2011 federal tax form 1040ez You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. 2011 federal tax form 1040ez Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. 2011 federal tax form 1040ez Illustration of transportation expenses. 2011 federal tax form 1040ez    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. 2011 federal tax form 1040ez You may want to refer to it when deciding whether you can deduct your transportation expenses. 2011 federal tax form 1040ez Temporary work location. 2011 federal tax form 1040ez   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. 2011 federal tax form 1040ez   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. 2011 federal tax form 1040ez   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. 2011 federal tax form 1040ez   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. 2011 federal tax form 1040ez It will not be treated as temporary after the date you determine it will last more than 1 year. 2011 federal tax form 1040ez   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. 2011 federal tax form 1040ez You may have deductible travel expenses as discussed in chapter 1 . 2011 federal tax form 1040ez No regular place of work. 2011 federal tax form 1040ez   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. 2011 federal tax form 1040ez   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. 2011 federal tax form 1040ez   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. 2011 federal tax form 1040ez These are nondeductible commuting expenses. 2011 federal tax form 1040ez Two places of work. 2011 federal tax form 1040ez   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. 2011 federal tax form 1040ez However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. 2011 federal tax form 1040ez   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. 2011 federal tax form 1040ez You cannot deduct them. 2011 federal tax form 1040ez Armed Forces reservists. 2011 federal tax form 1040ez   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. 2011 federal tax form 1040ez You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . 2011 federal tax form 1040ez   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. 2011 federal tax form 1040ez In this case, your transportation generally is a nondeductible commuting expense. 2011 federal tax form 1040ez However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. 2011 federal tax form 1040ez   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. 2011 federal tax form 1040ez   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. 2011 federal tax form 1040ez These expenses are discussed in chapter 1 . 2011 federal tax form 1040ez   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. 2011 federal tax form 1040ez For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. 2011 federal tax form 1040ez Commuting expenses. 2011 federal tax form 1040ez   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. 2011 federal tax form 1040ez These costs are personal commuting expenses. 2011 federal tax form 1040ez You cannot deduct commuting expenses no matter how far your home is from your regular place of work. 2011 federal tax form 1040ez You cannot deduct commuting expenses even if you work during the commuting trip. 2011 federal tax form 1040ez Example. 2011 federal tax form 1040ez You sometimes use your cell phone to make business calls while commuting to and from work. 2011 federal tax form 1040ez Sometimes business associates ride with you to and from work, and you have a business discussion in the car. 2011 federal tax form 1040ez These activities do not change the trip from personal to business. 2011 federal tax form 1040ez You cannot deduct your commuting expenses. 2011 federal tax form 1040ez Parking fees. 2011 federal tax form 1040ez    Fees you pay to park your car at your place of business are nondeductible commuting expenses. 2011 federal tax form 1040ez You can, however, deduct business-related parking fees when visiting a customer or client. 2011 federal tax form 1040ez Advertising display on car. 2011 federal tax form 1040ez   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. 2011 federal tax form 1040ez If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. 2011 federal tax form 1040ez Car pools. 2011 federal tax form 1040ez   You cannot deduct the cost of using your car in a nonprofit car pool. 2011 federal tax form 1040ez Do not include payments you receive from the passengers in your income. 2011 federal tax form 1040ez These payments are considered reimbursements of your expenses. 2011 federal tax form 1040ez However, if you operate a car pool for a profit, you must include payments from passengers in your income. 2011 federal tax form 1040ez You can then deduct your car expenses (using the rules in this publication). 2011 federal tax form 1040ez Hauling tools or instruments. 2011 federal tax form 1040ez   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. 2011 federal tax form 1040ez However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). 2011 federal tax form 1040ez Union members' trips from a union hall. 2011 federal tax form 1040ez   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. 2011 federal tax form 1040ez Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. 2011 federal tax form 1040ez Office in the home. 2011 federal tax form 1040ez   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. 2011 federal tax form 1040ez (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. 2011 federal tax form 1040ez ) Examples of deductible transportation. 2011 federal tax form 1040ez   The following examples show when you can deduct transportation expenses based on the location of your work and your home. 2011 federal tax form 1040ez Example 1. 2011 federal tax form 1040ez You regularly work in an office in the city where you live. 2011 federal tax form 1040ez Your employer sends you to a 1-week training session at a different office in the same city. 2011 federal tax form 1040ez You travel directly from your home to the training location and return each day. 2011 federal tax form 1040ez You can deduct the cost of your daily round-trip transportation between your home and the training location. 2011 federal tax form 1040ez Example 2. 2011 federal tax form 1040ez Your principal place of business is in your home. 2011 federal tax form 1040ez You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. 2011 federal tax form 1040ez Example 3. 2011 federal tax form 1040ez You have no regular office, and you do not have an office in your home. 2011 federal tax form 1040ez In this case, the location of your first business contact inside the metropolitan area is considered your office. 2011 federal tax form 1040ez Transportation expenses between your home and this first contact are nondeductible commuting expenses. 2011 federal tax form 1040ez Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. 2011 federal tax form 1040ez While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. 2011 federal tax form 1040ez Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. 2011 federal tax form 1040ez You generally can use one of the two following methods to figure your deductible expenses. 2011 federal tax form 1040ez Standard mileage rate. 2011 federal tax form 1040ez Actual car expenses. 2011 federal tax form 1040ez If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. 2011 federal tax form 1040ez See Leasing a Car , later. 2011 federal tax form 1040ez In this publication, “car” includes a van, pickup, or panel truck. 2011 federal tax form 1040ez For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. 2011 federal tax form 1040ez Rural mail carriers. 2011 federal tax form 1040ez   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. 2011 federal tax form 1040ez Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. 2011 federal tax form 1040ez   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). 2011 federal tax form 1040ez You must complete Form 2106 and attach it to your Form 1040, U. 2011 federal tax form 1040ez S. 2011 federal tax form 1040ez Individual Income Tax Return. 2011 federal tax form 1040ez   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. 2011 federal tax form 1040ez It is given as an equipment maintenance allowance (EMA) to employees of the U. 2011 federal tax form 1040ez S. 2011 federal tax form 1040ez Postal Service. 2011 federal tax form 1040ez It is at the rate contained in the 1991 collective bargaining agreement. 2011 federal tax form 1040ez Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. 2011 federal tax form 1040ez See your employer for information on your reimbursement. 2011 federal tax form 1040ez    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. 2011 federal tax form 1040ez Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. 2011 federal tax form 1040ez For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. 2011 federal tax form 1040ez If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. 2011 federal tax form 1040ez You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. 2011 federal tax form 1040ez See Choosing the standard mileage rate and Standard mileage rate not allowed, later. 2011 federal tax form 1040ez You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. 2011 federal tax form 1040ez See chapter 6 for more information on reimbursements . 2011 federal tax form 1040ez Choosing the standard mileage rate. 2011 federal tax form 1040ez   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. 2011 federal tax form 1040ez Then, in later years, you can choose to use either the standard mileage rate or actual expenses. 2011 federal tax form 1040ez   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. 2011 federal tax form 1040ez For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. 2011 federal tax form 1040ez   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. 2011 federal tax form 1040ez You cannot revoke the choice. 2011 federal tax form 1040ez However, in later years, you can switch from the standard mileage rate to the actual expenses method. 2011 federal tax form 1040ez If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. 2011 federal tax form 1040ez Example. 2011 federal tax form 1040ez Larry is an employee who occasionally uses his own car for business purposes. 2011 federal tax form 1040ez He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. 2011 federal tax form 1040ez Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. 2011 federal tax form 1040ez   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. 2011 federal tax form 1040ez Standard mileage rate not allowed. 2011 federal tax form 1040ez   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. 2011 federal tax form 1040ez (See Rural mail carriers , earlier. 2011 federal tax form 1040ez ) Note. 2011 federal tax form 1040ez You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. 2011 federal tax form 1040ez Five or more cars. 2011 federal tax form 1040ez   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. 2011 federal tax form 1040ez However, you may be able to deduct your actual expenses for operating each of the cars in your business. 2011 federal tax form 1040ez See Actual Car Expenses , later, for information on how to figure your deduction. 2011 federal tax form 1040ez   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. 2011 federal tax form 1040ez   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. 2011 federal tax form 1040ez Example 1. 2011 federal tax form 1040ez Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. 2011 federal tax form 1040ez She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. 2011 federal tax form 1040ez Example 2. 2011 federal tax form 1040ez Tony and his employees use his four pickup trucks in his landscaping business. 2011 federal tax form 1040ez During the year, he traded in two of his old trucks for two newer ones. 2011 federal tax form 1040ez Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. 2011 federal tax form 1040ez Example 3. 2011 federal tax form 1040ez Chris owns a repair shop and an insurance business. 2011 federal tax form 1040ez He and his employees use his two pickup trucks and van for the repair shop. 2011 federal tax form 1040ez Chris alternates using his two cars for the insurance business. 2011 federal tax form 1040ez No one else uses the cars for business purposes. 2011 federal tax form 1040ez Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. 2011 federal tax form 1040ez Example 4. 2011 federal tax form 1040ez Maureen owns a car and four vans that are used in her housecleaning business. 2011 federal tax form 1040ez Her employees use the vans, and she uses the car to travel to various customers. 2011 federal tax form 1040ez Maureen cannot use the standard mileage rate for the car or the vans. 2011 federal tax form 1040ez This is because all five vehicles are used in Maureen's business at the same time. 2011 federal tax form 1040ez She must use actual expenses for all vehicles. 2011 federal tax form 1040ez Interest. 2011 federal tax form 1040ez   If you are an employee, you cannot deduct any interest paid on a car loan. 2011 federal tax form 1040ez This applies even if you use the car 100% for business as an employee. 2011 federal tax form 1040ez   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. 2011 federal tax form 1040ez For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). 2011 federal tax form 1040ez You cannot deduct the part of the interest expense that represents your personal use of the car. 2011 federal tax form 1040ez    If you use a home equity loan to purchase your car, you may be able to deduct the interest. 2011 federal tax form 1040ez See Publication 936, Home Mortgage Interest Deduction, for more information. 2011 federal tax form 1040ez Personal property taxes. 2011 federal tax form 1040ez   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. 2011 federal tax form 1040ez You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. 2011 federal tax form 1040ez   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). 2011 federal tax form 1040ez If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). 2011 federal tax form 1040ez Parking fees and tolls. 2011 federal tax form 1040ez   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. 2011 federal tax form 1040ez (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. 2011 federal tax form 1040ez ) Sale, trade-in, or other disposition. 2011 federal tax form 1040ez   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. 2011 federal tax form 1040ez See Disposition of a Car , later. 2011 federal tax form 1040ez Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. 2011 federal tax form 1040ez If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. 2011 federal tax form 1040ez Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. 2011 federal tax form 1040ez Continue to keep records, as explained later in chapter 5 . 2011 federal tax form 1040ez Business and personal use. 2011 federal tax form 1040ez   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. 2011 federal tax form 1040ez You can divide your expense based on the miles driven for each purpose. 2011 federal tax form 1040ez Example. 2011 federal tax form 1040ez You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. 2011 federal tax form 1040ez You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. 2011 federal tax form 1040ez Employer-provided vehicle. 2011 federal tax form 1040ez   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. 2011 federal tax form 1040ez You cannot use the standard mileage rate. 2011 federal tax form 1040ez See Vehicle Provided by Your Employer in chapter 6. 2011 federal tax form 1040ez Interest on car loans. 2011 federal tax form 1040ez   If you are an employee, you cannot deduct any interest paid on a car loan. 2011 federal tax form 1040ez This interest is treated as personal interest and is not deductible. 2011 federal tax form 1040ez If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. 2011 federal tax form 1040ez Taxes paid on your car. 2011 federal tax form 1040ez   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. 2011 federal tax form 1040ez Enter the amount paid on line 7 of Schedule A (Form 1040). 2011 federal tax form 1040ez Sales taxes. 2011 federal tax form 1040ez   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. 2011 federal tax form 1040ez Fines and collateral. 2011 federal tax form 1040ez   You cannot deduct fines you pay or collateral you forfeit for traffic violations. 2011 federal tax form 1040ez Casualty and theft losses. 2011 federal tax form 1040ez   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. 2011 federal tax form 1040ez See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. 2011 federal tax form 1040ez Depreciation and section 179 deductions. 2011 federal tax form 1040ez   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. 2011 federal tax form 1040ez Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. 2011 federal tax form 1040ez However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. 2011 federal tax form 1040ez Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. 2011 federal tax form 1040ez The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. 2011 federal tax form 1040ez   Generally, there are limits on these deductions. 2011 federal tax form 1040ez Special rules apply if you use your car 50% or less in your work or business. 2011 federal tax form 1040ez   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. 2011 federal tax form 1040ez   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. 2011 federal tax form 1040ez Car defined. 2011 federal tax form 1040ez   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. 2011 federal tax form 1040ez Its unloaded gross vehicle weight must not be more than 6,000 pounds. 2011 federal tax form 1040ez A car includes any part, component, or other item physically attached to it or usually included in the purchase price. 2011 federal tax form 1040ez   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. 2011 federal tax form 1040ez Qualified nonpersonal use vehicles. 2011 federal tax form 1040ez   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. 2011 federal tax form 1040ez They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. 2011 federal tax form 1040ez Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. 2011 federal tax form 1040ez More information. 2011 federal tax form 1040ez   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. 2011 federal tax form 1040ez Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. 2011 federal tax form 1040ez If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. 2011 federal tax form 1040ez There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. 2011 federal tax form 1040ez See Depreciation Limits, later. 2011 federal tax form 1040ez You can claim the section 179 deduction only in the year you place the car in service. 2011 federal tax form 1040ez For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. 2011 federal tax form 1040ez Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. 2011 federal tax form 1040ez A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. 2011 federal tax form 1040ez Example. 2011 federal tax form 1040ez In 2012, you bought a new car and used it for personal purposes. 2011 federal tax form 1040ez In 2013, you began to use it for business. 2011 federal tax form 1040ez Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. 2011 federal tax form 1040ez However, you can claim a depreciation deduction for the business use of the car starting in 2013. 2011 federal tax form 1040ez See Depreciation Deduction , later. 2011 federal tax form 1040ez More than 50% business use requirement. 2011 federal tax form 1040ez   You must use the property more than 50% for business to claim any section 179 deduction. 2011 federal tax form 1040ez If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. 2011 federal tax form 1040ez The result is the cost of the property that can qualify for the section 179 deduction. 2011 federal tax form 1040ez Example. 2011 federal tax form 1040ez Peter purchased a car in April 2013 for $24,500 and used it 60% for business. 2011 federal tax form 1040ez Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). 2011 federal tax form 1040ez But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. 2011 federal tax form 1040ez Limits. 2011 federal tax form 1040ez   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. 2011 federal tax form 1040ez Limit on the amount of the section 179 deduction. 2011 federal tax form 1040ez   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. 2011 federal tax form 1040ez   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. 2011 federal tax form 1040ez 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. 2011 federal tax form 1040ez   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. 2011 federal tax form 1040ez   If you are married and 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. 2011 federal tax form 1040ez   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. 2011 federal tax form 1040ez You must allocate the dollar limit (after any reduction) between you. 2011 federal tax form 1040ez   For more information on the above section 179 deduction limits, see Publication 946. 2011 federal tax form 1040ez Limit for sport utility and certain other vehicles. 2011 federal tax form 1040ez   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. 2011 federal tax form 1040ez This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. 2011 federal tax form 1040ez However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly 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. 2011 federal tax form 1040ez    Limit on total section 179, special depreciation allowance, and depreciation deduction. 2011 federal tax form 1040ez   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. 2011 federal tax form 1040ez The limit is reduced if your business use of the car is less than 100%. 2011 federal tax form 1040ez See Depreciation Limits , later, for more information. 2011 federal tax form 1040ez Example. 2011 federal tax form 1040ez In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. 2011 federal tax form 1040ez However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). 2011 federal tax form 1040ez Cost of car. 2011 federal tax form 1040ez   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. 2011 federal tax form 1040ez For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. 2011 federal tax form 1040ez Your cost includes only the cash you paid. 2011 federal tax form 1040ez Basis of car for depreciation. 2011 federal tax form 1040ez   The amount of the section 179 deduction reduces your basis in your car. 2011 federal tax form 1040ez If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. 2011 federal tax form 1040ez The resulting amount is the basis in your car you use to figure your depreciation deduction. 2011 federal tax form 1040ez When to choose. 2011 federal tax form 1040ez   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. 2011 federal tax form 1040ez How to choose. 2011 federal tax form 1040ez    Employees use Form 2106 to make this choice and report the section 179 deduction. 2011 federal tax form 1040ez All others use Form 4562. 2011 federal tax form 1040ez   File the appropriate form with either of the following. 2011 federal tax form 1040ez Your original tax return filed for the year the property was placed in service (whether or not you file it timely). 2011 federal tax form 1040ez An amended return filed within the time prescribed by law. 2011 federal tax form 1040ez 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. 2011 federal tax form 1040ez The amended return must also include any resulting adjustments to taxable income. 2011 federal tax form 1040ez    You must keep records that show the specific identification of each piece of qualifying section 179 property. 2011 federal tax form 1040ez These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. 2011 federal tax form 1040ez Revoking an election. 2011 federal tax form 1040ez   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. 2011 federal tax form 1040ez Recapture of section 179 deduction. 2011 federal tax form 1040ez   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. 2011 federal tax form 1040ez If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. 2011 federal tax form 1040ez Any section 179 deduction claimed on the car is included in calculating the excess depreciation. 2011 federal tax form 1040ez For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. 2011 federal tax form 1040ez Dispositions. 2011 federal tax form 1040ez   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. 2011 federal tax form 1040ez You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). 2011 federal tax form 1040ez For information on the disposition of a car, see Disposition of a Car , later. 2011 federal tax form 1040ez Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. 2011 federal tax form 1040ez The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). 2011 federal tax form 1040ez The special depreciation allowance applies only for the first year the car is placed in service. 2011 federal tax form 1040ez To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). 2011 federal tax form 1040ez Combined depreciation. 2011 federal tax form 1040ez   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). 2011 federal tax form 1040ez For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). 2011 federal tax form 1040ez See Depreciation Limits , later in this chapter. 2011 federal tax form 1040ez Qualified car. 2011 federal tax form 1040ez   To be a qualified car (including trucks and vans), the car must meet all of the following tests. 2011 federal tax form 1040ez You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. 2011 federal tax form 1040ez Election not to claim the special depreciation allowance. 2011 federal tax form 1040ez   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. 2011 federal tax form 1040ez If you make this election, it applies to all 5-year property placed in service during the year. 2011 federal tax form 1040ez   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. 2011 federal tax form 1040ez    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. 2011 federal tax form 1040ez Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. 2011 federal tax form 1040ez This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. 2011 federal tax form 1040ez You generally need to know the following things about the car you intend to depreciate. 2011 federal tax form 1040ez Your basis in the car. 2011 federal tax form 1040ez The date you place the car in service. 2011 federal tax form 1040ez The method of depreciation and recovery period you will use. 2011 federal tax form 1040ez Basis. 2011 federal tax form 1040ez   Your basis in a car for figuring depreciation is generally its cost. 2011 federal tax form 1040ez This includes any amount you borrow or pay in cash, other property, or services. 2011 federal tax form 1040ez   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). 2011 federal tax form 1040ez However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). 2011 federal tax form 1040ez For one of these situations see Exception under Methods of depreciation, later. 2011 federal tax form 1040ez   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. 2011 federal tax form 1040ez Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . 2011 federal tax form 1040ez Placed in service. 2011 federal tax form 1040ez   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. 2011 federal tax form 1040ez Depreciation begins when the car is placed in service for use in your work or business or for the production of income. 2011 federal tax form 1040ez   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. 2011 federal tax form 1040ez Car placed in service and disposed of in the same year. 2011 federal tax form 1040ez   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. 2011 federal tax form 1040ez Methods of depreciation. 2011 federal tax form 1040ez   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). 2011 federal tax form 1040ez MACRS is discussed later in this chapter. 2011 federal tax form 1040ez Exception. 2011 federal tax form 1040ez   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. 2011 federal tax form 1040ez You must use straight line depreciation over the estimated remaining useful life of the car. 2011 federal tax form 1040ez   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. 2011 federal tax form 1040ez The rate per mile varies depending on the year(s) you used the standard mileage rate. 2011 federal tax form 1040ez For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. 2011 federal tax form 1040ez   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . 2011 federal tax form 1040ez You must use your adjusted basis in your car to figure your depreciation deduction. 2011 federal tax form 1040ez For additional information on the straight line method of depreciation, see Publication 946. 2011 federal tax form 1040ez More-than-50%-use test. 2011 federal tax form 1040ez   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. 2011 federal tax form 1040ez You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. 2011 federal tax form 1040ez   If your business use is 50% or less, you must use the straight line method to depreciate your car. 2011 federal tax form 1040ez This is explained later under Car Used 50% or Less for Business . 2011 federal tax form 1040ez Qualified business use. 2011 federal tax form 1040ez   A qualified business use is any use in your trade or business. 2011 federal tax form 1040ez It does not include use for the production of income (investment use). 2011 federal tax form 1040ez However, you do combine your business and investment use to compute your depreciation deduction for the tax year. 2011 federal tax form 1040ez Use of your car by another person. 2011 federal tax form 1040ez   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. 2011 federal tax form 1040ez It is directly connected with your business. 2011 federal tax form 1040ez It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). 2011 federal tax form 1040ez It results in a payment of fair market rent. 2011 federal tax form 1040ez This includes any payment to you for the use of your car. 2011 federal tax form 1040ez Business use changes. 2011 federal tax form 1040ez   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. 2011 federal tax form 1040ez See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. 2011 federal tax form 1040ez    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. 2011 federal tax form 1040ez Use for more than one purpose. 2011 federal tax form 1040ez   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. 2011 federal tax form 1040ez You do this on the basis of mileage. 2011 federal tax form 1040ez Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. 2011 federal tax form 1040ez Change from personal to business use. 2011 federal tax form 1040ez   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. 2011 federal tax form 1040ez In this case, you figure the percentage of business use for the year as follows. 2011 federal tax form 1040ez Determine the percentage of business use for the period following the change. 2011 federal tax form 1040ez Do this by dividing business miles by total miles driven during that period. 2011 federal tax form 1040ez Multiply the percentage in (1) by a fraction. 2011 federal tax form 1040ez The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. 2011 federal tax form 1040ez Example. 2011 federal tax form 1040ez You use a car only for personal purposes during the first 6 months of the year. 2011 federal tax form 1040ez During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. 2011 federal tax form 1040ez This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. 2011 federal tax form 1040ez Your business use for the year is 40% (80% × 6/12). 2011 federal tax form 1040ez Limits. 2011 federal tax form 1040ez   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. 2011 federal tax form 1040ez The maximum amount you can claim depends on the year in which you placed your car in service. 2011 federal tax form 1040ez You have to reduce the maximum amount if you did not use the car exclusively for business. 2011 federal tax form 1040ez See Depreciation Limits , later. 2011 federal tax form 1040ez Unadjusted basis. 2011 federal tax form 1040ez   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . 2011 federal tax form 1040ez Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. 2011 federal tax form 1040ez   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. 2011 federal tax form 1040ez Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. 2011 federal tax form 1040ez Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. 2011 federal tax form 1040ez Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. 2011 federal tax form 1040ez 1, 2006), and alternative motor vehicle credit. 2011 federal tax form 1040ez   See Form 8910 for information on the alternative motor vehicle credit. 2011 federal tax form 1040ez If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. 2011 federal tax form 1040ez See Car Used 50% or Less for Business, later, for more information. 2011 federal tax form 1040ez If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. 2011 federal tax form 1040ez Improvements. 2011 federal tax form 1040ez   A major improvement to a car is treated as a new item of 5-year recovery property. 2011 federal tax form 1040ez It is treated as placed in service in the year the improvement is made. 2011 federal tax form 1040ez It does not matter how old the car is when the improvement is added. 2011 federal tax form 1040ez Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. 2011 federal tax form 1040ez However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. 2011 federal tax form 1040ez Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. 2011 federal tax form 1040ez See Depreciation Limits , later. 2011 federal tax form 1040ez Car trade-in. 2011 federal tax form 1040ez   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. 2011 federal tax form 1040ez You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. 2011 federal tax form 1040ez If you make this election, you treat the old car as disposed of at the time of the trade-in. 2011 federal tax form 1040ez The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. 2011 federal tax form 1040ez You then figure your depreciation deduction for the new car beginning with the date you placed it in service. 2011 federal tax form 1040ez You make this election by completing Form 2106, Part II, Section D. 2011 federal tax form 1040ez This method is explained later, beginning at Effect of trade-in on basis . 2011 federal tax form 1040ez If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. 2011 federal tax form 1040ez You must apply two depreciation limits (see Depreciation Limits , later). 2011 federal tax form 1040ez The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. 2011 federal tax form 1040ez The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. 2011 federal tax form 1040ez You must use Form 4562 to compute your depreciation deduction. 2011 federal tax form 1040ez You cannot use Form 2106, Part II, Section D. 2011 federal tax form 1040ez This method is explained in Publication 946. 2011 federal tax form 1040ez   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). 2011 federal tax form 1040ez Otherwise, you must use the method described in (2). 2011 federal tax form 1040ez Effect of trade-in on basis. 2011 federal tax form 1040ez   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. 2011 federal tax form 1040ez For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. 2011 federal tax form 1040ez 168(i)-6(d)(3). 2011 federal tax form 1040ez Traded car used only for business. 2011 federal tax form 1040ez   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. 2011 federal tax form 1040ez Example. 2011 federal tax form 1040ez Paul trades in a car that has an adjusted basis of $5,000 for a new car. 2011 federal tax form 1040ez In addition, he pays cash of $20,000 for the new car. 2011 federal tax form 1040ez His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). 2011 federal tax form 1040ez Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. 2011 federal tax form 1040ez Traded car used partly in business. 2011 federal tax form 1040ez   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. 2011 federal tax form 1040ez This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. 2011 federal tax form 1040ez (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. 2011 federal tax form 1040ez See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. 2011 federal tax form 1040ez )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. 2011 federal tax form 1040ez Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. 2011 federal tax form 1040ez For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. 2011 federal tax form 1040ez Modified Accelerated Cost Recovery System (MACRS). 2011 federal tax form 1040ez   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. 2011 federal tax form 1040ez   The maximum amount you can deduct is limited, depending on the year you placed your car in service. 2011 federal tax form 1040ez See Depreciation Limits , later. 2011 federal tax form 1040ez Recovery period. 2011 federal tax form 1040ez   Under MACRS, cars are classified as 5-year property. 2011 federal tax form 1040ez You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. 2011 federal tax form 1040ez This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. 2011 federal tax form 1040ez Depreciation deduction for certain Indian reservation property. 2011 federal tax form 1040ez   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. 2011 federal tax form 1040ez The recovery that applies for a business-use car is 3 years instead of 5 years. 2011 federal tax form 1040ez However, the depreciation limits, discussed later, will still apply. 2011 federal tax form 1040ez   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. 2011 federal tax form 1040ez Depreciation methods. 2011 federal tax form 1040ez   You can use one of the following methods to depreciate your car. 2011 federal tax form 1040ez The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. 2011 federal tax form 1040ez The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. 2011 federal tax form 1040ez The straight line method (SL) over a 5-year recovery period. 2011 federal tax form 1040ez    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. 2011 federal tax form 1040ez This is because the chart has the switch to the straight line method built into its rates. 2011 federal tax form 1040ez   Before choosing a method, you may wish to consider the following facts. 2011 federal tax form 1040ez Using the straight line method provides equal yearly deductions throughout the recovery period. 2011 federal tax form 1040ez Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. 2011 federal tax form 1040ez MACRS depreciation chart. 2011 federal tax form 1040ez   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . 2011 federal tax form 1040ez Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. 2011 federal tax form 1040ez A similar chart appears in the Instructions for Form 2106. 2011 federal tax form 1040ez    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. 2011 federal tax form 1040ez   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. 2011 federal tax form 1040ez You file your return on a fiscal year basis. 2011 federal tax form 1040ez You file your return for a short tax year (less than 12 months). 2011 federal tax form 1040ez During the year, all of the following conditions apply. 2011 federal tax form 1040ez You placed some property in service from January through September. 2011 federal tax form 1040ez You placed some property in service from October through December. 2011 federal tax form 1040ez Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. 2011 federal tax form 1040ez   You placed qualified property in service on an Indian reservation. 2011 federal tax form 1040ez Depreciation in future years. 2011 federal tax form 1040ez   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. 2011 federal tax form 1040ez However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. 2011 federal tax form 1040ez In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. 2011 federal tax form 1040ez See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. 2011 federal tax form 1040ez    In future years, do not use the chart in this edition of the publication. 2011 federal tax form 1040ez Instead, use the chart in the publication or the form instructions for those future years. 2011 federal tax form 1040ez Disposition of car during recovery period. 2011 federal tax form 1040ez   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. 2011 federal tax form 1040ez See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. 2011 federal tax form 1040ez How to use the 2013 chart. 2011 federal tax form 1040ez   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. 2011 federal tax form 1040ez Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. 2011 federal tax form 1040ez If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. 2011 federal tax form 1040ez    Your deduction cannot be more than the maximum depreciation limit for cars. 2011 federal tax form 1040ez See Depreciation Limits, later. 2011 federal tax form 1040ez Example. 2011 federal tax form 1040ez Phil bought a used truck in February 2012 to use exclusively in his landscape business. 2011 federal tax form 1040ez He paid $9,200 for the truck with no trade-in. 2011 federal tax form 1040ez Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. 2011 federal tax form 1040ez Phil used the MACRS depreciation chart in 2012 to find his percentage. 2011 federal tax form 1040ez The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. 2011 federal tax form 1040ez He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. 2011 federal tax form 1040ez In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. 2011 federal tax form 1040ez His records show that the business use of his truck was 90% in 2013. 2011 federal tax form 1040ez Phil used Table 4-1 to find his percentage. 2011 federal tax form 1040ez Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. 2011 federal tax form 1040ez He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. 2011 federal tax form 1040ez Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. 2011 federal tax form 1040ez The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. 2011 federal tax form 1040ez The maximum amount you can deduct each year depends on the year you place the car in service. 2011 federal tax form 1040ez These limits are shown in the following tables. 2011 federal tax form 1040ez   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 10,9603 4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. 2011 federal tax form 1040ez 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. 2011 federal tax form 1040ez 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. 2011 federal tax form 1040ez 4$7,660 if you acquired the car before 5/6/2003. 2011 federal tax form 1040ez $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. 2011 federal tax form 1040ez 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. 2011 federal tax form 1040ez Trucks and vans. 2011 federal tax form 1040ez   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. 2011 federal tax form 1040ez A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. 2011 federal tax form 1040ez For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. 2011 federal tax form 1040ez Maximum Depreciation Deduction for Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 $11,3601 $5,300 $3,150 $1,875 2011 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. 2011 federal tax form 1040ez 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. 2011 federal tax form 1040ez Car used less than full year. 2011 federal tax form 1040ez   The depreciation limits are not reduced if you use a car for less than a full year. 2011 federal tax form 1040ez This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. 2011 federal tax form 1040ez However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. 2011 federal tax form 1040ez See Reduction for personal use , next. 2011 federal tax form 1040ez Reduction for personal use. 2011 federal tax form 1040ez   The depreciation limits are reduced based on your percentage of personal use. 2011 federal tax form 1040ez If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. 2011 federal tax form 1040ez Section 179 deduction. 2011 federal tax form 1040ez   The section 179 deduction is treated as a depreciation deduction. 2011 federal tax form 1040ez If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. 2011 federal tax form 1040ez Example. 2011 federal tax form 1040ez On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. 2011 federal tax form 1040ez He used it 80% for his business, and he chooses to take a section 179 deduction for the car. 2011 federal tax form 1040ez The car is not qualified property for purposes of the special depreciation allowance. 2011 federal tax form 1040ez Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. 2011 federal tax form 1040ez This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). 2011 federal tax form 1040ez Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). 2011 federal tax form 1040ez He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. 2011 federal tax form 1040ez Jack has reached his maximum depreciation deduction for 2013. 2011 federal tax form 1040ez For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. 2011 federal tax form 1040ez Deductions in years after the recovery period. 2011 federal tax form 1040ez   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. 2011 federal tax form 1040ez If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. 2011 federal tax form 1040ez Unrecovered basis. 2011 federal tax form 1040ez   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. 2011 federal tax form 1040ez The recovery period. 2011 federal tax form 1040ez   For 5-year property, your recovery period is 6 calendar years. 2011 federal tax form 1040ez A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. 2011 federal tax form 1040ez   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. 2011 federal tax form 1040ez You determine your unrecovered basis in the 7th year after you placed the car in service. 2011 federal tax form 1040ez How to treat unrecovered basis. 2011 federal tax form 1040ez   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. 2011 federal tax form 1040ez The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. 2011 federal tax form 1040ez For example, no deduction is allowed for a year you use your car 100% for personal purposes. 2011 federal tax form 1040ez Example. 2011 federal tax form 1040ez In April 2007, Bob bought and placed in service a car he used exclusively in his business. 2011 federal tax form 1040ez The car cost $31,500. 2011 federal tax form 1040ez Bob did not claim a section 179 deduction or the special depreciation allowance for the car. 2011 federal tax form 1040ez He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). 2011 federal tax form 1040ez For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. 2011 federal tax form 1040ez Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. 2011 federal tax form 1040ez      MACRS     Deprec. 2011 federal tax form 1040ez Year % Amount Limit Allowed 2007 20. 2011 federal tax form 1040ez 00 $6,300 $3,060 $ 3,060 2008 32. 2011 federal tax form 1040ez 00 10,080 4,900 4,900 2009 19. 2011 federal tax form 1040ez 20 6,048 2,850 2,850 2010 11. 2011 federal tax form 1040ez 52 3,629 1,775 1,775 2011 11. 2011 federal tax form 1040ez 52 3,629 1,775 1,775 2012 5. 2011 federal tax form 1040ez 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. 2011 federal tax form 1040ez   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). 2011 federal tax form 1040ez If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. 2011 federal tax form 1040ez   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. 2011 federal tax form 1040ez However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. 2011 federal tax form 1040ez For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. 2011 federal tax form 1040ez Table 4-1. 2011 federal tax form 1040ez 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. 2011 federal tax form 1040ez ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. 2011 federal tax form 1040ez   First, using the left column, find the date you first placed the car in service in 2013. 2011 federal tax form 1040ez Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. 2011 federal tax form 1040ez For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. 2011 federal tax form 1040ez Refer back to the MACRS Depreciation Chart for the year you placed the car in service. 2011 federal tax form 1040ez (See Car Used 50% or Less for Business . 2011 federal tax form 1040ez )  Multiply the unadjusted basis of your car by your business use percentage. 2011 federal tax form 1040ez Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. 2011 federal tax form 1040ez (Also see Depreciation Limits . 2011 federal tax form 1040ez )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. 2011 federal tax form 1040ez 1—Sept. 2011 federal tax form 1040ez 30 percentage instead of the Oct. 2011 federal tax form 1040ez 1—Dec. 2011 federal tax form 1040ez 31 percentage for your car. 2011 federal tax form 1040ez               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. 2011 federal tax form 1040ez If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. 2011 federal tax form 1040ez 1—Sept. 2011 federal tax form 1040ez 30 for figuring depreciation for your car. 2011 federal tax form 1040ez See Which Convention Applies? in chapter 4 of Publication 946 for more details. 2011 federal tax form 1040ez               Example. 2011 federal tax form 1040ez You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. 2011 federal tax form 1040ez You