File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

2012 Tax Preparation

2012 Tax Amendment FormCan You Amend A Tax Return OnlineFree Online Federal Tax Filing 2011H&r Block 2011 Tax ReturnIrs Tax Filing For 2012Where To File My 2012 Federal Tax ReturnH&rblockIrs Gov 2012 Tax Forms1040ez For 2012How To File For 2010 TaxesFree Tax E File 20121040 ComTax Forms 2011 Irs2011 Tax Prep1040ez Free File OnlineCan I Efile A 1040xIrs Form 1040ez 2012Turbotax Amended Return2014 Federal Tax Form 1040ezCan You Efile A 1040xIrs Extension FormIrs1040ezNeed To Amend 2010 Tax ReturnHow Do I Amend A Tax ReturnIrs Tax Form 1040xFile Late TaxesCan I File 2011 Taxes OnlineHow To File TaxesWww Irs Gov EfileTax Act 2011 Free2012 Irs FormsTax 1040nr1040ez Tax Form InstructionsCan Ie File 2011 TaxesHow To Fill Out A 1040xIrs Instructions 1040Tax Return 2011 DeadlineH&rblock ComHow To File Back TaxTax Calculator 2012

2012 Tax Preparation

2012 tax preparation 5. 2012 tax preparation   Figuring Your Tax Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tax Year Identification NumberF-1 and M-1 visa holders. 2012 tax preparation J-1 visa holders. 2012 tax preparation Filing StatusResident Aliens Nonresident Aliens Reporting Your Income DeductionsResident Aliens Nonresident Aliens ExemptionsResident Aliens Nonresident Aliens Itemized DeductionsResident Aliens Nonresident Aliens Tax Credits and PaymentsResident Aliens Nonresident Aliens Bona Fide Residents of American Samoa or Puerto Rico Introduction After you have determined your alien status, the source of your income, and if and how that income is taxed in the United States, your next step is to figure your tax. 2012 tax preparation The information in this chapter is not as comprehensive for resident aliens as it is for nonresident aliens. 2012 tax preparation Resident aliens should get publications, forms, and instructions for U. 2012 tax preparation S. 2012 tax preparation citizens, because the information for filing returns for resident aliens is generally the same as for U. 2012 tax preparation S. 2012 tax preparation citizens. 2012 tax preparation If you are both a nonresident alien and a resident alien in the same tax year, see chapter 6 for a discussion of dual-status aliens. 2012 tax preparation Topics - This chapter discusses: Identification numbers, Filing status, Deductions, Exemptions, Tax credits and payments, and Special rules for bona fide residents of American Samoa and Puerto Rico. 2012 tax preparation Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 501 Exemptions, Standard Deduction, and Filing Information 521 Moving Expenses 526 Charitable Contributions 535 Business Expenses 597 Information on the United States–Canada Income Tax Treaty Form (and Instructions) W-7 Application for IRS Individual Taxpayer Identification Number 1040 U. 2012 tax preparation S. 2012 tax preparation Individual Income Tax Return 1040NR U. 2012 tax preparation S. 2012 tax preparation Nonresident Alien Income Tax Return 1040NR-EZ U. 2012 tax preparation S. 2012 tax preparation Income Tax Return for Certain Nonresident Aliens With No Dependents 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3903 Moving Expenses 4563 Exclusion of Income for Bona Fide Residents of American Samoa 8959 Additional Medicare Tax See chapter 12 for information about getting these publications and forms. 2012 tax preparation Tax Year You must figure your income and file a tax return on the basis of an annual accounting period called a tax year. 2012 tax preparation If you have not previously established a fiscal tax year, your tax year is the calendar year. 2012 tax preparation A calendar year is 12 consecutive months ending on December 31. 2012 tax preparation If you have previously established a regular fiscal year (12 consecutive months ending on the last day of a month other than December or a 52–53 week year) and are considered to be a U. 2012 tax preparation S. 2012 tax preparation resident for any calendar year, you will be treated as a U. 2012 tax preparation S. 2012 tax preparation resident for any part of your fiscal year that falls within that calendar year. 2012 tax preparation Identification Number A taxpayer identification number must be furnished on returns, statements, and other tax-related documents. 2012 tax preparation For an individual, this is a social security number (SSN). 2012 tax preparation If you do not have and are not eligible to get an SSN, you must apply for an individual taxpayer identification number (ITIN). 2012 tax preparation An employer identification number (EIN) is required if you are engaged in a trade or business as a sole proprietor and have employees or a qualified retirement plan. 2012 tax preparation You must furnish a taxpayer identification number if you are: An alien who has income effectively connected with the conduct of a U. 2012 tax preparation S. 2012 tax preparation trade or business at any time during the year, An alien who has a U. 2012 tax preparation S. 2012 tax preparation office or place of business at any time during the year, A nonresident alien spouse treated as a resident, as discussed in chapter 1, or Any other alien who files a tax return, an amended return, or a refund claim (but not information returns). 2012 tax preparation Social security number (SSN). 2012 tax preparation   Generally, you can get an SSN if you have been lawfully admitted to the United States for permanent residence or under other immigration categories that authorize U. 2012 tax preparation S. 2012 tax preparation employment. 2012 tax preparation   To apply for this number, get Form SS-5, Application for a Social Security Card, from your local Social Security Administration (SSA) office or call the SSA at 1-800-772-1213. 2012 tax preparation You can also download Form SS-5 from the SSA's website at www. 2012 tax preparation socialsecurity. 2012 tax preparation gov/ssnumber/ss5. 2012 tax preparation htm. 2012 tax preparation You must visit an SSA office in person and submit your Form SS-5 along with original documentation showing your age, identity, immigration status, and authority to work in the United States. 2012 tax preparation Generally, you will receive your card about 2 weeks after the SSA has all of the necessary information. 2012 tax preparation F-1 and M-1 visa holders. 2012 tax preparation    If you are an F-1 or M-1 student, you must also show your Form I-20. 2012 tax preparation For more information, see SSA Publication 05-10181, International Students and Social Security Numbers, available online at www. 2012 tax preparation socialsecurity. 2012 tax preparation gov/pubs/10181. 2012 tax preparation html. 2012 tax preparation J-1 visa holders. 2012 tax preparation   If you are a J-1 exchange visitor, you will also need to show your Form DS-2019. 2012 tax preparation For more information, see SSA Publication 05-10107, Foreign Workers and Social Security Numbers, available online at www. 2012 tax preparation socialsecurity. 2012 tax preparation gov/pubs/10107. 2012 tax preparation html. 2012 tax preparation Individual taxpayer identification number (ITIN). 2012 tax preparation   If you do not have and are not eligible to get an SSN, you must apply for an ITIN. 2012 tax preparation For details on how to do so, see Form W-7 and its instructions. 2012 tax preparation Allow 6 to 10 weeks for the IRS to notify you of your ITIN. 2012 tax preparation If you already have an ITIN, enter it wherever an SSN is required on your tax return. 2012 tax preparation   An ITIN is for tax use only. 2012 tax preparation It does not entitle you to social security benefits or change your employment or immigration status under U. 2012 tax preparation S. 2012 tax preparation law. 2012 tax preparation   In addition to those aliens who are required to furnish a taxpayer identification number and are not eligible for an SSN, a Form W-7 must be filed for: Alien individuals who are claimed as dependents and are not eligible for an SSN, and Alien spouses who are claimed as exemptions and are not eligible for an SSN. 2012 tax preparation Employer identification number (EIN). 2012 tax preparation   An individual may use an SSN (or ITIN) for individual taxes and an EIN for business taxes. 2012 tax preparation To apply for an EIN, file Form SS-4, Application for Employer Identification Number, with the IRS. 2012 tax preparation Filing Status The amount of your tax depends on your filing status. 2012 tax preparation Your filing status is important in determining whether you can take certain deductions and credits. 2012 tax preparation The rules for determining your filing status are different for resident aliens and nonresident aliens. 2012 tax preparation Resident Aliens Resident aliens can use the same filing statuses available to U. 2012 tax preparation S. 2012 tax preparation citizens. 2012 tax preparation See your form instructions or Publication 501 for more information on filing status. 2012 tax preparation Married filing jointly. 2012 tax preparation   Generally, you can file as married filing jointly only if both you and your spouse were resident aliens for the entire tax year, or if you make one of the choices discussed in chapter 1 to treat your spouse as a resident alien for the entire tax year. 2012 tax preparation Qualifying widow(er). 2012 tax preparation   If your spouse died in 2011 or 2012, you did not remarry before the end of 2013, and you have a dependent child living with you, you may qualify to file as a qualifying widow(er) and use the joint return tax rates. 2012 tax preparation This applies only if you could have filed a joint return with your spouse for the year your spouse died. 2012 tax preparation Head of household. 2012 tax preparation   You can qualify as head of household if you are unmarried or considered unmarried on the last day of the year and you pay more than half the cost of keeping up a home for you and a qualifying person. 2012 tax preparation You must be a resident alien for the entire tax year. 2012 tax preparation   You are considered unmarried for this purpose if your spouse was a nonresident alien at any time during the year and you do not make one of the choices discussed in chapter 1 to treat your spouse as a resident alien for the entire tax year. 2012 tax preparation Note. 2012 tax preparation   Even if you are considered unmarried for head of household purposes because you are married to a nonresident alien, you may still be considered married for purposes of the earned income credit. 2012 tax preparation In that case, you will not be entitled to the credit. 2012 tax preparation See Publication 596 for more information. 2012 tax preparation Nonresident Aliens If you are a nonresident alien filing Form 1040NR, you may be able to use one of the filing statuses discussed later. 2012 tax preparation If you are filing Form 1040NR-EZ, you can only claim “Single nonresident alien” or “Married nonresident alien” as your filing status. 2012 tax preparation Married nonresident alien. 2012 tax preparation   Married nonresident aliens who are not married to U. 2012 tax preparation S. 2012 tax preparation citizens or residents generally must use the Tax Table column or the Tax Computation Worksheet for married filing separate returns when determining the tax on income effectively connected with a U. 2012 tax preparation S. 2012 tax preparation trade or business. 2012 tax preparation Exceptions. 2012 tax preparation   Married nonresident aliens normally cannot use the Tax Table column or the Tax Computation Worksheet for single individuals. 2012 tax preparation However, you may be able to file as single if you lived apart from your spouse during the last 6 months of the year and you are a married resident of Canada, Mexico, South Korea, or are a married U. 2012 tax preparation S. 2012 tax preparation national. 2012 tax preparation See the instructions for Form 1040NR or Form 1040NR-EZ to see if you qualify. 2012 tax preparation U. 2012 tax preparation S. 2012 tax preparation national is defined later in this section under Qualifying widow(er) . 2012 tax preparation   A nonresident alien generally cannot file as married filing jointly. 2012 tax preparation However, a nonresident alien who is married to a U. 2012 tax preparation S. 2012 tax preparation citizen or resident can choose to be treated as a resident and file a joint return on Form 1040, Form 1040A, or Form 1040EZ. 2012 tax preparation For information on these choices, see chapter 1. 2012 tax preparation If you do not make the choice to file jointly, file Form 1040NR or Form 1040NR-EZ and use the Tax Table column or the Tax Computation Worksheet for married individuals filing separately. 2012 tax preparation Qualifying widow(er). 2012 tax preparation   You may be eligible to file as a qualifying widow(er) and use the joint return tax rates if all of the following conditions apply. 2012 tax preparation You were a resident of Canada, Mexico, or South Korea, or a U. 2012 tax preparation S. 2012 tax preparation national (defined later). 2012 tax preparation Your spouse died in 2011 or 2012 and you did not remarry before the end of 2013. 2012 tax preparation You have a dependent child living with you. 2012 tax preparation See the instructions for Form 1040NR for the rules for filing as a qualifying widow(er) with a dependent child. 2012 tax preparation   A U. 2012 tax preparation S. 2012 tax preparation national is an individual who, although not a U. 2012 tax preparation S. 2012 tax preparation citizen, owes his or her allegiance to the United States. 2012 tax preparation U. 2012 tax preparation S. 2012 tax preparation nationals include American Samoans and Northern Mariana Islanders who chose to become U. 2012 tax preparation S. 2012 tax preparation nationals instead of U. 2012 tax preparation S. 2012 tax preparation citizens. 2012 tax preparation Head of household. 2012 tax preparation   You cannot file as head of household if you are a nonresident alien at any time during the tax year. 2012 tax preparation However, if you are married, your spouse can qualify as a head of household if: Your spouse is a resident alien or U. 2012 tax preparation S. 2012 tax preparation citizen for the entire tax year, You do not choose to be treated as a resident alien, and Your spouse meets the other requirements for this filing status, as discussed earlier under Resident Aliens . 2012 tax preparation Note. 2012 tax preparation   Even if your spouse is considered unmarried for head of household purposes because you are a nonresident alien, your spouse may still be considered married for purposes of the earned income credit. 2012 tax preparation In that case, your spouse will not be entitled to the credit. 2012 tax preparation See Publication 596 for more information. 2012 tax preparation Estates and trusts. 2012 tax preparation   A nonresident alien estate or trust using Form 1040NR must use Tax Rate Schedule W in the Form 1040NR instructions when determining the tax on income effectively connected with a U. 2012 tax preparation S. 2012 tax preparation trade or business. 2012 tax preparation Special rules for aliens from certain U. 2012 tax preparation S. 2012 tax preparation possessions. 2012 tax preparation   A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico for the entire tax year and who is temporarily working in the United States should read Bona Fide Residents of American Samoa or Puerto Rico, at the end of this chapter, for information about special rules. 2012 tax preparation Reporting Your Income You must report each item of income that is taxable according to the rules in chapters 2, 3, and 4. 2012 tax preparation For resident aliens, this includes income from sources both within and outside the United States. 2012 tax preparation For nonresident aliens, this includes both income that is effectively connected with a trade or business in the United States (subject to graduated tax rates) and income from U. 2012 tax preparation S. 2012 tax preparation sources that is not effectively connected (subject to a flat 30% tax rate or lower tax treaty rate). 2012 tax preparation Deductions Resident and nonresident aliens can claim similar deductions on their U. 2012 tax preparation S. 2012 tax preparation tax returns. 2012 tax preparation However, nonresident aliens generally can claim only deductions related to income that is effectively connected with their U. 2012 tax preparation S. 2012 tax preparation trade or business. 2012 tax preparation Resident Aliens You can claim the same deductions allowed to U. 2012 tax preparation S. 2012 tax preparation citizens if you are a resident alien for the entire tax year. 2012 tax preparation While the discussion that follows contains some of the same general rules and guidelines that apply to you, it is specifically directed toward nonresident aliens. 2012 tax preparation You should get Form 1040 and instructions for more information on how to claim your allowable deductions. 2012 tax preparation Nonresident Aliens You can claim deductions to figure your effectively connected taxable income. 2012 tax preparation You generally cannot claim deductions related to income that is not connected with your U. 2012 tax preparation S. 2012 tax preparation business activities. 2012 tax preparation Except for personal exemptions, and certain itemized deductions, discussed later, you can claim deductions only to the extent they are connected with your effectively connected income. 2012 tax preparation Ordinary and necessary business expenses. 2012 tax preparation   You can deduct all ordinary and necessary expenses in the operation of your U. 2012 tax preparation S. 2012 tax preparation trade or business to the extent they relate to income effectively connected with that trade or business. 2012 tax preparation The deduction for travel expenses while in the United States is discussed under Itemized Deductions, later. 2012 tax preparation For information about other business expenses, see Publication 535. 2012 tax preparation Losses. 2012 tax preparation   You can deduct losses resulting from transactions that you entered into for profit and that you were not reimbursed for by insurance, etc. 2012 tax preparation to the extent that they relate to income that is effectively connected with a trade or business in the United States. 2012 tax preparation Educator expenses. 2012 tax preparation   If you were an eligible educator in 2013, you can deduct as an adjustment to income up to $250 in unreimbursed qualified expenses you paid or incurred during 2013 for books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment, and other equipment and materials used in the classroom. 2012 tax preparation For more information, see your tax form instructions. 2012 tax preparation Individual retirement arrangement (IRA). 2012 tax preparation   If you made contributions to a traditional IRA for 2013, you may be able to take an IRA deduction. 2012 tax preparation But you must have taxable compensation effectively connected with a U. 2012 tax preparation S. 2012 tax preparation trade or business to do so. 2012 tax preparation A Form 5498 should be sent to you by May 31, 2014, that shows all contributions to your traditional IRA for 2013. 2012 tax preparation If you were covered by a retirement plan (qualified pension, profit-sharing (including 401(k)), annuity, SEP, SIMPLE, etc. 2012 tax preparation ) at work or through self-employment, your IRA deduction may be reduced or eliminated. 2012 tax preparation But you can still make contributions to a traditional IRA even if you cannot deduct them. 2012 tax preparation If you made nondeductible contributions to a traditional IRA for 2013, you must report them on Form 8606, Nondeductible IRAs. 2012 tax preparation   For more information, see Publication 590, Individual Retirement Arrangements (IRAs). 2012 tax preparation Moving expenses. 2012 tax preparation   If you are a nonresident alien temporarily in the United States earning taxable income for performing personal services, you can deduct moving expenses to the United States if you meet both of the following tests. 2012 tax preparation You are a full-time employee for at least 39 weeks during the 12 months right after you move, or if you are self-employed, you work full time for at least 39 weeks during the first 12 months and 78 weeks during the first 24 months right after you move. 2012 tax preparation Your new job location is at least 50 miles farther (by the shortest commonly traveled route) from your former home than your former job location was. 2012 tax preparation If you had no former job location, the new job location must be at least 50 miles from your former home. 2012 tax preparation   You cannot deduct the moving expense you have when returning to your home abroad or moving to a foreign job site. 2012 tax preparation   Figure your deductible moving expenses to the United States on Form 3903, and deduct them on line 26 of Form 1040NR. 2012 tax preparation   For more information on the moving expense deduction, see Publication 521. 2012 tax preparation Reimbursements. 2012 tax preparation   If your employer reimbursed you for allowable moving expenses under an accountable plan, your employer should have excluded these reimbursements from your income. 2012 tax preparation You can only deduct allowable moving expenses that were not reimbursed by your employer or that were reimbursed but the reimbursement was included in your income. 2012 tax preparation For more information, see Publication 521. 2012 tax preparation Moving expense or travel expense. 2012 tax preparation   If you deduct moving expenses to the United States, you cannot also deduct travel expenses (discussed later under Itemized Deductions) while temporarily away from your tax home in a foreign country. 2012 tax preparation Moving expenses are based on a change in your principal place of business while travel expenses are based on your temporary absence from your principal place of business. 2012 tax preparation Self-employed SEP, SIMPLE, and qualified retirement plans. 2012 tax preparation   If you are self-employed, you may be able to deduct contributions to a SEP, SIMPLE, or qualified retirement plan that provides retirement benefits for yourself and your common-law employees, if any. 2012 tax preparation To make deductible contributions for yourself, you must have net earnings from self-employment that are effectively connected with your U. 2012 tax preparation S. 2012 tax preparation trade or business. 2012 tax preparation   Get Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans), for further information. 2012 tax preparation Penalty on early withdrawal of savings. 2012 tax preparation   You must include in income all effectively connected interest income you receive or that is credited to your account during the year. 2012 tax preparation Do not reduce it by any penalty you must pay on an early withdrawal from a time savings account. 2012 tax preparation However, if the interest income is effectively connected with your U. 2012 tax preparation S. 2012 tax preparation trade or business during the year, you can deduct on line 30 of Form 1040NR the amount of the early withdrawal penalty that the banking institution charged. 2012 tax preparation Student loan interest expense. 2012 tax preparation   If you paid interest on a student loan in 2013, you may be able to deduct up to $2,500 of the interest you paid. 2012 tax preparation Generally, you can claim the deduction if all the following requirements are met. 2012 tax preparation Your filing status is any filing status except married filing separately. 2012 tax preparation Your modified adjusted gross income is less than $75,000. 2012 tax preparation No one else is claiming an exemption for you on his or her 2013 tax return. 2012 tax preparation You paid interest on a loan taken out only to pay tuition and other qualified higher education expenses for yourself, your spouse, someone who was your dependent when the loan was taken out, or someone you could have claimed as a dependent for the year the loan was taken out except that: The person filed a joint return, The person had gross income that was equal to or more than the exemption amount for that year ($3,900 for 2013), or You could be claimed as a dependent on someone else's return. 2012 tax preparation The loan is not from a related person or a person who borrowed the proceeds under a qualified employer plan or a contract purchased under such a plan. 2012 tax preparation The education expenses were paid or incurred within a reasonable period of time before or after the loan was taken out. 2012 tax preparation The person for whom the expenses were paid or incurred was an eligible student. 2012 tax preparation Use the worksheet in the Form 1040NR or Form 1040NR-EZ instructions to figure the deduction. 2012 tax preparation For more information, see Publication 970, Tax Benefits for Education. 2012 tax preparation Exemptions Resident aliens can claim personal exemptions and exemptions for dependents in the same way as U. 2012 tax preparation S. 2012 tax preparation citizens. 2012 tax preparation However, nonresident aliens generally can claim only a personal exemption for themselves on their U. 2012 tax preparation S. 2012 tax preparation tax return. 2012 tax preparation Resident Aliens You can claim personal exemptions and exemptions for dependents according to the dependency rules for U. 2012 tax preparation S. 2012 tax preparation citizens. 2012 tax preparation You can claim an exemption for your spouse on a separate return if your spouse had no gross income for U. 2012 tax preparation S. 2012 tax preparation tax purposes and was not the dependent of another taxpayer. 2012 tax preparation You can claim this exemption even if your spouse has not been a resident alien for a full tax year or is an alien who has not come to the United States. 2012 tax preparation You can claim an exemption for each person who qualifies as a dependent according to the rules for U. 2012 tax preparation S. 2012 tax preparation citizens. 2012 tax preparation The dependent must be a citizen or national (defined earlier) of the United States or be a resident of the United States, Canada, or Mexico for some part of the calendar year in which your tax year begins. 2012 tax preparation Get Publication 501 for more information. 2012 tax preparation Your spouse and each dependent for whom you claim an exemption must have either an SSN or an ITIN. 2012 tax preparation See Identification Number, earlier. 2012 tax preparation Nonresident Aliens Generally, if you are a nonresident alien engaged in a trade or business in the United States, you can claim only one personal exemption ($3,900 for 2013). 2012 tax preparation You may be able to claim an exemption for a spouse and a dependent if you are described in any of the following discussions. 2012 tax preparation Your spouse and each dependent for whom you claim an exemption must have either an SSN or an ITIN. 2012 tax preparation See Identification Number, earlier. 2012 tax preparation Residents of Mexico or Canada or U. 2012 tax preparation S. 2012 tax preparation nationals. 2012 tax preparation   If you are a resident of Mexico or Canada or a national of the United States (defined earlier), you can also claim a personal exemption for your spouse if your spouse had no gross income for U. 2012 tax preparation S. 2012 tax preparation tax purposes and cannot be claimed as the dependent on another U. 2012 tax preparation S. 2012 tax preparation taxpayer's return. 2012 tax preparation In addition, you can claim exemptions for your dependents who meet certain tests. 2012 tax preparation Residents of Mexico, Canada, or nationals of the United States must use the same rules as U. 2012 tax preparation S. 2012 tax preparation citizens to determine who is a dependent and for which dependents exemptions can be claimed. 2012 tax preparation See Publication 501 for these rules. 2012 tax preparation For purposes of these rules, dependents who are U. 2012 tax preparation S. 2012 tax preparation nationals meet the citizenship test discussed in Publication 501. 2012 tax preparation Residents of South Korea. 2012 tax preparation   Nonresident aliens who are residents of South Korea may be able to claim exemptions for a spouse and children. 2012 tax preparation The income tax treaty with South Korea imposes two additional requirements on South Korean residents: The spouse and all children claimed must live with the alien in the United States at some time during the tax year, and The additional deduction for the exemptions must be prorated based on the ratio of the alien's U. 2012 tax preparation S. 2012 tax preparation source gross income effectively connected with a U. 2012 tax preparation S. 2012 tax preparation trade or business for the tax year to the alien's entire income from all sources during the tax year. 2012 tax preparation Example. 2012 tax preparation Mr. 2012 tax preparation Park, a nonresident alien who is a resident of South Korea, lives temporarily in the United States with his wife and two children. 2012 tax preparation During the tax year he receives U. 2012 tax preparation S. 2012 tax preparation compensation of $18,000. 2012 tax preparation He also receives $6,000 of income from sources outside the United States that is not effectively connected with his U. 2012 tax preparation S. 2012 tax preparation trade or business. 2012 tax preparation Thus, his total income for the year is $24,000. 2012 tax preparation Mr. 2012 tax preparation Park meets all requirements for claiming exemptions for his spouse and two children. 2012 tax preparation The additional deduction for 2013 is $8,775 figured as follows: $18,000 $24,000 × $11,700* = $8,775               *3 × $3,900 = $11,700   Students and business apprentices from India. 2012 tax preparation   Students and business apprentices who are eligible for the benefits of Article 21(2) of the United States–India Income Tax Treaty may be able to claim exemptions for their spouse and dependents. 2012 tax preparation   You can claim an exemption for your spouse if he or she had no gross income during the year and cannot be claimed as a dependent on another U. 2012 tax preparation S. 2012 tax preparation taxpayer's return. 2012 tax preparation   You can claim exemptions for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. 2012 tax preparation S. 2012 tax preparation citizens. 2012 tax preparation See Publication 501 for these rules. 2012 tax preparation   List your spouse and dependents on line 7c of Form 1040NR. 2012 tax preparation Enter the total on the appropriate line to the right of line 7c. 2012 tax preparation Itemized Deductions Nonresident aliens can claim some of the same itemized deductions that resident aliens can claim. 2012 tax preparation However, nonresident aliens can claim itemized deductions only if they have income effectively connected with their U. 2012 tax preparation S. 2012 tax preparation trade or business. 2012 tax preparation Resident Aliens You can claim the same itemized deductions as U. 2012 tax preparation S. 2012 tax preparation citizens, using Schedule A of Form 1040. 2012 tax preparation These deductions include certain medical and dental expenses, state and local income taxes, real estate taxes, interest you paid on a home mortgage, charitable contributions, casualty and theft losses, and miscellaneous deductions. 2012 tax preparation If you do not itemize your deductions, you can claim the standard deduction for your particular filing status. 2012 tax preparation For further information, see Form 1040 and instructions. 2012 tax preparation Nonresident Aliens You can deduct certain itemized deductions if you receive income effectively connected with your U. 2012 tax preparation S. 2012 tax preparation trade or business. 2012 tax preparation These deductions include state and local income taxes, charitable contributions to U. 2012 tax preparation S. 2012 tax preparation organizations, casualty and theft losses, and miscellaneous deductions. 2012 tax preparation Use Schedule A of Form 1040NR to claim itemized deductions. 2012 tax preparation If you are filing Form 1040NR-EZ, you can only claim a deduction for state or local income taxes. 2012 tax preparation If you are claiming any other itemized deduction, you must file Form 1040NR. 2012 tax preparation Standard deduction. 2012 tax preparation   Nonresident aliens cannot claim the standard deduction. 2012 tax preparation However, see Students and business apprentices from India , next. 2012 tax preparation Students and business apprentices from India. 2012 tax preparation   A special rule applies to students and business apprentices who are eligible for the benefits of Article 21(2) of the United States–India Income Tax Treaty. 2012 tax preparation You can claim the standard deduction provided you do not claim itemized deductions. 2012 tax preparation   Use Worksheet 5-1 to figure your standard deduction. 2012 tax preparation If you are married and your spouse files a return and itemizes deductions, you cannot take the standard deduction. 2012 tax preparation State and local income taxes. 2012 tax preparation   You can deduct state and local income taxes you paid on income that is effectively connected with a trade or business in the United States. 2012 tax preparation If you received a refund or rebate in 2013 of taxes you paid in an earlier year, do not reduce your deduction by that amount. 2012 tax preparation Instead, you must include the refund or rebate in income if you deducted the taxes in the earlier year and the deduction reduced your tax. 2012 tax preparation See Recoveries in Publication 525 for details on how to figure the amount to include in income. 2012 tax preparation Charitable contributions. 2012 tax preparation   You can deduct your charitable contributions or gifts to qualified organizations subject to certain limits. 2012 tax preparation Qualified organizations include organizations that are religious, charitable, educational, scientific, or literary in nature, or that work to prevent cruelty to children or animals. 2012 tax preparation Certain organizations that promote national or international amateur sports competition are also qualified organizations. 2012 tax preparation Foreign organizations. 2012 tax preparation   Contributions made directly to a foreign organization are not deductible. 2012 tax preparation However, you can deduct contributions to a U. 2012 tax preparation S. 2012 tax preparation organization that transfers funds to a charitable foreign organization if the U. 2012 tax preparation S. 2012 tax preparation organization controls the use of the funds or if the foreign organization is only an administrative arm of the U. 2012 tax preparation S. 2012 tax preparation organization. 2012 tax preparation   For more information about organizations that qualify to receive charitable contributions, see Publication 526, Charitable Contributions. 2012 tax preparation Worksheet 5-1. 2012 tax preparation 2013 Standard Deduction Worksheet for Students and Business Apprentices From India Caution. 2012 tax preparation If you are married filing a separate return and your spouse itemizes deductions, do not complete this worksheet. 2012 tax preparation You cannot take the standard deduction even if you were born before January 2, 1949, or are blind. 2012 tax preparation 1 Enter the amount shown below for your filing status. 2012 tax preparation           Single or married filing separately—$6,100 Qualifying widow(er)—$12,200 1. 2012 tax preparation           2 Can you be claimed as a dependent on someone else's U. 2012 tax preparation S. 2012 tax preparation income tax return?  No. 2012 tax preparation Enter the amount from line 1 on line 4. 2012 tax preparation Skip line 3 and go to line 5. 2012 tax preparation   Yes. 2012 tax preparation Go to line 3. 2012 tax preparation         3 Is your earned income* more than $650?           Yes. 2012 tax preparation Add $350 to your earned income. 2012 tax preparation Enter the total. 2012 tax preparation           No. 2012 tax preparation Enter $1,000 3. 2012 tax preparation       4 Enter the smaller of line 1 or line 3 4. 2012 tax preparation   5 If born before January 2, 1949, OR blind, enter $1,200 ($1,500 if single). 2012 tax preparation If born before January 2, 1949, AND blind, enter $2,400 ($3,000 if single). 2012 tax preparation Otherwise, enter -0- 5. 2012 tax preparation   6 Add lines 4 and 5. 2012 tax preparation Enter the total here and on Form 1040NR, line 38 (or Form 1040NR-EZ, line 11). 2012 tax preparation Print “Standard Deduction Allowed Under U. 2012 tax preparation S. 2012 tax preparation –India Income Tax Treaty” in the space to the left of these lines. 2012 tax preparation This is your standard deduction for 2013. 2012 tax preparation 6. 2012 tax preparation   *Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. 2012 tax preparation It also includes any amount received as a scholarship that you must include in your income. 2012 tax preparation Generally, your earned income is the total of the amount(s) you reported on Form 1040NR, lines 8,12,13, and 19, minus amounts on lines 27 and 31 (or Form 1040NR-EZ, lines 3 and 5, minus any amount on line 8). 2012 tax preparation Contributions from which you benefit. 2012 tax preparation   If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. 2012 tax preparation   If you pay more than the fair market value to a qualified organization for merchandise, goods, or services, the amount you pay that is more than the value of the item can be a charitable contribution. 2012 tax preparation For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. 2012 tax preparation Cash contributions. 2012 tax preparation   You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written record from the charity. 2012 tax preparation The written record must include the name of the charity, date of the contribution, and the amount of the contribution. 2012 tax preparation   You may deduct a cash contribution of $250 or more only if you have a written statement from the charitable organization showing: The amount of any money contributed, Whether the organization gave you any goods or services in return for your contribution, and A description and estimate of the value of any goods or services described in (2). 2012 tax preparation If you received only intangible religious benefits, the organization must state this, but it does not have to describe or value the benefit. 2012 tax preparation Noncash contributions. 2012 tax preparation   For contributions not made in cash, the records you must keep depend on the amount of your deduction. 2012 tax preparation See Publication 526 for details. 2012 tax preparation For example, if you make a noncash contribution and the amount of your deduction is more than $500, you must complete and attach to your tax return Form 8283, Noncash Charitable Contributions. 2012 tax preparation If you deduct more than $500 for a contribution of a motor vehicle, boat, or airplane, you must also attach a statement from the charitable organization to your return. 2012 tax preparation If your total deduction is over $5,000, you also may have to get appraisals of the values of the property. 2012 tax preparation If the donated property is valued at more than $5,000, you must obtain a qualified appraisal. 2012 tax preparation You generally must attach to your tax return an appraisal of any property if your deduction for the property is more than $500,000. 2012 tax preparation See Form 8283 and its instructions for details. 2012 tax preparation Contributions of appreciated property. 2012 tax preparation   If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. 2012 tax preparation However, if you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. 2012 tax preparation Your basis in the property is generally what you paid for it. 2012 tax preparation If you need more information about basis, get Publication 551, Basis of Assets. 2012 tax preparation   Different rules apply to figuring your deduction, depending on whether the property is: Ordinary income property, or Capital gain property. 2012 tax preparation For information about these rules, see Publication 526. 2012 tax preparation Limit. 2012 tax preparation   The amount you can deduct in a tax year is limited in the same way it is for a citizen or resident of the United States. 2012 tax preparation For a discussion of limits on charitable contributions and other information, get Publication 526. 2012 tax preparation Casualty and theft losses. 2012 tax preparation   You can deduct your loss from fire, storm, shipwreck, or other casualty, or theft of property even though your property is not connected with a U. 2012 tax preparation S. 2012 tax preparation trade or business. 2012 tax preparation The property can be personal use property or income-producing property not connected with a U. 2012 tax preparation S. 2012 tax preparation trade or business. 2012 tax preparation The property must be located in the United States at the time of the casualty or theft. 2012 tax preparation You can deduct theft losses only in the year in which you discover the loss. 2012 tax preparation   The amount of the loss is the fair market value of the property immediately before the casualty or theft less its fair market value immediately after the casualty or theft (but not more than its cost or adjusted basis) less any insurance or other reimbursement. 2012 tax preparation The fair market value of property immediately after a theft is considered zero, because you no longer have the property. 2012 tax preparation   If your property is covered by insurance, you should file a timely insurance claim for reimbursement. 2012 tax preparation If you do not, you cannot deduct this loss as a casualty or theft loss. 2012 tax preparation   Figure your deductible casualty and theft losses on Form 4684, Casualties and Thefts. 2012 tax preparation Losses from personal use property. 2012 tax preparation    You cannot deduct the first $100 of each casualty or theft loss to property held for personal use. 2012 tax preparation You can deduct only the total of these losses for the year (reduced by the $100 limit) that is more than 10% of your adjusted gross income (line 37, Form 1040NR) for the year. 2012 tax preparation Losses from income-producing property. 2012 tax preparation   These losses are not subject to the limitations that apply to personal use property. 2012 tax preparation Use Section B of Form 4684 to figure your deduction for these losses. 2012 tax preparation Job expenses and other miscellaneous deductions. 2012 tax preparation   You can deduct job expenses, such as allowable unreimbursed travel expenses (discussed next), and other miscellaneous deductions. 2012 tax preparation Generally, the allowable deductions must be related to effectively connected income. 2012 tax preparation Deductible expenses include: Union dues, Safety equipment and small tools needed for your job, Dues to professional organizations, Subscriptions to professional journals, Tax return preparation fees, and Casualty and theft losses of property used in performing services as an employee (employee property). 2012 tax preparation   Most miscellaneous itemized deductions are deductible only if they are more than 2% of your adjusted gross income (line 37, Form 1040NR). 2012 tax preparation For more information on miscellaneous deductions, see the instructions for Form 1040NR. 2012 tax preparation Travel expenses. 2012 tax preparation   You may be able to deduct your ordinary and necessary travel expenses while you are temporarily performing personal services in the United States. 2012 tax preparation Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for one year or less. 2012 tax preparation You must be able to show you were present in the United States on an activity that required your temporary absence from your regular place of work. 2012 tax preparation   For example, if you have established a “tax home” through regular employment in a foreign country, and intend to return to similar employment in the same country at the end of your temporary stay in the United States, you can deduct reasonable travel expenses you paid. 2012 tax preparation You cannot deduct travel expenses for other members of your family or party. 2012 tax preparation Deductible travel expenses. 2012 tax preparation   If you qualify, you can deduct your expenses for: Transportation—airfare, local transportation, including train, bus, etc. 2012 tax preparation , Lodging—rent paid, utilities (do not include telephone), hotel or motel room expenses, and Meal expenses—actual expenses allowed if you keep records of the amounts, or, if you do not wish to keep detailed records, you are generally allowed a standard meal allowance amount depending on the date and area of your travel. 2012 tax preparation You generally can deduct only 50% of unreimbursed meal expenses. 2012 tax preparation The standard meal allowance rates for high-cost areas are available at www. 2012 tax preparation gsa. 2012 tax preparation gov/perdiem. 2012 tax preparation The rates for other areas are in Publication 463. 2012 tax preparation   Use Form 2106 or 2106-EZ to figure your allowable expenses that you claim on line 7 of Schedule A (Form 1040NR). 2012 tax preparation Expenses allocable to U. 2012 tax preparation S. 2012 tax preparation tax-exempt income. 2012 tax preparation   You cannot deduct an expense, or part of an expense, that is allocable to U. 2012 tax preparation S. 2012 tax preparation tax-exempt income, including income exempt by tax treaty. 2012 tax preparation Example. 2012 tax preparation Irina Oak, a citizen of Poland, resided in the United States for part of the year to acquire business experience from a U. 2012 tax preparation S. 2012 tax preparation company. 2012 tax preparation During her stay in the United States, she received a salary of $8,000 from her Polish employer. 2012 tax preparation She received no other U. 2012 tax preparation S. 2012 tax preparation source income. 2012 tax preparation She spent $3,000 on travel expenses, of which $1,000 were for meals. 2012 tax preparation None of these expenses were reimbursed. 2012 tax preparation Under the tax treaty with Poland, $5,000 of her salary is exempt from U. 2012 tax preparation S. 2012 tax preparation income tax. 2012 tax preparation In filling out Form 2106-EZ, she must reduce her deductible meal expenses by half ($500). 2012 tax preparation She must reduce the remaining $2,500 of travel expenses by 62. 2012 tax preparation 5% ($1,563) because 62. 2012 tax preparation 5% ($5,000 ÷ $8,000) of her salary is exempt from tax. 2012 tax preparation She enters the remaining total of $937 on line 7 of Schedule A (Form 1040NR). 2012 tax preparation She completes the remaining lines according to the instructions for Schedule A. 2012 tax preparation More information. 2012 tax preparation   For more information about deductible expenses, reimbursements, and recordkeeping, get Publication 463. 2012 tax preparation Tax Credits and Payments This discussion covers tax credits and payments for resident aliens, followed by a discussion of the credits and payments for nonresident aliens. 2012 tax preparation Resident Aliens Resident aliens generally claim tax credits and report tax payments, including withholding, using the same rules that apply to U. 2012 tax preparation S. 2012 tax preparation citizens. 2012 tax preparation The following items are some of the credits you may be able to claim. 2012 tax preparation Foreign tax credit. 2012 tax preparation   You can claim a credit, subject to certain limits, for income tax you paid or accrued to a foreign country on foreign source income. 2012 tax preparation You cannot claim a credit for taxes paid or accrued on excluded foreign earned income. 2012 tax preparation To claim a credit for income taxes paid or accrued to a foreign country, you generally will file Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), with your Form 1040. 2012 tax preparation   For more information, get Publication 514, Foreign Tax Credit for Individuals. 2012 tax preparation Child and dependent care credit. 2012 tax preparation   You may be able to take this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. 2012 tax preparation Generally, you must be able to claim an exemption for your dependent. 2012 tax preparation   For more information, get Publication 503, Child and Dependent Care Expenses, and Form 2441, Child and Dependent Care Expenses. 2012 tax preparation Credit for the elderly or the disabled. 2012 tax preparation   You may qualify for this credit if you are 65 or older or if you retired on permanent and total disability. 2012 tax preparation For more information on this credit, get Publication 524, Credit for the Elderly or the Disabled, and Schedule R (Form 1040A or 1040). 2012 tax preparation Education credits. 2012 tax preparation   You may qualify for these credits if you paid qualified education expenses for yourself, your spouse, or your dependent. 2012 tax preparation There are two education credits: the American Opportunity Credit and the lifetime learning credit. 2012 tax preparation You cannot claim these credits if you are married filing separately. 2012 tax preparation Use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), to figure the credit. 2012 tax preparation For more information, see Publication 970. 2012 tax preparation Retirement savings contributions credit. 2012 tax preparation   You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2013. 2012 tax preparation You cannot claim this credit if: You were born after January 1, 1996, You were a full-time student, Your exemption is claimed by someone else on his or her 2013 tax return, or Your adjusted gross income is more than: $59,000, if your filing status is married filing jointly, $44,250, if your filing status is head of household, or $29,500, if your filing status is single, married filing separately, or qualifying widow(er). 2012 tax preparation Use Form 8880, Credit for Qualified Retirement Savings Contributions, to figure the credit. 2012 tax preparation For more information, see Publication 590. 2012 tax preparation Child tax credit. 2012 tax preparation   You may be able to take this credit if you have a qualifying child. 2012 tax preparation   A qualifying child for purposes of the child tax credit is a child who: Was under age 17 at the end of 2013. 2012 tax preparation Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). 2012 tax preparation Is a U. 2012 tax preparation S. 2012 tax preparation citizen, a U. 2012 tax preparation S. 2012 tax preparation national, or a resident alien. 2012 tax preparation Did not provide over half of his or her own support for 2013. 2012 tax preparation Lived with you more than half of 2013. 2012 tax preparation Temporary absences, such as for school, vacation, or medical care, count as time lived in the home. 2012 tax preparation Is claimed as a dependent on your return. 2012 tax preparation An adopted child is always treated as your own child. 2012 tax preparation An adopted child includes a child lawfully placed with you for legal adoption. 2012 tax preparation   See your form instructions for additional details. 2012 tax preparation Adoption credit. 2012 tax preparation   You may qualify to take a tax credit of up to $12,970 for qualifying expenses paid to adopt an eligible child. 2012 tax preparation This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. 2012 tax preparation To claim the adoption credit, file Form 8839, Qualified Adoption Expenses, with your Form 1040. 2012 tax preparation Earned income credit. 2012 tax preparation   You may qualify for an earned income credit of up to $3,250 if a child lived with you in the United States and your earned income and adjusted gross income were each less than $37,870 ($43,210 if married filing jointly). 2012 tax preparation If two children lived with you in the United States and your earned income and adjusted gross income were each less than $43,038 ($48,378 if married filing jointly), your credit could be as much as $5,372. 2012 tax preparation If three or more children lived with you in the United States and your earned income and adjusted gross income were each less than $46,227 ($51,567 if married filing jointly), your credit could be as much as $6,044. 2012 tax preparation If you do not have a qualifying child and your earned income and adjusted gross income were each less than $14,340 ($19,680 if married filing jointly), your credit could be as much as $487. 2012 tax preparation You cannot claim the earned income credit if your filing status is married filing separately. 2012 tax preparation    You and your spouse (if filing a joint return) and any qualifying child must have valid SSNs to claim this credit. 2012 tax preparation You cannot claim the credit using an ITIN. 2012 tax preparation If a social security card has a legend that says Not Valid for Employment and the number was issued so that you (or your spouse or your qualifying child) could receive a federally funded benefit, you cannot claim the earned income credit. 2012 tax preparation An example of a federally funded benefit is Medicaid. 2012 tax preparation If a card has this legend and the individual's immigration status has changed so that the individual is now a U. 2012 tax preparation S. 2012 tax preparation citizen or lawful permanent resident, ask the SSA to issue a new social security card without the legend. 2012 tax preparation Other information. 2012 tax preparation   There are other eligibility rules that are not discussed here. 2012 tax preparation For more information, get Publication 596, Earned Income Credit. 2012 tax preparation Nonresident Aliens You can claim some of the same credits that resident aliens can claim. 2012 tax preparation You can also report certain taxes you paid, are considered to have paid, or that were withheld from your income. 2012 tax preparation Credits Credits are allowed only if you receive effectively connected income. 2012 tax preparation You may be able to claim some of the following credits. 2012 tax preparation Foreign tax credit. 2012 tax preparation   If you receive foreign source income that is effectively connected with a trade or business in the United States, you can claim a credit for any income taxes paid or accrued to any foreign country or U. 2012 tax preparation S. 2012 tax preparation possession on that income. 2012 tax preparation   If you do not have foreign source income effectively connected with a U. 2012 tax preparation S. 2012 tax preparation trade or business, you cannot claim credits against your U. 2012 tax preparation S. 2012 tax preparation tax for taxes paid or accrued to a foreign country or U. 2012 tax preparation S. 2012 tax preparation possession. 2012 tax preparation   You cannot take any credit for taxes imposed by a foreign country or U. 2012 tax preparation S. 2012 tax preparation possession on your U. 2012 tax preparation S. 2012 tax preparation source income if those taxes were imposed only because you are a citizen or resident of the foreign country or possession. 2012 tax preparation   If you claim a foreign tax credit, you generally will have to attach to your return a Form 1116. 2012 tax preparation See Publication 514 for more information. 2012 tax preparation Child and dependent care credit. 2012 tax preparation   You may qualify for this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. 2012 tax preparation Generally, you must be able to claim an exemption for your dependent. 2012 tax preparation   Married nonresident aliens can claim the credit only if they choose to file a joint return with a U. 2012 tax preparation S. 2012 tax preparation citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Joint Return Test in Publication 503). 2012 tax preparation   The amount of your child and dependent care expense that qualifies for the credit in any tax year cannot be more than your earned income from the United States for that tax year. 2012 tax preparation Earned income generally means wages, salaries, and professional fees for personal services performed. 2012 tax preparation   For more information, get Publication 503. 2012 tax preparation Education credits. 2012 tax preparation   If you are a nonresident alien for any part of the year, you generally cannot claim the education credits. 2012 tax preparation However, if you are married and choose to file a joint return with a U. 2012 tax preparation S. 2012 tax preparation citizen or resident spouse as discussed in chapter 1, you may be eligible for these credits. 2012 tax preparation Retirement savings contributions credit. 2012 tax preparation   You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2013. 2012 tax preparation You cannot claim this credit if: You were born after January 1, 1996, You were a full-time student, Your exemption is claimed by someone else on his or her 2013 tax return, or Your adjusted gross income is more than $29,500. 2012 tax preparation Use Form 8880 to figure the credit. 2012 tax preparation For more information, see Publication 590. 2012 tax preparation Child tax credit. 2012 tax preparation   You may be able to take this credit if you have a qualifying child. 2012 tax preparation   A qualifying child for purposes of the child tax credit is a child who: Was under age 17 at the end of 2013. 2012 tax preparation Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). 2012 tax preparation Is a U. 2012 tax preparation S. 2012 tax preparation citizen, a U. 2012 tax preparation S. 2012 tax preparation national, or a resident alien. 2012 tax preparation Did not provide over half of his or her own support for 2013. 2012 tax preparation Lived with you more than half of 2013. 2012 tax preparation Temporary absences, such as for school, vacation, or medical care, count as time lived in the home. 2012 tax preparation Is claimed as a dependent on your return. 2012 tax preparation An adopted child is always treated as your own child. 2012 tax preparation An adopted child includes a child lawfully placed with you for legal adoption. 2012 tax preparation   See your form instructions for additional details. 2012 tax preparation Adoption credit. 2012 tax preparation   You may qualify to take a tax credit of up to $12,970 for qualifying expenses paid to adopt an eligible child. 2012 tax preparation This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. 2012 tax preparation To claim the adoption credit, file Form 8839 with your Form 1040NR. 2012 tax preparation   Married nonresident aliens can claim the credit only if they choose to file a joint return with a U. 2012 tax preparation S. 2012 tax preparation citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Married Persons Not Filing Jointly in the Form 8839 instructions). 2012 tax preparation Credit for prior year minimum tax. 2012 tax preparation   If you paid alternative minimum tax in a prior year, get Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts, to see if you qualify for this credit. 2012 tax preparation Earned income credit. 2012 tax preparation   If you are a nonresident alien for any part of the tax year, you generally cannot get the earned income credit. 2012 tax preparation However, if you are married and choose to file a joint return with a U. 2012 tax preparation S. 2012 tax preparation citizen or resident spouse as discussed in chapter 1, you may be eligible for the credit. 2012 tax preparation    You, your spouse, and any qualifying child must have valid SSNs to claim this credit. 2012 tax preparation You cannot claim the credit using an ITIN. 2012 tax preparation If a social security card has a legend that says Not Valid for Employment and the number was issued so that you (or your spouse or your qualifying child) could receive a federally funded benefit, you cannot claim the earned income credit. 2012 tax preparation An example of a federally funded benefit is Medicaid. 2012 tax preparation If a card has this legend and the individual's immigration status has changed so that the individual is now a U. 2012 tax preparation S. 2012 tax preparation citizen or lawful permanent resident, ask the SSA to issue a new social security card without the legend. 2012 tax preparation   See Publication 596 for more information on the credit. 2012 tax preparation Tax Withheld You can claim the tax withheld during the year as a payment against your U. 2012 tax preparation S. 2012 tax preparation tax. 2012 tax preparation You claim it on line 61 of Form 1040NR or on line 18 of Form 1040NR-EZ. 2012 tax preparation The tax withheld reduces any tax you owe with Form 1040NR or Form 1040NR-EZ. 2012 tax preparation Withholding from wages. 2012 tax preparation   Any federal income tax withheld from your wages during the tax year while you were a nonresident alien is allowed as a payment against your U. 2012 tax preparation S. 2012 tax preparation income tax liability for the same year. 2012 tax preparation You can claim the income tax withheld whether or not you were engaged in a trade or business in the United States during the year, and whether or not the wages (or any other income) were connected with a trade or business in the United States. 2012 tax preparation Excess social security tax withheld. 2012 tax preparation   If you have two or more employers, you may be able to claim a credit against your U. 2012 tax preparation S. 2012 tax preparation income tax liability for social security tax withheld in excess of the maximum required. 2012 tax preparation See Social Security and Medicare Taxes in chapter 8 for more information. 2012 tax preparation Additional Medicare Tax. 2012 tax preparation   Your employer is responsible for withholding the 0. 2012 tax preparation 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in 2013. 2012 tax preparation If you do not owe Additional Medicare Tax, you can claim a credit for any withheld Additional Medicare Tax against the total tax liability shown on your tax return by filing Form 8959. 2012 tax preparation Tax paid on undistributed long-term capital gains. 2012 tax preparation   If you are a shareholder in a mutual fund (or other regulated investment company) or real estate investment trust, you can claim a credit for your share of any taxes paid by the company on its undistributed long-term capital gains. 2012 tax preparation You will receive information on Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, which you must attach to your return. 2012 tax preparation Tax withheld at the source. 2012 tax preparation   You can claim as a payment any tax withheld at the source on investment and other fixed or determinable annual or periodic income paid to you. 2012 tax preparation Fixed or determinable income includes interest, dividend, rental, and royalty income that you do not claim to be effectively connected income. 2012 tax preparation Wage or salary payments can be fixed or determinable income to you, but usually are subject to withholding as discussed above. 2012 tax preparation Taxes on fixed or determinable income are withheld at a 30% rate or at a lower treaty rate. 2012 tax preparation Tax withheld on partnership income. 2012 tax preparation   If you are a foreign partner in a partnership, the partnership will withhold tax on your share of effectively connected taxable income from the partnership. 2012 tax preparation The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, showing the tax withheld. 2012 tax preparation A partnership that is publicly traded may withhold on your actual distributions of effectively connected income. 2012 tax preparation In this case, the partnership will give you a statement on Form 1042-S. 2012 tax preparation Claim the tax withheld as a payment on line 61b or 61d of Form 1040NR, as appropriate. 2012 tax preparation Claiming tax withheld on your return. 2012 tax preparation   When you fill out your tax return, take extra care to enter the correct amount of any tax withheld shown on your information documents. 2012 tax preparation The following table lists some of the more common information documents and shows where to find the amount of tax withheld. 2012 tax preparation Form number Location  of tax  withheld RRB-1042S Box 12 SSA-1042S Box 9 W-2 Box 2 W-2c Box 2 1042-S Box 9 8805 Line 10 8288-A Box 2 Bona Fide Residents of American Samoa or Puerto Rico If you are a nonresident alien who is a bona fide resident of American Samoa or Puerto Rico for the entire tax year, you generally are taxed the same as resident aliens. 2012 tax preparation You should file Form 1040 and report all income from sources both in and outside the United States. 2012 tax preparation However, you can exclude the income discussed in the following paragraphs. 2012 tax preparation For tax purposes other than reporting income, however, you will be treated as a nonresident alien. 2012 tax preparation For example, you are not allowed the standard deduction, you cannot file a joint return, and you are not allowed a deduction for a dependent unless that person is a citizen or national of the United States. 2012 tax preparation There are also limits on what deductions and credits are allowed. 2012 tax preparation See Nonresident Aliens under Deductions , Itemized Deductions , and Tax Credits and Payments in this chapter. 2012 tax preparation Residents of Puerto Rico. 2012 tax preparation   If you are a bona fide resident of Puerto Rico for the entire year, you can exclude from gross income all income from sources in Puerto Rico (other than amounts for services performed as an employee of the United States or any of its agencies). 2012 tax preparation   If you report income on a calendar year basis and you do not have wages subject to withholding, file your return and pay your tax by June 15. 2012 tax preparation You must also make your first payment of estimated tax by June 15. 2012 tax preparation You cannot file a joint income tax return or make joint payments of estimated tax. 2012 tax preparation However, if you are married to a U. 2012 tax preparation S. 2012 tax preparation citizen or resident, see Nonresident Spouse Treated as a Resident in chapter 1. 2012 tax preparation   If you earn wages subject to withholding, your U. 2012 tax preparation S. 2012 tax preparation income tax return is due by April 15. 2012 tax preparation Your first payment of estimated tax is also due by April 15. 2012 tax preparation For information on withholding and estimated tax, see chapter 8 . 2012 tax preparation Residents of American Samoa. 2012 tax preparation   If you are a bona fide resident of American Samoa for the entire year, you can exclude from gross income all income from sources in American Samoa (other than amounts for services performed as an employee of the U. 2012 tax preparation S. 2012 tax preparation government or any of its agencies). 2012 tax preparation An employee of the American Samoan government is not considered an employee of the U. 2012 tax preparation S. 2012 tax preparation government or any of its agencies for purposes of the exclusion. 2012 tax preparation For more information about this exclusion, get Form 4563 and Publication 570, Tax Guide for Individuals With Income From U. 2012 tax preparation S. 2012 tax preparation Possessions. 2012 tax preparation Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Understanding your CP13A Notice

We made changes to your return because we found an error involving your Earned Income Credit. You're not due a refund nor do you owe an additional amount because of our changes. Your account balance is zero.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Review the notice and compare our changes to the information on your tax return.
  • Correct the copy of your tax return that you kept for your records.
  • You don't need to do anything if you agree with the notice.
  • If you disagree with the notice, please contact us at the toll-free number listed on its top right corner (within 60 days of its date).

You may want to...


Answers to Common Questions

What should I do if I disagree with the changes you made?
Contact us at the toll free number listed on the top right corner of your notice if you disagree with the changes we made.

What should I do if I need to make another correction to my tax return?
You'll need to file an amended return to make a correction.

What's the difference between the "Child Tax Credit" and the "Additional Child Tax Credit?" Can I qualify for both?
The Child Tax Credit is for people who have a qualifying child. The maximum amount you can claim is $1000 for each qualifying child. The Additional Child Tax Credit is for individuals who receive less than the full amount of Child Tax Credit. You may qualify for both the Child Tax Credit and the Additional Child Tax Credit.

How do I claim an Additional Child Tax Credit?
You can claim the credit by completing a Form 1040 Schedule 8812, Child Tax Credit and attaching it to your income tax return.

My child is turning 18 this year. Can I still get the Additional Child Tax Credit?
No. Your child must be under the age of 17 at the end of 2009 to qualify for both the Child Tax Credit and the Additional Child Tax Credit.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

If you have any dependent children, remember to claim the Additional Child Tax Credit the next time you file your income tax return. Complete and attach a Form 1040 Schedule 8812, Child Tax Credit to your return to claim this credit.

Use the EITC Assistant to help you complete your Schedule EIC, Earned Income Credit and claim your Earned Income Credit.

Page Last Reviewed or Updated: 20-Feb-2014

The 2012 Tax Preparation

2012 tax preparation 1. 2012 tax preparation   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. 2012 tax preparation It is an allowance for the wear and tear, deterioration, or obsolescence of the property. 2012 tax preparation This chapter discusses the general rules for depreciating property and answers the following questions. 2012 tax preparation What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. 2012 tax preparation What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. 2012 tax preparation You also can depreciate certain intangible property, such as patents, copyrights, and computer software. 2012 tax preparation To be depreciable, the property must meet all the following requirements. 2012 tax preparation It must be property you own. 2012 tax preparation It must be used in your business or income-producing activity. 2012 tax preparation It must have a determinable useful life. 2012 tax preparation It must be expected to last more than one year. 2012 tax preparation The following discussions provide information about these requirements. 2012 tax preparation Property You Own To claim depreciation, you usually must be the owner of the property. 2012 tax preparation You are considered as owning property even if it is subject to a debt. 2012 tax preparation Example 1. 2012 tax preparation You made a down payment to purchase rental property and assumed the previous owner's mortgage. 2012 tax preparation You own the property and you can depreciate it. 2012 tax preparation Example 2. 2012 tax preparation You bought a new van that you will use only for your courier business. 2012 tax preparation You will be making payments on the van over the next 5 years. 2012 tax preparation You own the van and you can depreciate it. 2012 tax preparation Leased property. 2012 tax preparation   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). 2012 tax preparation This means you bear the burden of exhaustion of the capital investment in the property. 2012 tax preparation Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. 2012 tax preparation You can, however, depreciate any capital improvements you make to the property. 2012 tax preparation See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. 2012 tax preparation   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. 2012 tax preparation However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. 2012 tax preparation Incidents of ownership. 2012 tax preparation   Incidents of ownership in property include the following. 2012 tax preparation The legal title to the property. 2012 tax preparation The legal obligation to pay for the property. 2012 tax preparation The responsibility to pay maintenance and operating expenses. 2012 tax preparation The duty to pay any taxes on the property. 2012 tax preparation The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. 2012 tax preparation Life tenant. 2012 tax preparation   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. 2012 tax preparation However, see Certain term interests in property under Excepted Property, later. 2012 tax preparation Cooperative apartments. 2012 tax preparation   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. 2012 tax preparation   Figure your depreciation deduction as follows. 2012 tax preparation Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. 2012 tax preparation If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. 2012 tax preparation Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. 2012 tax preparation Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. 2012 tax preparation Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. 2012 tax preparation Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. 2012 tax preparation Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. 2012 tax preparation Multiply the result of (2) by the percentage you figured in (3). 2012 tax preparation This is your depreciation on the stock. 2012 tax preparation   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. 2012 tax preparation You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. 2012 tax preparation Example. 2012 tax preparation You figure your share of the cooperative housing corporation's depreciation to be $30,000. 2012 tax preparation Your adjusted basis in the stock of the corporation is $50,000. 2012 tax preparation You use one half of your apartment solely for business purposes. 2012 tax preparation Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). 2012 tax preparation Change to business use. 2012 tax preparation   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. 2012 tax preparation The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. 2012 tax preparation The fair market value of the property on the date you change your apartment to business use. 2012 tax preparation This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. 2012 tax preparation The corporation's adjusted basis in the property on that date. 2012 tax preparation Do not subtract depreciation when figuring the corporation's adjusted basis. 2012 tax preparation   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. 2012 tax preparation The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. 2012 tax preparation   For a discussion of fair market value and adjusted basis, see Publication 551. 2012 tax preparation Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. 2012 tax preparation If you use property to produce income (investment use), the income must be taxable. 2012 tax preparation You cannot depreciate property that you use solely for personal activities. 2012 tax preparation Partial business or investment use. 2012 tax preparation   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. 2012 tax preparation For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. 2012 tax preparation    You must keep records showing the business, investment, and personal use of your property. 2012 tax preparation For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. 2012 tax preparation    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. 2012 tax preparation For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. 2012 tax preparation Office in the home. 2012 tax preparation   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. 2012 tax preparation For information about depreciating your home office, see Publication 587. 2012 tax preparation Inventory. 2012 tax preparation   You cannot depreciate inventory because it is not held for use in your business. 2012 tax preparation Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. 2012 tax preparation   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. 2012 tax preparation See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. 2012 tax preparation   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. 2012 tax preparation If it is unclear, examine carefully all the facts in the operation of the particular business. 2012 tax preparation The following example shows how a careful examination of the facts in two similar situations results in different conclusions. 2012 tax preparation Example. 2012 tax preparation Maple Corporation is in the business of leasing cars. 2012 tax preparation At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. 2012 tax preparation Maple does not have a showroom, used car lot, or individuals to sell the cars. 2012 tax preparation Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. 2012 tax preparation Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. 2012 tax preparation If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. 2012 tax preparation In this situation, the cars are held primarily for sale to customers in the ordinary course of business. 2012 tax preparation Containers. 2012 tax preparation   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. 2012 tax preparation However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. 2012 tax preparation They qualify as property used in your business. 2012 tax preparation Title to the containers does not pass to the buyer. 2012 tax preparation   To determine if these requirements are met, consider the following questions. 2012 tax preparation Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. 2012 tax preparation This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 2012 tax preparation Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. 2012 tax preparation Example. 2012 tax preparation You maintain a library for use in your profession. 2012 tax preparation You can depreciate it. 2012 tax preparation However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. 2012 tax preparation Instead, you deduct their cost as a business expense. 2012 tax preparation What Property Cannot Be Depreciated? Certain property cannot be depreciated. 2012 tax preparation This includes land and certain excepted property. 2012 tax preparation Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. 2012 tax preparation The cost of land generally includes the cost of clearing, grading, planting, and landscaping. 2012 tax preparation Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. 2012 tax preparation These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. 2012 tax preparation Example. 2012 tax preparation You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. 2012 tax preparation Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. 2012 tax preparation If you replace the building, you would have to destroy the bushes and trees right next to it. 2012 tax preparation These bushes and trees are closely associated with the building, so they have a determinable useful life. 2012 tax preparation Therefore, you can depreciate them. 2012 tax preparation Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. 2012 tax preparation Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. 2012 tax preparation Property placed in service and disposed of in the same year. 2012 tax preparation Determining when property is placed in service is explained later. 2012 tax preparation Equipment used to build capital improvements. 2012 tax preparation You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. 2012 tax preparation See Uniform Capitalization Rules in Publication 551. 2012 tax preparation Section 197 intangibles. 2012 tax preparation You must amortize these costs. 2012 tax preparation Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. 2012 tax preparation Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. 2012 tax preparation See Intangible Property , later. 2012 tax preparation Certain term interests. 2012 tax preparation Certain term interests in property. 2012 tax preparation   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. 2012 tax preparation A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. 2012 tax preparation Related persons. 2012 tax preparation   For a description of related persons, see Related Persons, later. 2012 tax preparation For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. 2012 tax preparation Basis adjustments. 2012 tax preparation   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. 2012 tax preparation   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. 2012 tax preparation However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. 2012 tax preparation The term interest is held by an organization exempt from tax. 2012 tax preparation The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. 2012 tax preparation Exceptions. 2012 tax preparation   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. 2012 tax preparation They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. 2012 tax preparation When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. 2012 tax preparation You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. 2012 tax preparation Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. 2012 tax preparation Even if you are not using the property, it is in service when it is ready and available for its specific use. 2012 tax preparation Example 1. 2012 tax preparation Donald Steep bought a machine for his business. 2012 tax preparation The machine was delivered last year. 2012 tax preparation However, it was not installed and operational until this year. 2012 tax preparation It is considered placed in service this year. 2012 tax preparation If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. 2012 tax preparation Example 2. 2012 tax preparation On April 6, Sue Thorn bought a house to use as residential rental property. 2012 tax preparation She made several repairs and had it ready for rent on July 5. 2012 tax preparation At that time, she began to advertise it for rent in the local newspaper. 2012 tax preparation The house is considered placed in service in July when it was ready and available for rent. 2012 tax preparation She can begin to depreciate it in July. 2012 tax preparation Example 3. 2012 tax preparation James Elm is a building contractor who specializes in constructing office buildings. 2012 tax preparation He bought a truck last year that had to be modified to lift materials to second-story levels. 2012 tax preparation The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. 2012 tax preparation The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. 2012 tax preparation Conversion to business use. 2012 tax preparation   If you place property in service in a personal activity, you cannot claim depreciation. 2012 tax preparation However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. 2012 tax preparation You place the property in service in the business or income-producing activity on the date of the change. 2012 tax preparation Example. 2012 tax preparation You bought a home and used it as your personal home several years before you converted it to rental property. 2012 tax preparation Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. 2012 tax preparation You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. 2012 tax preparation Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). 2012 tax preparation For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. 2012 tax preparation Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. 2012 tax preparation You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. 2012 tax preparation See What Is the Basis of Your Depreciable Property , later. 2012 tax preparation Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. 2012 tax preparation You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. 2012 tax preparation You sell or exchange the property. 2012 tax preparation You convert the property to personal use. 2012 tax preparation You abandon the property. 2012 tax preparation You transfer the property to a supplies or scrap account. 2012 tax preparation The property is destroyed. 2012 tax preparation If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. 2012 tax preparation What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. 2012 tax preparation MACRS is discussed in chapter 4. 2012 tax preparation You cannot use MACRS to depreciate the following property. 2012 tax preparation Property you placed in service before 1987. 2012 tax preparation Certain property owned or used in 1986. 2012 tax preparation Intangible property. 2012 tax preparation Films, video tapes, and recordings. 2012 tax preparation Certain corporate or partnership property acquired in a nontaxable transfer. 2012 tax preparation Property you elected to exclude from MACRS. 2012 tax preparation The following discussions describe the property listed above and explain what depreciation method should be used. 2012 tax preparation Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). 2012 tax preparation Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. 2012 tax preparation For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. 2012 tax preparation Use of real property changed. 2012 tax preparation   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. 2012 tax preparation Improvements made after 1986. 2012 tax preparation   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. 2012 tax preparation Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. 2012 tax preparation For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. 2012 tax preparation Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. 2012 tax preparation If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. 2012 tax preparation For the following discussions, do not treat property as owned before you placed it in service. 2012 tax preparation If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. 2012 tax preparation Personal property. 2012 tax preparation   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. 2012 tax preparation You or someone related to you owned or used the property in 1986. 2012 tax preparation You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. 2012 tax preparation You lease the property to a person (or someone related to this person) who owned or used the property in 1986. 2012 tax preparation You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. 2012 tax preparation Real property. 2012 tax preparation   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. 2012 tax preparation You or someone related to you owned the property in 1986. 2012 tax preparation You lease the property to a person who owned the property in 1986 (or someone related to that person). 2012 tax preparation You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. 2012 tax preparation MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. 2012 tax preparation It does not apply to the carried-over part of the basis. 2012 tax preparation Exceptions. 2012 tax preparation   The rules above do not apply to the following. 2012 tax preparation Residential rental property or nonresidential real property. 2012 tax preparation Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. 2012 tax preparation For information on how to figure depreciation under ACRS, see Publication 534. 2012 tax preparation Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. 2012 tax preparation Related persons. 2012 tax preparation   For this purpose, the following are related persons. 2012 tax preparation An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. 2012 tax preparation A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. 2012 tax preparation Two corporations that are members of the same controlled group. 2012 tax preparation A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. 2012 tax preparation The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. 2012 tax preparation The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. 2012 tax preparation A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. 2012 tax preparation Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. 2012 tax preparation A corporation and a partnership if the same persons own both of the following. 2012 tax preparation More than 10% of the value of the outstanding stock of the corporation. 2012 tax preparation More than 10% of the capital or profits interest in the partnership. 2012 tax preparation The executor and beneficiary of any estate. 2012 tax preparation A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. 2012 tax preparation Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. 2012 tax preparation The related person and a person who is engaged in trades or businesses under common control. 2012 tax preparation See section 52(a) and 52(b) of the Internal Revenue Code. 2012 tax preparation When to determine relationship. 2012 tax preparation   You must determine whether you are related to another person at the time you acquire the property. 2012 tax preparation   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. 2012 tax preparation For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. 2012 tax preparation Constructive ownership of stock or partnership interest. 2012 tax preparation   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. 2012 tax preparation Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. 2012 tax preparation However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. 2012 tax preparation An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. 2012 tax preparation An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. 2012 tax preparation For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. 2012 tax preparation However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. 2012 tax preparation Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. 2012 tax preparation However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). 2012 tax preparation You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. 2012 tax preparation Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. 2012 tax preparation To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. 2012 tax preparation Subtract the salvage value, if any, from the adjusted basis. 2012 tax preparation The balance is the total depreciation you can take over the useful life of the property. 2012 tax preparation Divide the balance by the number of years in the useful life. 2012 tax preparation This gives you your yearly depreciation deduction. 2012 tax preparation Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. 2012 tax preparation If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. 2012 tax preparation Example. 2012 tax preparation In April, Frank bought a patent for $5,100 that is not a section 197 intangible. 2012 tax preparation He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. 2012 tax preparation He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. 2012 tax preparation He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. 2012 tax preparation Next year, Frank can deduct $300 for the full year. 2012 tax preparation Patents and copyrights. 2012 tax preparation   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. 2012 tax preparation The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. 2012 tax preparation However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. 2012 tax preparation Computer software. 2012 tax preparation   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. 2012 tax preparation   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. 2012 tax preparation It is readily available for purchase by the general public. 2012 tax preparation It is subject to a nonexclusive license. 2012 tax preparation It has not been substantially modified. 2012 tax preparation   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. 2012 tax preparation If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. 2012 tax preparation    Tax-exempt use property subject to a lease. 2012 tax preparation   The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. 2012 tax preparation Certain created intangibles. 2012 tax preparation   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. 2012 tax preparation For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. 2012 tax preparation   The following are not eligible. 2012 tax preparation Any intangible asset acquired from another person. 2012 tax preparation Created financial interests. 2012 tax preparation Any intangible asset that has a useful life that can be estimated with reasonable accuracy. 2012 tax preparation Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. 2012 tax preparation Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. 2012 tax preparation   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. 2012 tax preparation For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. 2012 tax preparation Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. 2012 tax preparation Motion picture films or video tapes. 2012 tax preparation Sound recordings. 2012 tax preparation Copyrights. 2012 tax preparation Books. 2012 tax preparation Patents. 2012 tax preparation Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. 2012 tax preparation The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. 2012 tax preparation For more information, see section 167(g) of the Internal Revenue Code. 2012 tax preparation Films, video tapes, and recordings. 2012 tax preparation   You cannot use MACRS for motion picture films, video tapes, and sound recordings. 2012 tax preparation For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. 2012 tax preparation You can depreciate this property using either the straight line method or the income forecast method. 2012 tax preparation Participations and residuals. 2012 tax preparation   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. 2012 tax preparation The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. 2012 tax preparation For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. 2012 tax preparation   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. 2012 tax preparation Videocassettes. 2012 tax preparation   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. 2012 tax preparation If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. 2012 tax preparation Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. 2012 tax preparation You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. 2012 tax preparation However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. 2012 tax preparation The nontaxable transfers covered by this rule include the following. 2012 tax preparation A distribution in complete liquidation of a subsidiary. 2012 tax preparation A transfer to a corporation controlled by the transferor. 2012 tax preparation An exchange of property solely for corporate stock or securities in a reorganization. 2012 tax preparation A contribution of property to a partnership in exchange for a partnership interest. 2012 tax preparation A partnership distribution of property to a partner. 2012 tax preparation Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. 2012 tax preparation You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. 2012 tax preparation You must make this election by the return due date (including extensions) for the tax year you place your property in service. 2012 tax preparation However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). 2012 tax preparation Attach the election to the amended return and write “Filed pursuant to section 301. 2012 tax preparation 9100-2” on the election statement. 2012 tax preparation File the amended return at the same address you filed the original return. 2012 tax preparation Use of standard mileage rate. 2012 tax preparation   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. 2012 tax preparation See Publication 463 for a discussion of the standard mileage rate. 2012 tax preparation What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. 2012 tax preparation To determine basis, you need to know the cost or other basis of your property. 2012 tax preparation Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. 2012 tax preparation The cost includes the amount you pay in cash, debt obligations, other property, or services. 2012 tax preparation Exception. 2012 tax preparation   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). 2012 tax preparation If you make that choice, you cannot include those sales taxes as part of your cost basis. 2012 tax preparation Assumed debt. 2012 tax preparation   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. 2012 tax preparation Example. 2012 tax preparation You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. 2012 tax preparation Your total cost is $140,000, the cash you paid plus the mortgage you assumed. 2012 tax preparation Settlement costs. 2012 tax preparation   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. 2012 tax preparation These generally are shown on your settlement statement and include the following. 2012 tax preparation Legal and recording fees. 2012 tax preparation Abstract fees. 2012 tax preparation Survey charges. 2012 tax preparation Owner's title insurance. 2012 tax preparation Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. 2012 tax preparation   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. 2012 tax preparation Property you construct or build. 2012 tax preparation   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. 2012 tax preparation For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. 2012 tax preparation Other Basis Other basis usually refers to basis that is determined by the way you received the property. 2012 tax preparation For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. 2012 tax preparation If you acquired property in this or some other way, see Publication 551 to determine your basis. 2012 tax preparation Property changed from personal use. 2012 tax preparation   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. 2012 tax preparation The fair market value (FMV) of the property on the date of the change in use. 2012 tax preparation Your original cost or other basis adjusted as follows. 2012 tax preparation Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. 2012 tax preparation Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. 2012 tax preparation Example. 2012 tax preparation Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. 2012 tax preparation Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. 2012 tax preparation Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. 2012 tax preparation Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). 2012 tax preparation On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. 2012 tax preparation The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). 2012 tax preparation Property acquired in a nontaxable transaction. 2012 tax preparation   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. 2012 tax preparation Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. 2012 tax preparation See Like-kind exchanges and involuntary conversions. 2012 tax preparation under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. 2012 tax preparation   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. 2012 tax preparation See How Do You Use General Asset Accounts in chapter 4. 2012 tax preparation Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. 2012 tax preparation These events could include the following. 2012 tax preparation Installing utility lines. 2012 tax preparation Paying legal fees for perfecting the title. 2012 tax preparation Settling zoning issues. 2012 tax preparation Receiving rebates. 2012 tax preparation Incurring a casualty or theft loss. 2012 tax preparation For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. 2012 tax preparation If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. 2012 tax preparation For more information, see What Is the Basis for Depreciation in chapter 4. 2012 tax preparation . 2012 tax preparation Basis adjustment for depreciation allowed or allowable. 2012 tax preparation   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. 2012 tax preparation Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). 2012 tax preparation Depreciation allowable is depreciation you are entitled to deduct. 2012 tax preparation   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. 2012 tax preparation   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). 2012 tax preparation How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. 2012 tax preparation Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. 2012 tax preparation You generally deduct the cost of repairing business property in the same way as any other business expense. 2012 tax preparation However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. 2012 tax preparation Example. 2012 tax preparation You repair a small section on one corner of the roof of a rental house. 2012 tax preparation You deduct the cost of the repair as a rental expense. 2012 tax preparation However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. 2012 tax preparation You depreciate the cost of the new roof. 2012 tax preparation Improvements to rented property. 2012 tax preparation   You can depreciate permanent improvements you make to business property you rent from someone else. 2012 tax preparation Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. 2012 tax preparation Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. 2012 tax preparation A section 179 deduction for the current year or a section 179 carryover from a prior year. 2012 tax preparation See chapter 2 for information on the section 179 deduction. 2012 tax preparation Depreciation for property placed in service during the current year. 2012 tax preparation Depreciation on any vehicle or other listed property, regardless of when it was placed in service. 2012 tax preparation See chapter 5 for information on listed property. 2012 tax preparation A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). 2012 tax preparation Amortization of costs if the current year is the first year of the amortization period. 2012 tax preparation Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. 2012 tax preparation S. 2012 tax preparation Income Tax Return for an S Corporation) regardless of when it was placed in service. 2012 tax preparation You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. 2012 tax preparation Table 1-1 presents an overview of the purpose of the various parts of Form 4562. 2012 tax preparation Employee. 2012 tax preparation   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. 2012 tax preparation Instead, use either Form 2106 or Form 2106-EZ. 2012 tax preparation Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. 2012 tax preparation How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. 2012 tax preparation See Filing an Amended Return , next. 2012 tax preparation If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. 2012 tax preparation See Changing Your Accounting Method , later. 2012 tax preparation Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. 2012 tax preparation You claimed the incorrect amount because of a mathematical error made in any year. 2012 tax preparation You claimed the incorrect amount because of a posting error made in any year. 2012 tax preparation You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. 2012 tax preparation You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. 2012 tax preparation Adoption of accounting method defined. 2012 tax preparation   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. 2012 tax preparation   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. 2012 tax preparation irs. 2012 tax preparation gov/pub/irs-irbs/irb11-04. 2012 tax preparation pdf. 2012 tax preparation (Note. 2012 tax preparation Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. 2012 tax preparation For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. 2012 tax preparation irs. 2012 tax preparation gov/pub/irs-irbs/irb12-14. 2012 tax preparation pdf. 2012 tax preparation )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. 2012 tax preparation irs. 2012 tax preparation gov/pub/irs-irbs/irb07-29. 2012 tax preparation pdf. 2012 tax preparation When to file. 2012 tax preparation   If an amended return is allowed, you must file it by the later of the following. 2012 tax preparation 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. 2012 tax preparation A return filed before an unextended due date is considered filed on that due date. 2012 tax preparation 2 years from the time you paid your tax for that year. 2012 tax preparation Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. 2012 tax preparation You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. 2012 tax preparation The following are examples of a change in method of accounting for depreciation. 2012 tax preparation A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. 2012 tax preparation A change in the treatment of an asset from nondepreciable to depreciable or vice versa. 2012 tax preparation A change in the depreciation method, period of recovery, or convention of a depreciable asset. 2012 tax preparation A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. 2012 tax preparation A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). 2012 tax preparation Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. 2012 tax preparation An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. 2012 tax preparation A change in use of an asset in the hands of the same taxpayer. 2012 tax preparation Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). 2012 tax preparation If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. 2012 tax preparation Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. 2012 tax preparation You must submit a request for a letter ruling to make a late election or revoke an election. 2012 tax preparation Any change in the placed in service date of a depreciable asset. 2012 tax preparation See section 1. 2012 tax preparation 446-1(e)(2)(ii)(d) of the regulations for more information and examples. 2012 tax preparation IRS approval. 2012 tax preparation   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. 2012 tax preparation If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. 2012 tax preparation B. 2012 tax preparation 680. 2012 tax preparation Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. 2012 tax preparation Additional guidance. 2012 tax preparation    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. 2012 tax preparation irs. 2012 tax preparation gov/pub/irs-irbs/irb11-04. 2012 tax preparation pdf. 2012 tax preparation (Note. 2012 tax preparation Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. 2012 tax preparation For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. 2012 tax preparation irs. 2012 tax preparation gov/pub/irs-irbs/irb12-14. 2012 tax preparation pdf. 2012 tax preparation )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. 2012 tax preparation irs. 2012 tax preparation gov/pub/irs-irbs/irb07-29. 2012 tax preparation pdf. 2012 tax preparation Table 1-1. 2012 tax preparation Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. 2012 tax preparation For more information, see Form 4562 and its instructions. 2012 tax preparation Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. 2012 tax preparation   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. 2012 tax preparation The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. 2012 tax preparation If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. 2012 tax preparation A negative section 481(a) adjustment results in a decrease in taxable income. 2012 tax preparation It is taken into account in the year of change and is reported on your business tax returns as “other expenses. 2012 tax preparation ” A positive section 481(a) adjustment results in an increase in taxable income. 2012 tax preparation It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. 2012 tax preparation ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. 2012 tax preparation Make the election by completing the appropriate line on Form 3115. 2012 tax preparation   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. 2012 tax preparation Prev  Up  Next   Home   More Online Publications