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Amended Taxes

Amended taxes 23. Amended taxes   Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. Amended taxes Mortgage proceeds used for business or investment. Amended taxes Introduction This chapter discusses what interest expenses you can deduct. Amended taxes Interest is the amount you pay for the use of borrowed money. Amended taxes The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). Amended taxes Home mortgage interest, including certain points and mortgage insurance premiums. Amended taxes Investment interest. Amended taxes This chapter explains these deductions. Amended taxes It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. Amended taxes Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. Amended taxes Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). Amended taxes The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. Amended taxes You can deduct home mortgage interest if all the following conditions are met. Amended taxes You file Form 1040 and itemize deductions on Schedule A (Form 1040). Amended taxes The mortgage is a secured debt on a qualified home in which you have an ownership interest. Amended taxes (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. Amended taxes The term “qualified home” means your main home or second home. Amended taxes For details, see Publication 936. Amended taxes )  Both you and the lender must intend that the loan be repaid. Amended taxes Amount Deductible In most cases, you can deduct all of your home mortgage interest. Amended taxes How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. Amended taxes Fully deductible interest. Amended taxes   If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. Amended taxes (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. Amended taxes )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). Amended taxes Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). Amended taxes Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). Amended taxes The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. Amended taxes   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. Amended taxes    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. Amended taxes Figure 23-A. Amended taxes Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. Amended taxes Figure 23-A. Amended taxes Is My Interest Fully Deductible? Limits on deduction. Amended taxes   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. Amended taxes If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. Amended taxes Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. Amended taxes It also describes certain special situations that may affect your deduction. Amended taxes Late payment charge on mortgage payment. Amended taxes   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. Amended taxes Mortgage prepayment penalty. Amended taxes   If you pay off your home mortgage early, you may have to pay a penalty. Amended taxes You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. Amended taxes Sale of home. Amended taxes   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of sale. Amended taxes Example. Amended taxes John and Peggy Harris sold their home on May 7. Amended taxes Through April 30, they made home mortgage interest payments of $1,220. Amended taxes The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. Amended taxes Their mortgage interest deduction is $1,270 ($1,220 + $50). Amended taxes Prepaid interest. Amended taxes   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. Amended taxes You can deduct in each year only the interest that qualifies as home mortgage interest for that year. Amended taxes However, there is an exception that applies to points, discussed later. Amended taxes Mortgage interest credit. Amended taxes   You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. Amended taxes Figure the credit on Form 8396, Mortgage Interest Credit. Amended taxes If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. Amended taxes   For more information on the credit, see chapter 37. Amended taxes Ministers' and military housing allowance. Amended taxes   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. Amended taxes Hardest Hit Fund and Emergency Homeowners' Loan Programs. Amended taxes   You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. Amended taxes You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. Amended taxes You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. Amended taxes If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums) and box 5 (real property taxes). Amended taxes However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. Amended taxes Mortgage assistance payments under section 235 of the National Housing Act. Amended taxes   If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. Amended taxes You cannot deduct the interest that is paid for you. Amended taxes No other effect on taxes. Amended taxes   Do not include these mortgage assistance payments in your income. Amended taxes Also, do not use these payments to reduce other deductions, such as real estate taxes. Amended taxes Divorced or separated individuals. Amended taxes   If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. Amended taxes See the discussion of Payments for jointly-owned home in chapter 18. Amended taxes Redeemable ground rents. Amended taxes   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. Amended taxes   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. Amended taxes For more information, see Publication 936. Amended taxes Nonredeemable ground rents. Amended taxes   Payments on a nonredeemable ground rent are not mortgage interest. Amended taxes You can deduct them as rent if they are a business expense or if they are for rental property. Amended taxes Reverse mortgages. Amended taxes   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. Amended taxes With a reverse mortgage, you retain title to your home. Amended taxes Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Amended taxes Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Amended taxes Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. Amended taxes Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. Amended taxes Rental payments. Amended taxes   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. Amended taxes This is true even if the settlement papers call them interest. Amended taxes You cannot deduct these payments as home mortgage interest. Amended taxes Mortgage proceeds invested in tax-exempt securities. Amended taxes   You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. Amended taxes “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. Amended taxes Refunds of interest. Amended taxes   If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. Amended taxes If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. Amended taxes However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. Amended taxes This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. Amended taxes    If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. Amended taxes For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. Amended taxes   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. Amended taxes Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Amended taxes Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Amended taxes A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Amended taxes See Points paid by the seller , later. Amended taxes General Rule You generally cannot deduct the full amount of points in the year paid. Amended taxes Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. Amended taxes See Deduction Allowed Ratably , next. Amended taxes For exceptions to the general rule, see Deduction Allowed in Year Paid , later. Amended taxes Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. Amended taxes You use the cash method of accounting. Amended taxes This means you report income in the year you receive it and deduct expenses in the year you pay them. Amended taxes Most individuals use this method. Amended taxes Your loan is secured by a home. Amended taxes (The home does not need to be your main home. Amended taxes ) Your loan period is not more than 30 years. Amended taxes If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. Amended taxes Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. Amended taxes Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. Amended taxes (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. Amended taxes ) Your loan is secured by your main home. Amended taxes (Your main home is the one you ordinarily live in most of the time. Amended taxes ) Paying points is an established business practice in the area where the loan was made. Amended taxes The points paid were not more than the points generally charged in that area. Amended taxes You use the cash method of accounting. Amended taxes This means you report income in the year you receive it and deduct expenses in the year you pay them. Amended taxes (If you want more information about this method, see Accounting Methods in chapter 1. Amended taxes ) The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. Amended taxes The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Amended taxes The funds you provided are not required to have been applied to the points. Amended taxes They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Amended taxes You cannot have borrowed these funds from your lender or mortgage broker. Amended taxes You use your loan to buy or build your main home. Amended taxes The points were computed as a percentage of the principal amount of the mortgage. Amended taxes The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. Amended taxes The points may be shown as paid from either your funds or the seller's. Amended taxes Figure 23-B. Amended taxes Are My Points Fully Deductible This Year? Please click here for the text description of the image. Amended taxes Figure 23-B. Amended taxes Are My Points Fully Deductible This Year? Note. Amended taxes If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. Amended taxes Home improvement loan. Amended taxes   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. Amended taxes Second home. Amended taxes You cannot fully deduct in the year paid points you pay on loans secured by your second home. Amended taxes You can deduct these points only over the life of the loan. Amended taxes Refinancing. Amended taxes   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. Amended taxes This is true even if the new mortgage is secured by your main home. Amended taxes   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Amended taxes You can deduct the rest of the points over the life of the loan. Amended taxes Example 1. Amended taxes In 1998, Bill Fields got a mortgage to buy a home. Amended taxes In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. Amended taxes The mortgage is secured by his home. Amended taxes To get the new loan, he had to pay three points ($3,000). Amended taxes Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. Amended taxes Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. Amended taxes The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. Amended taxes Bill's first payment on the new loan was due July 1. Amended taxes He made six payments on the loan in 2013 and is a cash basis taxpayer. Amended taxes Bill used the funds from the new mortgage to repay his existing mortgage. Amended taxes Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. Amended taxes He cannot deduct all of the points in 2013. Amended taxes He can deduct two points ($2,000) ratably over the life of the loan. Amended taxes He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. Amended taxes The other point ($1,000) was a fee for services and is not deductible. Amended taxes Example 2. Amended taxes The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. Amended taxes Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. Amended taxes His deduction is $500 ($2,000 × 25%). Amended taxes Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. Amended taxes This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. Amended taxes The total amount Bill deducts in 2013 is $550 ($500 + $50). Amended taxes Special Situations This section describes certain special situations that may affect your deduction of points. Amended taxes Original issue discount. Amended taxes   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. Amended taxes This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. Amended taxes Amounts charged for services. Amended taxes   Amounts charged by the lender for specific services connected to the loan are not interest. Amended taxes Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Amended taxes You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Amended taxes Points paid by the seller. Amended taxes   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Amended taxes Treatment by seller. Amended taxes   The seller cannot deduct these fees as interest. Amended taxes But they are a selling expense that reduces the amount realized by the seller. Amended taxes See chapter 15 for information on selling your home. Amended taxes Treatment by buyer. Amended taxes    The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. Amended taxes If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. Amended taxes If any of those tests are not met, the buyer deducts the points over the life of the loan. Amended taxes   For information about basis, see chapter 13. Amended taxes Funds provided are less than points. Amended taxes   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. Amended taxes In addition, you can deduct any points paid by the seller. Amended taxes Example 1. Amended taxes When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Amended taxes You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. Amended taxes Of the $1,000 charged for points, you can deduct $750 in the year paid. Amended taxes You spread the remaining $250 over the life of the mortgage. Amended taxes Example 2. Amended taxes The facts are the same as in Example 1, except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. Amended taxes In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Amended taxes You spread the remaining $250 over the life of the mortgage. Amended taxes You must reduce the basis of your home by the $1,000 paid by the seller. Amended taxes Excess points. Amended taxes   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. Amended taxes You must spread any additional points over the life of the mortgage. Amended taxes Mortgage ending early. Amended taxes   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. Amended taxes However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. Amended taxes Instead, deduct the remaining balance over the term of the new loan. Amended taxes    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Amended taxes Example. Amended taxes Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. Amended taxes He deducts $200 points per year. Amended taxes Through 2012, Dan has deducted $2,200 of the points. Amended taxes Dan prepaid his mortgage in full in 2013. Amended taxes He can deduct the remaining $800 of points in 2013. Amended taxes Limits on deduction. Amended taxes   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . Amended taxes See Publication 936 for details. Amended taxes Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. Amended taxes The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. Amended taxes Qualified mortgage insurance. Amended taxes   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). Amended taxes   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. Amended taxes If provided by the Rural Housing Service, it is commonly known as a guarantee fee. Amended taxes These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. Amended taxes Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. Amended taxes Special rules for prepaid mortgage insurance. Amended taxes   Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. Amended taxes You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. Amended taxes No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. Amended taxes This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. Amended taxes See the Example below. Amended taxes Example. Amended taxes Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. Amended taxes Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. Amended taxes Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. Amended taxes Ryan's adjusted gross income (AGI) for 2012 is $76,000. Amended taxes Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. Amended taxes For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. Amended taxes In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). Amended taxes Limit on deduction. Amended taxes   If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. Amended taxes See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. Amended taxes If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Amended taxes Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. Amended taxes You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Amended taxes A governmental unit is a person for purposes of furnishing the statement. Amended taxes The statement for each year should be sent to you by January 31 of the following year. Amended taxes A copy of this form will also be sent to the IRS. Amended taxes The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. Amended taxes However, it should not show any interest that was paid for you by a government agency. Amended taxes As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. Amended taxes However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. Amended taxes See Points , earlier, to determine whether you can deduct points not shown on Form 1098. Amended taxes Prepaid interest on Form 1098. Amended taxes   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. Amended taxes However, you cannot deduct the prepaid amount for January 2014 in 2013. Amended taxes (See Prepaid interest , earlier. Amended taxes ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. Amended taxes You will include the interest for January 2014 with the other interest you pay for 2014. Amended taxes See How To Report , later. Amended taxes Refunded interest. Amended taxes   If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. Amended taxes See Refunds of interest , earlier. Amended taxes Mortgage insurance premiums. Amended taxes   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. Amended taxes See Mortgage Insurance Premiums, earlier. Amended taxes Investment Interest This section discusses interest expenses you may be able to deduct as an investor. Amended taxes If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Amended taxes You can deduct investment interest subject to the limit discussed later. Amended taxes However, you cannot deduct interest you incurred to produce tax-exempt income. Amended taxes Nor can you deduct interest expenses on straddles. Amended taxes Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. Amended taxes Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Amended taxes It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Amended taxes Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Amended taxes Partners, shareholders, and beneficiaries. Amended taxes   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Amended taxes Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. Amended taxes Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Amended taxes The allocation is not affected by the use of property that secures the debt. Amended taxes Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. Amended taxes You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. Amended taxes The interest carried over is treated as investment interest paid or accrued in that next year. Amended taxes You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. Amended taxes Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Amended taxes Investment income. Amended taxes    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Amended taxes Investment income does not include Alaska Permanent Fund dividends. Amended taxes It also does not include qualified dividends or net capital gain unless you choose to include them. Amended taxes Choosing to include qualified dividends. Amended taxes   Investment income generally does not include qualified dividends, discussed in chapter 8. Amended taxes However, you can choose to include all or part of your qualified dividends in investment income. Amended taxes   You make this choice by completing Form 4952, line 4g, according to its instructions. Amended taxes   If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. Amended taxes Choosing to include net capital gain. Amended taxes   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Amended taxes However, you can choose to include all or part of your net capital gain in investment income. Amended taxes    You make this choice by completing Form 4952, line 4g, according to its instructions. Amended taxes   If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Amended taxes    Before making either choice, consider the overall effect on your tax liability. Amended taxes Compare your tax if you make one or both of these choices with your tax if you do not. Amended taxes Investment income of child reported on parent's return. Amended taxes    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. Amended taxes If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. Amended taxes Child's qualified dividends. Amended taxes   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. Amended taxes However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Amended taxes   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Amended taxes Child's Alaska Permanent Fund dividends. Amended taxes   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Amended taxes To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Amended taxes Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Amended taxes Subtract the result from the amount on Form 8814, line 12. Amended taxes Child's capital gain distributions. Amended taxes    If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. Amended taxes However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Amended taxes   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Amended taxes Investment expenses. Amended taxes   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Amended taxes Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Amended taxes Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. Amended taxes Losses from passive activities. Amended taxes   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Amended taxes See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. Amended taxes Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. Amended taxes Exception to use of Form 4952. Amended taxes   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Amended taxes Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Amended taxes You do not have any other deductible investment expenses. Amended taxes You have no carryover of investment interest expense from 2012. Amended taxes If you meet all of these tests, you can deduct all of your investment interest. Amended taxes More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. Amended taxes Items You Cannot Deduct Some interest payments are not deductible. Amended taxes Certain expenses similar to interest also are not deductible. Amended taxes Nondeductible expenses include the following items. Amended taxes Personal interest (discussed later). Amended taxes Service charges (however, see Other Expenses (Line 23) in chapter 28). Amended taxes Annual fees for credit cards. Amended taxes Loan fees. Amended taxes Credit investigation fees. Amended taxes Interest to purchase or carry tax-exempt securities. Amended taxes Penalties. Amended taxes   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. Amended taxes Personal Interest Personal interest is not deductible. Amended taxes Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. Amended taxes It includes the following items. Amended taxes Interest on car loans (unless you use the car for business). Amended taxes Interest on federal, state, or local income tax. Amended taxes Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. Amended taxes Late payment charges by a public utility. Amended taxes You may be able to deduct interest you pay on a qualified student loan. Amended taxes For details, see Publication 970, Tax Benefits for Education. Amended taxes Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. Amended taxes However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. Amended taxes You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. Amended taxes You do this by tracing disbursements of the debt proceeds to specific uses. Amended taxes For details on how to do this, see chapter 4 of Publication 535. Amended taxes How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. Amended taxes Where you deduct your interest expense generally depends on how you use the loan proceeds. Amended taxes See Table 23-1 for a summary of where to deduct your interest expense. Amended taxes Home mortgage interest and points. Amended taxes   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. Amended taxes If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. Amended taxes Attach a statement explaining the difference and print “See attached” next to line 10. Amended taxes    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. Amended taxes If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. Amended taxes The seller must give you this number and you must give the seller your TIN. Amended taxes A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Amended taxes Failure to meet any of these requirements may result in a $50 penalty for each failure. Amended taxes The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. Amended taxes See Social Security Number (SSN) in chapter 1 for more information about TINs. Amended taxes    If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. Amended taxes   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. Amended taxes More than one borrower. Amended taxes   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Amended taxes Show how much of the interest each of you paid, and give the name and address of the person who received the form. Amended taxes Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Amended taxes Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. Amended taxes   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. Amended taxes You should let each of the other borrowers know what his or her share is. Amended taxes Mortgage proceeds used for business or investment. Amended taxes    If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. Amended taxes It shows where to deduct the part of your excess interest that is for those activities. Amended taxes Investment interest. Amended taxes    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. Amended taxes Amortization of bond premium. Amended taxes   There are various ways to treat the premium you pay to buy taxable bonds. Amended taxes See Bond Premium Amortization in Publication 550. Amended taxes Income-producing rental or royalty interest. Amended taxes   Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). Amended taxes Example. Amended taxes You rent out part of your home and borrow money to make repairs. Amended taxes You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). Amended taxes Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. Amended taxes Table 23-1. Amended taxes Where To Deduct Your Interest Expense IF you have . Amended taxes . Amended taxes . Amended taxes THEN deduct it on . Amended taxes . Amended taxes . Amended taxes AND for more information go to . Amended taxes . Amended taxes . Amended taxes deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. Amended taxes deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. Amended taxes deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. Amended taxes deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. Amended taxes deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. Amended taxes deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. Amended taxes deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. Amended taxes deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. Amended taxes deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. Amended taxes personal interest not deductible. Amended taxes Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Office of the Attorney General

Website: Office of the Attorney General

Address: Office of the Attorney General
Bureau of Consumer Protection
Strawberry Square, 15th Floor
Harrisburg, PA 17120

Phone Number: 717-787-3391

Toll-free: 1-800-441-2555 (PA) 1-888-520-6680 (Home Improvement)

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Regional Consumer Protection Offices

Erie Regional Office - Office of the Attorney General

Website: Erie Regional Office - Office of the Attorney General

Address: Erie Regional Office - Office of the Attorney General
Bureau of Consumer Protection
1001 State St., 10th Floor
Erie, PA 16501

Phone Number: 814-871-4371

Philadelphia Regional Office - Office of the Attorney General

Website: Philadelphia Regional Office - Office of the Attorney General

Address: Philadelphia Regional Office - Office of the Attorney General
Bureau of Consumer Protection
21 S. 12th St., 2nd Floor
Philadelphia, PA 19107

Phone Number: 215-560-2414

Pittsburgh Regional Office - Bureau of Consumer Protection

Website: Pittsburgh Regional Office - Bureau of Consumer Protection

Address: Pittsburgh Regional Office - Bureau of Consumer Protection
Bureau of Consumer Protection
Manor Complex, 6th Floor
564 Forbes Ave.
Pittsburgh, PA 15219

Phone Number: 412-565-5135

Scranton Regional Office of the Attorney General

Website: Scranton Regional Office of the Attorney General

Address: Scranton Regional Office of the Attorney General
Bureau of Consumer Protection
100 Samter Building
101 Penn Ave.
Scranton, PA 18503

Phone Number: 570-963-4913

State College Regional Office of the Attorney General

Website: State College Regional Office of the Attorney General

Address: State College Regional Office of the Attorney General
Bureau of Consumer Protection
444 E. College Ave., Suite 440
State College, PA 16801

Phone Number: 814-863-3900

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County Consumer Protection Offices

Bucks County Department of Consumer Protection

Website: Bucks County Department of Consumer Protection

Address: Bucks County Department of Consumer Protection
50 N. Main St.
Doylestown, PA 18901

Phone Number: 215-348-7442

Delaware County Consumer Affairs

Website: Delaware County Consumer Affairs

Address: Delaware County Consumer Affairs
201 W. Front St.
Government Center Building
Media, PA 19063

Phone Number: 610-891-4865

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Banking

Website: Department of Banking

Address: Department of Banking
Consumer Services
17 N. Second St., Suite 1300
Harrisburg, PA 17101-2290

Phone Number: 717-787-1854

Toll-free: 1-800-722-2657

TTY: 1-800-679-5070

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Insurance Department

Website: Insurance Department

Address: Insurance Department
Consumer Services
1209 Strawberry Square
Harrisburg, PA 17120

Phone Number: 717-787-2317

Toll-free: 1-877-881-6388 (PA)

TTY: 717-783-3898

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Securities Commission

Website: Securities Commission

Address: Securities Commission
17 N. 2nd St., Suite 1300
Harrisburg, PA 17101

Phone Number: 717-787-1854

Toll-free: 1-800-722-2657 (PA)

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Pennsylvania Office of Consumer Advocate

Website: Pennsylvania Office of Consumer Advocate

Address: Pennsylvania Office of Consumer Advocate
Office of the Attorney General
555 Walnut St.
5th Floor, Forum Place
Harrisburg, PA 17101-1923

Phone Number: 717-783-5048

Toll-free: 1-800-684-6560 (PA)

Public Utility Commission

Website: Public Utility Commission

Address: Public Utility Commission
Bureau of Consumer Services
PO Box 3265
Harrisburg, PA 17105-3265

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The Amended Taxes

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