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Efile State Taxes For Free

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Efile State Taxes For Free

Efile state taxes for free 1. Efile state taxes for free   Rental Income and Expenses (If No Personal Use of Dwelling) Table of Contents Rental IncomeWhen To Report Types of Income Rental ExpensesWhen To Deduct Types of Expenses This chapter discusses the various types of rental income and expenses for a residential rental activity with no personal use of the dwelling. Efile state taxes for free Generally, each year you will report all income and deduct all out-of-pocket expenses in full. Efile state taxes for free The deduction to recover the cost of your rental property—depreciation—is taken over a prescribed number of years, and is discussed in chapter 2, Depreciation of Rental Property. Efile state taxes for free If your rental income is from property you also use personally or rent to someone at less than a fair rental price, first read the information in chapter 5 , Personal Use of Dwelling Unit (Including Vacation Home). Efile state taxes for free Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Efile state taxes for free Rental income is any payment you receive for the use or occupation of property. Efile state taxes for free In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. Efile state taxes for free When To Report When you report rental income on your tax return generally depends on whether you are a cash basis taxpayer or use an accrual method. Efile state taxes for free Most individual taxpayers use the cash method. Efile state taxes for free Cash method. Efile state taxes for free   You are a cash basis taxpayer if you report income on your return in the year you actually or constructively receive it, regardless of when it was earned. Efile state taxes for free You constructively receive income when it is made available to you, for example, by being credited to your bank account. Efile state taxes for free Accrual method. Efile state taxes for free    If you are an accrual basis taxpayer, you generally report income when you earn it, rather than when you receive it. Efile state taxes for free You generally deduct your expenses when you incur them, rather than when you pay them. Efile state taxes for free More information. Efile state taxes for free   See Publication 538, Accounting Periods and Methods, for more information about when you constructively receive income and accrual methods of accounting. Efile state taxes for free Types of Income The following are common types of rental income. Efile state taxes for free Advance rent. Efile state taxes for free   Advance rent is any amount you receive before the period that it covers. Efile state taxes for free Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Efile state taxes for free Example. Efile state taxes for free On March 18, 2013, you signed a 10-year lease to rent your property. Efile state taxes for free During 2013, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. Efile state taxes for free You must include $19,200 in your rental income in the first year. Efile state taxes for free Canceling a lease. Efile state taxes for free   If your tenant pays you to cancel a lease, the amount you receive is rent. Efile state taxes for free Include the payment in your income in the year you receive it regardless of your method of accounting. Efile state taxes for free Expenses paid by tenant. Efile state taxes for free   If your tenant pays any of your expenses, those payments are rental income. Efile state taxes for free Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. Efile state taxes for free For more information, see Rental Expenses , later. Efile state taxes for free Example 1. Efile state taxes for free Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. Efile state taxes for free Under the terms of the lease, your tenant does not have to pay this bill. Efile state taxes for free Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. Efile state taxes for free You can deduct the utility payment made by your tenant as a rental expense. Efile state taxes for free Example 2. Efile state taxes for free While you are out of town, the furnace in your rental property stops working. Efile state taxes for free Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Efile state taxes for free Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. Efile state taxes for free You can deduct the repair payment made by your tenant as a rental expense. Efile state taxes for free Property or services. Efile state taxes for free   If you receive property or services as rent, instead of money, include the fair market value of the property or services in your rental income. Efile state taxes for free   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Efile state taxes for free Example. Efile state taxes for free Your tenant is a house painter. Efile state taxes for free He offers to paint your rental property instead of paying 2 months rent. Efile state taxes for free You accept his offer. Efile state taxes for free Include in your rental income the amount the tenant would have paid for 2 months rent. Efile state taxes for free You can deduct that same amount as a rental expense for painting your property. Efile state taxes for free Security deposits. Efile state taxes for free   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Efile state taxes for free But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Efile state taxes for free    If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Efile state taxes for free Include it in your income when you receive it. Efile state taxes for free Other Sources of Rental Income Lease with option to buy. Efile state taxes for free   If the rental agreement gives your tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. Efile state taxes for free If your tenant exercises the right to buy the property, the payments you receive for the period after the date of sale are considered part of the selling price. Efile state taxes for free Part interest. Efile state taxes for free   If you own a part interest in rental property, you must report your part of the rental income from the property. Efile state taxes for free Rental of property also used as your home. Efile state taxes for free   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Efile state taxes for free However, you can deduct on Schedule A (Form 1040), Itemized Deductions, the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Efile state taxes for free See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Efile state taxes for free Rental Expenses In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. Efile state taxes for free Personal use of rental property. Efile state taxes for free   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Efile state taxes for free Also, your rental expense deductions may be limited. Efile state taxes for free See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Efile state taxes for free Part interest. Efile state taxes for free   If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership. Efile state taxes for free Example. Efile state taxes for free Roger owns a one-half undivided interest in a rental house. Efile state taxes for free Last year he paid $968 for necessary repairs on the property. Efile state taxes for free Roger can deduct $484 (50% × $968) as a rental expense. Efile state taxes for free He is entitled to reimbursement for the remaining half from the co-owner. Efile state taxes for free When To Deduct You generally deduct your rental expenses in the year you pay them. Efile state taxes for free If you use the accrual method, see Publication 538 for more information. Efile state taxes for free Types of Expenses Listed below are the most common rental expenses. Efile state taxes for free Advertising. Efile state taxes for free Auto and travel expenses. Efile state taxes for free Cleaning and maintenance. Efile state taxes for free Commissions. Efile state taxes for free Depreciation. Efile state taxes for free Insurance. Efile state taxes for free Interest (other). Efile state taxes for free Legal and other professional fees. Efile state taxes for free Local transportation expenses. Efile state taxes for free Management fees. Efile state taxes for free Mortgage interest paid to banks, etc. Efile state taxes for free Points. Efile state taxes for free Rental payments. Efile state taxes for free Repairs. Efile state taxes for free Taxes. Efile state taxes for free Utilities. Efile state taxes for free Some of these expenses, as well as other less common ones, are discussed below. Efile state taxes for free Depreciation. Efile state taxes for free   Depreciation is a capital expense. Efile state taxes for free It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property. Efile state taxes for free   You can begin to depreciate rental property when it is ready and available for rent. Efile state taxes for free See Placed in Service under When Does Depreciation Begin and End in chapter 2. Efile state taxes for free Insurance premiums paid in advance. Efile state taxes for free   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Efile state taxes for free You cannot deduct the total premium in the year you pay it. Efile state taxes for free See chapter 6 of Publication 535 for information on deductible premiums. Efile state taxes for free Interest expense. Efile state taxes for free   You can deduct mortgage interest you pay on your rental property. Efile state taxes for free When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Efile state taxes for free Chapter 4 of Publication 535 explains mortgage interest in detail. Efile state taxes for free Expenses paid to obtain a mortgage. Efile state taxes for free   Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. Efile state taxes for free These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property. Efile state taxes for free Form 1098, Mortgage Interest Statement. Efile state taxes for free   If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year. Efile state taxes for free 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, the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Efile state taxes for free Attach a statement to your return showing the name and address of the other person. Efile state taxes for free On the dotted line next to line 13, enter “See attached. Efile state taxes for free ” Legal and other professional fees. Efile state taxes for free   You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I. Efile state taxes for free For example, on your 2013 Schedule E you can deduct fees paid in 2013 to prepare Part I of your 2012 Schedule E. Efile state taxes for free You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Efile state taxes for free Local benefit taxes. Efile state taxes for free   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Efile state taxes for free These charges are nondepreciable capital expenditures and must be added to the basis of your property. Efile state taxes for free However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Efile state taxes for free Local transportation expenses. Efile state taxes for free   You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Efile state taxes for free However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Efile state taxes for free See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Efile state taxes for free   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Efile state taxes for free For 2013, the standard mileage rate for business use is 56. Efile state taxes for free 5 cents per mile. Efile state taxes for free For more information, see chapter 4 of Publication 463. Efile state taxes for free    To deduct car expenses under either method, you must keep records that follow the rules in chapter 5 of Publication 463. Efile state taxes for free In addition, you must complete Form 4562, Part V, and attach it to your tax return. Efile state taxes for free Pre-rental expenses. Efile state taxes for free   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Efile state taxes for free Rental of equipment. Efile state taxes for free   You can deduct the rent you pay for equipment that you use for rental purposes. Efile state taxes for free However, in some cases, lease contracts are actually purchase contracts. Efile state taxes for free If so, you cannot deduct these payments. Efile state taxes for free You can recover the cost of purchased equipment through depreciation. Efile state taxes for free Rental of property. Efile state taxes for free   You can deduct the rent you pay for property that you use for rental purposes. Efile state taxes for free If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Efile state taxes for free Travel expenses. Efile state taxes for free   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Efile state taxes for free You must properly allocate your expenses between rental and nonrental activities. Efile state taxes for free You cannot deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. Efile state taxes for free The cost of improvements is recovered by taking depreciation. Efile state taxes for free For information on travel expenses, see chapter 1 of Publication 463. Efile state taxes for free    To deduct travel expenses, you must keep records that follow the rules in chapter 5 of Publication 463. Efile state taxes for free Uncollected rent. Efile state taxes for free   If you are a cash basis taxpayer, do not deduct uncollected rent. Efile state taxes for free Because you have not included it in your income, it is not deductible. Efile state taxes for free   If you use an accrual method, report income when you earn it. Efile state taxes for free If you are unable to collect the rent, you may be able to deduct it as a business bad debt. Efile state taxes for free See chapter 10 of Publication 535 for more information about business bad debts. Efile state taxes for free Vacant rental property. Efile state taxes for free   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Efile state taxes for free However, you cannot deduct any loss of rental income for the period the property is vacant. Efile state taxes for free Vacant while listed for sale. Efile state taxes for free   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Efile state taxes for free If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Efile state taxes for free Points The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. Efile state taxes for free These charges are also called loan origination fees, maximum loan charges, or premium charges. Efile state taxes for free Any of these charges (points) that are solely for the use of money are interest. Efile state taxes for free Because points are prepaid interest, you generally cannot deduct the full amount in the year paid, but must deduct the interest over the term of the loan. Efile state taxes for free The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. Efile state taxes for free In this case, points are equivalent to OID, which is the difference between: The amount borrowed (redemption price at maturity, or principal) and The proceeds (issue price). Efile state taxes for free The first step is to determine whether your total OID (which you may have on bonds or other investments in addition to the mortgage loan), including the OID resulting from the points, is insignificant or de minimis. Efile state taxes for free If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct. Efile state taxes for free De minimis OID. Efile state taxes for free   The OID is de minimis if it is less than one-fourth of 1% (. Efile state taxes for free 0025) of the stated redemption price at maturity (principal amount of the loan) multiplied by the number of full years from the date of original issue to maturity (term of the loan). Efile state taxes for free   If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct each year. Efile state taxes for free On a constant-yield basis over the term of the loan. Efile state taxes for free On a straight line basis over the term of the loan. Efile state taxes for free In proportion to stated interest payments. Efile state taxes for free In its entirety at maturity of the loan. Efile state taxes for free You make this choice by deducting the OID (points) in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Efile state taxes for free Example. Efile state taxes for free Carol Madison took out a $100,000 mortgage loan on January 1, 2013, to buy a house she will use as a rental during 2013. Efile state taxes for free The loan is to be repaid over 30 years. Efile state taxes for free During 2013, Carol paid $10,000 of mortgage interest (stated interest) to the lender. Efile state taxes for free When the loan was made, she paid $1,500 in points to the lender. Efile state taxes for free The points reduced the principal amount of the loan from $100,000 to $98,500, resulting in $1,500 of OID. Efile state taxes for free Carol determines that the points (OID) she paid are de minimis based on the following computation. Efile state taxes for free Redemption price at maturity (principal amount of the loan) $100,000 Multiplied by: The term of the  loan in complete years ×30 Multiplied by ×. Efile state taxes for free 0025 De minimis amount $7,500 The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). Efile state taxes for free Therefore, Carol has de minimis OID and she can choose one of the four ways discussed earlier to figure the amount she can deduct each year. Efile state taxes for free Under the straight line method, she can deduct $50 each year for 30 years. Efile state taxes for free Constant-yield method. Efile state taxes for free   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Efile state taxes for free   You figure your deduction for the first year in the following manner. Efile state taxes for free Determine the issue price of the loan. Efile state taxes for free If you paid points on the loan, the issue price generally is the difference between the principal and the points. Efile state taxes for free Multiply the result in (1) by the yield to maturity (defined later). Efile state taxes for free Subtract any qualified stated interest payments (defined later) from the result in (2). Efile state taxes for free This is the OID you can deduct in the first year. Efile state taxes for free Yield to maturity (YTM). Efile state taxes for free   This rate is generally shown in the literature you receive from your lender. Efile state taxes for free If you do not have this information, consult your lender or tax advisor. Efile state taxes for free In general, the YTM is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Efile state taxes for free Qualified stated interest (QSI). Efile state taxes for free   In general, this is the stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a fixed rate. Efile state taxes for free Example—Year 1. Efile state taxes for free The facts are the same as in the previous example. Efile state taxes for free The yield to maturity on Carol's loan is 10. Efile state taxes for free 2467%, compounded annually. Efile state taxes for free She figured the amount of points (OID) she could deduct in 2013 as follows. Efile state taxes for free Principal amount of the loan $100,000 Minus: Points (OID) –1,500 Issue price of the loan $98,500 Multiplied by: YTM × . Efile state taxes for free 102467 Total 10,093 Minus: QSI –10,000 Points (OID) deductible in 2013 $93 To figure your deduction in any subsequent year, you start with the adjusted issue price. Efile state taxes for free To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. Efile state taxes for free Then follow steps (2) and (3), earlier. Efile state taxes for free Example—Year 2. Efile state taxes for free Carol figured the deduction for 2014 as follows. Efile state taxes for free Issue price $98,500 Plus: Points (OID) deducted  in 2013 +93 Adjusted issue price $98,593 Multiplied by: YTM × . Efile state taxes for free 102467 Total 10,103 Minus: QSI –10,000 Points (OID) deductible in 2014 $103 Loan or mortgage ends. Efile state taxes for free    If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. Efile state taxes for free A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Efile state taxes for free However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan. Efile state taxes for free Points when loan refinance is more than the previous outstanding balance. Efile state taxes for free   When you refinance a rental property for more than the previous outstanding balance, the portion of the points allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Efile state taxes for free For example, if an individual refinanced a loan with a balance of $100,000, the amount of the new loan was $120,000, and the taxpayer used $20,000 to purchase a car, points allocable to the $20,000 would be treated as nondeductible personal interest. Efile state taxes for free Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Efile state taxes for free Improvements. Efile state taxes for free   You must capitalize any expense you pay to improve your rental property. Efile state taxes for free An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Efile state taxes for free Betterments. Efile state taxes for free   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Efile state taxes for free Restoration. Efile state taxes for free   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Efile state taxes for free Adaptation. Efile state taxes for free   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Efile state taxes for free Separate the costs of repairs and improvements, and keep accurate records. Efile state taxes for free You will need to know the cost of improvements when you sell or depreciate your property. Efile state taxes for free The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Efile state taxes for free Table 1-1. Efile state taxes for free Examples of Improvements Additions Bedroom Bathroom Deck Garage Porch Patio  Lawn & Grounds Landscaping Driveway Walkway Fence Retaining wall Sprinkler system Swimming pool Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system   Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances Kitchen modernization Flooring Wall-to-wall carpeting  Insulation Attic Walls, floor Pipes, duct work Prev  Up  Next   Home   More Online Publications
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The Efile State Taxes For Free

Efile state taxes for free 5. Efile state taxes for free   Additional Rules for Listed Property Table of Contents Introduction Useful Items - You may want to see: What Is Listed Property?Passenger Automobiles Other Property Used for Transportation Computers and Related Peripheral Equipment Can Employees Claim a Deduction? What Is the Business-Use Requirement?How To Allocate Use Qualified Business Use Recapture of Excess Depreciation Lessee's Inclusion Amount Do the Passenger Automobile Limits Apply?Maximum Depreciation Deduction Deductions After the Recovery Period Deductions For Passenger Automobiles Acquired in a Trade-in What Records Must Be Kept?Adequate Records How Is Listed Property Information Reported? Introduction This chapter discusses the deduction limits and other special rules that apply to certain listed property. Efile state taxes for free Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers. Efile state taxes for free Deductions for listed property (other than certain leased property) are subject to the following special rules and limits. Efile state taxes for free Deduction for employees. Efile state taxes for free If your use of the property is not for your employer's convenience or is not required as a condition of your employment, you cannot deduct depreciation or rent expenses for your use of the property as an employee. Efile state taxes for free Business-use requirement. Efile state taxes for free If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance. Efile state taxes for free In addition, you must figure any depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS) using the straight line method over the ADS recovery period. Efile state taxes for free You may also have to recapture (include in income) any excess depreciation claimed in previous years. Efile state taxes for free A similar inclusion amount applies to certain leased property. Efile state taxes for free Passenger automobile limits and rules. Efile state taxes for free Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. Efile state taxes for free You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period. Efile state taxes for free This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. Efile state taxes for free It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return. Efile state taxes for free Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. Efile state taxes for free What Is Listed Property? Listed property is any of the following. Efile state taxes for free Passenger automobiles (as defined later). Efile state taxes for free Any other property used for transportation, unless it is an excepted vehicle. Efile state taxes for free Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment). Efile state taxes for free Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. Efile state taxes for free A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business as discussed in Publication 587. Efile state taxes for free Improvements to listed property. Efile state taxes for free   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. Efile state taxes for free The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. Efile state taxes for free For example, if you must depreciate the listed property using the straight line method, you also must depreciate the improvement using the straight line method. Efile state taxes for free Passenger Automobiles A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). Efile state taxes for free It includes any part, component, or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile. Efile state taxes for free The following vehicles are not considered passenger automobiles for these purposes. Efile state taxes for free An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business. Efile state taxes for free A vehicle used directly in the trade or business of transporting persons or property for pay or hire. Efile state taxes for free A truck or van that is a qualified nonpersonal use vehicle. Efile state taxes for free Qualified nonpersonal use vehicles. Efile state taxes for free   Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Efile state taxes for free They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation , next. Efile state taxes for free They also include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. Efile state taxes for free For a detailed discussion of passenger automobiles, including leased passenger automobiles, see  Publication 463. Efile state taxes for free Other Property Used for Transportation Although vehicles used to transport persons or property for pay or hire and vehicles rated at more than the 6,000-pound threshold are not passenger automobiles, they are still “other property used for transportation” and are subject to the special rules for listed property. Efile state taxes for free Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods. Efile state taxes for free Excepted vehicles. Efile state taxes for free   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ). Efile state taxes for free Clearly marked police and fire vehicles. Efile state taxes for free Unmarked vehicles used by law enforcement officers if the use is officially authorized. Efile state taxes for free Ambulances used as such and hearses used as such. Efile state taxes for free Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo. Efile state taxes for free Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks. Efile state taxes for free Combines, cranes and derricks, and forklifts. Efile state taxes for free Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat. Efile state taxes for free Qualified moving vans. Efile state taxes for free Qualified specialized utility repair trucks. Efile state taxes for free School buses used in transporting students and employees of schools. Efile state taxes for free Other buses with a capacity of at least 20 passengers that are used as passenger buses. Efile state taxes for free Tractors and other special purpose farm vehicles. Efile state taxes for free Clearly marked police and fire vehicle. Efile state taxes for free   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements. Efile state taxes for free It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit. Efile state taxes for free It is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times. Efile state taxes for free It is prohibited from being used for personal use (other than commuting) outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency. Efile state taxes for free It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. Efile state taxes for free A marking on a license plate is not a clear marking for these purposes. Efile state taxes for free Qualified moving van. Efile state taxes for free   A qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met. Efile state taxes for free No personal use of the van is allowed other than for travel to and from a move site or for minor personal use, such as a stop for lunch on the way from one move site to another. Efile state taxes for free Personal use for travel to and from a move site happens no more than five times a month on average. Efile state taxes for free Personal use is limited to situations in which it is more convenient to the employer, because of the location of the employee's residence in relation to the location of the move site, for the van not to be returned to the employer's business location. Efile state taxes for free Qualified specialized utility repair truck. Efile state taxes for free   A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply. Efile state taxes for free The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts. Efile state taxes for free Shelves, racks, or other permanent interior construction has been installed to carry and store the tools, equipment, or parts and would make it unlikely that the truck would be used, other than minimally, for personal purposes. Efile state taxes for free The employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity, gas, telephone, water, sewer, or steam utility services. Efile state taxes for free Computers and Related Peripheral Equipment A computer is a programmable, electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention. Efile state taxes for free It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. Efile state taxes for free Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. Efile state taxes for free The following are neither computers nor related peripheral equipment. Efile state taxes for free Any equipment that is an integral part of other property that is not a computer. Efile state taxes for free Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment. Efile state taxes for free Equipment of a kind used primarily for the user's amusement or entertainment, such as video games. Efile state taxes for free Can Employees Claim a Deduction? If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. Efile state taxes for free The use of your property in performing services as an employee is a business use only if both the following requirements are met. Efile state taxes for free The use is for your employer's convenience. Efile state taxes for free The use is required as a condition of your employment. Efile state taxes for free If these requirements are not met, you cannot deduct depreciation (including the section 179 deduction) or rent expenses for your use of the property as an employee. Efile state taxes for free Employer's convenience. Efile state taxes for free   Whether the use of listed property is for your employer's convenience must be determined from all the facts. Efile state taxes for free The use is for your employer's convenience if it is for a substantial business reason of the employer. Efile state taxes for free The use of listed property during your regular working hours to carry on your employer's business generally is for the employer's convenience. Efile state taxes for free Condition of employment. Efile state taxes for free   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. Efile state taxes for free The use of property must be required for you to perform your duties properly. Efile state taxes for free Your employer does not have to require explicitly that you use the property. Efile state taxes for free However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient. Efile state taxes for free Example 1. Efile state taxes for free Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. Efile state taxes for free She owns and uses a motorcycle to deliver packages to downtown offices. Efile state taxes for free We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. Efile state taxes for free Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. Efile state taxes for free Example 2. Efile state taxes for free Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. Efile state taxes for free He must travel to these sites on a regular basis. Efile state taxes for free Uplift does not furnish an automobile or explicitly require him to use his own automobile. Efile state taxes for free However, it pays him for any costs he incurs in traveling to the various sites. Efile state taxes for free The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. Efile state taxes for free Example 3. Efile state taxes for free Assume the same facts as in Example 2 except that Uplift furnishes a car to Bill, who chooses to use his own car and receive payment for using it. Efile state taxes for free The use of his own car is neither for the convenience of Uplift nor required as a condition of employment. Efile state taxes for free Example 4. Efile state taxes for free Marilyn Lee is a pilot for Y Company, a small charter airline. Efile state taxes for free Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. Efile state taxes for free Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. Efile state taxes for free Marilyn owns her own airplane. Efile state taxes for free The use of her airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment. Efile state taxes for free Example 5. Efile state taxes for free David Rule is employed as an engineer with Zip, an engineering contracting firm. Efile state taxes for free He occasionally takes work home at night rather than work late in the office. Efile state taxes for free He owns and uses a home computer which is virtually identical to the office model. Efile state taxes for free His use of the computer is neither for the convenience of his employer nor required as a condition of employment. Efile state taxes for free What Is the Business-Use Requirement? You can claim the section 179 deduction and a special depreciation allowance for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. Efile state taxes for free To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. Efile state taxes for free If this requirement is not met, the following rules apply. Efile state taxes for free Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction. Efile state taxes for free Property not used predominantly for qualified business use during the year it is placed in service does not qualify for a special depreciation allowance. Efile state taxes for free Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. Efile state taxes for free This rule applies each year of the recovery period. Efile state taxes for free Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use. Efile state taxes for free A lessee must add an inclusion amount to income in the first year in which the leased property is not used predominantly for qualified business use. Efile state taxes for free Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as electing the straight line method. Efile state taxes for free It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. Efile state taxes for free Exception for leased property. Efile state taxes for free   The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. Efile state taxes for free   You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. Efile state taxes for free This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. Efile state taxes for free Occasional or incidental leasing activity is insufficient. Efile state taxes for free For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. Efile state taxes for free An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. Efile state taxes for free How To Allocate Use To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses. Efile state taxes for free For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. Efile state taxes for free You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year. Efile state taxes for free For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). Efile state taxes for free For example, you can determine the percentage of business use of a computer by dividing the number of hours you used the computer for business purposes during the year by the total number of hours you used the computer for all purposes (including business use) during the year. Efile state taxes for free Entertainment use. Efile state taxes for free   Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense. Efile state taxes for free Commuting use. Efile state taxes for free   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. Efile state taxes for free For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. Efile state taxes for free This is also true for a business meeting held in a car while commuting to work. Efile state taxes for free Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. Efile state taxes for free The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use. Efile state taxes for free Use of your automobile by another person. Efile state taxes for free   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies. Efile state taxes for free That use is directly connected with your business. Efile state taxes for free You properly report the value of the use as income to the other person and withhold tax on the income where required. Efile state taxes for free You are paid a fair market rent. Efile state taxes for free Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3). Efile state taxes for free Employee deductions. Efile state taxes for free   If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. Efile state taxes for free See Can Employees Claim a Deduction , earlier. Efile state taxes for free Qualified Business Use Qualified business use of listed property is any use of the property in your trade or business. Efile state taxes for free However, it does not include the following uses. Efile state taxes for free The leasing of property to any 5% owner or related person (to the extent the property is used by a 5% owner or person related to the owner or lessee of the property). Efile state taxes for free The use of property as pay for the services of a 5% owner or related person. Efile state taxes for free The use of property as pay for services of any person (other than a 5% owner or related person), unless the value of the use is included in that person's gross income and income tax is withheld on that amount where required. Efile state taxes for free Property does not stop being used predominantly for qualified business use because of a transfer at death. Efile state taxes for free Exception for leasing or compensatory use of aircraft. Efile state taxes for free   Treat the leasing of any aircraft by a 5% owner or related person, or the compensatory use of any aircraft, as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use. Efile state taxes for free 5% owner. Efile state taxes for free   For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business. Efile state taxes for free   For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following. Efile state taxes for free More than 5% of the outstanding stock of the corporation. Efile state taxes for free Stock possessing more than 5% of the total combined voting power of all stock in the corporation. Efile state taxes for free Related persons. Efile state taxes for free   For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 . Efile state taxes for free For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Efile state taxes for free Examples. Efile state taxes for free   The following examples illustrate whether the use of business property is qualified business use. Efile state taxes for free Example 1. Efile state taxes for free John Maple is the sole proprietor of a plumbing contracting business. Efile state taxes for free John employs his brother, Richard, in the business. Efile state taxes for free As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. Efile state taxes for free The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. Efile state taxes for free The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use. Efile state taxes for free Example 2. Efile state taxes for free John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. Efile state taxes for free He does not include the value of the personal use of the company automobiles as part of their compensation and he does not withhold tax on the value of the use of the automobiles. Efile state taxes for free This use of company automobiles by employees is not a qualified business use. Efile state taxes for free Example 3. Efile state taxes for free James Company Inc. Efile state taxes for free owns several automobiles that its employees use for business purposes. Efile state taxes for free The employees also are allowed to take the automobiles home at night. Efile state taxes for free The fair market value of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. Efile state taxes for free This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company. Efile state taxes for free Investment Use The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. Efile state taxes for free However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year. Efile state taxes for free Example 1. Efile state taxes for free Sarah Bradley uses a home computer 50% of the time to manage her investments. Efile state taxes for free She also uses the computer 40% of the time in her part-time consumer research business. Efile state taxes for free Sarah's home computer is listed property because it is not used at a regular business establishment. Efile state taxes for free She does not use the computer predominantly for qualified business use. Efile state taxes for free Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. Efile state taxes for free She must depreciate it using the straight line method over the ADS recovery period. Efile state taxes for free Her combined business/investment use for determining her depreciation deduction is 90%. Efile state taxes for free Example 2. Efile state taxes for free If Sarah uses her computer 30% of the time to manage her investments and 60% of the time in her consumer research business, it is used predominantly for qualified business use. Efile state taxes for free She can elect a section 179 deduction and, if she does not deduct all the computer's cost, she can claim a special depreciation allowance and depreciate the computer using the 200% declining balance method over the GDS recovery period. Efile state taxes for free Her combined business/investment use for determining her depreciation deduction is 90%. Efile state taxes for free Recapture of Excess Depreciation If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. Efile state taxes for free You also increase the adjusted basis of your property by the same amount. Efile state taxes for free Excess depreciation is: The depreciation allowable for the property (including any section 179 deduction and special depreciation allowance claimed) for years before the first year you do not use the property predominantly for qualified business use, minus The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service. Efile state taxes for free To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period. Efile state taxes for free Example. Efile state taxes for free In June 2009, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. Efile state taxes for free She used it only for qualified business use for 2009 through 2012. Efile state taxes for free Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. Efile state taxes for free She began depreciating it using the 200% DB method over a 5-year GDS recovery period. Efile state taxes for free The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply. Efile state taxes for free During 2013, she used the truck 50% for business and 50% for personal purposes. Efile state taxes for free She includes $4,018 excess depreciation in her gross income for 2013. Efile state taxes for free The excess depreciation is determined as follows. Efile state taxes for free Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2009 through 2012. Efile state taxes for free (Depreciation is from Table A-1. Efile state taxes for free ) $16,618 Minus: Depreciation allowable (Table A-8):     2009 – 10% of $18,000 $1,800   2010 – 20% of $18,000 3,600   2011 – 20% of $18,000 3,600   2012 – 20% of $18,000 3,600 12,600 Excess depreciation $4,018 If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2015, there will be no excess depreciation. Efile state taxes for free The total depreciation allowable using Table A-8 through 2015 will be $18,000, which equals the total of the section 179 deduction and depreciation she will have claimed. Efile state taxes for free Where to figure and report recapture. Efile state taxes for free   Use Form 4797, Part IV, to figure the recapture amount. Efile state taxes for free Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. Efile state taxes for free For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. Efile state taxes for free If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21. Efile state taxes for free Lessee's Inclusion Amount If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. Efile state taxes for free Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). Efile state taxes for free For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463. Efile state taxes for free The inclusion amount is the sum of Amount A and Amount B, described next. Efile state taxes for free However, see the special rules for the inclusion amount, later, if your lease begins in the last 9 months of your tax year or is for less than one year. Efile state taxes for free Amount A. Efile state taxes for free   Amount A is: The fair market value of the property, multiplied by The business/investment use for the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A-19 in Appendix A . Efile state taxes for free   The fair market value of the property is the value on the first day of the lease term. Efile state taxes for free If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the fair market value. Efile state taxes for free Amount B. Efile state taxes for free   Amount B is: The fair market value of the property, multiplied by The average of the business/investment use for all tax years the property was leased that precede the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A–20 in Appendix A . Efile state taxes for free Maximum inclusion amount. Efile state taxes for free   The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income. Efile state taxes for free Inclusion amount worksheet. Efile state taxes for free   The following worksheet is provided to help you figure the inclusion amount for leased listed property. Efile state taxes for free Inclusion Amount Worksheet for Leased Listed Property 1. Efile state taxes for free Fair market value   2. Efile state taxes for free Business/investment use for first year business use is 50% or less   3. Efile state taxes for free Multiply line 1 by line 2. Efile state taxes for free   4. Efile state taxes for free Rate (%) from Table A-19   5. Efile state taxes for free Multiply line 3 by line 4. Efile state taxes for free This is Amount A. Efile state taxes for free   6. Efile state taxes for free Fair market value   7. Efile state taxes for free Average business/investment use for years property leased before the first year business use is 50% or less . Efile state taxes for free . Efile state taxes for free . Efile state taxes for free . Efile state taxes for free . Efile state taxes for free . Efile state taxes for free . Efile state taxes for free . Efile state taxes for free . Efile state taxes for free . Efile state taxes for free . Efile state taxes for free . Efile state taxes for free . Efile state taxes for free   8. Efile state taxes for free Multiply line 6 by line 7   9. Efile state taxes for free Rate (%) from Table A-20   10. Efile state taxes for free Multiply line 8 by line 9. Efile state taxes for free This is Amount B. Efile state taxes for free   11. Efile state taxes for free Add line 5 and line 10. Efile state taxes for free This is your inclusion amount. Efile state taxes for free Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. Efile state taxes for free )         Example. Efile state taxes for free On February 1, 2011, Larry House, a calendar year taxpayer, leased and placed in service a computer with a fair market value of $3,000. Efile state taxes for free The lease is for a period of 5 years. Efile state taxes for free Larry does not use the computer at a regular business establishment, so it is listed property. Efile state taxes for free His business use of the property (all of which is qualified business use) is 80% in 2011, 60% in 2012, and 40% in 2013. Efile state taxes for free He must add an inclusion amount to gross income for 2013, the first tax year his qualified business-use percentage is 50% or less. Efile state taxes for free The computer has a 5-year recovery period under both GDS and ADS. Efile state taxes for free 2013 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19. Efile state taxes for free 8%. Efile state taxes for free The applicable percentage from Table A-20 is 22. Efile state taxes for free 0%. Efile state taxes for free Larry's deductible rent for the computer for 2013 is $800. Efile state taxes for free Larry uses the Inclusion amount worksheet. Efile state taxes for free to figure the amount he must include in income for 2013. Efile state taxes for free His inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B). Efile state taxes for free Inclusion Amount Worksheet for Leased Listed Property 1. Efile state taxes for free Fair market value $3,000   2. Efile state taxes for free Business/investment use for first year business use is 50% or less 40 % 3. Efile state taxes for free Multiply line 1 by line 2. Efile state taxes for free 1,200   4. Efile state taxes for free Rate (%) from Table A-19 −19. Efile state taxes for free 8 % 5. Efile state taxes for free Multiply line 3 by line 4. Efile state taxes for free This is Amount A. Efile state taxes for free −238   6. Efile state taxes for free Fair market value 3,000   7. Efile state taxes for free Average business/investment use for years property leased before the first year business use is 50% or less 70 % 8. Efile state taxes for free Multiply line 6 by line 7 2,100   9. Efile state taxes for free Rate (%) from Table A-20 22. Efile state taxes for free 0 % 10. Efile state taxes for free Multiply line 8 by line 9. Efile state taxes for free This is Amount B. Efile state taxes for free 462   11. Efile state taxes for free Add line 5 and line 10. Efile state taxes for free This is your inclusion amount. Efile state taxes for free Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. Efile state taxes for free ) $224           Lease beginning in the last 9 months of your tax year. Efile state taxes for free    The inclusion amount is subject to a special rule if all the following apply. Efile state taxes for free The lease term begins within 9 months before the close of your tax year. Efile state taxes for free You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year. Efile state taxes for free The lease term continues into your next tax year. Efile state taxes for free Under this special rule, add the inclusion amount to income in the next tax year. Efile state taxes for free Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. Efile state taxes for free Skip lines 6 through 9 of the worksheet and enter zero on line 10. Efile state taxes for free Example 1. Efile state taxes for free On August 1, 2012, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. Efile state taxes for free The property is 5-year property with a fair market value of $10,000. Efile state taxes for free Her property has a recovery period of 5 years under ADS. Efile state taxes for free The lease is for 5 years. Efile state taxes for free Her business use of the property was 50% in 2012 and 90% in 2013. Efile state taxes for free She paid rent of $3,600 for 2012, of which $3,240 is deductible. Efile state taxes for free She must include $147 in income in 2013. Efile state taxes for free The $147 is the sum of Amount A and Amount B. Efile state taxes for free Amount A is $147 ($10,000 × 70% × 2. Efile state taxes for free 1%), the product of the fair market value, the average business use for 2012 and 2013, and the applicable percentage for year one from Table A-19 . Efile state taxes for free Amount B is zero. Efile state taxes for free Lease for less than one year. Efile state taxes for free   A special rule for the inclusion amount applies if the lease term is less than one year and you do not use the property predominantly (more than 50%) for qualified business use. Efile state taxes for free The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. Efile state taxes for free The numerator of the fraction is the number of days in the lease term and the denominator is 365 (or 366 for leap years). Efile state taxes for free   The lease term for listed property other than residential rental or nonresidential real property includes options to renew. Efile state taxes for free If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease. Efile state taxes for free Example 2. Efile state taxes for free On October 1, 2012, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. Efile state taxes for free This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. Efile state taxes for free The lease term was 6 months (ending on March 31, 2013), during which he used the property 45% in business. Efile state taxes for free He must include $71 in income in 2013. Efile state taxes for free The $71 is the sum of Amount A and Amount B. Efile state taxes for free Amount A is $71 ($15,000 × 45% × 2. Efile state taxes for free 1% × 183/365), the product of the fair market value, the average business use for both years, and the applicable percentage for year one from Table A-19 , prorated for the length of the lease. Efile state taxes for free Amount B is zero. Efile state taxes for free Where to report inclusion amount. Efile state taxes for free   Report the inclusion amount figured as described in the preceding discussions as other income on the same form or schedule on which you took the deduction for your rental costs. Efile state taxes for free For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. Efile state taxes for free If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21. Efile state taxes for free Do the Passenger Automobile Limits Apply? The depreciation deduction, including the section 179 deduction and special depreciation allowance, you can claim for a passenger automobile (defined earlier) each year is limited. Efile state taxes for free This section describes the maximum depreciation deduction amounts for 2013 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit. Efile state taxes for free Exception for leased cars. Efile state taxes for free   The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. Efile state taxes for free For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property , earlier, under What Is the Business-Use Requirement . Efile state taxes for free Maximum Depreciation Deduction The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. Efile state taxes for free They are based on the date you placed the automobile in service. Efile state taxes for free Passenger Automobiles The maximum deduction amounts for most passenger automobiles are shown in the following table. Efile state taxes for free Maximum Depreciation Deduction for Passenger Automobiles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,1601 $5,100 $3,050 $1,875 2012 11,1601 5,100 3,050 1,875 2011 11,0602 4,900 2,950 1,775 2010 11,0602  4,900 2,950 1,775 2009 10,9603 4,800 2,850 1,775 2008 10,9603  4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6104 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7105 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6606 4,900 2,950 1,775 1If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. Efile state taxes for free 2If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. Efile state taxes for free 3If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $2,960. Efile state taxes for free 4If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $2,960. Efile state taxes for free 5If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. Efile state taxes for free If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. Efile state taxes for free 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. Efile state taxes for free If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year. Efile state taxes for free If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. Efile state taxes for free The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12. Efile state taxes for free Example. Efile state taxes for free On April 15, 2013, Virginia Hart bought and placed in service a new car for $14,500. Efile state taxes for free She used the car only in her business. Efile state taxes for free She files her tax return based on the calendar year. Efile state taxes for free She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Efile state taxes for free Under MACRS, a car is 5-year property. Efile state taxes for free Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. Efile state taxes for free Virginia multiplies the $14,500 unadjusted basis of her car by 0. Efile state taxes for free 20 to get her MACRS depreciation of $2,900 for 2013. Efile state taxes for free This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2013. Efile state taxes for free She can deduct the full $2,900. Efile state taxes for free Electric Vehicles The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. Efile state taxes for free The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. Efile state taxes for free Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts later for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts for trucks and vans later, for electric vehicles classified as trucks and vans. Efile state taxes for free Maximum Depreciation Deduction For Electric Vehicles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2006 $8,980 $14,400 $8,650 $5,225 2005 8,880 14,200 8,450 5,125 2004 31,8301 14,300 8,550 5,125 5/06/2003– 12/31/2003 32,0302 14,600 8,750 5,225 1/01/2003– 5/05/2003 22,8803 14,600 8,750 5,225 1If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880. Efile state taxes for free 2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. Efile state taxes for free If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. Efile state taxes for free 3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. Efile state taxes for free Trucks and Vans The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. Efile state taxes for free The maximum deduction amounts for trucks and vans are shown in the following table. Efile state taxes for free Maximum Depreciation Deduction For Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 11,3601 5,300 3,150 1,875 2011 11,2602 5,200 3,150 1,875 2010 11,1603 5,100 3,050 1,875 2009 11,0604 4,900 2,950 1,775 2008 11,1605 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2006 3,260 5,200 3,150 1,875 2005 3,260 5,200 3,150 1,875 2004 10,9106 5,300 3,150 1,875 5/06/2003– 12/31/2003 11,0107 5,400 3,250 1,975 1/01/2003– 5/05/2003 7,9608 5,400 3,250 1,975 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,360. Efile state taxes for free 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,260. Efile state taxes for free 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. Efile state taxes for free 4 If you elect not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,060. Efile state taxes for free 5If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,160. Efile state taxes for free 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, or the maximum deduction is $3,260. Efile state taxes for free 7 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. Efile state taxes for free If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. Efile state taxes for free 8 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. Efile state taxes for free Depreciation Worksheet for Passenger Automobiles You can use the following worksheet to figure your depreciation deduction using the percentage tables. Efile state taxes for free Then use the information from this worksheet to prepare Form 4562. Efile state taxes for free Depreciation Worksheet for Passenger Automobiles   Part I   1. Efile state taxes for free MACRS system (GDS or ADS)     2. Efile state taxes for free Property class     3. Efile state taxes for free Date placed in service     4. Efile state taxes for free Recovery period     5. Efile state taxes for free Method and convention     6. Efile state taxes for free Depreciation rate (from tables)     7. Efile state taxes for free Maximum depreciation deduction for this year from the appropriate table       8. Efile state taxes for free Business/investment-use percentage       9. Efile state taxes for free Multiply line 7 by line 8. Efile state taxes for free This is your adjusted maximum depreciation deduction       10. Efile state taxes for free Section 179 deduction claimed this year (not more than line 9). Efile state taxes for free Enter -0- if this is not the year you placed the car in service. Efile state taxes for free         Note. Efile state taxes for free  1) If line 10 is equal to line 9, stop here. Efile state taxes for free Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. Efile state taxes for free  2) If line 10 is less than line 9, complete Part II. Efile state taxes for free   Part II   11. Efile state taxes for free Subtract line 10 from line 9. Efile state taxes for free This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance )       12. Efile state taxes for free Cost or other basis (reduced by any alternative motor vehicle credit 1or credit for electric vehicles 2)       13. Efile state taxes for free Multiply line 12 by line 8. Efile state taxes for free This is your business/investment cost       14. Efile state taxes for free Section 179 deduction claimed in the year you placed the car in service       15. Efile state taxes for free Subtract line 14 from line 13. Efile state taxes for free This is your tentative basis for depreciation       16. Efile state taxes for free Multiply line 15 by . Efile state taxes for free 50 if the 50% special depreciation allowance applies. Efile state taxes for free This is your special depreciation allowance. Efile state taxes for free Enter -0- if this is not the year you placed the car in service, the car is not qualified property, or you elected not to claim a special depreciation allowance       Note 1) If line 16 is equal to line 11, stop here. Efile state taxes for free Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. Efile state taxes for free  2) If line 16 is less than line 11, complete Part III. Efile state taxes for free   Part III   17. Efile state taxes for free Subtract line 16 from 11. Efile state taxes for free This is the limit on the amount you can deduct for MACRS depreciation       18. Efile state taxes for free Subtract line 16 from line 15. Efile state taxes for free This is your basis for depreciation. Efile state taxes for free       19. Efile state taxes for free Multiply line 18 by line 6. Efile state taxes for free This is your tentative MACRS depreciation deduction. Efile state taxes for free       20. Efile state taxes for free Enter the lesser of line 17 or line 19. Efile state taxes for free This is your MACRS depreciation deduction. Efile state taxes for free     1 When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. Efile state taxes for free 2 Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount. Efile state taxes for free             Deductions After the Recovery Period If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. Efile state taxes for free If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. Efile state taxes for free You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. Efile state taxes for free The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. Efile state taxes for free See Maximum Depreciation Deduction , earlier. Efile state taxes for free Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied. Efile state taxes for free You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. Efile state taxes for free There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period. Efile state taxes for free Example. Efile state taxes for free In May 2007, you bought and placed in service a car costing $31,500. Efile state taxes for free The car was 5-year property under GDS (MACRS). Efile state taxes for free You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Efile state taxes for free You used the car exclusively for business during the recovery period (2007 through 2012). Efile state taxes for free You figured your depreciation as shown below. Efile state taxes for free Year Percentage Amount Limit   Allowed 2007 20. Efile state taxes for free 0% $6,300 $2,960   $2,960 2008 32. Efile state taxes for free 0 10,080 4,800   4,800 2009 19. Efile state taxes for free 2 6,048 2,850   2,850 2010 11. Efile state taxes for free 52 3,629 1,675   1,675 2011 11. Efile state taxes for free 52 3,629 1,675   1,675 2012 5. Efile state taxes for free 76 1,814 1,675   1,675 Total   $15,635 At the end of 2012, you had an unrecovered basis of $15,865 ($31,500 − $15,635). Efile state taxes for free If in 2013 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,675 or your remaining unrecovered basis. Efile state taxes for free If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. Efile state taxes for free However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. Efile state taxes for free For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,519 ($15,865 × 60%), but you still would have to reduce your basis by $15,865 to determine your unrecovered basis. Efile state taxes for free Deductions For Passenger Automobiles Acquired in a Trade-in If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. Efile state taxes for free Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. Efile state taxes for free This excess basis is the additional cash paid for the new automobile in the trade-in. Efile state taxes for free The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. Efile state taxes for free Special rules apply in determining the passenger automobile limits. Efile state taxes for free These rules and examples are discussed in section 1. Efile state taxes for free 168(i)-6(d)(3) of the regulations. Efile state taxes for free Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. Efile state taxes for free For more information, including how to make this election, see Election out under Property Acquired in a Like-kind Exchange or Involuntary Conversion in chapter 4 and sections 1. Efile state taxes for free 168(i)-6(i) and 1. Efile state taxes for free 168(i)-6(j) of the regulations. Efile state taxes for free What Records Must Be Kept? You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. Efile state taxes for free For listed property, you must keep records for as long as any recapture can still occur. Efile state taxes for free Recapture can occur in any tax year of the recovery period. Efile state taxes for free Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. Efile state taxes for free You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. Efile state taxes for free However, your records should back up your receipts in an orderly manner. Efile state taxes for free Elements of expenditure or use. Efile state taxes for free   Your records or other documentary evidence must support all the following. Efile state taxes for free The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses. Efile state taxes for free The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year. Efile state taxes for free The date of the expenditure or use. Efile state taxes for free The business or investment purpose for the expenditure or use. Efile state taxes for free   Written documents of your expenditure or use are generally better evidence than oral statements alone. Efile state taxes for free You do not have to keep a daily log. Efile state taxes for free However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time of the expenditure or use and backed up by other documents is preferable to a statement you prepare later. Efile state taxes for free Timeliness. Efile state taxes for free   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. Efile state taxes for free An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use generally is considered a timely record if, in the regular course of business: The statement is given by an employee to the employer, or The statement is given by an independent contractor to the client or customer. Efile state taxes for free   For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use. Efile state taxes for free Business purpose supported. Efile state taxes for free   Generally, an adequate record of business purpose must be in the form of a written statement. Efile state taxes for free However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. Efile state taxes for free A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. Efile state taxes for free For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. Efile state taxes for free Business use supported. Efile state taxes for free   An adequate record contains enough information on each element of every business or investment use. Efile state taxes for free The amount of detail required to support the use depends on the facts and circumstances. Efile state taxes for free For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. Efile state taxes for free   Although you generally must prepare an adequate written record, you can prepare a record of the business use of listed property in a computer memory device that uses a logging program. Efile state taxes for free Separate or combined expenditures or uses. Efile state taxes for free   Each use by you normally is considered a separate use. Efile state taxes for free However, you can combine repeated uses as a single item. Efile state taxes for free   Record each expenditure as a separate item. Efile state taxes for free Do not combine it with other expenditures. Efile state taxes for free If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. Efile state taxes for free If you combine these expenses, you do not need to support the business purpose of each expense. Efile state taxes for free Instead, you can divide the expenses based on the total business use of the listed property. Efile state taxes for free   You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. Efile state taxes for free For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. Efile state taxes for free You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. Efile state taxes for free Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. Efile state taxes for free Confidential information. Efile state taxes for free   If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. Efile state taxes for free You must keep it elsewhere and make it available as support to the IRS director for your area on request. Efile state taxes for free Substantial compliance. Efile state taxes for free   If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate. Efile state taxes for free   If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows. Efile state taxes for free By your own oral or written statement containing detailed information as to the element. Efile state taxes for free By other evidence sufficient to establish the element. Efile state taxes for free   If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct evidence, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. Efile state taxes for free If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. Efile state taxes for free Sampling. Efile state taxes for free   You can maintain an adequate record for part of a tax year and use that record to support your business and investment use of listed property for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of the use throughout the year. Efile state taxes for free Example 1. Efile state taxes for free Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. Efile state taxes for free She uses her automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. Efile state taxes for free There is no other business use of the automobile, but she and family members also use it for personal purposes. Efile state taxes for free She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. Efile state taxes for free Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. Efile state taxes for free If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. Efile state taxes for free Example 2. Efile state taxes for free Assume the same facts as in Example 1, except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business. Efile state taxes for free Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile's business use throughout the month. Efile state taxes for free The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. Efile state taxes for free Example 3. Efile state taxes for free Bill Baker, a sole proprietor and calendar year taxpayer, is a salesman in a large metropolitan area for a company that manufactures household products. Efile state taxes for free For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. Efile state taxes for free During these weeks, his business use of the automobile does not follow a consistent pattern. Efile state taxes for free During the fourth week of each month, he delivers all business orders taken during the previous month. Efile state taxes for free The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. Efile state taxes for free The determination based on the record maintained during the fourth week of the month that his business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because his use during that week is not representative of use during other periods. Efile state taxes for free Loss of records. Efile state taxes for free   When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. Efile state taxes for free How Is Listed Property Information Reported? You must provide the information about your listed property requested in Part V of Form 4562, Section A, if you claim either of the following deductions. Efile state taxes for free Any deduction for a vehicle. Efile state taxes for free A depreciation deduction for any other listed property. Efile state taxes for free If you claim any deduction for a vehicle, you also must provide the information requested in Section B. Efile state taxes for free If you provide the vehicle for your employee's use, the employee must give you this information. Efile state taxes for free If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle. Efile state taxes for free Vehicles used by your employees. Efile state taxes for free   You do not have to complete Section B, Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements. Efile state taxes for free You maintain a written policy statement that prohibits one of the following uses of the vehicles. Efile state taxes for free All personal use including commuting. Efile state taxes for free Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners. Efile state taxes for free You treat all use of the vehicles by your employees as personal use. Efile state taxes for free You provide more than five vehicles for use by your employees, and you keep in your records the information on their use given to you by the employees. Efile state taxes for free For demonstrator automobiles provided to full-time salespersons, you maintain a written policy statement that limits the total mileage outside the salesperson's normal working hours and prohibits use of the automobile by anyone else, for vacation trips, or to store personal possessions. Efile state taxes for free Exceptions. Efile state taxes for free   If you file Form 2106, 2106-EZ, or Schedule C-EZ (Form 1040), and you are not required to file Form 4562, report information about listed property on that form and not on Form 4562. Efile state taxes for free Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562. Efile state taxes for free Prev  Up  Next   Home   More Online Publications