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File An Amended Tax Return For 2012

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File An Amended Tax Return For 2012

File an amended tax return for 2012 4. File an amended tax return for 2012   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. File an amended tax return for 2012 Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. File an amended tax return for 2012 Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. File an amended tax return for 2012 If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. File an amended tax return for 2012 You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. File an amended tax return for 2012 Special rules apply if you rent your condominium to others. File an amended tax return for 2012 You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. File an amended tax return for 2012 In addition, you can deduct any dues or assessments paid for maintenance of the common elements. File an amended tax return for 2012 You cannot deduct special assessments you pay to a condominium management corporation for improvements. File an amended tax return for 2012 However, you may be able to recover your share of the cost of any improvement by taking depreciation. File an amended tax return for 2012 Cooperatives If you live in a cooperative, you do not own your apartment. File an amended tax return for 2012 Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. File an amended tax return for 2012 If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. File an amended tax return for 2012 In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. File an amended tax return for 2012 Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. File an amended tax return for 2012 Figure your depreciation deduction as follows. File an amended tax return for 2012 Figure the depreciation for all the depreciable real property owned by the corporation. File an amended tax return for 2012 (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. File an amended tax return for 2012 ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. File an amended tax return for 2012 Multiply your cost per share by the total number of outstanding shares. File an amended tax return for 2012 Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. File an amended tax return for 2012 Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. File an amended tax return for 2012 Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. File an amended tax return for 2012 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. File an amended tax return for 2012 Multiply the result of (2) by the percentage you figured in (3). File an amended tax return for 2012 This is your depreciation on the stock. File an amended tax return for 2012 Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. File an amended tax return for 2012 Payments added to capital account. File an amended tax return for 2012   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. File an amended tax return for 2012 For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. File an amended tax return for 2012   Treat as a capital cost the amount you were assessed for capital items. File an amended tax return for 2012 This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. File an amended tax return for 2012   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. File an amended tax return for 2012 Otherwise, figure your share in the following manner. File an amended tax return for 2012 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. File an amended tax return for 2012 Multiply the corporation's deductible interest by the number you figured in (1). File an amended tax return for 2012 This is your share of the interest. File an amended tax return for 2012 Multiply the corporation's deductible taxes by the number you figured in (1). File an amended tax return for 2012 This is your share of the taxes. File an amended tax return for 2012 Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. File an amended tax return for 2012 You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. File an amended tax return for 2012 You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. File an amended tax return for 2012 However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). File an amended tax return for 2012 Example. File an amended tax return for 2012 Your tax year is the calendar year. File an amended tax return for 2012 You moved from your home in May and started renting it out on June 1. File an amended tax return for 2012 You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. File an amended tax return for 2012 Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. File an amended tax return for 2012 When figuring depreciation, treat the property as placed in service on June 1. File an amended tax return for 2012 Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. File an amended tax return for 2012 Fair market value. File an amended tax return for 2012   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. File an amended tax return for 2012 Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. File an amended tax return for 2012 Figuring the basis. File an amended tax return for 2012   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. File an amended tax return for 2012 For other increases and decreases to basis, see Adjusted Basis in chapter 2. File an amended tax return for 2012 Example. File an amended tax return for 2012 Several years ago you built your home for $140,000 on a lot that cost you $14,000. File an amended tax return for 2012 Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. File an amended tax return for 2012 Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. File an amended tax return for 2012 Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. File an amended tax return for 2012 The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). File an amended tax return for 2012 On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. File an amended tax return for 2012 The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). File an amended tax return for 2012 Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. File an amended tax return for 2012 (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. File an amended tax return for 2012 ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. File an amended tax return for 2012 The fair market value of the property on the date you change your apartment to rental use. File an amended tax return for 2012 This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. File an amended tax return for 2012 The corporation's adjusted basis in the property on that date. File an amended tax return for 2012 Do not subtract depreciation when figuring the corporation's adjusted basis. File an amended tax return for 2012 If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). File an amended tax return for 2012 The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. File an amended tax return for 2012 Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. File an amended tax return for 2012 Generally, that will be MACRS for any conversion after 1986. File an amended tax return for 2012 Treat the property as placed in service on the conversion date. File an amended tax return for 2012 Example. File an amended tax return for 2012 Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. File an amended tax return for 2012 Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. File an amended tax return for 2012 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . File an amended tax return for 2012 01364). File an amended tax return for 2012 Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. File an amended tax return for 2012 You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). File an amended tax return for 2012 You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. File an amended tax return for 2012 There is no change in the types of expenses deductible for the personal-use part of your property. File an amended tax return for 2012 Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). File an amended tax return for 2012 You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. File an amended tax return for 2012 You do not have to divide the expenses that belong only to the rental part of your property. File an amended tax return for 2012 For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. File an amended tax return for 2012 If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. File an amended tax return for 2012 You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. File an amended tax return for 2012 How to divide expenses. File an amended tax return for 2012   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. File an amended tax return for 2012 You can use any reasonable method for dividing the expense. File an amended tax return for 2012 It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. File an amended tax return for 2012 The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. File an amended tax return for 2012 Example. File an amended tax return for 2012 You rent a room in your house. File an amended tax return for 2012 The room is 12 × 15 feet, or 180 square feet. File an amended tax return for 2012 Your entire house has 1,800 square feet of floor space. File an amended tax return for 2012 You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. File an amended tax return for 2012 If your heating bill for the year for the entire house was $600, $60 ($600 × . File an amended tax return for 2012 10) is a rental expense. File an amended tax return for 2012 The balance, $540, is a personal expense that you cannot deduct. File an amended tax return for 2012 Duplex. File an amended tax return for 2012   A common situation is the duplex where you live in one unit and rent out the other. File an amended tax return for 2012 Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. File an amended tax return for 2012 Example. File an amended tax return for 2012 You own a duplex and live in one half, renting the other half. File an amended tax return for 2012 Both units are approximately the same size. File an amended tax return for 2012 Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. File an amended tax return for 2012 You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). File an amended tax return for 2012 Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. File an amended tax return for 2012 You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. File an amended tax return for 2012 Where to report. File an amended tax return for 2012   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. File an amended tax return for 2012 For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. File an amended tax return for 2012   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. File an amended tax return for 2012 You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. File an amended tax return for 2012 Presumption of profit. File an amended tax return for 2012   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. File an amended tax return for 2012 Postponing decision. File an amended tax return for 2012   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. File an amended tax return for 2012 You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. File an amended tax return for 2012 You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. File an amended tax return for 2012 More information. File an amended tax return for 2012   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. File an amended tax return for 2012 Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. File an amended tax return for 2012 Instead of selling the house she had been living in, she decided to change it to rental property. File an amended tax return for 2012 Eileen selected a tenant and started renting the house on February 1. File an amended tax return for 2012 Eileen charges $750 a month for rent and collects it herself. File an amended tax return for 2012 Eileen also received a $750 security deposit from her tenant. File an amended tax return for 2012 Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. File an amended tax return for 2012 Her rental expenses for the year are as follows. File an amended tax return for 2012   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. File an amended tax return for 2012 She can deduct eleven-twelfths of these expenses as rental expenses. File an amended tax return for 2012 She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. File an amended tax return for 2012 She cannot deduct the balance of the fire insurance because it is a personal expense. File an amended tax return for 2012 Eileen bought this house in 1984 for $35,000. File an amended tax return for 2012 Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. File an amended tax return for 2012 Before changing it to rental property, Eileen added several improvements to the house. File an amended tax return for 2012 She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. File an amended tax return for 2012 Of this amount, $35,000 was for the land and $117,000 was for the house. File an amended tax return for 2012 Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. File an amended tax return for 2012 As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. File an amended tax return for 2012 She chooses the GDS recovery period of 27. File an amended tax return for 2012 5 years. File an amended tax return for 2012 She uses Table 2-2d to find her depreciation percentage. File an amended tax return for 2012 Since she placed the property in service in February, the percentage is 3. File an amended tax return for 2012 182%. File an amended tax return for 2012 On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. File an amended tax return for 2012 The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. File an amended tax return for 2012 She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. File an amended tax return for 2012 On May 1, Eileen paid $4,000 to have a furnace installed in the house. File an amended tax return for 2012 The furnace is residential rental property. File an amended tax return for 2012 Because she placed the property in service in May, the percentage from Table 2-2d is 2. File an amended tax return for 2012 273%. File an amended tax return for 2012 Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . File an amended tax return for 2012 03182) $1,241   Dishwasher ($425 × . File an amended tax return for 2012 20) 85   Furnace ($4,000 × . File an amended tax return for 2012 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. File an amended tax return for 2012 She enters her income, expenses, and depreciation for the house in the column for Property A. File an amended tax return for 2012 Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. File an amended tax return for 2012 See the Instructions for Form 4562 for more information on preparing the form. File an amended tax return for 2012 Prev  Up  Next   Home   More Online Publications
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The File An Amended Tax Return For 2012

File an amended tax return for 2012 Listed Property Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Listed Property DefinedPassenger Automobile Defined Dwelling Unit Other Property Used for Transportation Computers and Related Peripheral Equipment Predominant Use TestMeeting the Predominant Use Test Qualified Business Use Method of Allocating Use Applying the Predominant Use Test Deductions After Recovery Period Leased PropertyLessor Lessee What Records Must Be KeptAdequate Records Reporting Information on Form 4562 Deductions in Later Years Appendix Topics - This chapter discusses: Listed property defined The predominant use test What records must be kept Useful Items - You may want to see: Publication 463 Travel, Entertainment, and Gift Expenses 587 Business Use of Your Home (Including Use by Day-Care Providers) 917 Business Use of a Car 946 How To Depreciate Property Form (and Instructions) 2106–EZ Unreimbursed Employee Business Expenses 2106 Employee Business Expenses 4255 Recapture of Investment Credit 4562 Depreciation and Amortization This chapter discusses some special rules and recordkeeping requirements for listed property. File an amended tax return for 2012 For complete coverage of the rules, including the rules concerning passenger automobiles, see Publication 946. File an amended tax return for 2012 If listed property is not used predominantly (more than 50%) in a qualified business use as discussed inPredominant Use Test, later, the section 179 deduction is not allowable and the property must be depreciated using the straight line method. File an amended tax return for 2012 Listed Property Defined Listed property is any of the following: Any passenger automobile (defined later), Any other property used for transportation, Any property of a type generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video recording equipment), Any computer and related peripheral equipment, defined later, unless it is used only at a regular business establishment and owned or leased by the person operating the establishment. File an amended tax return for 2012 A regular business establishment includes a portion of a dwelling unit (defined later), if, and only if, that portion is used both regularly and exclusively for business as discussed in Publication 587. File an amended tax return for 2012 Any cellular telephone (or similar telecommunication equipment) placed in service or leased in a tax year beginning after 1989. File an amended tax return for 2012 Passenger Automobile Defined 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 (at 6,000 pounds or less of gross vehicle weight for trucks and vans). File an amended tax return for 2012 It includes any part, component, or other item physically attached to the automobile or usually included in the purchase price of an automobile. File an amended tax return for 2012 A passenger automobile does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business, and A vehicle used directly in the trade or business of transporting persons or property for compensation or hire. File an amended tax return for 2012 Dwelling Unit A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. File an amended tax return for 2012 It does not include a unit in a hotel, motel, inn, or other establishment where more than half the units are used on a transient basis. File an amended tax return for 2012 Other Property Used for Transportation Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles for transporting persons or goods. File an amended tax return for 2012 Listed property does not include: Any vehicle which, by reason of its design, is not likely to be used more than a minimal amount for personal purposes, such as clearly marked police and fire vehicles, ambulances, or hearses used for those purposes, Any vehicle that is designed to carry cargo and that has a loaded gross vehicle weight over 14,000 pounds, bucket trucks (cherry pickers), cement mixers, combines, cranes and derricks, delivery trucks with seating only for the driver (or only for the driver plus a folding jump seat), dump trucks (including garbage trucks), flatbed trucks, forklifts, qualified moving vans, qualified specialized utility repair trucks, and refrigerated trucks, Any passenger bus used for that purpose with a capacity of at least 20 passengers and school buses, Any tractor or other special purpose farm vehicle, and unmarked vehicles used by law enforcement officers if the use is officially authorized, and Any vehicle, such as a taxicab, if substantially all its use is in the trade or business of providing services to transport persons or property for compensation or hire by unrelated persons. File an amended tax return for 2012 Computers and Related Peripheral Equipment A computer is a programmable electronically activated device that: Is capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention, and Consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. File an amended tax return for 2012 Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. File an amended tax return for 2012 Computer or peripheral equipment does not include: Any equipment which is an integral part of property which is not a computer, Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment, and Equipment of a kind, used primarily for the user's amusement or entertainment, such as video games. File an amended tax return for 2012 Predominant Use Test If “listed property,” defined earlier, placed in service after June 18, 1984, is not used predominantly (more than 50%) in a qualified business use during any tax year: The section 179 deduction on the property is not allowable, and You must depreciate the property using the straight line method. File an amended tax return for 2012 Listed property placed in service before 1987. File an amended tax return for 2012   For listed property placed in service before 1987, depreciate the property over the following period: Class of Property Listed Property Recovery Period 3-year property 5 years 5-year property 12 years 10-year property 25 years 18-year real property 40 years 19-year real property 40 years If you must use the above recovery periods for listed property not used predominantly in a trade or business, use the percentages from Table 16 titled Listed Property Not Used Predominantly (Other Than 18- or 19-year Real Property), and Table 17 for 18- or 19-year real property, near the end of this publication in the Appendix. File an amended tax return for 2012 Listed property placed in service after 1986. File an amended tax return for 2012   For information on listed property placed in service after 1986, see Publication 946. File an amended tax return for 2012 Meeting the Predominant Use Test Listed property meets the predominant use test for any tax year if its business use is more than 50% of its total use. File an amended tax return for 2012 You must allocate the use of any item of listed property used for more than one purpose during the tax year among its various uses. File an amended tax return for 2012 The percentage of investment use of listed property cannot be used as part of the percentage of qualified business use to meet the predominant use test. File an amended tax return for 2012 However, the combined total of business and investment use is taken into account to figure your depreciation deduction for the property. File an amended tax return for 2012 Note: Property does not stop being predominantly used in a qualified business use because of a transfer at death. File an amended tax return for 2012 Example. File an amended tax return for 2012 Sarah Bradley uses a home computer 50% of the time to manage her investments. File an amended tax return for 2012 She also uses the computer 40% of the time in her part-time consumer research business. File an amended tax return for 2012 Sarah's home computer is listed property because it is not used at a regular business establishment. File an amended tax return for 2012 Because her business use of the computer does not exceed 50%, the computer is not predominantly used in a qualified business use for the tax year. File an amended tax return for 2012 Because she does not meet the predominant use test, she cannot elect a section 179 deduction for this property. File an amended tax return for 2012 Her combined rate of business/investment use for determining her depreciation deduction is 90%. File an amended tax return for 2012 Qualified Business Use A qualified business use is any use in your trade or business. File an amended tax return for 2012 However, it does not include: The use of property held merely to produce income (investment use), The leasing of property to any 5% owner or related person (to the point that the property is used by a 5% owner or person related to the owner or lessee of the property), The use of property as compensation for the performance of services by a 5% owner or related person, or The use of property as compensation for the performance of services by any person (other than a5% owner or related person) unless the value of the use is included in that person's gross income for the use of the property and income tax is withheld on that amount where required. File an amended tax return for 2012 See Employees, later. File an amended tax return for 2012 5% owner. File an amended tax return for 2012   A 5% owner of a business, other than a corporation, is any person who owns more than 5% of the capital or profits interest in the business. File an amended tax return for 2012   A 5% owner of a corporation is any person who owns, or is considered to own: More than 5% of the outstanding stock of the corporation, or Stock possessing more than 5% of the total combined voting power of all stock in the corporation. File an amended tax return for 2012 Related person. File an amended tax return for 2012   A related person is anyone related to a taxpayer as discussed under Related persons, in chapter 2 under Nonqualifying Property in Publication 946. File an amended tax return for 2012 Entertainment Use The use of listed property for entertainment, recreation, or amusement purposes is treated as a qualified business use only to the extent that expenses (other than interest and property tax expenses) for its use are deductible as ordinary and necessary business expenses. File an amended tax return for 2012 See Publication 463. File an amended tax return for 2012 Leasing or Compensatory Use of Aircraft If at least 25% of the total use of any aircraft during the tax year is for a qualified business use, the leasing or compensatory use of the aircraft by a 5% owner or related person is treated as a qualified business use. File an amended tax return for 2012 Commuting The use of a vehicle for commuting is not business use, regardless of whether work is performed during the trip. File an amended tax return for 2012 Use of Your Passenger Automobile by Another Person If someone else uses your automobile, that use is not business use unless: That use is directly connected with your business, The value of the use is property reported by you as income to the other person and tax is withheld on the income where required, or The value of the use results in a payment of fair market rent. File an amended tax return for 2012 Any payment to you for the use of the automobile is treated as a rent payment for 3). File an amended tax return for 2012 Employees Any use by an employee of his or her own listed property (or listed property rented by an employee) in performing services as an employee is not business use unless: The use is for the employer's convenience, and The use is required as a condition of employment. File an amended tax return for 2012 Use for the employer's convenience. File an amended tax return for 2012   Whether the use of listed property is for the employer's convenience must be determined from all the facts. File an amended tax return for 2012 The use is for the employer's convenience if it is for a substantial business reason of the employer. File an amended tax return for 2012 The use of listed property during the employee's regular working hours to carry on the employer's business is generally for the employer's convenience. File an amended tax return for 2012 Use required as a condition of employment. File an amended tax return for 2012   Whether the use of listed property is a condition of employment depends on all the facts and circumstances. File an amended tax return for 2012 The use of property must be required for the employee to perform duties properly. File an amended tax return for 2012 The employer need not explicitly require the employee to use the property. File an amended tax return for 2012 A mere statement by the employer that the use of the property is a condition of employment is not sufficient. File an amended tax return for 2012 Example 1. File an amended tax return for 2012 Virginia Sycamore is employed as a courier with We Deliver which provides local courier services. File an amended tax return for 2012 She owns and uses a motorcycle to deliver packages to downtown offices. File an amended tax return for 2012 We Deliver explicitly requires all delivery persons to own a small car or motorcycle for use in their employment. File an amended tax return for 2012 The company reimburses delivery persons for their costs. File an amended tax return for 2012 Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. File an amended tax return for 2012 Example 2. File an amended tax return for 2012 Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. File an amended tax return for 2012 He must travel to these sites on a regular basis. File an amended tax return for 2012 Uplift does not furnish an automobile or explicitly require him to use his own automobile. File an amended tax return for 2012 However, it reimburses him for any costs he incurs in traveling to the various sites. File an amended tax return for 2012 The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. File an amended tax return for 2012 Method of Allocating Use For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. File an amended tax return for 2012 You determine the percentage of qualified business use by dividing the number of miles the vehicle is driven for business purposes during the year by the total number of miles the vehicle is driven for all purposes (including business miles) during the year. File an amended tax return for 2012 For other items of listed property, allocate the property's use on the basis of the most appropriate unit of time. File an amended tax return for 2012 For example, you can determine the percentage of business use of a computer by dividing the number of hours the computer is used for business purposes during the year by the total number of hours the computer is used for all purposes (including business hours) during the year. File an amended tax return for 2012 Applying the Predominant Use Test You must apply the predominant use test for an item of listed property each year of the recovery period. File an amended tax return for 2012 First Recovery Year If any item of listed property is not used predominantly in a qualified business use in the year it is placed in service: The property is not eligible for a section 179 deduction, and The depreciation deduction must be figured using the straight line method. File an amended tax return for 2012 Note: The required use of the straight line method for an item of listed property that does not meet the predominant use test is not the same as electing the straight line method. File an amended tax return for 2012 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. File an amended tax return for 2012 Years After the First Recovery Year If you use listed property predominantly (more than 50%) in a qualified business use in the tax year you place it in service, but not in a subsequent tax year during the recovery period, the following rules apply: Figure depreciation using the straight line method. File an amended tax return for 2012 Do this for each year, beginning with the year you no longer use the property predominantly in a qualified business use, and Figure any excess depreciation on the property and add it to: Your gross income, and The adjusted basis of your property. File an amended tax return for 2012 See Recapture of excess depreciation, next. File an amended tax return for 2012 Recapture of excess depreciation. File an amended tax return for 2012   You must include any excess depreciation in your gross income for the first tax year the property is not predominantly used in a qualified business use. File an amended tax return for 2012 Any excess depreciation must also be added to the adjusted basis of your property. File an amended tax return for 2012 Excess depreciation is the excess (if any) of: The amount of depreciation allowable for the property (including any section 179 deduction claimed) for tax years before the first tax year the property was not predominantly used in a qualified business use, over The amount of depreciation that would have been allowable for those years if the property were not used predominantly in a qualified business use for the year it was placed in service. File an amended tax return for 2012 This means you figure your depreciation using the percentages fromTable 16 or 17. File an amended tax return for 2012 For information on investment credit recapture, see the instructions for Form 4255. File an amended tax return for 2012 Deductions After Recovery Period When listed property (other than passenger automobiles) is used for business, investment, and personal purposes, no deduction is ever allowable for the personal use. File an amended tax return for 2012 In tax years after the recovery period, you must determine if there is any unrecovered basis remaining before you compute the depreciation deduction for that tax year. File an amended tax return for 2012 To make this determination, figure the depreciation for earlier tax years as if your property were used 100% for business or investment purposes, beginning with the first tax year in which some or all use is for business or investment. File an amended tax return for 2012 See Car Used 50% or Less for Business in Publication 917. File an amended tax return for 2012 Leased Property The limitations on cost recovery deductions apply to the rental of listed property. File an amended tax return for 2012 The following discussion covers the rules that apply to the lessor (the owner of the property) and the lessee (the person who rents the property from the owner). File an amended tax return for 2012 SeeLeasing a Car in Publication 917 for a discussion of leased passenger automobiles. File an amended tax return for 2012 Lessor The limitations on cost recovery generally do not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. File an amended tax return for 2012 A person is considered regularly engaged in the business of leasing listed property only if contracts for leasing of listed property are entered into with some frequency over a continuous period of time. File an amended tax return for 2012 This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of the person's business in its entirety. File an amended tax return for 2012 Occasional or incidental leasing activity is insufficient. File an amended tax return for 2012 For example, a person leasing only one passenger automobile during a tax year is not regularly engaged in the business of leasing automobiles. File an amended tax return for 2012 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. File an amended tax return for 2012 Lessee A lessee of listed property (other than passenger automobiles), must include an amount in gross income called the inclusion amount for the first tax year the property is not used predominantly in a qualified business use. File an amended tax return for 2012 Inclusion amount for property leased before 1987. File an amended tax return for 2012   You determine the inclusion amount for property leased after June 18, 1984 and before 1987 by multiplying the fair market value of the property by both the average business/investment use percentage and the applicable percentage. File an amended tax return for 2012 You can find the applicable percentages for listed property that is 5- or 10-year recovery property in Tables 19 or 20 in Appendix A of Publication 946. File an amended tax return for 2012   The lease term for listed property other than 18- or 19-year real property, and residential rental or nonresidential real property, includes options to renew. File an amended tax return for 2012 For 18- or 19-year real property and residential rental or nonresidential real property that is listed property, the period of the lease does not include any option to renew at fair market value, determined at the time of renewal. File an amended tax return for 2012 You treat 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 as one lease. File an amended tax return for 2012 Special rules. File an amended tax return for 2012   The lessee adds the inclusion amount to gross income in the next tax year if: The lease term begins within 9 months before the close of the lessee's tax year, The lessee does not use the property predominantly in a qualified business use during that portion of the tax year, and The lease term continues into the lessee's next tax year. File an amended tax return for 2012 The lessee determines the inclusion amount by taking into account the average of the business/investment use for both tax years and the applicable percentage for the tax year the lease term begins. File an amended tax return for 2012   If the lease term is less than one year, the amount included in gross income is the amount that bears the same ratio to the additional inclusion amount as the number of days in the lease term bears to 365. File an amended tax return for 2012 Maximum inclusion amount. File an amended tax return for 2012   The inclusion amount cannot be more than the sum of the deductible amounts of rent allocable to the lessee's tax year in which the amount must be included in gross income. File an amended tax return for 2012 What Records Must Be Kept You cannot take any depreciation or section 179 deduction for the use of listed property (including passenger automobiles) unless you can prove business/investment use with adequate records or sufficient evidence to support your own statements. File an amended tax return for 2012 How long to keep records. File an amended tax return for 2012   For listed property, records must be kept for as long as any excess depreciation can be recaptured (included in income). File an amended tax return for 2012 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. File an amended tax return for 2012 It is not necessary to record information in an account book, diary, or similar record if the information is already shown on the receipt. File an amended tax return for 2012 However, your records should back up your receipts in an orderly manner. File an amended tax return for 2012 Elements of Expenditure or Use The records or other documentary evidence must support: 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, 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, The date of the expenditure or use, and The business or investment purpose for the expenditure or use. File an amended tax return for 2012 Written documents of your expenditure or use are generally better evidence than oral statements alone. File an amended tax return for 2012 A written record prepared at or near the time of the expenditure or use has greater value as proof of the expenditure or use. File an amended tax return for 2012 A daily log is not required. File an amended tax return for 2012 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 and backed up by other documents is preferable to a statement prepared later. File an amended tax return for 2012 Timeliness The elements of an expenditure or use must be recorded at the time you have full knowledge of the elements. File an amended tax return for 2012 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 is generally considered a timely record if in the regular course of business: The statement is submitted by an employee to the employer, or The statement is submitted by an independent contractor to the client or customer. File an amended tax return for 2012 For example, a log maintained on a weekly basis, which accounts for use during the week, will be considered a record made at or near the time of use. File an amended tax return for 2012 Business Purpose Supported An adequate record of business purpose must generally be in the form of a written statement. File an amended tax return for 2012 However, the amount of backup necessary to establish a business purpose depends on the facts and circumstances of each case. File an amended tax return for 2012 A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. File an amended tax return for 2012 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. File an amended tax return for 2012 Business Use Supported An adequate record contains enough information on each element of every business or investment use. File an amended tax return for 2012 The amount of detail required to support the use depends on the facts and circumstances. File an amended tax return for 2012 For example, a taxpayer whose only business use of a 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. File an amended tax return for 2012 Although an adequate record generally must be written, a record of the business use of listed property, such as a computer or automobile, can be prepared in a computer memory device using a logging program. File an amended tax return for 2012 Separate or Combined Expenditures or Uses Each use by you is normally considered a separate use. File an amended tax return for 2012 However, repeated uses can be combined as a single item. File an amended tax return for 2012 Each expenditure is recorded as a separate item and not combined with other expenditures. File an amended tax return for 2012 If you choose, however, amounts spent for the use of listed property during a tax year, such as for gasoline or automobile repairs, can be combined. File an amended tax return for 2012 If these expenses are combined, you do not need to support the business purpose of each expense. File an amended tax return for 2012 Instead, you can divide the expenses based on the total business use of the listed property. File an amended tax return for 2012 Uses which can be considered part of a single use, such as a round trip or uninterrupted business use, can be accounted for by a single record. File an amended tax return for 2012 For example, use of a truck to make deliveries at several locations which begin and end at the business premises and can include a stop at the business in between deliveries can be accounted for by a single record of miles driven. File an amended tax return for 2012 Use of a passenger automobile by a salesperson for a business trip away from home over a period of time can be accounted for by a single record of miles traveled. File an amended tax return for 2012 Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. File an amended tax return for 2012 Confidential Information If any of the information on the elements of an expenditure or use is confidential, it does not need to be in the account book or similar record if it is recorded at or near the time of the expenditure or use. File an amended tax return for 2012 It must be kept elsewhere and made available as support to the district director on request. File an amended tax return for 2012 Substantial Compliance 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 district director's satisfaction, you can establish this element by any evidence the district director deems adequate. File an amended tax return for 2012 If you fail to establish that you have substantially complied with the adequate records requirement for an element of an expenditure or use to the district director's satisfaction, you must establish the element: By your own oral or written statement containing detailed information as to the element, and By other evidence sufficient to establish the element. File an amended tax return for 2012 If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. File an amended tax return for 2012 If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. File an amended tax return for 2012 Sampling You can maintain an adequate record for portions of a tax year and use that record to support your business and investment use for the entire tax year if it can be shown by other evidence that the periods for which an adequate record is maintained are representative of use throughout the year. File an amended tax return for 2012 Loss of Records 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. File an amended tax return for 2012 Reporting Information on Form 4562 If you claim a deduction for any listed property, you must provide the requested information on page 2, Section B of Form 4562. File an amended tax return for 2012 If you claim a deduction for any vehicle, you must answer certain questions onpage 2 of Form 4562 to provide information about the vehicle use. File an amended tax return for 2012 Employees. File an amended tax return for 2012   Employees claiming the standard mileage rate or actual expenses (including depreciation) must use Form 2106 instead of Part V of Form 4562. File an amended tax return for 2012 Employees claiming the standard mileage rate may be able to use Form 2106–EZ. File an amended tax return for 2012 Employer who provides vehicles to employees. File an amended tax return for 2012   An employer who provides vehicles to employees must obtain enough information from those employees to provide the requested information onForm 4562. File an amended tax return for 2012   An employer who provides more than five vehicles to employees need not include any information on his or her tax return. File an amended tax return for 2012 Instead, the employer must obtain the information from his or her employees and indicate on his or her return that the information was obtained and is being retained. File an amended tax return for 2012   You do not need to provide the information requested on page 2 of Form 4562 if, as an employer: You can satisfy the requirements of a written policy statement for vehicles either not used for personal purposes, or not used for personal purposes other than commuting, or You treat all vehicle use by employees as personal use. File an amended tax return for 2012 See the instructions for Form 4562. File an amended tax return for 2012 Deductions in Later Years When listed property is used for business, investment, and personal purposes, no deduction is allowable for its personal use either in the current year or any later tax year. File an amended tax return for 2012 In later years, you must determine if there is any remaining unadjusted or unrecovered basis before you compute the depreciation deduction for that tax year. File an amended tax return for 2012 In making this determination, figure the depreciation deductions for earlier tax years as if the listed property were used 100% for business or investment purposes in those years, beginning with the first tax year in which some or all of the property use is for business or investment. File an amended tax return for 2012 For more information about deductions after the recovery period for automobiles, see Publication 917. File an amended tax return for 2012 Appendix The following tables are for use in figuring depreciation deductions under the ACRS system. File an amended tax return for 2012 Table 1. File an amended tax return for 2012 15-Year Real Property* (Other Than Low-Inclome Housing) Table 3. File an amended tax return for 2012 Low-Income Housing* Table 6 - Table 9 Table 6 - Table 9 Table 10 - Table 13 Table 14 - Table 17 Prev  Up  Next   Home   More Online Publications