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Filing My State Taxes Free

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Filing My State Taxes Free

Filing my state taxes free 16. Filing my state taxes free   Rulings Program The IRS has a program for assisting taxpayers who have technical problems with tax laws and regulations. Filing my state taxes free The IRS will answer inquiries from individuals and organizations about the tax effect of their acts or transactions. Filing my state taxes free The National Office of the IRS issues rulings on those matters. Filing my state taxes free A ruling is a written statement to a taxpayer that interprets and applies tax laws to the taxpayer's specific set of facts. Filing my state taxes free There are also determination letters issued by IRS directors and information letters issued by IRS directors or the National Office. Filing my state taxes free There is a fee for most types of determination letters and rulings. Filing my state taxes free For complete information on the rulings program, see the first Internal Revenue Bulletin published each year. Filing my state taxes free Prev  Up  Next   Home   More Online Publications
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LT 27 (Letter 1737) Frequently Asked Questions (FAQs)

What is the notice telling me?

We received your request for a payment plan and need you to complete financial information to determine whether you qualify for an installment agreement.

What do I have to do?

Complete the Form 433F that was included with the letter. This information may either be mailed in, or you may call the number at the top of the notice and provide the same information to speed the determination on your installment agreement request. If you have not filed any tax returns that are due, this action must be completed before an installment agreement will be considered. If the returns are completed, please have them available when you call; you may be able to fax them in to meet the filing requirement.

How much time do I have?

Contact us as soon as possible but no later than seven days from the date of the letter.

What happens if I don't pay?

Collection action could be taken, including the filing of a Notice of Federal Tax Lien or a garnishment of wages, other income sources, and/or bank accounts, to resolve the balance you owe.

Who should I contact?

Call the number shown on the top of the letter, or mail in the requested Form 433F with any required documentation and any signed tax returns that need to be filed.

What if I don't agree or have already taken corrective action?

If you do not agree or cannot comply with this notice, call us immediately at the number printed at the top of the notice. We will do our best to help you. If you called us about this matter before, but we did not correct the problem, you may want to contact the Office of the Taxpayer Advocate.

If you have already paid or arranged for an installment agreement, you should still call us at the number printed at the top of the notice to make sure your account reflects this.

Page Last Reviewed or Updated: 30-Jan-2014

The Filing My State Taxes Free

Filing my state taxes free 5. Filing my state taxes 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. Filing my state taxes free Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers. Filing my state taxes free Deductions for listed property (other than certain leased property) are subject to the following special rules and limits. Filing my state taxes free Deduction for employees. Filing my state taxes 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. Filing my state taxes free Business-use requirement. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free You may also have to recapture (include in income) any excess depreciation claimed in previous years. Filing my state taxes free A similar inclusion amount applies to certain leased property. Filing my state taxes free Passenger automobile limits and rules. Filing my state taxes free Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. Filing my state taxes free You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period. Filing my state taxes 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. Filing my state taxes free It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return. Filing my state taxes 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. Filing my state taxes free What Is Listed Property? Listed property is any of the following. Filing my state taxes free Passenger automobiles (as defined later). Filing my state taxes free Any other property used for transportation, unless it is an excepted vehicle. Filing my state taxes free Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment). Filing my state taxes free Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. Filing my state taxes 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. Filing my state taxes free Improvements to listed property. Filing my state taxes free   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. Filing my state taxes free The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. Filing my state taxes 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. Filing my state taxes 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). Filing my state taxes 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. Filing my state taxes free The following vehicles are not considered passenger automobiles for these purposes. Filing my state taxes free An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business. Filing my state taxes free A vehicle used directly in the trade or business of transporting persons or property for pay or hire. Filing my state taxes free A truck or van that is a qualified nonpersonal use vehicle. Filing my state taxes free Qualified nonpersonal use vehicles. Filing my state taxes 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. Filing my state taxes free They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation , next. Filing my state taxes 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. Filing my state taxes free For a detailed discussion of passenger automobiles, including leased passenger automobiles, see  Publication 463. Filing my state taxes 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. Filing my state taxes free Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods. Filing my state taxes free Excepted vehicles. Filing my state taxes free   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ). Filing my state taxes free Clearly marked police and fire vehicles. Filing my state taxes free Unmarked vehicles used by law enforcement officers if the use is officially authorized. Filing my state taxes free Ambulances used as such and hearses used as such. Filing my state taxes free Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo. Filing my state taxes free Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks. Filing my state taxes free Combines, cranes and derricks, and forklifts. Filing my state taxes free Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat. Filing my state taxes free Qualified moving vans. Filing my state taxes free Qualified specialized utility repair trucks. Filing my state taxes free School buses used in transporting students and employees of schools. Filing my state taxes free Other buses with a capacity of at least 20 passengers that are used as passenger buses. Filing my state taxes free Tractors and other special purpose farm vehicles. Filing my state taxes free Clearly marked police and fire vehicle. Filing my state taxes free   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements. Filing my state taxes free It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. Filing my state taxes free A marking on a license plate is not a clear marking for these purposes. Filing my state taxes free Qualified moving van. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Personal use for travel to and from a move site happens no more than five times a month on average. Filing my state taxes 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. Filing my state taxes free Qualified specialized utility repair truck. Filing my state taxes free   A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply. Filing my state taxes free The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. Filing my state taxes free Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. Filing my state taxes free The following are neither computers nor related peripheral equipment. Filing my state taxes free Any equipment that is an integral part of other property that is not a computer. Filing my state taxes free Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment. Filing my state taxes free Equipment of a kind used primarily for the user's amusement or entertainment, such as video games. Filing my state taxes 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. Filing my state taxes free The use of your property in performing services as an employee is a business use only if both the following requirements are met. Filing my state taxes free The use is for your employer's convenience. Filing my state taxes free The use is required as a condition of your employment. Filing my state taxes 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. Filing my state taxes free Employer's convenience. Filing my state taxes free   Whether the use of listed property is for your employer's convenience must be determined from all the facts. Filing my state taxes free The use is for your employer's convenience if it is for a substantial business reason of the employer. Filing my state taxes 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. Filing my state taxes free Condition of employment. Filing my state taxes free   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. Filing my state taxes free The use of property must be required for you to perform your duties properly. Filing my state taxes free Your employer does not have to require explicitly that you use the property. Filing my state taxes free However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient. Filing my state taxes free Example 1. Filing my state taxes free Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. Filing my state taxes free She owns and uses a motorcycle to deliver packages to downtown offices. Filing my state taxes free We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. Filing my state taxes free Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. Filing my state taxes free Example 2. Filing my state taxes free Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. Filing my state taxes free He must travel to these sites on a regular basis. Filing my state taxes free Uplift does not furnish an automobile or explicitly require him to use his own automobile. Filing my state taxes free However, it pays him for any costs he incurs in traveling to the various sites. Filing my state taxes 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. Filing my state taxes free Example 3. Filing my state taxes 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. Filing my state taxes free The use of his own car is neither for the convenience of Uplift nor required as a condition of employment. Filing my state taxes free Example 4. Filing my state taxes free Marilyn Lee is a pilot for Y Company, a small charter airline. Filing my state taxes free Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. Filing my state taxes free Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. Filing my state taxes free Marilyn owns her own airplane. Filing my state taxes 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. Filing my state taxes free Example 5. Filing my state taxes free David Rule is employed as an engineer with Zip, an engineering contracting firm. Filing my state taxes free He occasionally takes work home at night rather than work late in the office. Filing my state taxes free He owns and uses a home computer which is virtually identical to the office model. Filing my state taxes free His use of the computer is neither for the convenience of his employer nor required as a condition of employment. Filing my state taxes 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. Filing my state taxes free To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. Filing my state taxes free If this requirement is not met, the following rules apply. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free This rule applies each year of the recovery period. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Exception for leased property. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Occasional or incidental leasing activity is insufficient. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. Filing my state taxes 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. Filing my state taxes 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). Filing my state taxes 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. Filing my state taxes free Entertainment use. Filing my state taxes 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. Filing my state taxes free Commuting use. Filing my state taxes free   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. Filing my state taxes 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. Filing my state taxes free This is also true for a business meeting held in a car while commuting to work. Filing my state taxes free Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. Filing my state taxes 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. Filing my state taxes free Use of your automobile by another person. Filing my state taxes free   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies. Filing my state taxes free That use is directly connected with your business. Filing my state taxes free You properly report the value of the use as income to the other person and withhold tax on the income where required. Filing my state taxes free You are paid a fair market rent. Filing my state taxes free Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3). Filing my state taxes free Employee deductions. Filing my state taxes 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. Filing my state taxes free See Can Employees Claim a Deduction , earlier. Filing my state taxes free Qualified Business Use Qualified business use of listed property is any use of the property in your trade or business. Filing my state taxes free However, it does not include the following uses. Filing my state taxes 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). Filing my state taxes free The use of property as pay for the services of a 5% owner or related person. Filing my state taxes 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. Filing my state taxes free Property does not stop being used predominantly for qualified business use because of a transfer at death. Filing my state taxes free Exception for leasing or compensatory use of aircraft. Filing my state taxes 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. Filing my state taxes free 5% owner. Filing my state taxes 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. Filing my state taxes free   For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following. Filing my state taxes free More than 5% of the outstanding stock of the corporation. Filing my state taxes free Stock possessing more than 5% of the total combined voting power of all stock in the corporation. Filing my state taxes free Related persons. Filing my state taxes 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 . Filing my state taxes 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. Filing my state taxes free Examples. Filing my state taxes free   The following examples illustrate whether the use of business property is qualified business use. Filing my state taxes free Example 1. Filing my state taxes free John Maple is the sole proprietor of a plumbing contracting business. Filing my state taxes free John employs his brother, Richard, in the business. Filing my state taxes free As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. Filing my state taxes free The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. Filing my state taxes 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. Filing my state taxes free Example 2. Filing my state taxes free John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. Filing my state taxes 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. Filing my state taxes free This use of company automobiles by employees is not a qualified business use. Filing my state taxes free Example 3. Filing my state taxes free James Company Inc. Filing my state taxes free owns several automobiles that its employees use for business purposes. Filing my state taxes free The employees also are allowed to take the automobiles home at night. Filing my state taxes 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. Filing my state taxes free This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company. Filing my state taxes free Investment Use The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. Filing my state taxes free However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year. Filing my state taxes free Example 1. Filing my state taxes free Sarah Bradley uses a home computer 50% of the time to manage her investments. Filing my state taxes free She also uses the computer 40% of the time in her part-time consumer research business. Filing my state taxes free Sarah's home computer is listed property because it is not used at a regular business establishment. Filing my state taxes free She does not use the computer predominantly for qualified business use. Filing my state taxes free Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. Filing my state taxes free She must depreciate it using the straight line method over the ADS recovery period. Filing my state taxes free Her combined business/investment use for determining her depreciation deduction is 90%. Filing my state taxes free Example 2. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Her combined business/investment use for determining her depreciation deduction is 90%. Filing my state taxes 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. Filing my state taxes free You also increase the adjusted basis of your property by the same amount. Filing my state taxes 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. Filing my state taxes free To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period. Filing my state taxes free Example. Filing my state taxes free In June 2009, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. Filing my state taxes free She used it only for qualified business use for 2009 through 2012. Filing my state taxes free Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. Filing my state taxes free She began depreciating it using the 200% DB method over a 5-year GDS recovery period. Filing my state taxes 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. Filing my state taxes free During 2013, she used the truck 50% for business and 50% for personal purposes. Filing my state taxes free She includes $4,018 excess depreciation in her gross income for 2013. Filing my state taxes free The excess depreciation is determined as follows. Filing my state taxes free Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2009 through 2012. Filing my state taxes free (Depreciation is from Table A-1. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Where to figure and report recapture. Filing my state taxes free   Use Form 4797, Part IV, to figure the recapture amount. Filing my state taxes free Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. Filing my state taxes free For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. Filing my state taxes free If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21. Filing my state taxes 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. Filing my state taxes free Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). Filing my state taxes free For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463. Filing my state taxes free The inclusion amount is the sum of Amount A and Amount B, described next. Filing my state taxes 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. Filing my state taxes free Amount A. Filing my state taxes 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 . Filing my state taxes free   The fair market value of the property is the value on the first day of the lease term. Filing my state taxes 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. Filing my state taxes free Amount B. Filing my state taxes 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 . Filing my state taxes free Maximum inclusion amount. Filing my state taxes 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. Filing my state taxes free Inclusion amount worksheet. Filing my state taxes free   The following worksheet is provided to help you figure the inclusion amount for leased listed property. Filing my state taxes free Inclusion Amount Worksheet for Leased Listed Property 1. Filing my state taxes free Fair market value   2. Filing my state taxes free Business/investment use for first year business use is 50% or less   3. Filing my state taxes free Multiply line 1 by line 2. Filing my state taxes free   4. Filing my state taxes free Rate (%) from Table A-19   5. Filing my state taxes free Multiply line 3 by line 4. Filing my state taxes free This is Amount A. Filing my state taxes free   6. Filing my state taxes free Fair market value   7. Filing my state taxes free Average business/investment use for years property leased before the first year business use is 50% or less . Filing my state taxes free . Filing my state taxes free . Filing my state taxes free . Filing my state taxes free . Filing my state taxes free . Filing my state taxes free . Filing my state taxes free . Filing my state taxes free . Filing my state taxes free . Filing my state taxes free . Filing my state taxes free . Filing my state taxes free . Filing my state taxes free   8. Filing my state taxes free Multiply line 6 by line 7   9. Filing my state taxes free Rate (%) from Table A-20   10. Filing my state taxes free Multiply line 8 by line 9. Filing my state taxes free This is Amount B. Filing my state taxes free   11. Filing my state taxes free Add line 5 and line 10. Filing my state taxes free This is your inclusion amount. Filing my state taxes 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. Filing my state taxes free )         Example. Filing my state taxes 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. Filing my state taxes free The lease is for a period of 5 years. Filing my state taxes free Larry does not use the computer at a regular business establishment, so it is listed property. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free The computer has a 5-year recovery period under both GDS and ADS. Filing my state taxes free 2013 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19. Filing my state taxes free 8%. Filing my state taxes free The applicable percentage from Table A-20 is 22. Filing my state taxes free 0%. Filing my state taxes free Larry's deductible rent for the computer for 2013 is $800. Filing my state taxes free Larry uses the Inclusion amount worksheet. Filing my state taxes free to figure the amount he must include in income for 2013. Filing my state taxes free His inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B). Filing my state taxes free Inclusion Amount Worksheet for Leased Listed Property 1. Filing my state taxes free Fair market value $3,000   2. Filing my state taxes free Business/investment use for first year business use is 50% or less 40 % 3. Filing my state taxes free Multiply line 1 by line 2. Filing my state taxes free 1,200   4. Filing my state taxes free Rate (%) from Table A-19 −19. Filing my state taxes free 8 % 5. Filing my state taxes free Multiply line 3 by line 4. Filing my state taxes free This is Amount A. Filing my state taxes free −238   6. Filing my state taxes free Fair market value 3,000   7. Filing my state taxes free Average business/investment use for years property leased before the first year business use is 50% or less 70 % 8. Filing my state taxes free Multiply line 6 by line 7 2,100   9. Filing my state taxes free Rate (%) from Table A-20 22. Filing my state taxes free 0 % 10. Filing my state taxes free Multiply line 8 by line 9. Filing my state taxes free This is Amount B. Filing my state taxes free 462   11. Filing my state taxes free Add line 5 and line 10. Filing my state taxes free This is your inclusion amount. Filing my state taxes 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. Filing my state taxes free ) $224           Lease beginning in the last 9 months of your tax year. Filing my state taxes free    The inclusion amount is subject to a special rule if all the following apply. Filing my state taxes free The lease term begins within 9 months before the close of your tax year. Filing my state taxes free You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year. Filing my state taxes free The lease term continues into your next tax year. Filing my state taxes free Under this special rule, add the inclusion amount to income in the next tax year. Filing my state taxes 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. Filing my state taxes free Skip lines 6 through 9 of the worksheet and enter zero on line 10. Filing my state taxes free Example 1. Filing my state taxes free On August 1, 2012, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. Filing my state taxes free The property is 5-year property with a fair market value of $10,000. Filing my state taxes free Her property has a recovery period of 5 years under ADS. Filing my state taxes free The lease is for 5 years. Filing my state taxes free Her business use of the property was 50% in 2012 and 90% in 2013. Filing my state taxes free She paid rent of $3,600 for 2012, of which $3,240 is deductible. Filing my state taxes free She must include $147 in income in 2013. Filing my state taxes free The $147 is the sum of Amount A and Amount B. Filing my state taxes free Amount A is $147 ($10,000 × 70% × 2. Filing my state taxes 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 . Filing my state taxes free Amount B is zero. Filing my state taxes free Lease for less than one year. Filing my state taxes 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. Filing my state taxes free The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. Filing my state taxes 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). Filing my state taxes free   The lease term for listed property other than residential rental or nonresidential real property includes options to renew. Filing my state taxes 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. Filing my state taxes free Example 2. Filing my state taxes 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. Filing my state taxes free This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. Filing my state taxes free The lease term was 6 months (ending on March 31, 2013), during which he used the property 45% in business. Filing my state taxes free He must include $71 in income in 2013. Filing my state taxes free The $71 is the sum of Amount A and Amount B. Filing my state taxes free Amount A is $71 ($15,000 × 45% × 2. Filing my state taxes 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. Filing my state taxes free Amount B is zero. Filing my state taxes free Where to report inclusion amount. Filing my state taxes 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. Filing my state taxes free For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. Filing my state taxes free If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Exception for leased cars. Filing my state taxes 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. Filing my state taxes 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 . Filing my state taxes free Maximum Depreciation Deduction The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. Filing my state taxes free They are based on the date you placed the automobile in service. Filing my state taxes free Passenger Automobiles The maximum deduction amounts for most passenger automobiles are shown in the following table. Filing my state taxes 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. Filing my state taxes free 2If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free 5If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. Filing my state taxes free The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12. Filing my state taxes free Example. Filing my state taxes free On April 15, 2013, Virginia Hart bought and placed in service a new car for $14,500. Filing my state taxes free She used the car only in her business. Filing my state taxes free She files her tax return based on the calendar year. Filing my state taxes free She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Filing my state taxes free Under MACRS, a car is 5-year property. Filing my state taxes 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. Filing my state taxes free Virginia multiplies the $14,500 unadjusted basis of her car by 0. Filing my state taxes free 20 to get her MACRS depreciation of $2,900 for 2013. Filing my state taxes free This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2013. Filing my state taxes free She can deduct the full $2,900. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free 2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free The maximum deduction amounts for trucks and vans are shown in the following table. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free 7 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Depreciation Worksheet for Passenger Automobiles You can use the following worksheet to figure your depreciation deduction using the percentage tables. Filing my state taxes free Then use the information from this worksheet to prepare Form 4562. Filing my state taxes free Depreciation Worksheet for Passenger Automobiles   Part I   1. Filing my state taxes free MACRS system (GDS or ADS)     2. Filing my state taxes free Property class     3. Filing my state taxes free Date placed in service     4. Filing my state taxes free Recovery period     5. Filing my state taxes free Method and convention     6. Filing my state taxes free Depreciation rate (from tables)     7. Filing my state taxes free Maximum depreciation deduction for this year from the appropriate table       8. Filing my state taxes free Business/investment-use percentage       9. Filing my state taxes free Multiply line 7 by line 8. Filing my state taxes free This is your adjusted maximum depreciation deduction       10. Filing my state taxes free Section 179 deduction claimed this year (not more than line 9). Filing my state taxes free Enter -0- if this is not the year you placed the car in service. Filing my state taxes free         Note. Filing my state taxes free  1) If line 10 is equal to line 9, stop here. Filing my state taxes free Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. Filing my state taxes free  2) If line 10 is less than line 9, complete Part II. Filing my state taxes free   Part II   11. Filing my state taxes free Subtract line 10 from line 9. Filing my state taxes free This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance )       12. Filing my state taxes free Cost or other basis (reduced by any alternative motor vehicle credit 1or credit for electric vehicles 2)       13. Filing my state taxes free Multiply line 12 by line 8. Filing my state taxes free This is your business/investment cost       14. Filing my state taxes free Section 179 deduction claimed in the year you placed the car in service       15. Filing my state taxes free Subtract line 14 from line 13. Filing my state taxes free This is your tentative basis for depreciation       16. Filing my state taxes free Multiply line 15 by . Filing my state taxes free 50 if the 50% special depreciation allowance applies. Filing my state taxes free This is your special depreciation allowance. Filing my state taxes 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. Filing my state taxes free Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. Filing my state taxes free  2) If line 16 is less than line 11, complete Part III. Filing my state taxes free   Part III   17. Filing my state taxes free Subtract line 16 from 11. Filing my state taxes free This is the limit on the amount you can deduct for MACRS depreciation       18. Filing my state taxes free Subtract line 16 from line 15. Filing my state taxes free This is your basis for depreciation. Filing my state taxes free       19. Filing my state taxes free Multiply line 18 by line 6. Filing my state taxes free This is your tentative MACRS depreciation deduction. Filing my state taxes free       20. Filing my state taxes free Enter the lesser of line 17 or line 19. Filing my state taxes free This is your MACRS depreciation deduction. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. Filing my state taxes free You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. Filing my state taxes 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. Filing my state taxes free See Maximum Depreciation Deduction , earlier. Filing my state taxes 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. Filing my state taxes free You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. Filing my state taxes 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. Filing my state taxes free Example. Filing my state taxes free In May 2007, you bought and placed in service a car costing $31,500. Filing my state taxes free The car was 5-year property under GDS (MACRS). Filing my state taxes free You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Filing my state taxes free You used the car exclusively for business during the recovery period (2007 through 2012). Filing my state taxes free You figured your depreciation as shown below. Filing my state taxes free Year Percentage Amount Limit   Allowed 2007 20. Filing my state taxes free 0% $6,300 $2,960   $2,960 2008 32. Filing my state taxes free 0 10,080 4,800   4,800 2009 19. Filing my state taxes free 2 6,048 2,850   2,850 2010 11. Filing my state taxes free 52 3,629 1,675   1,675 2011 11. Filing my state taxes free 52 3,629 1,675   1,675 2012 5. Filing my state taxes 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). Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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%. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free This excess basis is the additional cash paid for the new automobile in the trade-in. Filing my state taxes free The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. Filing my state taxes free Special rules apply in determining the passenger automobile limits. Filing my state taxes free These rules and examples are discussed in section 1. Filing my state taxes free 168(i)-6(d)(3) of the regulations. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free 168(i)-6(i) and 1. Filing my state taxes free 168(i)-6(j) of the regulations. Filing my state taxes 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. Filing my state taxes free For listed property, you must keep records for as long as any recapture can still occur. Filing my state taxes free Recapture can occur in any tax year of the recovery period. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free However, your records should back up your receipts in an orderly manner. Filing my state taxes free Elements of expenditure or use. Filing my state taxes free   Your records or other documentary evidence must support all the following. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free The date of the expenditure or use. Filing my state taxes free The business or investment purpose for the expenditure or use. Filing my state taxes free   Written documents of your expenditure or use are generally better evidence than oral statements alone. Filing my state taxes free You do not have to keep a daily log. Filing my state taxes 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. Filing my state taxes free Timeliness. Filing my state taxes free   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Business purpose supported. Filing my state taxes free   Generally, an adequate record of business purpose must be in the form of a written statement. Filing my state taxes free However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. Filing my state taxes free A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. Filing my state taxes 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. Filing my state taxes free Business use supported. Filing my state taxes free   An adequate record contains enough information on each element of every business or investment use. Filing my state taxes free The amount of detail required to support the use depends on the facts and circumstances. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Separate or combined expenditures or uses. Filing my state taxes free   Each use by you normally is considered a separate use. Filing my state taxes free However, you can combine repeated uses as a single item. Filing my state taxes free   Record each expenditure as a separate item. Filing my state taxes free Do not combine it with other expenditures. Filing my state taxes 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. Filing my state taxes free If you combine these expenses, you do not need to support the business purpose of each expense. Filing my state taxes free Instead, you can divide the expenses based on the total business use of the listed property. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. Filing my state taxes free Confidential information. Filing my state taxes 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. Filing my state taxes free You must keep it elsewhere and make it available as support to the IRS director for your area on request. Filing my state taxes free Substantial compliance. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free By your own oral or written statement containing detailed information as to the element. Filing my state taxes free By other evidence sufficient to establish the element. Filing my state taxes 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. Filing my state taxes free If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. Filing my state taxes free Sampling. Filing my state taxes 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. Filing my state taxes free Example 1. Filing my state taxes free Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. Filing my state taxes 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. Filing my state taxes free There is no other business use of the automobile, but she and family members also use it for personal purposes. Filing my state taxes free She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. Filing my state taxes free Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. Filing my state taxes 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. Filing my state taxes free Example 2. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. Filing my state taxes free Example 3. Filing my state taxes 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. Filing my state taxes free For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. Filing my state taxes free During these weeks, his business use of the automobile does not follow a consistent pattern. Filing my state taxes free During the fourth week of each month, he delivers all business orders taken during the previous month. Filing my state taxes free The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. Filing my state taxes 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. Filing my state taxes free Loss of records. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Any deduction for a vehicle. Filing my state taxes free A depreciation deduction for any other listed property. Filing my state taxes free If you claim any deduction for a vehicle, you also must provide the information requested in Section B. Filing my state taxes free If you provide the vehicle for your employee's use, the employee must give you this information. Filing my state taxes 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. Filing my state taxes free Vehicles used by your employees. Filing my state taxes 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. Filing my state taxes free You maintain a written policy statement that prohibits one of the following uses of the vehicles. Filing my state taxes free All personal use including commuting. Filing my state taxes free Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners. Filing my state taxes free You treat all use of the vehicles by your employees as personal use. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Exceptions. Filing my state taxes 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. Filing my state taxes 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. Filing my state taxes free Prev  Up  Next   Home   More Online Publications