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Free Federal And State E File

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Free Federal And State E File

Free federal and state e file 2. Free federal and state e file   Filing Status Table of Contents What's New Introduction Useful Items - You may want to see: Marital StatusDivorced persons. Free federal and state e file Divorce and remarriage. Free federal and state e file Annulled marriages. Free federal and state e file Head of household or qualifying widow(er) with dependent child. Free federal and state e file Considered married. Free federal and state e file Same-sex marriage. Free federal and state e file Spouse died during the year. Free federal and state e file Married persons living apart. Free federal and state e file Single Married Filing JointlyFiling a Joint Return Married Filing SeparatelySpecial Rules Head of HouseholdConsidered Unmarried Keeping Up a Home Qualifying Person Qualifying Widow(er) With Dependent Child What's New Filing status for same-sex married couples. Free federal and state e file  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. Free federal and state e file See Same-sex marriage under Marital Status, later. Free federal and state e file Introduction This chapter helps you determine which filing status to use. Free federal and state e file There are five filing statuses. Free federal and state e file Single. Free federal and state e file Married Filing Jointly. Free federal and state e file Married Filing Separately. Free federal and state e file Head of Household. Free federal and state e file Qualifying Widow(er) With Dependent Child. Free federal and state e file If more than one filing status applies to you, choose the one that will give you the lowest tax. Free federal and state e file You must determine your filing status before you can determine whether you must file a tax return (chapter 1), your standard deduction (chapter 20), and your tax (chapter 30). Free federal and state e file You also use your filing status to determine whether you are eligible to claim certain deductions and credits. Free federal and state e file Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 519 U. Free federal and state e file S. Free federal and state e file Tax Guide for Aliens 555 Community Property Marital Status In general, your filing status depends on whether you are considered unmarried or married. Free federal and state e file Unmarried persons. Free federal and state e file   You are considered unmarried for the whole year if, on the last day of your tax year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree. Free federal and state e file State law governs whether you are married or legally separated under a divorce or separate maintenance decree. Free federal and state e file Divorced persons. Free federal and state e file   If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year. Free federal and state e file Divorce and remarriage. Free federal and state e file   If you obtain a divorce for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to and do, in fact, remarry each other in the next tax year, you and your spouse must file as married individuals in both years. Free federal and state e file Annulled marriages. Free federal and state e file    If you obtain a court decree of annulment, which holds that no valid marriage ever existed, you are considered unmarried even if you filed joint returns for earlier years. Free federal and state e file You must file Form 1040X, Amended U. Free federal and state e file S. Free federal and state e file Individual Income Tax Return, claiming single or head of household status for all tax years that are affected by the annulment and are not closed by the statute of limitations for filing a tax return. Free federal and state e file Generally, for a credit or refund, you must file Form 1040X within 3 years (including extensions) after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. Free federal and state e file If you filed your original return early (for example, March 1), your return is considered filed on the due date (generally April 15). Free federal and state e file However, if you had an extension to file (for example, until October 15) but you filed earlier and we received it on July 1, your return is considered filed on July 1. Free federal and state e file Head of household or qualifying widow(er) with dependent child. Free federal and state e file   If you are considered unmarried, you may be able to file as a head of household or as a qualifying widow(er) with a dependent child. Free federal and state e file See Head of Household and Qualifying Widow(er) With Dependent Child to see if you qualify. Free federal and state e file Married persons. Free federal and state e file   If you are considered married, you and your spouse can file a joint return or separate returns. Free federal and state e file Considered married. Free federal and state e file   You are considered married for the whole year if, on the last day of your tax year, you and your spouse meet any one of the following tests. Free federal and state e file You are married and living together as a married couple. Free federal and state e file You are living together in a common law marriage recognized in the state where you now live or in the state where the common law marriage began. Free federal and state e file You are married and living apart, but not legally separated under a decree of divorce or separate maintenance. Free federal and state e file You are separated under an interlocutory (not final) decree of divorce. Free federal and state e file Same-sex marriage. Free federal and state e file   For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Free federal and state e file The term “spouse” includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. Free federal and state e file However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage under state (or foreign) law are not considered married for federal tax purposes. Free federal and state e file For more details, see Publication 501. Free federal and state e file Spouse died during the year. Free federal and state e file   If your spouse died during the year, you are considered married for the whole year for filing status purposes. Free federal and state e file   If you did not remarry before the end of the tax year, you can file a joint return for yourself and your deceased spouse. Free federal and state e file For the next 2 years, you may be entitled to the special benefits described later under Qualifying Widow(er) With Dependent Child . Free federal and state e file   If you remarried before the end of the tax year, you can file a joint return with your new spouse. Free federal and state e file Your deceased spouse's filing status is married filing separately for that year. Free federal and state e file Married persons living apart. Free federal and state e file   If you live apart from your spouse and meet certain tests, you may be able to file as head of household even if you are not divorced or legally separated. Free federal and state e file If you qualify to file as head of household instead of married filing separately, your standard deduction will be higher. Free federal and state e file Also, your tax may be lower, and you may be able to claim the earned income credit. Free federal and state e file See Head of Household , later. Free federal and state e file Single Your filing status is single if you are considered unmarried and you do not qualify for another filing status. Free federal and state e file To determine your marital status, see Marital Status , earlier. Free federal and state e file Widow(er). Free federal and state e file   Your filing status may be single if you were widowed before January 1, 2013, and did not remarry before the end of 2013. Free federal and state e file You may, however, be able to use another filing status that will give you a lower tax. Free federal and state e file See Head of Household and Qualifying Widow(er) With Dependent Child , later, to see if you qualify. Free federal and state e file How to file. Free federal and state e file   You can file Form 1040. Free federal and state e file If you have taxable income of less than $100,000, you may be able to file Form 1040A. Free federal and state e file If, in addition, you have no dependents, and are under 65 and not blind, and meet other requirements, you can file Form 1040EZ. Free federal and state e file If you file Form 1040A or Form 1040, show your filing status as single by checking the box on line 1. Free federal and state e file Use the Single column of the Tax Table or Section A of the Tax Computation Worksheet to figure your tax. Free federal and state e file Married Filing Jointly You can choose married filing jointly as your filing status if you are considered married and both you and your spouse agree to file a joint return. Free federal and state e file On a joint return, you and your spouse report your combined income and deduct your combined allowable expenses. Free federal and state e file You can file a joint return even if one of you had no income or deductions. Free federal and state e file If you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Free federal and state e file Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses. Free federal and state e file If you and your spouse each have income, you may want to figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). Free federal and state e file You can choose the method that gives the two of you the lower combined tax. Free federal and state e file How to file. Free federal and state e file   If you file as married filing jointly, you can use Form 1040. Free federal and state e file If you and your spouse have taxable income of less than $100,000, you may be able to file Form 1040A. Free federal and state e file If, in addition, you and your spouse have no dependents, are both under 65 and not blind, and meet other requirements, you can file Form 1040EZ. Free federal and state e file If you file Form 1040 or Form 1040A, show this filing status by checking the box on line 2. Free federal and state e file Use the Married filing jointly column of the Tax Table or Section B of the Tax Computation Worksheet to figure your tax. Free federal and state e file Spouse died. Free federal and state e file   If your spouse died during the year, you are considered married for the whole year and can choose married filing jointly as your filing status. Free federal and state e file See Spouse died during the year under Marital Status, earlier, for more information. Free federal and state e file   If your spouse died in 2014 before filing a 2013 return, you can choose married filing jointly as your filing status on your 2013 return. Free federal and state e file Divorced persons. Free federal and state e file   If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year and you cannot choose married filing jointly as your filing status. Free federal and state e file Filing a Joint Return Both you and your spouse must include all of your income, exemptions, and deductions on your joint return. Free federal and state e file Accounting period. Free federal and state e file   Both of you must use the same accounting period, but you can use different accounting methods. Free federal and state e file See Accounting Periods and Accounting Methods in chapter 1. Free federal and state e file Joint responsibility. Free federal and state e file   Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. Free federal and state e file This means that if one spouse does not pay the tax due, the other may have to. Free federal and state e file Or, if one spouse does not report the correct tax, both spouses may be responsible for any additional taxes assessed by the IRS. Free federal and state e file One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse. Free federal and state e file You may want to file separately if: You believe your spouse is not reporting all of his or her income, or You do not want to be responsible for any taxes due if your spouse does not have enough tax withheld or does not pay enough estimated tax. Free federal and state e file Divorced taxpayer. Free federal and state e file   You may be held jointly and individually responsible for any tax, interest, and penalties due on a joint return filed before your divorce. Free federal and state e file This responsibility may apply even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. Free federal and state e file Relief from joint responsibility. Free federal and state e file   In some cases, one spouse may be relieved of joint responsibility for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Free federal and state e file You can ask for relief no matter how small the liability. Free federal and state e file   There are three types of relief available. Free federal and state e file Innocent spouse relief. Free federal and state e file Separation of liability (available only to joint filers who are divorced, widowed, legally separated, or have not lived together for the 12 months ending on the date the election for this relief is filed). Free federal and state e file Equitable relief. Free federal and state e file    You must file Form 8857, Request for Innocent Spouse Relief, to request relief from joint responsibility. Free federal and state e file Publication 971, Innocent Spouse Relief, explains these kinds of relief and who may qualify for them. Free federal and state e file Signing a joint return. Free federal and state e file   For a return to be considered a joint return, both spouses generally must sign the return. Free federal and state e file Spouse died before signing. Free federal and state e file   If your spouse died before signing the return, the executor or administrator must sign the return for your spouse. Free federal and state e file If neither you nor anyone else has yet been appointed as executor or administrator, you can sign the return for your spouse and enter “Filing as surviving spouse” in the area where you sign the return. Free federal and state e file Spouse away from home. Free federal and state e file   If your spouse is away from home, you should prepare the return, sign it, and send it to your spouse to sign so that it can be filed on time. Free federal and state e file Injury or disease prevents signing. Free federal and state e file   If your spouse cannot sign because of disease or injury and tells you to sign for him or her, you can sign your spouse's name in the proper space on the return followed by the words “By (your name), Husband (or Wife). Free federal and state e file ” Be sure to also sign in the space provided for your signature. Free federal and state e file Attach a dated statement, signed by you, to the return. Free federal and state e file The statement should include the form number of the return you are filing, the tax year, and the reason your spouse cannot sign, and should state that your spouse has agreed to your signing for him or her. Free federal and state e file Signing as guardian of spouse. Free federal and state e file   If you are the guardian of your spouse who is mentally incompetent, you can sign the return for your spouse as guardian. Free federal and state e file Spouse in combat zone. Free federal and state e file   You can sign a joint return for your spouse if your spouse cannot sign because he or she is serving in a combat zone (such as the Persian Gulf Area, Serbia, Montenegro, Albania, or Afghanistan), even if you do not have a power of attorney or other statement. Free federal and state e file Attach a signed statement to your return explaining that your spouse is serving in a combat zone. Free federal and state e file For more information on special tax rules for persons who are serving in a combat zone, or who are in missing status as a result of serving in a combat zone, see Publication 3, Armed Forces' Tax Guide. Free federal and state e file Other reasons spouse cannot sign. Free federal and state e file    If your spouse cannot sign the joint return for any other reason, you can sign for your spouse only if you are given a valid power of attorney (a legal document giving you permission to act for your spouse). Free federal and state e file Attach the power of attorney (or a copy of it) to your tax return. Free federal and state e file You can use Form 2848, Power of Attorney and Declaration of Representative. Free federal and state e file Nonresident alien or dual-status alien. Free federal and state e file   Generally, a married couple cannot file a joint return if either one is a nonresident alien at any time during the tax year. Free federal and state e file However, if one spouse was a nonresident alien or dual-status alien who was married to a U. Free federal and state e file S. Free federal and state e file citizen or resident alien at the end of the year, the spouses can choose to file a joint return. Free federal and state e file If you do file a joint return, you and your spouse are both treated as U. Free federal and state e file S. Free federal and state e file residents for the entire tax year. Free federal and state e file See chapter 1 of Publication 519. Free federal and state e file Married Filing Separately You can choose married filing separately as your filing status if you are married. Free federal and state e file This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return. Free federal and state e file If you and your spouse do not agree to file a joint return, you must use this filing status unless you qualify for head of household status, discussed later. Free federal and state e file You may be able to choose head of household filing status if you are considered unmarried because you live apart from your spouse and meet certain tests (explained later, under Head of Household ). Free federal and state e file This can apply to you even if you are not divorced or legally separated. Free federal and state e file If you qualify to file as head of household, instead of as married filing separately, your tax may be lower, you may be able to claim the earned income credit and certain other credits, and your standard deduction will be higher. Free federal and state e file The head of household filing status allows you to choose the standard deduction even if your spouse chooses to itemize deductions. Free federal and state e file See Head of Household , later, for more information. Free federal and state e file You will generally pay more combined tax on separate returns than you would on a joint return for the reasons listed under Special Rules, later. Free federal and state e file However, unless you are required to file separately, you should figure your tax both ways (on a joint return and on separate returns). Free federal and state e file This way you can make sure you are using the filing status that results in the lowest combined tax. Free federal and state e file When figuring the combined tax of a married couple, you may want to consider state taxes as well as federal taxes. Free federal and state e file How to file. Free federal and state e file   If you file a separate return, you generally report only your own income, exemptions, credits, and deductions. Free federal and state e file You can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another person. Free federal and state e file You can file Form 1040. Free federal and state e file If your taxable income is less than $100,000, you may be able to file Form 1040A. Free federal and state e file Select this filing status by checking the box on line 3 of either form. Free federal and state e file Enter your spouse's full name and SSN or ITIN in the spaces provided. Free federal and state e file If your spouse does not have and is not required to have an SSN or ITIN, enter “NRA” in the space for your spouse's SSN. Free federal and state e file Use the Married filing separately column of the Tax Table or Section C of the Tax Computation Worksheet to figure your tax. Free federal and state e file Special Rules If you choose married filing separately as your filing status, the following special rules apply. Free federal and state e file Because of these special rules, you usually pay more tax on a separate return than if you use another filing status you qualify for. Free federal and state e file   Your tax rate generally is higher than on a joint return. Free federal and state e file Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return. Free federal and state e file You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000). Free federal and state e file If you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. Free federal and state e file For more information about these expenses, the credit, and the exclusion, see chapter 32. Free federal and state e file You cannot take the earned income credit. Free federal and state e file You cannot take the exclusion or credit for adoption expenses in most cases. Free federal and state e file You cannot take the education credits (the American opportunity credit and lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction. Free federal and state e file You cannot exclude any interest income from qualified U. Free federal and state e file S. Free federal and state e file savings bonds you used for higher education expenses. Free federal and state e file If you lived with your spouse at any time during the tax year: You cannot claim the credit for the elderly or the disabled, and You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received. Free federal and state e file The following credits and deductions are reduced at income levels half those for a joint return: The child tax credit, The retirement savings contributions credit, The deduction for personal exemptions, and Itemized deductions. Free federal and state e file Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). Free federal and state e file If your spouse itemizes deductions, you cannot claim the standard deduction. Free federal and state e file If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return. Free federal and state e file Adjusted gross income (AGI) limits. Free federal and state e file   If your AGI on a separate return is lower than it would have been on a joint return, you may be able to deduct a larger amount for certain deductions that are limited by AGI, such as medical expenses. Free federal and state e file Individual retirement arrangements (IRAs). Free federal and state e file   You may not be able to deduct all or part of your contributions to a traditional IRA if you or your spouse were covered by an employee retirement plan at work during the year. Free federal and state e file Your deduction is reduced or eliminated if your income is more than a certain amount. Free federal and state e file This amount is much lower for married individuals who file separately and lived together at any time during the year. Free federal and state e file For more information, see How Much Can You Deduct in chapter 17. Free federal and state e file Rental activity losses. Free federal and state e file   If you actively participated in a passive rental real estate activity that produced a loss, you generally can deduct the loss from your nonpassive income, up to $25,000. Free federal and state e file This is called a special allowance. Free federal and state e file However, married persons filing separate returns who lived together at any time during the year cannot claim this special allowance. Free federal and state e file Married persons filing separate returns who lived apart at all times during the year are each allowed a $12,500 maximum special allowance for losses from passive real estate activities. Free federal and state e file See Limits on Rental Losses in chapter 9. Free federal and state e file Community property states. Free federal and state e file   If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin and file separately, your income may be considered separate income or community income for income tax purposes. Free federal and state e file See Publication 555. Free federal and state e file Joint Return After Separate Returns You can change your filing status from a separate return to a joint return by filing an amended return using Form 1040X. Free federal and state e file You generally can change to a joint return any time within 3 years from the due date of the separate return or returns. Free federal and state e file This does not include any extensions. Free federal and state e file A separate return includes a return filed by you or your spouse claiming married filing separately, single, or head of household filing status. Free federal and state e file Separate Returns After Joint Return Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the return. Free federal and state e file Exception. Free federal and state e file   A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. Free federal and state e file The personal representative has 1 year from the due date of the return (including extensions) to make the change. Free federal and state e file See Publication 559, Survivors, Executors, and Administrators, for more information on filing a return for a decedent. Free federal and state e file Head of Household You may be able to file as head of household if you meet all the following requirements. Free federal and state e file You are unmarried or “considered unmarried” on the last day of the year. Free federal and state e file See Marital Status , earlier, and Considered Unmarried , later. Free federal and state e file You paid more than half the cost of keeping up a home for the year. Free federal and state e file A qualifying person lived with you in the home for more than half the year (except for temporary absences, such as school). Free federal and state e file However, if the qualifying person is your dependent parent, he or she does not have to live with you. Free federal and state e file See Special rule for parent , later, under Qualifying Person. Free federal and state e file If you qualify to file as head of household, your tax rate usually will be lower than the rates for single or married filing separately. Free federal and state e file You will also receive a higher standard deduction than if you file as single or married filing separately. Free federal and state e file Kidnapped child. Free federal and state e file   A child may qualify you to file as head of household even if the child has been kidnapped. Free federal and state e file For more information, see Publication 501. Free federal and state e file How to file. Free federal and state e file   If you file as head of household, you can use Form 1040. Free federal and state e file If your taxable income is less than $100,000, you may be able to file Form 1040A. Free federal and state e file Indicate your choice of this filing status by checking the box on line 4 of either form. Free federal and state e file Use the Head of a household column of the Tax Table or Section D of the Tax Computation Worksheet to figure your tax. Free federal and state e file Considered Unmarried To qualify for head of household status, you must be either unmarried or considered unmarried on the last day of the year. Free federal and state e file You are considered unmarried on the last day of the tax year if you meet all the following tests. Free federal and state e file You file a separate return (defined earlier under Joint Return After Separate Returns ). Free federal and state e file You paid more than half the cost of keeping up your home for the tax year. Free federal and state e file Your spouse did not live in your home during the last 6 months of the tax year. Free federal and state e file Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. Free federal and state e file See Temporary absences , under Qualifying Person, later. Free federal and state e file Your home was the main home of your child, stepchild, or foster child for more than half the year. Free federal and state e file (See Home of qualifying person , under Qualifying Person, later, for rules applying to a child's birth, death, or temporary absence during the year. Free federal and state e file ) You must be able to claim an exemption for the child. Free federal and state e file However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rules described in Children of divorced or separated parents (or parents who live apart) under Qualifying Child in chapter 3, or in Support Test for Children of Divorced or Separated Parents (or Parents Who Live Apart) under Qualifying Relative in chapter 3. Free federal and state e file The general rules for claiming an exemption for a dependent are explained under Exemptions for Dependents in chapter 3. Free federal and state e file If you were considered married for part of the year and lived in a community property state (listed earlier under Married Filing Separately), special rules may apply in determining your income and expenses. Free federal and state e file See Publication 555 for more information. Free federal and state e file Nonresident alien spouse. Free federal and state e file   You are considered unmarried for head of household purposes if your spouse was a nonresident alien at any time during the year and you do not choose to treat your nonresident spouse as a resident alien. Free federal and state e file However, your spouse is not a qualifying person for head of household purposes. Free federal and state e file You must have another qualifying person and meet the other tests to be eligible to file as a head of household. Free federal and state e file Choice to treat spouse as resident. Free federal and state e file   You are considered married if you choose to treat your spouse as a resident alien. Free federal and state e file See Publication 519. Free federal and state e file Keeping Up a Home To qualify for head of household status, you must pay more than half of the cost of keeping up a home for the year. Free federal and state e file You can determine whether you paid more than half of the cost of keeping up a home by using Worksheet 2–1. Free federal and state e file Worksheet 2-1. Free federal and state e file Cost of Keeping Up a Home   Amount You Paid Total Cost Property taxes $ $ Mortgage interest expense     Rent     Utility charges     Repairs/maintenance     Property insurance     Food consumed on the premises     Other household expenses     Totals $ $ Minus total amount you paid   () Amount others paid   $ If the total amount you paid is more than the amount others paid, you meet the requirement of paying more than half the cost of keeping up the home. Free federal and state e file Costs you include. Free federal and state e file   Include in the cost of keeping up a home expenses such as rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. Free federal and state e file   If you used payments you received under Temporary Assistance for Needy Families (TANF) or other public assistance programs to pay part of the cost of keeping up your home, you cannot count them as money you paid. Free federal and state e file However, you must include them in the total cost of keeping up your home to figure if you paid over half the cost. Free federal and state e file Costs you do not include. Free federal and state e file   Do not include the costs of clothing, education, medical treatment, vacations, life insurance, or transportation. Free federal and state e file Also, do not include the rental value of a home you own or the value of your services or those of a member of your household. Free federal and state e file Qualifying Person See Table 2-1 to see who is a qualifying person. Free federal and state e file Any person not described in Table 2-1 is not a qualifying person. Free federal and state e file Table 2-1. Free federal and state e file Who Is a Qualifying Person Qualifying You To File as Head of Household?1 Caution. Free federal and state e file See the text of this chapter for the other requirements you must meet to claim head of household filing status. Free federal and state e file IF the person is your . Free federal and state e file . Free federal and state e file . Free federal and state e file   AND . Free federal and state e file . Free federal and state e file . Free federal and state e file   THEN that person is . Free federal and state e file . Free federal and state e file . Free federal and state e file qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2   he or she is single   a qualifying person, whether or not you can claim an exemption for the person. Free federal and state e file   he or she is married and you can claim an exemption for him or her   a qualifying person. Free federal and state e file   he or she is married and you cannot claim an exemption for him or her   not a qualifying person. Free federal and state e file 3 qualifying relative4 who is your father or mother   you can claim an exemption for him or her5   a qualifying person. Free federal and state e file 6   you cannot claim an exemption for him or her   not a qualifying person. Free federal and state e file qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests)   he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3 and you can claim an exemption for him or her5   a qualifying person. Free federal and state e file   he or she did not live with you more than half the year   not a qualifying person. Free federal and state e file   he or she is not related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3 and is your qualifying relative only because he or she lived with you all year as a member of your household   not a qualifying person. Free federal and state e file   you cannot claim an exemption for him or her   not a qualifying person. Free federal and state e file 1A person cannot qualify more than one taxpayer to use the head of household filing status for the year. Free federal and state e file 2The term “qualifying child” is defined in chapter 3. Free federal and state e file Note. Free federal and state e file If you are a noncustodial parent, the term “qualifying child” for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of divorced or separated parents (or parents who live apart) under Qualifying Child in chapter 3. Free federal and state e file If you are the custodial parent and those rules apply, the child generally is your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption. Free federal and state e file 3This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return. Free federal and state e file 4The term “ qualifying relative ” is defined in chapter 3. Free federal and state e file 5If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. Free federal and state e file See Multiple Support Agreement in chapter 3. Free federal and state e file 6See Special rule for parent . Free federal and state e file Example 1—child. Free federal and state e file Your unmarried son lived with you all year and was 18 years old at the end of the year. Free federal and state e file He did not provide more than half of his own support and does not meet the tests to be a qualifying child of anyone else. Free federal and state e file As a result, he is your qualifying child (see Qualifying Child in chapter 3) and, because he is single, your qualifying person for you to claim head of household filing status. Free federal and state e file Example 2—child who is not qualifying person. Free federal and state e file The facts are the same as in Example 1 except your son was 25 years old at the end of the year and his gross income was $5,000. Free federal and state e file Because he does not meet the age test (explained under Qualifying Child in chapter 3), your son is not your qualifying child. Free federal and state e file Because he does not meet the gross income test (explained later under Qualifying Relative in chapter 3), he is not your qualifying relative. Free federal and state e file As a result, he is not your qualifying person for head of household purposes. Free federal and state e file Example 3—girlfriend. Free federal and state e file Your girlfriend lived with you all year. Free federal and state e file Even though she may be your qualifying relative if the gross income and support tests (explained in chapter 3) are met, she is not your qualifying person for head of household purposes because she is not related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3. Free federal and state e file See Table 2-1. Free federal and state e file Example 4—girlfriend's child. Free federal and state e file The facts are the same as in Example 3 except your girlfriend's 10-year-old son also lived with you all year. Free federal and state e file He is not your qualifying child and, because he is your girlfriend's qualifying child, he is not your qualifying relative (see Not a Qualifying Child Test in chapter 3). Free federal and state e file As a result, he is not your qualifying person for head of household purposes. Free federal and state e file Home of qualifying person. Free federal and state e file   Generally, the qualifying person must live with you for more than half of the year. Free federal and state e file Special rule for parent. Free federal and state e file   If your qualifying person is your father or mother, you may be eligible to file as head of household even if your father or mother does not live with you. Free federal and state e file However, you must be able to claim an exemption for your father or mother. Free federal and state e file Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. Free federal and state e file   You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly. Free federal and state e file Death or birth. Free federal and state e file   You may be eligible to file as head of household even if the individual who qualifies you for this filing status is born or dies during the year. Free federal and state e file If the individual is your qualifying child, the child must have lived with you for more than half the part of the year he or she was alive. Free federal and state e file If the individual is anyone else, see Publication 501. Free federal and state e file Temporary absences. Free federal and state e file   You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. Free federal and state e file It must be reasonable to assume the absent person will return to the home after the temporary absence. Free federal and state e file You must continue to keep up the home during the absence. Free federal and state e file Qualifying Widow(er) With Dependent Child If your spouse died in 2013, you can use married filing jointly as your filing status for 2013 if you otherwise qualify to use that status. Free federal and state e file The year of death is the last year for which you can file jointly with your deceased spouse. Free federal and state e file See Married Filing Jointly , earlier. Free federal and state e file You may be eligible to use qualifying widow(er) with dependent child as your filing status for 2 years following the year your spouse died. Free federal and state e file For example, if your spouse died in 2012, and you have not remarried, you may be able to use this filing status for 2013 and 2014. Free federal and state e file This filing status entitles you to use joint return tax rates and the highest standard deduction amount (if you do not itemize deductions). Free federal and state e file It does not entitle you to file a joint return. Free federal and state e file How to file. Free federal and state e file   If you file as qualifying widow(er) with dependent child, you can use Form 1040. Free federal and state e file If you also have taxable income of less than $100,000 and meet certain other conditions, you may be able to file Form 1040A. Free federal and state e file Check the box on line 5 of either form. Free federal and state e file Use the Married filing jointly column of the Tax Table or Section B of the Tax Computation Worksheet to figure your tax. Free federal and state e file Eligibility rules. Free federal and state e file   You are eligible to file your 2013 return as a qualifying widow(er) with dependent child if you meet all of the following tests. Free federal and state e file You were entitled to file a joint return with your spouse for the year your spouse died. Free federal and state e file It does not matter whether you actually filed a joint return. Free federal and state e file Your spouse died in 2011 or 2012 and you did not remarry before the end of 2013. Free federal and state e file You have a child or stepchild for whom you can claim an exemption. Free federal and state e file This does not include a foster child. Free federal and state e file This child lived in your home all year, except for temporary absences. Free federal and state e file See Temporary absences , earlier, under Head of Household. Free federal and state e file There are also exceptions, described later, for a child who was born or died during the year and for a kidnapped child. Free federal and state e file You paid more than half the cost of keeping up a home for the year. Free federal and state e file See Keeping Up a Home , earlier, under Head of Household. Free federal and state e file Example. Free federal and state e file John's wife died in 2011. Free federal and state e file John has not remarried. Free federal and state e file During 2012 and 2013, he continued to keep up a home for himself and his child, who lives with him and for whom he can claim an exemption. Free federal and state e file For 2011 he was entitled to file a joint return for himself and his deceased wife. Free federal and state e file For 2012 and 2013, he can file as qualifying widower with a dependent child. Free federal and state e file After 2013 he can file as head of household if he qualifies. Free federal and state e file Death or birth. Free federal and state e file    You may be eligible to file as a qualifying widow(er) with dependent child if the child who qualifies you for this filing status is born or dies during the year. Free federal and state e file You must have provided more than half of the cost of keeping up a home that was the child's main home during the entire part of the year he or she was alive. Free federal and state e file Kidnapped child. Free federal and state e file   A child may qualify you for qualifying widow(er) with dependent child, even if the child has been kidnapped. Free federal and state e file See Publication 501. Free federal and state e file    As mentioned earlier, this filing status is available for only 2 years following the year your spouse died. Free federal and state e file Prev  Up  Next   Home   More Online Publications
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Free federal and state e file 8. Free federal and state e file   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. Free federal and state e file Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. Free federal and state e file It is similar to the straight line method of depreciation. Free federal and state e file The various amortizable costs covered in this chapter are included in the list below. Free federal and state e file However, this chapter does not discuss amortization of bond premium. Free federal and state e file For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Free federal and state e file Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. Free federal and state e file How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. Free federal and state e file To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Free federal and state e file For example, in 2012, you began to amortize a lease. Free federal and state e file In 2013, you began to amortize a second lease. Free federal and state e file Report amortization from the new lease on line 42 of your 2013 Form 4562. Free federal and state e file Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Free federal and state e file If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Free federal and state e file Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. Free federal and state e file Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Free federal and state e file Generally, you recover costs for particular assets through depreciation deductions. Free federal and state e file However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Free federal and state e file For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. Free federal and state e file For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Free federal and state e file The costs that are not deducted currently can be amortized ratably over a 180-month period. Free federal and state e file The amortization period starts with the month you begin operating your active trade or business. Free federal and state e file You are not required to attach a statement to make this election. Free federal and state e file You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Free federal and state e file Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. Free federal and state e file See Regulations sections 1. Free federal and state e file 195-1, 1. Free federal and state e file 248-1, and 1. Free federal and state e file 709-1. Free federal and state e file For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Free federal and state e file Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Free federal and state e file If the election is made, you must attach any statement required by Regulations sections 1. Free federal and state e file 195-1(b), 1. Free federal and state e file 248-1(c), and 1. Free federal and state e file 709-1(c), as in effect before September 9, 2008. Free federal and state e file Note. Free federal and state e file You can apply the provisions of Regulations sections 1. Free federal and state e file 195-1, 1. Free federal and state e file 248-1, and 1. Free federal and state e file 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Free federal and state e file Otherwise, the provisions under Regulations sections 1. Free federal and state e file 195-1(b), 1. Free federal and state e file 248-1(c), and 1. Free federal and state e file 709-1(c), as in effect before September 9, 2008, will apply. Free federal and state e file For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. Free federal and state e file See How To Make the Election , later. Free federal and state e file The cost must qualify as one of the following. Free federal and state e file A business start-up cost. Free federal and state e file An organizational cost for a corporation. Free federal and state e file An organizational cost for a partnership. Free federal and state e file Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Free federal and state e file Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. Free federal and state e file Qualifying costs. Free federal and state e file   A start-up cost is amortizable if it meets both of the following tests. Free federal and state e file It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). Free federal and state e file It is a cost you pay or incur before the day your active trade or business begins. Free federal and state e file   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Free federal and state e file Advertisements for the opening of the business. Free federal and state e file Salaries and wages for employees who are being trained and their instructors. Free federal and state e file Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Free federal and state e file Salaries and fees for executives and consultants, or for similar professional services. Free federal and state e file Nonqualifying costs. Free federal and state e file   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Free federal and state e file See Research and Experimental Costs , later. Free federal and state e file Purchasing an active trade or business. Free federal and state e file   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. Free federal and state e file These are costs that help you decide whether to purchase a business. Free federal and state e file Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Free federal and state e file Example. Free federal and state e file On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Free federal and state e file They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Free federal and state e file In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Free federal and state e file The letter stated that a binding commitment would result only after a purchase agreement was signed. Free federal and state e file The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. Free federal and state e file On October 22nd, you signed a purchase agreement with XYZ, Inc. Free federal and state e file All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Free federal and state e file Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Free federal and state e file Disposition of business. Free federal and state e file   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Free federal and state e file However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Free federal and state e file Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Free federal and state e file Qualifying costs. Free federal and state e file   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. Free federal and state e file   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. Free federal and state e file   Examples of organizational costs include: The cost of temporary directors. Free federal and state e file The cost of organizational meetings. Free federal and state e file State incorporation fees. Free federal and state e file The cost of legal services. Free federal and state e file Nonqualifying costs. Free federal and state e file   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. Free federal and state e file Costs associated with the transfer of assets to the corporation. Free federal and state e file Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Free federal and state e file Qualifying costs. Free federal and state e file   A partnership can amortize an organizational cost only if it meets all the following tests. Free federal and state e file It is for the creation of the partnership and not for starting or operating the partnership trade or business. Free federal and state e file It is chargeable to a capital account (see chapter 1). Free federal and state e file It could be amortized over the life of the partnership if the partnership had a fixed life. Free federal and state e file It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. Free federal and state e file However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. Free federal and state e file It is for a type of item normally expected to benefit the partnership throughout its entire life. Free federal and state e file   Organizational costs include the following fees. Free federal and state e file Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Free federal and state e file Accounting fees for services incident to the organization of the partnership. Free federal and state e file Filing fees. Free federal and state e file Nonqualifying costs. Free federal and state e file   The following costs cannot be amortized. Free federal and state e file The cost of acquiring assets for the partnership or transferring assets to the partnership. Free federal and state e file The cost of admitting or removing partners, other than at the time the partnership is first organized. Free federal and state e file The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Free federal and state e file The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Free federal and state e file These “syndication fees” are capital expenses that cannot be depreciated or amortized. Free federal and state e file Liquidation of partnership. Free federal and state e file   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. Free federal and state e file However, these costs can be deducted only to the extent they qualify as a loss from a business. Free federal and state e file How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Free federal and state e file You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Free federal and state e file Once you choose an amortization period, you cannot change it. Free federal and state e file To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Free federal and state e file The result is the amount you can deduct for each month. Free federal and state e file Cash method partnership. Free federal and state e file   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. Free federal and state e file However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. Free federal and state e file How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. Free federal and state e file You may also be required to attach an accompanying statement (described later) to your return. Free federal and state e file For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Free federal and state e file Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. Free federal and state e file 195-1, 1. Free federal and state e file 248-1, and 1. Free federal and state e file 709-1, you must also attach an accompanying statement to elect to amortize the costs. Free federal and state e file If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Free federal and state e file See Starting a Business , earlier, for more information. Free federal and state e file Generally, you must file the return by the due date (including any extensions). Free federal and state e file However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Free federal and state e file For more information, see the instructions for Part VI of Form 4562. Free federal and state e file You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Free federal and state e file Note. Free federal and state e file The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. Free federal and state e file If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. Free federal and state e file A shareholder or partner cannot make this election. Free federal and state e file You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Free federal and state e file Only the corporation or partnership can amortize these costs. Free federal and state e file However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Free federal and state e file These costs qualify as business start-up costs if you acquire the partnership interest. Free federal and state e file Start-up costs election statement. Free federal and state e file   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Free federal and state e file A description of the business to which the start-up costs relate. Free federal and state e file A description of each start-up cost incurred. Free federal and state e file The month your active business began (or was acquired). Free federal and state e file The number of months in your amortization period (which is generally 180 months). Free federal and state e file Filing the statement early. Free federal and state e file   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. Free federal and state e file If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Free federal and state e file Revised statement. Free federal and state e file   You can file a revised statement to include any start-up costs not included in your original statement. Free federal and state e file However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. Free federal and state e file You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Free federal and state e file Organizational costs election statement. Free federal and state e file   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Free federal and state e file A description of each cost. Free federal and state e file The amount of each cost. Free federal and state e file The date each cost was incurred. Free federal and state e file The month your corporation or partnership began active business (or acquired the business). Free federal and state e file The number of months in your amortization period (which is generally 180 months). Free federal and state e file Partnerships. Free federal and state e file   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Free federal and state e file   You do not need to separately list any partnership organizational cost that is less than $10. Free federal and state e file Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Free federal and state e file   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. Free federal and state e file Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. Free federal and state e file The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). Free federal and state e file However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). Free federal and state e file For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Free federal and state e file How to amortize. Free federal and state e file   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. Free federal and state e file Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Free federal and state e file You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. Free federal and state e file You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Free federal and state e file See Anti-Churning Rules, later. Free federal and state e file Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). Free federal and state e file The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. Free federal and state e file You cannot deduct amortization for the month you dispose of the intangible. Free federal and state e file If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. Free federal and state e file You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Free federal and state e file Tax-exempt use property subject to a lease. Free federal and state e file   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. Free federal and state e file Cost attributable to other property. Free federal and state e file   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. Free federal and state e file For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. Free federal and state e file Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. Free federal and state e file Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. Free federal and state e file You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Free federal and state e file Goodwill. Free federal and state e file   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Free federal and state e file Going concern value. Free federal and state e file   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. Free federal and state e file It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). Free federal and state e file It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. Free federal and state e file Workforce in place, etc. Free federal and state e file   This includes the composition of a workforce (for example, its experience, education, or training). Free federal and state e file It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. Free federal and state e file   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Free federal and state e file Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Free federal and state e file Business books and records, etc. Free federal and state e file   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Free federal and state e file It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Free federal and state e file Patents, copyrights, etc. Free federal and state e file   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . Free federal and state e file Customer-based intangible. Free federal and state e file   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. Free federal and state e file For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Free federal and state e file A customer base. Free federal and state e file A circulation base. Free federal and state e file An undeveloped market or market growth. Free federal and state e file Insurance in force. Free federal and state e file A mortgage servicing contract. Free federal and state e file An investment management contract. Free federal and state e file Any other relationship with customers involving the future provision of goods or services. Free federal and state e file   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. Free federal and state e file Supplier-based intangible. Free federal and state e file   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. Free federal and state e file The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. Free federal and state e file Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Free federal and state e file Also, see Assets That Are Not Section 197 Intangibles below. Free federal and state e file Government-granted license, permit, etc. Free federal and state e file   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Free federal and state e file For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. Free federal and state e file Covenant not to compete. Free federal and state e file   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. Free federal and state e file An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Free federal and state e file   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. Free federal and state e file Franchise, trademark, or trade name. Free federal and state e file   A franchise, trademark, or trade name is a section 197 intangible. Free federal and state e file You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Free federal and state e file For information on currently deductible contingent payments, see chapter 11. Free federal and state e file Professional sports franchise. Free federal and state e file   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. Free federal and state e file Contract for the use of, or a term interest in, a section 197 intangible. Free federal and state e file   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Free federal and state e file It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Free federal and state e file Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Free federal and state e file Any interest in a corporation, partnership, trust, or estate. Free federal and state e file Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Free federal and state e file Any interest in land. Free federal and state e file Most computer software. Free federal and state e file (See Computer software , later. Free federal and state e file ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Free federal and state e file An interest in a film, sound recording, video tape, book, or similar property. Free federal and state e file A right to receive tangible property or services under a contract or from a governmental agency. Free federal and state e file An interest in a patent or copyright. Free federal and state e file Certain rights that have a fixed duration or amount. Free federal and state e file (See Rights of fixed duration or amount , later. Free federal and state e file ) An interest under either of the following. Free federal and state e file An existing lease or sublease of tangible property. Free federal and state e file A debt that was in existence when the interest was acquired. Free federal and state e file A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Free federal and state e file Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Free federal and state e file Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Free federal and state e file You generally must use the straight line method over its useful life. Free federal and state e file For certain intangibles, the depreciation period is specified in the law and regulations. Free federal and state e file For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Free federal and state e file For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. Free federal and state e file Computer software. Free federal and state e file   Section 197 intangibles do not include the following types of computer software. Free federal and state e file Software that meets all the following requirements. Free federal and state e file It is, or has been, readily available for purchase by the general public. Free federal and state e file It is subject to a nonexclusive license. Free federal and state e file It has not been substantially modified. Free federal and state e file This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. Free federal and state e file Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Free federal and state e file Computer software defined. Free federal and state e file   Computer software includes all programs designed to cause a computer to perform a desired function. Free federal and state e file It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Free federal and state e file Rights of fixed duration or amount. Free federal and state e file   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. Free federal and state e file However, this does not apply to the following intangibles. Free federal and state e file Goodwill. Free federal and state e file Going concern value. Free federal and state e file A covenant not to compete. Free federal and state e file A franchise, trademark, or trade name. Free federal and state e file A customer-related information base, customer-based intangible, or similar item. Free federal and state e file Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. Free federal and state e file You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. Free federal and state e file If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. Free federal and state e file Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. Free federal and state e file Amortize these costs using the rules of Revenue Procedure 2004-36. Free federal and state e file For more information, see Revenue Procedure 2004-36, 2004-24 I. Free federal and state e file R. Free federal and state e file B. Free federal and state e file 1063, available at  www. Free federal and state e file irs. Free federal and state e file gov/irb/2004-24_IRB/ar16. Free federal and state e file html. Free federal and state e file A change in the treatment of creative property costs is a change in method of accounting. Free federal and state e file Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. Free federal and state e file These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Free federal and state e file Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Free federal and state e file You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Free federal and state e file You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. Free federal and state e file You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). Free federal and state e file This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. Free federal and state e file See Related person , later, for more information. Free federal and state e file Exceptions. Free federal and state e file   The anti-churning rules do not apply in the following situations. Free federal and state e file You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Free federal and state e file The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Free federal and state e file This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. Free federal and state e file The gain-recognition exception, discussed later, applies. Free federal and state e file Related person. Free federal and state e file   For purposes of the anti-churning rules, the following are related persons. Free federal and state e file An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Free federal and state e file ), and lineal descendants (children, grandchildren, etc. Free federal and state e file ). Free federal and state e file A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Free federal and state e file Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. Free federal and state e file (For an exception, see section 1. Free federal and state e file 197-2(h)(6)(iv) of the regulations. Free federal and state e file ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. Free federal and state e file The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Free federal and state e file The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Free federal and state e file The executor and beneficiary of an estate. Free federal and state e file A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Free federal and state e file A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. Free federal and state e file Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. Free federal and state e file Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Free federal and state e file A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Free federal and state e file Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Free federal and state e file When to determine relationship. Free federal and state e file   Persons are treated as related if the relationship existed at the following time. Free federal and state e file In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Free federal and state e file In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. Free federal and state e file Ownership of stock. Free federal and state e file   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Free federal and state e file Rule 1. Free federal and state e file   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Free federal and state e file Rule 2. Free federal and state e file   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Free federal and state e file Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Free federal and state e file Rule 3. Free federal and state e file   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Free federal and state e file Rule 4. Free federal and state e file   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. Free federal and state e file Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. Free federal and state e file Gain-recognition exception. Free federal and state e file   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Free federal and state e file That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. Free federal and state e file That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Free federal and state e file See chapter 2 in Publication 544 for information on making this choice. Free federal and state e file   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. Free federal and state e file Notification. Free federal and state e file   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. Free federal and state e file Anti-abuse rule. Free federal and state e file   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Free federal and state e file To avoid the requirement that the intangible be acquired after August 10, 1993. Free federal and state e file To avoid any of the anti-churning rules. Free federal and state e file More information. Free federal and state e file   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Free federal and state e file 197-2(h). Free federal and state e file Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. Free federal and state e file See Amended Return , next. Free federal and state e file If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Free federal and state e file See Changing Your Accounting Method , later. Free federal and state e file Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Free federal and state e file A mathematical error made in any year. Free federal and state e file A posting error made in any year. Free federal and state e file An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Free federal and state e file When to file. Free federal and state e file   If an amended return is allowed, you must file it by the later of the following dates. Free federal and state e file 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Free federal and state e file (A return filed early is considered filed on the due date. Free federal and state e file ) 2 years from the time you paid your tax for that year. Free federal and state e file Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Free federal and state e file File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Free federal and state e file The following are examples of a change in method of accounting for amortization. Free federal and state e file A change in the amortization method, period of recovery, or convention of an amortizable asset. Free federal and state e file A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Free federal and state e file A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Free federal and state e file Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. Free federal and state e file An adjustment in the useful life of an amortizable asset. Free federal and state e file Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Free federal and state e file Any change in the placed-in-service date of an amortizable asset. Free federal and state e file See Regulations section 1. Free federal and state e file 446-1(e)(2)(ii)(a) for more information and examples. Free federal and state e file Automatic approval. Free federal and state e file   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Free federal and state e file For a list of automatic accounting method changes, see the Instructions for Form 3115. Free federal and state e file Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. Free federal and state e file For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. Free federal and state e file See Revenue Procedure 2006-12, 2006-3 I. Free federal and state e file R. Free federal and state e file B. Free federal and state e file 310, available at  www. Free federal and state e file irs. Free federal and state e file gov/irb/2006-03_IRB/ar14. Free federal and state e file html. Free federal and state e file  See Revenue Procedure 2006-37, 2006-38 I. Free federal and state e file R. Free federal and state e file B. Free federal and state e file 499, available at  www. Free federal and state e file irs. Free federal and state e file gov/irb/2006-38_IRB/ar10. Free federal and state e file html. Free federal and state e file  See Revenue Procedure 2008-52, 2008-36 I. Free federal and state e file R. Free federal and state e file B. Free federal and state e file 587, available at www. Free federal and state e file irs. Free federal and state e file gov/irb/2008-36_IRB/ar09. Free federal and state e file html. Free federal and state e file  See Revenue Procedure 2009-39, 2009-38 I. Free federal and state e file R. Free federal and state e file B. Free federal and state e file 371, available at  www. Free federal and state e file irs. Free federal and state e file gov/irb/2009-38_IRB/ar08. Free federal and state e file html. Free federal and state e file  See Revenue Procedure 2011-14, 2011-4 I. Free federal and state e file R. Free federal and state e file B. Free federal and state e file 330, available at  www. Free federal and state e file irs. Free federal and state e file gov/irb/2011-04_IRB/ar08. Free federal and state e file html. Free federal and state e file  See Revenue Procedure 2011-22, 2011-18 I. Free federal and state e file R. Free federal and state e file B. Free federal and state e file 737, available at  www. Free federal and state e file irs. Free federal and state e file gov/irb/2011-18_IRB/ar08. Free federal and state e file html. Free federal and state e file Also, see Revenue Procedure 2012-39, 2012-41 I. Free federal and state e file R. Free federal and state e file B. Free federal and state e file 470 available at www. Free federal and state e file irs. Free federal and state e file gov/irb/2012-41_IRB/index. Free federal and state e file html. Free federal and state e file Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Free federal and state e file If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). Free federal and state e file If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Free federal and state e file Any remaining gain, or any loss, is a section 1231 gain or loss. Free federal and state e file If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Free federal and state e file For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Free federal and state e file Nondeductible loss. Free federal and state e file   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. Free federal and state e file Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Free federal and state e file Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Free federal and state e file The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Free federal and state e file The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Free federal and state e file Covenant not to compete. Free federal and state e file   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. Free federal and state e file Nonrecognition transfers. Free federal and state e file   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. Free federal and state e file You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Free federal and state e file Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Free federal and state e file   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. Free federal and state e file Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. Free federal and state e file Example. Free federal and state e file You own a section 197 intangible you have amortized for 4 full years. Free federal and state e file It has a remaining unamortized basis of $30,000. Free federal and state e file You exchange the asset plus $10,000 for a like-kind section 197 intangible. Free federal and state e file The nonrecognition provisions of like-kind exchanges apply. Free federal and state e file You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. Free federal and state e file You amortize the other $10,000 of adjusted basis over a new 15-year period. Free federal and state e file For more information, see Regulations section 1. Free federal and state e file 197-2(g). Free federal and state e file Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Free federal and state e file See Reforestation Costs in chapter 7. Free federal and state e file You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Free federal and state e file There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Free federal and state e file The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Free federal and state e file A partner, shareholder, or beneficiary cannot make that election. Free federal and state e file A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Free federal and state e file , of a partnership or S corporation. Free federal and state e file The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. Free federal and state e file Qualifying costs. Free federal and state e file   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Free federal and state e file Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Free federal and state e file They include costs for the following items. Free federal and state e file Site preparation. Free federal and state e file Seeds or seedlings. Free federal and state e file Labor. Free federal and state e file Tools. Free federal and state e file Depreciation on equipment used in planting and seeding. Free federal and state e file Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. Free federal and state e file Qualified timber property. Free federal and state e file   Qualified timber property is property that contains trees in significant commercial quantities. Free federal and state e file It can be a woodlot or other site that you own or lease. Free federal and state e file The property qualifies only if it meets all of the following requirements. Free federal and state e file It is located in the United States. Free federal and state e file It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. Free federal and state e file It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Free federal and state e file Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Free federal and state e file Amortization period. Free federal and state e file   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. Free federal and state e file You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Free federal and state e file Life tenant and remainderman. Free federal and state e file   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. Free federal and state e file Any remainder interest in the property is ignored for amortization purposes. Free federal and state e file Recapture. Free federal and state e file   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. Free federal and state e file See chapter 3 of Publication 544 for more information. Free federal and state e file How to make the election. Free federal and state e file   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Free federal and state e file A description of the costs and the dates you incurred them. Free federal and state e file A description of the type of timber being grown and the purpose for which it is grown. Free federal and state e file Attach a separate statement for each property for which you amortize reforestation costs. Free federal and state e file   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Free federal and state e file However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Free federal and state e file Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Free federal and state e file 9100-2” on Form 4562. Free federal and state e file File the amended return at the same address you filed the original return. Free federal and state e file Revoking the election. Free federal and state e file   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Free federal and state e file Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. Free federal and state e file Please provide your daytime telephone number (optional), in case we need to contact you. Free federal and state e file You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. Free federal and state e file    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Free federal and state e file NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. Free federal and state e file These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. Free federal and state e file For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). Free federal and state e file If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Free federal and state e file Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Free federal and state e file However, see Atmospheric pollution control facilities for an exception. Free federal and state e file The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Free federal and state e file Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. Free federal and state e file You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Free federal and state e file See chapter 3 of Publication 946. Free federal and state e file A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. Free federal and state e file The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Free federal and state e file The facility must be certified by state and federal certifying authorities. Free federal and state e file The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Free federal and state e file Also, it must not significantly change the nature of the manufacturing or production process or facility. Free federal and state e file The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). Free federal and state e file The federal certifying authority will describe the nature of the potential cost recovery. Free federal and state e file You must then reduce the amortizable basis of the facility by this potential recovery. Free federal and state e file New identifiable treatment facility. Free federal and state e file   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Free federal and state e file It does not include a building and its structural components unless the building is exclusively a treatment facility. Free federal and state e file Atmospheric pollution control facilities. Free federal and state e file   Certain atmospheric pollution control facilities can be amortized over 84 months. Free federal and state e file To qualify, the following must apply. Free federal and state e file The facility must be acquired and placed in service after April 11, 2005. Free federal and state e file If acquired, the original use must begin with you after April 11, 2005. Free federal and state e file The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. Free federal and state e file If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Free federal and state e file Basis reduction for corporations. Free federal and state e file   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Free federal and state e file More information. Free federal and state e file   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Free federal and state e file Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). Free federal and state e file If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Free federal and state e file The amortization period begins the month you first receive an economic benefit from the costs. Free federal and state e file For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Free federal and state e file Optional write-off method. Free federal and state e file   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. Free federal and state e file For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Free federal and state e file Costs you can amortize. Free federal and state e file   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Free federal and state e file You paid or incurred the costs in your trade or business. Free federal and state e file You are not deducting the costs currently. Free federal and state e file How to make the election. Free federal and state e file   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Free federal and state e file Generally, you must file the return by the due date (including extensions). Free federal and state e file However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Free federal and state e file Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Free federal and state e file 9100-2” on Form 4562. Free federal and state e file File the amended return at the same address you filed the original return. Free federal and state e file   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. Free federal and state e file Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. Free federal and state e file If you make this election, there is no AMT adjustment. Free federal and state e file The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. Free federal and state e file How to make the election. Free federal and state e file   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. Free federal and state e file   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Free federal and state e file However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Free federal and state e file Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Free federal and state e file 9100-2” on Form 4562. Free federal and state e file File the amended return at the same address you filed the original return. Free federal and state e file Revoking the election. Free federal and state e file   You must obtain consent from the IRS to revoke your election. Free federal and state e file Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. Free federal and state e file The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Free federal and state e file If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Free federal and state e file Prev  Up  Next   Home   More Online Publications