File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Free Tax Help

I Need Tax Instruction Booklet For 1040ezFile State Taxes Free OnlineCan I File An Amended Tax ReturnIrs E File Extension2011 Irs Form 1040Filing Income Tax ReturnFree State Tax FillingH & R Block Military1040ez 2010 FormLate Tax ReturnIrs 1040ez Form 20122011 Form 1040 EzTaxact Online 2012Can Ie File An Amended Tax Return2011 Federal Tax Form 1040ezTax Forms 2012Efile 2011 TaxesCan I Efile A 1040xTurbotax 20111040 Ez Form 2012I Need To File My 2012 Taxes For FreeHow To File A Tax Amendment Online2013 Colo State Tax FormsFiling State Tax Return OnlyFederal Tax Income Return1040ez Instructions 2013Where To File 2012 Form 10401040ez Filing Online2012 Irs Tax Forms2009 1040ezIrs Free File Tax ReturnFree State Tax FileHow Do I Amend My TaxesState Taxes Phone Number1040ez Form 2013 InstructionsCan I File Amended Tax Return OnlineAmend A Tax Return 2012Do State Taxes FreeHow To File Your Own TaxesTax Amendment Form 2011

Free Tax Help

Free tax help 10. Free tax help   Self-Employment (SE) Tax Table of Contents Who Must Pay SE Tax?Special Rules and Exceptions Figuring Earnings Subject to SE Tax Farm Optional Method Using Both Optional Methods Reporting Self-Employment Tax The SE tax rules apply no matter how old you are and even if you are already receiving social security and Medicare benefits. Free tax help Who Must Pay SE Tax? Generally, you must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. Free tax help Use Schedule SE to figure net earnings from self-employment. Free tax help Sole proprietor or independent contractor. Free tax help   If you are self-employed as a sole proprietor or independent contractor, you generally use Schedule C or C-EZ (Form 1040) to figure your earnings subject to SE tax. Free tax help SE tax rate. Free tax help    For 2013, the SE tax rate on net earnings is 15. Free tax help 3% (12. Free tax help 4% social security tax plus 2. Free tax help 9% Medicare tax). Free tax help Maximum earnings subject to self-employment tax. Free tax help    Only the first $113,700 of your combined wages, tips, and net earnings in 2013 is subject to any combination of the 12. Free tax help 4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax. Free tax help   All of your combined wages, tips, and net earnings in 2013 are subject to any combination of the 2. Free tax help 9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax. Free tax help   If your wages and tips are subject to either social security or railroad retirement (tier 1) tax, or both, and total at least $113,700, do not pay the 12. Free tax help 4% social security part of the SE tax on any of your net earnings. Free tax help However, you must pay the 2. Free tax help 9% Medicare part of the SE tax on all your net earnings. Free tax help Special Rules and Exceptions Aliens. Free tax help   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. Free tax help S. Free tax help citizens. Free tax help Nonresident aliens are not subject to SE tax unless an international social security agreement in effect determines that they are covered under the U. Free tax help S. Free tax help social security system. Free tax help However, residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to self-employment tax, as they are considered U. Free tax help S. Free tax help residents for self-employment tax purposes. Free tax help For more information on aliens, see Publication 519, U. Free tax help S. Free tax help Tax Guide for Aliens. Free tax help Child employed by parent. Free tax help   You are not subject to SE tax if you are under age 18 and you are working for your father or mother. Free tax help Church employee. Free tax help    If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108. Free tax help 28 or more in wages from the church or organization. Free tax help For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Free tax help Fishing crew member. Free tax help   If you are a member of the crew on a boat that catches fish or other water life, your earnings are subject to SE tax if all the following conditions apply. Free tax help You do not get any pay for the work except your share of the catch or a share of the proceeds from the sale of the catch, unless the pay meets all the following conditions. Free tax help The pay is not more than $100 per trip. Free tax help The pay is received only if there is a minimum catch. Free tax help The pay is solely for additional duties (such as mate, engineer, or cook) for which additional cash pay is traditional in the fishing industry. Free tax help You get a share of the catch or a share of the proceeds from the sale of the catch. Free tax help Your share depends on the amount of the catch. Free tax help The boat's operating crew normally numbers fewer than 10 individuals. Free tax help (An operating crew is considered as normally made up of fewer than 10 if the average size of the crew on trips made during the last four calendar quarters is fewer than 10. Free tax help ) Notary public. Free tax help   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ but are not subject to self-employment tax (see the Instructions for Schedule SE (Form 1040)). Free tax help State or local government employee. Free tax help   You are subject to SE tax if you are an employee of a state or local government, are paid solely on a fee basis, and your services are not covered under a federal-state social security agreement. Free tax help Foreign government or international organization employee. Free tax help   You are subject to SE tax if both the following conditions are true. Free tax help You are a U. Free tax help S. Free tax help citizen employed in the United States, Puerto Rico, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, or the Virgin Islands by: A foreign government, A wholly-owned agency of a foreign government, or An international organization. Free tax help Your employer is not required to withhold social security and Medicare taxes from your wages. Free tax help U. Free tax help S. Free tax help citizen or resident alien residing abroad. Free tax help    If you are a self-employed U. Free tax help S. Free tax help citizen or resident alien living outside the United States, in most cases you must pay SE tax. Free tax help Do not reduce your foreign earnings from self-employment by your foreign earned income exclusion. Free tax help Exception. Free tax help    The United States has social security agreements with many countries to eliminate double taxation under two social security systems. Free tax help Under these agreements, you generally must only pay social security and Medicare taxes to the country in which you live. Free tax help The country to which you must pay the tax will issue a certificate which serves as proof of exemption from social security tax in the other country. Free tax help   For more information, see the Instructions for Schedule SE (Form 1040). Free tax help More Than One Business If you have earnings subject to SE tax from more than one trade, business, or profession, you must combine the net profit (or loss) from each to determine your total earnings subject to SE tax. Free tax help A loss from one business reduces your profit from another business. Free tax help Community Property Income If any of the income from a trade or business, other than a partnership, is community property income under state law, it is included in the earnings subject to SE tax of the spouse carrying on the trade or business. Free tax help Gain or Loss Do not include in earnings subject to SE tax a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Free tax help It does not matter whether the disposition is a sale, exchange, or an involuntary conversion. Free tax help Lost Income Payments If you are self-employed and reduce or stop your business activities, any payment you receive from insurance or other sources for the lost business income is included in earnings subject to SE tax. Free tax help If you are not working when you receive the payment, it still relates to your business and is included in earnings subject to SE tax, even though your business is temporarily inactive. Free tax help Figuring Earnings Subject to SE Tax Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. Free tax help The regular method. Free tax help The nonfarm optional method. Free tax help The farm optional method. Free tax help You must use the regular method unless you are eligible to use one or both of the optional methods. Free tax help Why use an optional method?    You may want to use the optional methods (discussed later) when you have a loss or a small net profit and any one of the following applies. Free tax help You want to receive credit for social security benefit coverage. Free tax help You incurred child or dependent care expenses for which you could claim a credit. Free tax help (An optional method may increase your earned income, which could increase your credit. Free tax help ) You are entitled to the earned income credit. Free tax help (An optional method may increase your earned income, which could increase your credit. Free tax help ) You are entitled to the additional child tax credit. Free tax help (An optional method may increase your earned income, which could increase your credit. Free tax help ) Effects of using an optional method. Free tax help   Using an optional method could increase your SE tax. Free tax help Paying more SE tax could result in your getting higher benefits when you retire. Free tax help   If you use either or both optional methods, you must figure and pay the SE tax due under these methods even if you would have had a smaller tax or no tax using the regular method. Free tax help   The optional methods may be used only to figure your SE tax. Free tax help To figure your income tax, include your actual earnings in gross income, regardless of which method you use to determine SE tax. Free tax help Regular Method Multiply your total earnings subject to SE tax by 92. Free tax help 35% (. Free tax help 9235) to get your net earnings under the regular method. Free tax help See Short Schedule SE, line 4, or Long Schedule SE, line 4a. Free tax help Net earnings figured using the regular method are also called actual net earnings. Free tax help Nonfarm Optional Method Use the nonfarm optional method only for earnings that do not come from farming. Free tax help You may use this method if you meet all the following tests. Free tax help You are self-employed on a regular basis. Free tax help This means that your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. Free tax help The net earnings can be from either farm or nonfarm earnings or both. Free tax help You have used this method less than 5 years. Free tax help (There is a 5-year lifetime limit. Free tax help ) The years do not have to be one after another. Free tax help Your net nonfarm profits were: Less than $5,024, and Less than 72. Free tax help 189% of your gross nonfarm income. Free tax help Net nonfarm profits. Free tax help   Net nonfarm profit generally is the total of the amounts from: Line 31, Schedule C (Form 1040), Line 3, Schedule C-EZ (Form 1040), Box 14, code A, Schedule K-1 (Form 1065) (from nonfarm partnerships), and Box 9, code J1, Schedule K-1 (Form 1065-B). Free tax help   However, you may need to adjust the amount reported on Schedule K-1 if you are a general partner or if it is a loss. Free tax help Gross nonfarm income. Free tax help   Your gross nonfarm income generally is the total of the amounts from: Line 7, Schedule C (Form 1040), Line 1, Schedule C-EZ (Form 1040), Box 14, code C, Schedule K-1 (Form 1065) (from nonfarm partnerships), and Box 9, code J2, Schedule K-1 (Form 1065-B). Free tax help Figuring Nonfarm Net Earnings If you meet the three tests explained earlier, use the following table to figure your net earnings from self-employment under the nonfarm optional method. Free tax help Table 10-1. Free tax help Figuring Nonfarm Net Earnings IF your gross nonfarm income is. Free tax help . Free tax help . Free tax help THEN your net earnings are equal to. Free tax help . Free tax help . Free tax help $6,960 or less Two-thirds of your gross nonfarm income. Free tax help More than $6,960 $4,640 Actual net earnings. Free tax help   Your actual net earnings are 92. Free tax help 35% of your total earnings subject to SE tax (that is, multiply total earnings subject to SE tax by 92. Free tax help 35% (. Free tax help 9235) to get actual net earnings). Free tax help Actual net earnings are equivalent to net earnings figured using the regular method. Free tax help Optional net earnings less than actual net earnings. Free tax help   You cannot use this method to report an amount less than your actual net earnings from self-employment. Free tax help Gross nonfarm income of $6,960 or less. Free tax help   The following examples illustrate how to figure net earnings when gross nonfarm income is $6,960 or less. Free tax help Example 1. Free tax help Net nonfarm profit less than $5,024 and less than 72. Free tax help 189% of gross nonfarm income. Free tax help Ann Green runs a craft business. Free tax help Her actual net earnings from self-employment were $800 in 2011 and $900 in 2012. Free tax help She meets the test for being self-employed on a regular basis. Free tax help She has used the nonfarm optional method less than 5 years. Free tax help Her gross income and net profit in 2013 are as follows: Gross nonfarm income $5,400 Net nonfarm profit $1,200 Ann's actual net earnings for 2013 are $1,108 ($1,200 × . Free tax help 9235). Free tax help Because her net profit is less than $5,024 and less than 72. Free tax help 189% of her gross income, she can use the nonfarm optional method to figure net earnings of $3,600 (2/3 × $5,400). Free tax help Because these net earnings are higher than her actual net earnings, she can report net earnings of $3,600 for 2013. Free tax help Example 2. Free tax help Net nonfarm profit less than $5,024 but not less than 72. Free tax help 189% of gross nonfarm income. Free tax help Assume that in Example 1 Ann's gross income is $1,000 and her net profit is $800. Free tax help She must use the regular method to figure her net earnings. Free tax help She cannot use the nonfarm optional method because her net profit is not less than 72. Free tax help 189% of her gross income. Free tax help Example 3. Free tax help Net loss from a nonfarm business. Free tax help Assume that in Example 1 Ann has a net loss of $700. Free tax help She can use the nonfarm optional method and report $3,600 (2/3 × $5,400) as her net earnings. Free tax help Example 4. Free tax help Nonfarm net earnings less than $400. Free tax help Assume that in Example 1 Ann has gross income of $525 and a net profit of $175. Free tax help In this situation, she would not pay any SE tax under either the regular method or the nonfarm optional method because her net earnings under both methods are less than $400. Free tax help Gross nonfarm income of more than $6,960. Free tax help   The following examples illustrate how to figure net earnings when gross nonfarm income is more than $6,960. Free tax help Example 1. Free tax help Net nonfarm profit less than $5,024 and less than 72. Free tax help 189% of gross nonfarm income. Free tax help John White runs an appliance repair shop. Free tax help His actual net earnings from self-employment were $10,500 in 2011 and $9,500 in 2012. Free tax help He meets the test for being self-employed on a regular basis. Free tax help He has used the nonfarm optional method less than 5 years. Free tax help His gross income and net profit in 2013 are as follows: Gross nonfarm income $12,000 Net nonfarm profit $1,200 John's actual net earnings for 2013 are $1,108 ($1,200 × . Free tax help 9235). Free tax help Because his net profit is less than $5,024 and less than 72. Free tax help 189% of his gross income, he can use the nonfarm optional method to figure net earnings of $4,640. Free tax help Because these net earnings are higher than his actual net earnings, he can report net earnings of $4,640 for 2013. Free tax help Example 2. Free tax help Net nonfarm profit not less than $5,024. Free tax help Assume that in Example 1 John's net profit is $5,400. Free tax help He must use the regular method. Free tax help He cannot use the nonfarm optional method because his net nonfarm profit is not less than $5,024. Free tax help Example 3. Free tax help Net loss from a nonfarm business. Free tax help Assume that in Example 1 John has a net loss of $700. Free tax help He can use the nonfarm optional method and report $4,640 as his net earnings from self-employment. Free tax help Farm Optional Method Use the farm optional method only for earnings from a farming business. Free tax help See Publication 225 for information about this method. Free tax help Using Both Optional Methods If you have both farm and nonfarm earnings, you may be able to use both optional methods to determine your net earnings from self-employment. Free tax help To figure your net earnings using both optional methods, you must: Figure your farm and nonfarm net earnings separately under each method. Free tax help Do not combine farm earnings with nonfarm earnings to figure your net earnings under either method. Free tax help Add the net earnings figured under each method to arrive at your total net earnings from self-employment. Free tax help You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. Free tax help If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. Free tax help Example. Free tax help You are a self-employed farmer. Free tax help You also operate a retail grocery store. Free tax help Your gross income, actual net earnings from self-employment, and optional farm and optional nonfarm net earnings from self-employment are shown in Table 10-2. Free tax help Table 10-2. Free tax help Example—Farm and Nonfarm Earnings Income and Earnings Farm Nonfarm Gross income $3,000 $6,000 Actual net earnings $900 $500 Optional net earnings (2/3 of gross income) $2,000 $4,000 Table 10-3 shows four methods or combinations of methods you can use to figure net earnings from self-employment using the farm and nonfarm gross income and actual net earnings shown in Table 10-2. Free tax help Method 1. Free tax help Using the regular method for both farm and nonfarm income. Free tax help Method 2. Free tax help Using the optional method for farm income and the regular method for nonfarm income. Free tax help Method 3. Free tax help Using the regular method for farm income and the optional method for nonfarm income. Free tax help Method 4. Free tax help Using the optional method for both farm and nonfarm income. Free tax help Note. Free tax help Actual net earnings is the same as net earnings figured using the regular method. Free tax help Table 10-3. Free tax help Example—Net Earnings Net Earnings 1 2 3 4 Actual  farm $ 900   $ 900   Optional  farm   $ 2,000   $ 2,000 Actual nonfarm $ 500 $ 500     Optional nonfarm     $4,000 $4,000 Amount you can report: $1,400 $2,500 $4,900 $4,640* *Limited to $4,640 because you used both optional methods. Free tax help Fiscal Year Filer If you use a tax year other than the calendar year, you must use the tax rate and maximum earnings limit in effect at the beginning of your tax year. Free tax help Even if the tax rate or maximum earnings limit changes during your tax year, continue to use the same rate and limit throughout your tax year. Free tax help Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. Free tax help Then enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. Free tax help Most taxpayers can use Section A—Short Schedule SE to figure their SE tax. Free tax help However, certain taxpayers must use Section B—Long Schedule SE. Free tax help If you have to pay SE tax, you must file Form 1040 (with Schedule SE attached) even if you do not otherwise have to file a federal income tax return. Free tax help Joint return. Free tax help   Even if you file a joint return, you cannot file a joint Schedule SE. Free tax help This is true whether one spouse or both spouses have earnings subject to SE tax. Free tax help If both of you have earnings subject to SE tax, each of you must complete a separate Schedule SE. Free tax help However, if one spouse uses the Short Schedule SE and the other spouse has to use the Long Schedule SE, both can use the same form. Free tax help Attach both schedules to the joint return. Free tax help More than one business. Free tax help   If you have more than one trade or business, you must combine the net profit (or loss) from each business to figure your SE tax. Free tax help A loss from one business will reduce your profit from another business. Free tax help File one Schedule SE showing the earnings from self-employment, but file a separate Schedule C, C-EZ, or F for each business. Free tax help Example. Free tax help You are the sole proprietor of two separate businesses. Free tax help You operate a restaurant that made a net profit of $25,000. Free tax help You also have a cabinetmaking business that had a net loss of $500. Free tax help You must file a Schedule C for the restaurant showing your net profit of $25,000 and another Schedule C for the cabinetmaking business showing your net loss of $500. Free tax help You file Schedule SE showing total earnings subject to SE tax of $24,500. Free tax help Prev  Up  Next   Home   More Online Publications
Español

Tribal Governments

Official information and services from the U.S. government

The Free Tax Help

Free tax help Depreciation Table of Contents Introduction Special Depreciation AllowanceQualified Property Election Not To Claim the Allowance Rules for Returns Filed Before June 1, 2002 Passenger Automobiles New York Liberty Zone BenefitsSpecial Liberty Zone Depreciation Allowance Increased Section 179 Deduction Liberty Zone Leasehold Improvement Property If you depreciate business property that you acquired and placed in service after September 10, 2001, new law contains provisions that may affect your depreciation deduction for that property. Free tax help Publication 946, How To Depreciate Property, contains information on depreciation. Free tax help However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. Free tax help The new provisions are in the Supplement to Publication 946, which is reprinted below. Free tax help Supplement to Publication 946 How To Depreciate Property   Introduction After Publication 946 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. Free tax help The new law made several changes in the tax rules explained in the publication. Free tax help Some of the changes apply to property placed in service during 2001. Free tax help This supplemental publication describes those changes and explains what you should do if you are affected by them. Free tax help The situations and examples in Publication 946 do not reflect any of the changes made by the Job Creation and Worker Assistance Act of 2002. Free tax help The new law contains the following provisions. Free tax help 30% depreciation deductions (special depreciation allowance and special New York Liberty Zone (Liberty Zone) depreciation allowance) for the year qualified property is placed in service after September 10, 2001. Free tax help An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. Free tax help A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. Free tax help An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. Free tax help If you believe you qualify for an increased deduction under any of these new rules, you must file the revised 2001 Form 4562 (dated March 2002) for 2001 calendar or fiscal years and 2000 fiscal years ending after September 10, 2001. Free tax help If you have already filed a tax return, this supplemental publication explains how to claim these benefits and how to elect not to claim the special depreciation allowance or special Liberty Zone depreciation allowance. Free tax help See Table 2 at the end of the supplement for an overview of the rules that apply if you filed your return before June 1, 2002. Free tax help Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. Free tax help The allowance is an additional deduction of 30% of the property's depreciable basis. Free tax help To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Free tax help See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Free tax help The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Free tax help There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Free tax help In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Free tax help Example 1. Free tax help On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. Free tax help You did not elect to claim a section 179 deduction. Free tax help You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. Free tax help You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. Free tax help Example 2. Free tax help The facts are the same as in Example 1, except that you choose to deduct $24,000 of the property's cost as a section 179 deduction. Free tax help You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). Free tax help You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. Free tax help Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. Free tax help It is new property of one of the following types. Free tax help Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Free tax help See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Free tax help Water utility property. Free tax help See 25-year property on page 22 in Publication 946. Free tax help Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Free tax help (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Free tax help ) Qualified leasehold improvement property (defined later). Free tax help It meets the following tests (explained later under Tests To Be Met). Free tax help Acquisition date test. Free tax help Placed in service date test. Free tax help Original use test. Free tax help It is not excepted property (explained later under Excepted Property). Free tax help Qualified leasehold improvement property. Free tax help    Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the following requirements are met. Free tax help The improvement is made under or pursuant to a lease by the lessee (or any sublessee) or the lessor of that part of the building. Free tax help That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. Free tax help The improvement is placed in service more than 3 years after the date the building was first placed in service. Free tax help   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. Free tax help The enlargement of the building. Free tax help Any elevator or escalator. Free tax help Any structural component benefiting a common area. Free tax help The internal structural framework of the building. Free tax help   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. Free tax help However, a binding commitment between related persons is not treated as a lease. Free tax help Related persons. Free tax help   For this purpose, the following are related persons. Free tax help Members of an affiliated group. Free tax help The persons listed in items (1) through (9) under Related persons on page 8 of Publication 946 (except that “80% or more” should be substituted for “more than 10%” each place it appears). Free tax help An executor and a beneficiary of the same estate. Free tax help Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. Free tax help Acquisition date test. Free tax help    Generally, you must have acquired the property either: After September 10, 2001, and before September 11, 2004, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or Pursuant to a written binding contract entered into after September 10, 2001, and before September 11, 2004. Free tax help   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001, and before September 11, 2004. Free tax help Placed in service date test. Free tax help   Generally, the property must be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. Free tax help   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Free tax help Original use test. Free tax help   The original use of the property must have begun with you after September 10, 2001. Free tax help “Original use” means the first use to which the property is put, whether or not by you. Free tax help Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. Free tax help Excepted Property The following property does not qualify for the special depreciation allowance. Free tax help Property used by any person before September 11, 2001. Free tax help Property required to be depreciated using ADS. Free tax help This includes listed property used 50% or less in a qualified business use. Free tax help Qualified New York Liberty Zone leasehold improvement property (defined next). Free tax help Qualified New York Liberty Zone leasehold improvement property. Free tax help   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. Free tax help The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). Free tax help The improvement is placed in service after September 10, 2001, and before January 1, 2007. Free tax help No written binding contract for the improvement was in effect before September 11, 2001. Free tax help Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. Free tax help If you make this election for any property, it applies to all property in the same property class placed in service during the year. Free tax help To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Free tax help When to make election. Free tax help   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Free tax help   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 original return (not including extensions). Free tax help Attach the election statement to the amended return. Free tax help At the top of the election statement, write “Filed pursuant to section 301. Free tax help 9100–2. Free tax help ” Revoking an election. Free tax help   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Free tax help A request to revoke the election is subject to a user fee. Free tax help Rules for Returns Filed Before June 1, 2002 The following rules apply if you placed qualified property in service after September 10, 2001, and filed your return before June 1, 2002. Free tax help The rules apply to returns for the following years. Free tax help 2000 fiscal years that end after September 10, 2001. Free tax help 2001 calendar and fiscal years. Free tax help Claiming the allowance. Free tax help   If you did not claim the allowance on your return and did not make the election not to claim the allowance, you can do either of the following to claim the allowance. Free tax help File an amended return by the due date (not including extensions) of your return for the year following the year the property was placed in service. Free tax help Write “Filed Pursuant to Rev. Free tax help Proc. Free tax help 2002–33” at the top of the amended return. Free tax help File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. Free tax help Your return must be filed by the due date (including extensions). Free tax help Write “Automatic Change Filed Under Rev. Free tax help Proc. Free tax help 2002–33” on the appropriate line of Form 3115. Free tax help You must also file a copy (with signature) of the completed Form 3115 with the IRS National Office no later than when you file the original with your return. Free tax help For more information about filing Form 3115, including the address to send it to, see Revenue Procedure 2002–9, Revenue Procedure 2002–19, and Revenue Procedure 2002–33. Free tax help Example 1. Free tax help You are an individual and you use the calendar year. Free tax help You placed qualified property in service for your business in December 2001. Free tax help You filed your 2001 income tax return before April 15, 2002. Free tax help You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. Free tax help You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. Free tax help Proc. Free tax help 2002–33” at the top of the amended return. Free tax help You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. Free tax help Example 2. Free tax help The facts concerning your 2001 return are the same as in Example 1. Free tax help In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. Free tax help You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. Free tax help Proc. Free tax help 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. Free tax help You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. Free tax help Electing not to claim the allowance. Free tax help   Generally, you have elected not to claim the special depreciation allowance for a class of property if you: Filed your return timely (including extensions) for the year you placed qualified property in service and indicated on a statement with the return that you are not claiming the allowance, or Filed your return timely and filed an amended return within 6 months of the due date of the original return (not including extensions) and indicated on a statement with the amended return that you are not claiming the allowance. Free tax help The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. Free tax help The statement can be either attached to or written on the return. Free tax help You can, for example, write “not deducting 30%” on Form 4562. Free tax help Deemed election. Free tax help   If you have not followed either of the procedures described above to elect not to claim the allowance, you may still be treated as making the election. Free tax help You will be treated as making the election if you meet both of the following conditions. Free tax help You filed your return for the year you placed the property in service and claimed depreciation, but not the special allowance, for any class of property. Free tax help You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. Free tax help See Claiming the allowance, earlier. Free tax help Passenger Automobiles The limit on your depreciation deduction (including any section 179 deduction) for any passenger automobile that is qualified property (defined earlier) placed in service after September 10, 2001, and for which you claim the special depreciation allowance is increased. Free tax help Generally, the limit is increased from $3,060 to $7,660. Free tax help However, if the automobile is a qualified electric car, the limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002). Free tax help Table 1 shows the maximum deduction amounts for 2001. Free tax help Table 1. Free tax help Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. Free tax help 11 Placed in Service After Sept. Free tax help 10 Passenger automobile $3,060 $7,660 Electric car 9,280 23,080 1 1$22,980 if you place an electric car in service in 2002. Free tax help Election not to claim the allowance. Free tax help   The increased maximum depreciation deduction does not apply if you elected not to claim the special depreciation allowance as explained earlier under Election Not To Claim the Allowance and Rules for Returns Filed Before June 1, 2002. Free tax help New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). Free tax help They include a special depreciation allowance for the year you place the property in service, an increased section 179 deduction, and the classification of certain leasehold improvement property as 5-year property. Free tax help Area defined. Free tax help   The New York Liberty Zone is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York. Free tax help Special Liberty Zone Depreciation Allowance You can take a special depreciation allowance for qualified Liberty Zone property you place in service after September 10, 2001. Free tax help The allowance is an additional deduction of 30% of the property's depreciable basis. Free tax help To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Free tax help See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Free tax help The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Free tax help There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Free tax help In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Free tax help You cannot claim the special Liberty Zone depreciation allowance for property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Free tax help Qualified property is eligible for only one special depreciation allowance. Free tax help Example 1. Free tax help On November 1, 2001, you bought and placed in service in your business, which is in the Liberty Zone, qualified Liberty Zone property that cost $200,000. Free tax help You did not elect to claim a section 179 deduction. Free tax help You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. Free tax help You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. Free tax help Example 2. Free tax help The facts are the same as in Example 1, except that you choose to deduct $59,000 of the property's cost as a section 179 deduction. Free tax help (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). Free tax help You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). Free tax help You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. Free tax help Qualified Liberty Zone Property For a 2001 calendar or fiscal year and a 2000 fiscal year that ends after September 10, 2001, property qualifies for the special Liberty Zone depreciation allowance if it meets the following requirements. Free tax help It is one of the following types of property. Free tax help Used property depreciated under MACRS with a recovery period of 20 years or less. Free tax help See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Free tax help Used water utility property. Free tax help See 25-year property on page 22 in Publication 946. Free tax help Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Free tax help (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Free tax help ) Certain nonresidential real property and residential rental property (defined later). Free tax help It meets the following tests (explained later under Tests to be met). Free tax help Acquisition date test. Free tax help Placed in service date test. Free tax help Substantial use test. Free tax help Original use test. Free tax help It is not excepted property (explained later under Excepted property). Free tax help Nonresidential real property and residential rental property. Free tax help   This property is qualifying property only to the extent it rehabilitates real property damaged, or replaces real property destroyed or condemned, as a result of the terrorist attack of September 11, 2001. Free tax help Property is treated as replacing destroyed or condemned property if, as part of an integrated plan, such property replaces real property included in a continuous area that includes real property destroyed or condemned. Free tax help   For these purposes, real property is considered destroyed (or condemned) only if an entire building or structure was destroyed (or condemned) as a result of the terrorist attack. Free tax help Otherwise, the property is considered damaged real property. Free tax help For example, if certain structural components of a building (such as walls, floors, or plumbing fixtures) are damaged or destroyed as a result of the terrorist attack, but the building is not destroyed (or condemned), then only costs related to replacing the damaged or destroyed structural components qualify for the special Liberty Zone depreciation allowance. Free tax help Tests to be met. Free tax help   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. Free tax help Acquisition date test. Free tax help   You must have acquired the property by purchase after September 10, 2001, and there must not have been a binding written contract for the acquisition in effect before September 11, 2001. Free tax help   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. Free tax help   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001. Free tax help Placed in service date test. Free tax help   Generally, the property must be placed in service for use in your trade or business or for the production of income before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property). Free tax help   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Free tax help Substantial use test. Free tax help   Substantially all use of the property must be in the Liberty Zone and in the active conduct of your trade or business in the Liberty Zone. Free tax help Original use test. Free tax help   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. Free tax help   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. Free tax help Also, additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test if the original use of the property in the Liberty Zone began with you. Free tax help Excepted property. Free tax help   The following property does not qualify for the special Liberty Zone depreciation allowance. Free tax help Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Free tax help Property required to be depreciated using ADS. Free tax help This includes listed property used 50% or less in a qualified business use. Free tax help Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). Free tax help Example. Free tax help In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. Free tax help New office furniture with a MACRS recovery period of 7 years. Free tax help A used computer with a MACRS recovery period of 5 years. Free tax help The computer had not previously been used within the Liberty Zone. Free tax help Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. Free tax help Because the computer is used property that had not previously been used in the Liberty Zone, it qualifies for the special Liberty Zone depreciation allowance, but not the special depreciation allowance. Free tax help Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. Free tax help If you make this election for any property, it applies to all property in the same property class placed in service during the year. Free tax help To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Free tax help When to make the election. Free tax help   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Free tax help   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 original return (not including extensions). Free tax help Attach the election statement to the amended return. Free tax help At the top of the election statement, write “Filed pursuant to section 301. Free tax help 9100–2. Free tax help ” Revoking an election. Free tax help   Once you elect not to deduct the special Liberty Zone depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Free tax help A request to revoke the election is subject to a user fee. Free tax help Returns filed before June 1, 2002. Free tax help   The rules that apply to the special depreciation allowance discussed earlier in Rules for Returns Filed Before June 1, 2002 under Special Depreciation Allowance also apply to the special Liberty Zone depreciation allowance. Free tax help Increased Section 179 Deduction Under section 179 of the Internal Revenue Code, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Free tax help For tax years beginning in 2000, that limit was $20,000. Free tax help For tax years beginning in 2001 and 2002, that limit is generally $24,000. Free tax help If the cost of qualifying section 179 property placed in service in a year is over $200,000, you must reduce the dollar limit (but not below zero) by the amount of the cost over $200,000. Free tax help Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. Free tax help The increase is the smaller of the following amounts. Free tax help $35,000. Free tax help The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. Free tax help If you use the revised 2001 Form 4562 (dated March 2002) for a tax year beginning in 2000, you must reduce the section 179 dollar limit to $20,000 before adding the additional amount for qualified property. Free tax help Qualified property. Free tax help   To qualify for the increased section 179 deduction, your property must be section 179 property that is either: Qualified Liberty Zone property, or Property that would be qualified Liberty Zone property except that it is eligible for the special depreciation allowance. Free tax help Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. Free tax help Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. Free tax help For information on the requirements that must be met for property to qualify for the section 179 deduction, see What Property Qualifies? on page 14 of Publication 946. Free tax help Example 1. Free tax help In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. Free tax help Because this cost is less than $35,000, the dollar limit on the section 179 deduction is increased by $25,000 to $49,000 ($24,000 + $25,000). Free tax help Example 2. Free tax help In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. Free tax help Because $35,000 is less than the cost of the property you place in service, the dollar limit on the section 179 deduction you can claim is increased by $35,000 to $59,000 ($24,000 + $35,000). Free tax help Reduced Dollar Limit Generally, you must reduce the dollar limit for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. Free tax help However, if the cost of your Liberty Zone property exceeds $200,000, you take into account only 50% (instead of 100%) of the cost of qualified property placed in service in a year. Free tax help Example. Free tax help In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. Free tax help Your increased dollar limit is $59,000 ($35,000 + $24,000). Free tax help Because 50% of the cost of the property you place in service ($230,000) is $30,000 more than $200,000, you must reduce your $59,000 dollar limit to $29,000 ($59,000 - $30,000). Free tax help Recapture Rules Rules similar to those explained on page 20 of Publication 946 under When Must You Recapture the Deduction? apply with respect to any qualified property you stop using in the Liberty Zone. Free tax help Returns Filed Before June 1, 2002 If you filed a return before June 1, 2002, and did not deduct the increased section 179 amount for qualified property placed in service after September 10, 2001, you can deduct the increased amount by filing an amended return by the due date (not including extensions) of the return for the year after the year the property was placed in service. Free tax help This rule applies to returns for the following years. Free tax help 2000 fiscal years that end after September 10, 2001. Free tax help 2001 calendar and fiscal years. Free tax help On the amended return, write “Filed Pursuant to Rev. Free tax help Proc. Free tax help 2002–33. Free tax help ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. Free tax help This means that it is depreciated over a recovery period of 5 years. Free tax help For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. Free tax help The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. Free tax help Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. Free tax help Returns Filed Before June 1, 2002 If you filed either of the following returns before June 1, 2002, and did not depreciate qualified Liberty Zone leasehold improvement property placed in service during the tax year as 5-year property using the straight line method, you should file an amended return before you file your return for the year after the year the property was placed in service. Free tax help Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). Free tax help Your 2001 calendar or fiscal year return. Free tax help On the amended return, write “Filed Pursuant to Rev. Free tax help Proc. Free tax help 2002–33. Free tax help ” Table 2. Free tax help Rules for Returns Filed Before June 1, 2002 Note:This chart highlights the rules for returns affected by the Job Creation and Worker Assistance Act of 2002 that were filed before June 1, 2002, without accounting for any of the new benefits under the law. Free tax help See the text for definitions and examples. Free tax help Do not rely on this chart alone. Free tax help IF you want to. Free tax help . Free tax help . Free tax help THEN you. Free tax help . Free tax help . Free tax help BY. Free tax help . Free tax help . Free tax help claim the special depreciation allowance or special Liberty Zone depreciation allowance • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service, or • must file Form 3115, Application for Change in Accounting Method, with your return for the year after the year the property was placed in service • the due date (including extensions) of your return for the year after the year the property was placed in service, and • must file a copy of your completed Form 3115 with the IRS National Office • the date you file the original Form 3115 with your return for the year after the year the property was placed in service. Free tax help elect not to claim the special depreciation allowance or the special Liberty Zone depreciation allowance 1 • must have filed your return timely for the year the property was placed in service, and   • must file an amended return stating you are not claiming the allowance • the date that is 6 months after the due date of the original return (not including extensions). Free tax help deduct the increased section 179 amount • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service. Free tax help use a 5-year recovery period for depreciating qualified Liberty Zone leasehold improvement property • should file an amended return • the date you file your return for the year after the year the property was placed in service. Free tax help 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. Free tax help Prev  Up  Next   Home   More Online Publications