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Free tax software 2011 download Publication 514 - Additional Material Prev  Up  Next   Home   More Online Publications
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Understanding your CP12M Notice

We made changes to the computation of the Making Work Pay and/or Government Retiree Credits on your return.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Review the notice, and compare our changes to the information on your tax return.
  • If you agree with the changes we made, do nothing; you should receive a refund check in 4-6 weeks, as long as you don't owe other tax or debts we're required to collect.
  • If you don't agree, call 1-800-829-8374 to review your account or contact us by mail. Include any correspondence or documentation.

You may want to...

  • Download copies of the following materials (if they weren't included with your notice):
  • Call 1-800-TAX-FORM (1-800-829-3676) to have forms and publications mailed to you.

Answers to Common Questions

What is the Making Work Pay Credit?
The Making Work Pay Credit is a refundable tax credit that can go up to $400 for individuals and to $800 for married taxpayers.

How can taxpayers get this credit?
Even if your federal income tax withholding was reduced because of the credit, you must complete a Schedule M, Making Work Pay, and claim the credit on your income tax return to benefit from it.

What happens if I don't receive a paycheck from an employer?
You can claim the credit on your 2010 income tax return by filing a Schedule M, Making Work Pay.

What is the Government Retiree Credit?
Taxpayers can take a credit of $250 ($500 if married and both spouses qualify) if you or your spouse received a pension or annuity payment in 2010 for service performed for the U.S. Government or any U.S. state or local government, and the service was not covered by social security. But you cannot take the credit if you and your spouse both received a $250 economic recovery payment.


Tips for next year

  • In 2011, when you file your taxes for tax year 2010, complete Schedule M to see if you are eligible for the Making Work Pay and Government Retiree Credits.
  • Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.
Page Last Reviewed or Updated: 19-Feb-2014

The Free Tax Software 2011 Download

Free tax software 2011 download 3. Free tax software 2011 download   Rent Expense Table of Contents Introduction Topics - This chapter discusses: RentConditional sales contract. Free tax software 2011 download Leveraged leases. Free tax software 2011 download Leveraged leases of limited-use property. Free tax software 2011 download Taxes on Leased Property Cost of Getting a Lease Improvements by Lessee Capitalizing Rent Expenses Introduction This chapter discusses the tax treatment of rent or lease payments you make for property you use in your business but do not own. Free tax software 2011 download It also discusses how to treat other kinds of payments you make that are related to your use of this property. Free tax software 2011 download These include payments you make for taxes on the property. Free tax software 2011 download Topics - This chapter discusses: The definition of rent Taxes on leased property The cost of getting a lease Improvements by the lessee Capitalizing rent expenses Rent Rent is any amount you pay for the use of property you do not own. Free tax software 2011 download In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. Free tax software 2011 download If you have or will receive equity in or title to the property, the rent is not deductible. Free tax software 2011 download Unreasonable rent. Free tax software 2011 download   You cannot take a rental deduction for unreasonable rent. Free tax software 2011 download Ordinarily, the issue of reasonableness arises only if you and the lessor are related. Free tax software 2011 download Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. Free tax software 2011 download Rent is not unreasonable just because it is figured as a percentage of gross sales. Free tax software 2011 download For examples of related persons, see Related persons in chapter 2, Publication 544. Free tax software 2011 download Rent on your home. Free tax software 2011 download   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. Free tax software 2011 download You must meet the requirements for business use of your home. Free tax software 2011 download For more information, see Business use of your home in chapter 1. Free tax software 2011 download Rent paid in advance. Free tax software 2011 download   Generally, rent paid in your trade or business is deductible in the year paid or accrued. Free tax software 2011 download If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. Free tax software 2011 download You can deduct the rest of your payment only over the period to which it applies. Free tax software 2011 download Example 1. Free tax software 2011 download You are a calendar year taxpayer and you leased a building for 5 years beginning July 1. Free tax software 2011 download Your rent is $12,000 per year. Free tax software 2011 download You paid the first year's rent ($12,000) on June 30. Free tax software 2011 download You can deduct only $6,000 (6/12 × $12,000) for the rent that applies to the first year. Free tax software 2011 download Example 2. Free tax software 2011 download You are a calendar year taxpayer. Free tax software 2011 download Last January you leased property for 3 years for $6,000 a year. Free tax software 2011 download You paid the full $18,000 (3 × $6,000) during the first year of the lease. Free tax software 2011 download Each year you can deduct only $6,000, the part of the lease that applies to that year. Free tax software 2011 download Canceling a lease. Free tax software 2011 download   You generally can deduct as rent an amount you pay to cancel a business lease. Free tax software 2011 download Lease or purchase. Free tax software 2011 download   There may be instances in which you must determine whether your payments are for rent or for the purchase of the property. Free tax software 2011 download You must first determine whether your agreement is a lease or a conditional sales contract. Free tax software 2011 download Payments made under a conditional sales contract are not deductible as rent expense. Free tax software 2011 download Conditional sales contract. Free tax software 2011 download   Whether an agreement is a conditional sales contract depends on the intent of the parties. Free tax software 2011 download Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Free tax software 2011 download No single test, or special combination of tests, always applies. Free tax software 2011 download However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Free tax software 2011 download The agreement applies part of each payment toward an equity interest you will receive. Free tax software 2011 download You get title to the property after you make a stated amount of required payments. Free tax software 2011 download The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. Free tax software 2011 download You pay much more than the current fair rental value of the property. Free tax software 2011 download You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Free tax software 2011 download Determine this value when you make the agreement. Free tax software 2011 download You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Free tax software 2011 download The agreement designates part of the payments as interest, or that part is easy to recognize as interest. Free tax software 2011 download Leveraged leases. Free tax software 2011 download   Leveraged lease transactions may not be considered leases. Free tax software 2011 download Leveraged leases generally involve three parties: a lessor, a lessee, and a lender to the lessor. Free tax software 2011 download Usually the lease term covers a large part of the useful life of the leased property, and the lessee's payments to the lessor are enough to cover the lessor's payments to the lender. Free tax software 2011 download   If you plan to take part in what appears to be a leveraged lease, you may want to get an advance ruling. Free tax software 2011 download Revenue Procedure 2001-28 on page 1156 of Internal Revenue Bulletin 2001-19 contains the guidelines the IRS will use to determine if a leveraged lease is a lease for federal income tax purposes. Free tax software 2011 download Revenue Procedure 2001-29 on page 1160 of the same Internal Revenue Bulletin provides the information required to be furnished in a request for an advance ruling on a leveraged lease transaction. Free tax software 2011 download Internal Revenue Bulletin 2001-19 is available at www. Free tax software 2011 download irs. Free tax software 2011 download gov/pub/irs-irbs/irb01-19. Free tax software 2011 download pdf. Free tax software 2011 download   In general, Revenue Procedure 2001-28 provides that, for advance ruling purposes only, the IRS will consider the lessor in a leveraged lease transaction to be the owner of the property and the transaction to be a valid lease if all the factors in the revenue procedure are met, including the following. Free tax software 2011 download The lessor must maintain a minimum unconditional “at risk” equity investment in the property (at least 20% of the cost of the property) during the entire lease term. Free tax software 2011 download The lessee may not have a contractual right to buy the property from the lessor at less than fair market value when the right is exercised. Free tax software 2011 download The lessee may not invest in the property, except as provided by Revenue Procedure 2001-28. Free tax software 2011 download The lessee may not lend any money to the lessor to buy the property or guarantee the loan used by the lessor to buy the property. Free tax software 2011 download The lessor must show that it expects to receive a profit apart from the tax deductions, allowances, credits, and other tax attributes. Free tax software 2011 download   The IRS may charge you a user fee for issuing a tax ruling. Free tax software 2011 download For more information, see Revenue Procedure 2014-1 available at  www. Free tax software 2011 download irs. Free tax software 2011 download gov/irb/2014-1_IRB/ar05. Free tax software 2011 download html. Free tax software 2011 download Leveraged leases of limited-use property. Free tax software 2011 download   The IRS will not issue advance rulings on leveraged leases of so-called limited-use property. Free tax software 2011 download Limited-use property is property not expected to be either useful to or usable by a lessor at the end of the lease term except for continued leasing or transfer to a lessee. Free tax software 2011 download See Revenue Procedure 2001-28 for examples of limited-use property and property that is not limited-use property. Free tax software 2011 download Leases over $250,000. Free tax software 2011 download   Special rules are provided for certain leases of tangible property. Free tax software 2011 download The rules apply if the lease calls for total payments of more than $250,000 and any of the following apply. Free tax software 2011 download Rents increase during the lease. Free tax software 2011 download Rents decrease during the lease. Free tax software 2011 download Rents are deferred (rent is payable after the end of the calendar year following the calendar year in which the use occurs and the rent is allocated). Free tax software 2011 download Rents are prepaid (rent is payable before the end of the calendar year preceding the calendar year in which the use occurs and the rent is allocated). Free tax software 2011 download These rules do not apply if your lease specifies equal amounts of rent for each month in the lease term and all rent payments are due in the calendar year to which the rent relates (or in the preceding or following calendar year). Free tax software 2011 download   Generally, if the special rules apply, you must use an accrual method of accounting (and time value of money principles) for your rental expenses, regardless of your overall method of accounting. Free tax software 2011 download In addition, in certain cases in which the IRS has determined that a lease was designed to achieve tax avoidance, you must take rent and stated or imputed interest into account under a constant rental accrual method in which the rent is treated as accruing ratably over the entire lease term. Free tax software 2011 download For details, see section 467 of the Internal Revenue Code. Free tax software 2011 download Taxes on Leased Property If you lease business property, you can deduct as additional rent any taxes you have to pay to or for the lessor. Free tax software 2011 download When you can deduct these taxes as additional rent depends on your accounting method. Free tax software 2011 download Cash method. Free tax software 2011 download   If you use the cash method of accounting, you can deduct the taxes as additional rent only for the tax year in which you pay them. Free tax software 2011 download Accrual method. Free tax software 2011 download   If you use an accrual method of accounting, you can deduct taxes as additional rent for the tax year in which you can determine all the following. Free tax software 2011 download That you have a liability for taxes on the leased property. Free tax software 2011 download How much the liability is. Free tax software 2011 download That economic performance occurred. Free tax software 2011 download   The liability and amount of taxes are determined by state or local law and the lease agreement. Free tax software 2011 download Economic performance occurs as you use the property. Free tax software 2011 download Example 1. Free tax software 2011 download Oak Corporation is a calendar year taxpayer that uses an accrual method of accounting. Free tax software 2011 download Oak leases land for use in its business. Free tax software 2011 download Under state law, owners of real property become liable (incur a lien on the property) for real estate taxes for the year on January 1 of that year. Free tax software 2011 download However, they do not have to pay these taxes until July 1 of the next year (18 months later) when tax bills are issued. Free tax software 2011 download Under the terms of the lease, Oak becomes liable for the real estate taxes in the later year when the tax bills are issued. Free tax software 2011 download If the lease ends before the tax bill for a year is issued, Oak is not liable for the taxes for that year. Free tax software 2011 download Oak cannot deduct the real estate taxes as rent until the tax bill is issued. Free tax software 2011 download This is when Oak's liability under the lease becomes fixed. Free tax software 2011 download Example 2. Free tax software 2011 download The facts are the same as in Example 1 except that, according to the terms of the lease, Oak becomes liable for the real estate taxes when the owner of the property becomes liable for them. Free tax software 2011 download As a result, Oak will deduct the real estate taxes as rent on its tax return for the earlier year. Free tax software 2011 download This is the year in which Oak's liability under the lease becomes fixed. Free tax software 2011 download Cost of Getting a Lease You may either enter into a new lease with the lessor of the property or get an existing lease from another lessee. Free tax software 2011 download Very often when you get an existing lease from another lessee, you must pay the previous lessee money to get the lease, besides having to pay the rent on the lease. Free tax software 2011 download If you get an existing lease on property or equipment for your business, you generally must amortize any amount you pay to get that lease over the remaining term of the lease. Free tax software 2011 download For example, if you pay $10,000 to get a lease and there are 10 years remaining on the lease with no option to renew, you can deduct $1,000 each year. Free tax software 2011 download The cost of getting an existing lease of tangible property is not subject to the amortization rules for section 197 intangibles discussed in chapter 8. Free tax software 2011 download Option to renew. Free tax software 2011 download   The term of the lease for amortization includes all renewal options plus any other period for which you and the lessor reasonably expect the lease to be renewed. Free tax software 2011 download However, this applies only if less than 75% of the cost of getting the lease is for the term remaining on the purchase date (not including any period for which you may choose to renew, extend, or continue the lease). Free tax software 2011 download Allocate the lease cost to the original term and any option term based on the facts and circumstances. Free tax software 2011 download In some cases, it may be appropriate to make the allocation using a present value computation. Free tax software 2011 download For more information, see Regulations section 1. Free tax software 2011 download 178-1(b)(5). Free tax software 2011 download Example 1. Free tax software 2011 download You paid $10,000 to get a lease with 20 years remaining on it and two options to renew for 5 years each. Free tax software 2011 download Of this cost, you paid $7,000 for the original lease and $3,000 for the renewal options. Free tax software 2011 download Because $7,000 is less than 75% of the total $10,000 cost of the lease (or $7,500), you must amortize the $10,000 over 30 years. Free tax software 2011 download That is the remaining life of your present lease plus the periods for renewal. Free tax software 2011 download Example 2. Free tax software 2011 download The facts are the same as in Example 1, except that you paid $8,000 for the original lease and $2,000 for the renewal options. Free tax software 2011 download You can amortize the entire $10,000 over the 20-year remaining life of the original lease. Free tax software 2011 download The $8,000 cost of getting the original lease was not less than 75% of the total cost of the lease (or $7,500). Free tax software 2011 download Cost of a modification agreement. Free tax software 2011 download   You may have to pay an additional “rent” amount over part of the lease period to change certain provisions in your lease. Free tax software 2011 download You must capitalize these payments and amortize them over the remaining period of the lease. Free tax software 2011 download You cannot deduct the payments as additional rent, even if they are described as rent in the agreement. Free tax software 2011 download Example. Free tax software 2011 download You are a calendar year taxpayer and sign a 20-year lease to rent part of a building starting on January 1. Free tax software 2011 download However, before you occupy it, you decide that you really need less space. Free tax software 2011 download The lessor agrees to reduce your rent from $7,000 to $6,000 per year and to release the excess space from the original lease. Free tax software 2011 download In exchange, you agree to pay an additional rent amount of $3,000, payable in 60 monthly installments of $50 each. Free tax software 2011 download   You must capitalize the $3,000 and amortize it over the 20-year term of the lease. Free tax software 2011 download Your amortization deduction each year will be $150 ($3,000 ÷ 20). Free tax software 2011 download You cannot deduct the $600 (12 × $50) that you will pay during each of the first 5 years as rent. Free tax software 2011 download Commissions, bonuses, and fees. Free tax software 2011 download   Commissions, bonuses, fees, and other amounts you pay to get a lease on property you use in your business are capital costs. Free tax software 2011 download You must amortize these costs over the term of the lease. Free tax software 2011 download Loss on merchandise and fixtures. Free tax software 2011 download   If you sell at a loss merchandise and fixtures that you bought solely to get a lease, the loss is a cost of getting the lease. Free tax software 2011 download You must capitalize the loss and amortize it over the remaining term of the lease. Free tax software 2011 download Improvements by Lessee If you add buildings or make other permanent improvements to leased property, depreciate the cost of the improvements using the modified accelerated cost recovery system (MACRS). Free tax software 2011 download Depreciate the property over its appropriate recovery period. Free tax software 2011 download You cannot amortize the cost over the remaining term of the lease. Free tax software 2011 download If you do not keep the improvements when you end the lease, figure your gain or loss based on your adjusted basis in the improvements at that time. Free tax software 2011 download For more information, see the discussion of MACRS in Publication 946, How To Depreciate Property. Free tax software 2011 download Assignment of a lease. Free tax software 2011 download   If a long-term lessee who makes permanent improvements to land later assigns all lease rights to you for money and you pay the rent required by the lease, the amount you pay for the assignment is a capital investment. Free tax software 2011 download If the rental value of the leased land increased since the lease began, part of your capital investment is for that increase in the rental value. Free tax software 2011 download The rest is for your investment in the permanent improvements. Free tax software 2011 download   The part that is for the increased rental value of the land is a cost of getting a lease, and you amortize it over the remaining term of the lease. Free tax software 2011 download You can depreciate the part that is for your investment in the improvements over the recovery period of the property as discussed earlier, without regard to the lease term. Free tax software 2011 download Capitalizing Rent Expenses Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Free tax software 2011 download Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Free tax software 2011 download You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Free tax software 2011 download Indirect costs include amounts incurred for renting or leasing equipment, facilities, or land. Free tax software 2011 download Uniform capitalization rules. Free tax software 2011 download   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Free tax software 2011 download Produce real property or tangible personal property. Free tax software 2011 download For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Free tax software 2011 download Acquire property for resale. Free tax software 2011 download However, these rules do not apply to the following property. Free tax software 2011 download Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. Free tax software 2011 download Property you produce if you meet either of the following conditions. Free tax software 2011 download Your indirect costs of producing the property are $200,000 or less. Free tax software 2011 download You use the cash method of accounting and do not account for inventories. Free tax software 2011 download Example 1. Free tax software 2011 download You rent construction equipment to build a storage facility. Free tax software 2011 download If you are subject to the uniform capitalization rules, you must capitalize as part of the cost of the building the rent you paid for the equipment. Free tax software 2011 download You recover your cost by claiming a deduction for depreciation on the building. Free tax software 2011 download Example 2. Free tax software 2011 download You rent space in a facility to conduct your business of manufacturing tools. Free tax software 2011 download If you are subject to the uniform capitalization rules, you must include the rent you paid to occupy the facility in the cost of the tools you produce. Free tax software 2011 download More information. Free tax software 2011 download   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. Free tax software 2011 download Prev  Up  Next   Home   More Online Publications