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 Software For 2012

Can I File 2011 Taxes OnlineHow To Fill Out The 1040x FormUnemployment Tax FilingTurbotax MilitaryE File State And Federal Taxes For FreeCan Tax Form 1040x Be Filed Online2014 Ez Tax FormsE-file Back Taxes Free For Past 3 Years TaxeNj 1040ezAmendment TaxesHow Can I File Just My State Taxes For FreeEz 1040 Form1040 Amended Tax FormFree Tax Calculator 2011 H&r BlockMyfreetaxMilitary Taxes By StateCan Ie File 2012 Taxes NowTax Form For StudentsIrs Efile 2011How To File Taxes OnlineFiling 2012 TaxesIrs 1040nrAmended Federal Income Tax Return1040 Tax FormOnline Tax Filing 20122010 Tax AmendmentH & R Block Free Tax CalculatorForma 10401040ez Tax Form 2010Free 2011 Tax ReturnEz Tax FormsElderly Filing Income TaxIrs Tax Return Forms 2012Amending Tax Return TurbotaxFree Turbo Tax For Low IncomeFiling 1040x OnlineH And R Block FreeIrs Gov Tax Forms 2012Definition Amended Tax ReturnWhere To Get A 1040x Form

Free Tax Software For 2012

Free tax software for 2012 Publication 537 - Main Content Table of Contents What Is an Installment Sale?Special rule. Free tax software for 2012 General RulesFiguring Installment Sale Income Reporting Installment Sale Income Other RulesElecting Out of the Installment Method Payments Received or Considered Received Escrow Account Depreciation Recapture Income Sale to a Related Person Like-Kind Exchange Contingent Payment Sale Single Sale of Several Assets Sale of a Business Unstated Interest and Original Issue Discount (OID) Disposition of an Installment Obligation Repossession Interest on Deferred Tax Reporting an Installment SaleRelated person. Free tax software for 2012 Several assets. Free tax software for 2012 Special situations. Free tax software for 2012 Schedule D (Form 1040). Free tax software for 2012 Form 4797. Free tax software for 2012 How To Get Tax Help What Is an Installment Sale? An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Free tax software for 2012 The rules for installment sales do not apply if you elect not to use the installment method (see Electing Out of the Installment Method under Other Rules, later) or the transaction is one for which the installment method may not apply. Free tax software for 2012 The installment sales method cannot be used for the following. Free tax software for 2012 Sale of inventory. Free tax software for 2012   The regular sale of inventory of personal property does not qualify as an installment sale even if you receive a payment after the year of sale. Free tax software for 2012 See Sale of a Business under Other Rules, later. Free tax software for 2012 Dealer sales. Free tax software for 2012   Sales of personal property by a person who regularly sells or otherwise disposes of the same type of personal property on the installment plan are not installment sales. Free tax software for 2012 This rule also applies to real property held for sale to customers in the ordinary course of a trade or business. Free tax software for 2012 However, the rule does not apply to an installment sale of property used or produced in farming. Free tax software for 2012 Special rule. Free tax software for 2012   Dealers of time-shares and residential lots can treat certain sales as installment sales and report them under the installment method if they elect to pay a special interest charge. Free tax software for 2012 For more information, see section 453(l). Free tax software for 2012 Stock or securities. Free tax software for 2012   You cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market. Free tax software for 2012 You must report the entire gain on the sale in the year in which the trade date falls. Free tax software for 2012 Installment obligation. Free tax software for 2012   The buyer's obligation to make future payments to you can be in the form of a deed of trust, note, land contract, mortgage, or other evidence of the buyer's debt to you. Free tax software for 2012 General Rules If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you elect out of using the installment method. Free tax software for 2012 See Electing Out of the Installment Method under Other Rules, later, for information on recognizing the entire gain in the year of sale. Free tax software for 2012 Sale at a loss. Free tax software for 2012   If your sale results in a loss, you cannot use the installment method. Free tax software for 2012 If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale. Free tax software for 2012 Unstated interest. Free tax software for 2012   If your sale calls for payments in a later year and the sales contract provides for little or no interest, you may have to figure unstated interest, even if you have a loss. Free tax software for 2012 See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. Free tax software for 2012 Figuring Installment Sale Income You can use the following discussions or Form 6252 to help you determine gross profit, contract price, gross profit percentage, and installment sale income. Free tax software for 2012 Each payment on an installment sale usually consists of the following three parts. Free tax software for 2012 Interest income. Free tax software for 2012 Return of your adjusted basis in the property. Free tax software for 2012 Gain on the sale. Free tax software for 2012 In each year you receive a payment, you must include in income both the interest part and the part that is your gain on the sale. Free tax software for 2012 You do not include in income the part that is the return of your basis in the property. Free tax software for 2012 Basis is the amount of your investment in the property for installment sale purposes. Free tax software for 2012 Interest Income You must report interest as ordinary income. Free tax software for 2012 Interest is generally not included in a down payment. Free tax software for 2012 However, you may have to treat part of each later payment as interest, even if it is not called interest in your agreement with the buyer. Free tax software for 2012 Interest provided in the agreement is called stated interest. Free tax software for 2012 If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. Free tax software for 2012 See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. Free tax software for 2012 Adjusted Basis and Installment Sale Income (Gain on Sale) After you have determined how much of each payment to treat as interest, you treat the rest of each payment as if it were made up of two parts. Free tax software for 2012 A tax-free return of your adjusted basis in the property, and Your gain (referred to as installment sale income on Form 6252). Free tax software for 2012 Figuring adjusted basis for installment sale purposes. Free tax software for 2012   You can use Worksheet A to figure your adjusted basis in the property for installment sale purposes. Free tax software for 2012 When you have completed the worksheet, you will also have determined the gross profit percentage necessary to figure your installment sale income (gain) for this year. Free tax software for 2012 Worksheet A. Free tax software for 2012 Figuring Adjusted Basis and Gross Profit Percentage 1. Free tax software for 2012 Enter the selling price for the property   2. Free tax software for 2012 Enter your adjusted basis for the property     3. Free tax software for 2012 Enter your selling expenses     4. Free tax software for 2012 Enter any depreciation recapture     5. Free tax software for 2012 Add lines 2, 3, and 4. Free tax software for 2012  This is your adjusted basis for installment sale purposes   6. Free tax software for 2012 Subtract line 5 from line 1. Free tax software for 2012 If zero or less, enter -0-. Free tax software for 2012  This is your gross profit     If the amount entered on line 6 is zero, stop here. Free tax software for 2012 You cannot use the installment method. Free tax software for 2012   7. Free tax software for 2012 Enter the contract price for the property   8. Free tax software for 2012 Divide line 6 by line 7. Free tax software for 2012 This is your gross profit percentage   Selling price. Free tax software for 2012   The selling price is the total cost of the property to the buyer and includes any of the following. Free tax software for 2012 Any money you are to receive. Free tax software for 2012 The fair market value (FMV) of any property you are to receive (FMV is discussed in Property Used As a Payment under Other Rules, later). Free tax software for 2012 Any existing mortgage or other debt the buyer pays, assumes, or takes (a note, mortgage, or any other liability, such as a lien, accrued interest, or taxes you owe on the property). Free tax software for 2012 Any of your selling expenses the buyer pays. Free tax software for 2012   Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. Free tax software for 2012 Adjusted basis for installment sale purposes. Free tax software for 2012   Your adjusted basis is the total of the following three items. Free tax software for 2012 Adjusted basis. Free tax software for 2012 Selling expenses. Free tax software for 2012 Depreciation recapture. Free tax software for 2012 Adjusted basis. Free tax software for 2012   Basis is your investment in the property for installment sale purposes. Free tax software for 2012 The way you figure basis depends on how you acquire the property. Free tax software for 2012 The basis of property you buy is generally its cost. Free tax software for 2012 The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. Free tax software for 2012   While you own property, various events may change your original basis. Free tax software for 2012 Some events, such as adding rooms or making permanent improvements, increase basis. Free tax software for 2012 Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. Free tax software for 2012 The result is adjusted basis. Free tax software for 2012   For more information on how to figure basis and adjusted basis, see Publication 551. Free tax software for 2012 For more information regarding your basis in property you inherited from someone who died in 2010 and whose executor filed Form 8939, Allocation of Increase In Basis for Property Acquired From a Decedent, see Publication 4895. Free tax software for 2012 Selling expenses. Free tax software for 2012   Selling expenses relate to the sale of the property. Free tax software for 2012 They include commissions, attorney fees, and any other expenses paid on the sale. Free tax software for 2012 Selling expenses are added to the basis of the sold property. Free tax software for 2012 Depreciation recapture. Free tax software for 2012   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. Free tax software for 2012 See Depreciation Recapture Income under Other Rules, later. Free tax software for 2012 Gross profit. Free tax software for 2012   Gross profit is the total gain you report on the installment method. Free tax software for 2012   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. Free tax software for 2012 If the property you sold was your home, subtract from the gross profit any gain you can exclude. Free tax software for 2012 See Sale of Your Home , later, under Reporting Installment Sale Income. Free tax software for 2012 Contract price. Free tax software for 2012   Contract price equals: The selling price, minus The mortgages, debts, and other liabilities assumed or taken by the buyer, plus The amount by which the mortgages, debts, and other liabilities assumed or taken by the buyer exceed your adjusted basis for installment sale purposes. Free tax software for 2012 Gross profit percentage. Free tax software for 2012   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. Free tax software for 2012 This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. Free tax software for 2012   The gross profit percentage generally remains the same for each payment you receive. Free tax software for 2012 However, see the Example under Selling Price Reduced, later, for a situation where the gross profit percentage changes. Free tax software for 2012 Example. Free tax software for 2012 You sell property at a contract price of $6,000 and your gross profit is $1,500. Free tax software for 2012 Your gross profit percentage is 25% ($1,500 ÷ $6,000). Free tax software for 2012 After subtracting interest, you report 25% of each payment, including the down payment, as installment sale income from the sale for the tax year you receive the payment. Free tax software for 2012 The remainder (balance) of each payment is the tax-free return of your adjusted basis. Free tax software for 2012 Amount to report as installment sale income. Free tax software for 2012   Multiply the payments you receive each year (less interest) by the gross profit percentage. Free tax software for 2012 The result is your installment sale income for the tax year. Free tax software for 2012 In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. Free tax software for 2012 A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. Free tax software for 2012 For a detailed discussion, see Payments Received or Considered Received under Other Rules, later. Free tax software for 2012 Selling Price Reduced If the selling price is reduced at a later date, the gross profit on the sale also will change. Free tax software for 2012 You then must refigure the gross profit percentage for the remaining payments. Free tax software for 2012 Refigure your gross profit using Worksheet B. Free tax software for 2012 You will spread any remaining gain over future installments. Free tax software for 2012 Worksheet B. Free tax software for 2012 New Gross Profit Percentage — Selling Price Reduced 1. Free tax software for 2012 Enter the reduced selling  price for the property   2. Free tax software for 2012 Enter your adjusted  basis for the  property     3. Free tax software for 2012 Enter your selling  expenses     4. Free tax software for 2012 Enter any depreciation  recapture     5. Free tax software for 2012 Add lines 2, 3, and 4. Free tax software for 2012   6. Free tax software for 2012 Subtract line 5 from line 1. Free tax software for 2012  This is your adjusted  gross profit   7. Free tax software for 2012 Enter any installment sale  income reported in  prior year(s)   8. Free tax software for 2012 Subtract line 7 from line 6   9. Free tax software for 2012 Future installments   10. Free tax software for 2012 Divide line 8 by line 9. Free tax software for 2012  This is your new gross profit percentage*   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Free tax software for 2012 Example. Free tax software for 2012 In 2011, you sold land with a basis of $40,000 for $100,000. Free tax software for 2012 Your gross profit was $60,000. Free tax software for 2012 You received a $20,000 down payment and the buyer's note for $80,000. Free tax software for 2012 The note provides for four annual payments of $20,000 each, plus 8% interest, beginning in 2012. Free tax software for 2012 Your gross profit percentage is 60%. Free tax software for 2012 You reported a gain of $12,000 on each payment received in 2011 and 2012. Free tax software for 2012 In 2013, you and the buyer agreed to reduce the purchase price to $85,000 and payments during 2013, 2014, and 2015 are reduced to $15,000 for each year. Free tax software for 2012 The new gross profit percentage, 46. Free tax software for 2012 67%, is figured on Example—Worksheet B. Free tax software for 2012 You will report a gain of $7,000 (46. Free tax software for 2012 67% of $15,000) on each of the $15,000 installments due in 2013, 2014, and 2015. Free tax software for 2012 Example — Worksheet B. Free tax software for 2012 New Gross Profit Percentage — Selling Price Reduced 1. Free tax software for 2012 Enter the reduced selling  price for the property 85,000 2. Free tax software for 2012 Enter your adjusted  basis for the  property 40,000   3. Free tax software for 2012 Enter your selling  expenses -0-   4. Free tax software for 2012 Enter any depreciation  recapture -0-   5. Free tax software for 2012 Add lines 2, 3, and 4. Free tax software for 2012 40,000 6. Free tax software for 2012 Subtract line 5 from line 1. Free tax software for 2012  This is your adjusted  gross profit 45,000 7. Free tax software for 2012 Enter any installment sale  income reported in  prior year(s) 24,000 8. Free tax software for 2012 Subtract line 7 from line 6 21,000 9. Free tax software for 2012 Future installments 45,000 10. Free tax software for 2012 Divide line 8 by line 9. Free tax software for 2012  This is your new gross profit percentage* 46. Free tax software for 2012 67% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Free tax software for 2012 Reporting Installment Sale Income Generally, you will use Form 6252 to report installment sale income from casual sales of real or personal property during the tax year. Free tax software for 2012 You also will have to report the installment sale income on Schedule D (Form 1040), Capital Gains and Losses, or Form 4797, or both. Free tax software for 2012 See Schedule D (Form 1040) and Form 4797 , later. Free tax software for 2012 If the property was your main home, you may be able to exclude part or all of the gain. Free tax software for 2012 See Sale of Your Home , later. Free tax software for 2012 Form 6252 Use Form 6252 to report an installment sale in the year it takes place and to report payments received, or considered received because of related party resales, in later years. Free tax software for 2012 Attach it to your tax return for each year. Free tax software for 2012 Form 6252 will help you determine the gross profit, contract price, gross profit percentage, and installment sale income. Free tax software for 2012 Which parts to complete. Free tax software for 2012   Which part to complete depends on whether you are filing the form for the year of sale or a later year. Free tax software for 2012 Year of sale. Free tax software for 2012   Complete lines 1 through 4, Part I, and Part II. Free tax software for 2012 If you sold property to a related party during the year, also complete Part III. Free tax software for 2012 Later years. Free tax software for 2012   Complete lines 1 through 4 and Part II for any year in which you receive a payment from an installment sale. Free tax software for 2012   If you sold a marketable security to a related party after May 14, 1980, and before January 1, 1987, complete Form 6252 for each year of the installment agreement, even if you did not receive a payment. Free tax software for 2012 (After December 31, 1986, the installment method is not available for the sale of marketable securities. Free tax software for 2012 ) Complete lines 1 through 4 and Part II for any year in which you receive a payment from the sale. Free tax software for 2012 Complete Part III unless you received the final payment during the tax year. Free tax software for 2012   If you sold property other than a marketable security to a related party after May 14, 1980, complete Form 6252 for the year of sale and for 2 years after the year of sale, even if you did not receive a payment. Free tax software for 2012 Complete lines 1 through 4 and Part II for any year during this 2-year period in which you receive a payment from the sale. Free tax software for 2012 Complete Part III for the 2 years after the year of sale unless you received the final payment during the tax year. Free tax software for 2012 Schedule D (Form 1040) Enter the gain figured on Form 6252 (line 26) for personal-use property (capital assets) on Schedule D (Form 1040), as a short-term gain (line 4) or long-term gain (line 11). Free tax software for 2012 If your gain from the installment sale qualifies for long-term capital gain treatment in the year of sale, it will continue to qualify in later tax years. Free tax software for 2012 Your gain is long-term if you owned the property for more than 1 year when you sold it. Free tax software for 2012 Form 4797 An installment sale of property used in your business or that earns rent or royalty income may result in a capital gain, an ordinary gain, or both. Free tax software for 2012 All or part of any gain from the disposition of the property may be ordinary gain from depreciation recapture. Free tax software for 2012 For trade or business property held for more than 1 year, enter the amount from line 26 of Form 6252 on Form 4797, line 4. Free tax software for 2012 If the property was held 1 year or less or you have an ordinary gain from the sale of a noncapital asset (even if the holding period is more than 1 year), enter this amount on Form 4797, line 10, and write “From Form 6252. Free tax software for 2012 ” Sale of Your Home If you sell your home, you may be able to exclude all or part of the gain on the sale. Free tax software for 2012 See Publication 523 for information about excluding the gain. Free tax software for 2012 If the sale is an installment sale, any gain you exclude is not included in gross profit when figuring your gross profit percentage. Free tax software for 2012 Seller-financed mortgage. Free tax software for 2012   If you finance the sale of your home to an individual, both you and the buyer may have to follow special reporting procedures. Free tax software for 2012   When you report interest income received from a buyer who uses the property as a personal residence, write the buyer's name, address, and social security number (SSN) on line 1 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Free tax software for 2012   When deducting the mortgage interest, the buyer must write your name, address, and SSN on line 11 of Schedule A (Form 1040), Itemized Deductions. Free tax software for 2012   If either person fails to include the other person's SSN, a $50 penalty will be assessed. Free tax software for 2012 Other Rules The rules discussed in this part of the publication apply only in certain circumstances or to certain types of property. Free tax software for 2012 The following topics are discussed. Free tax software for 2012 Electing out of the installment method. Free tax software for 2012 Payments received or considered received. Free tax software for 2012 Escrow account. Free tax software for 2012 Depreciation recapture income. Free tax software for 2012 Sale to a related person. Free tax software for 2012 Like-kind exchange. Free tax software for 2012 Contingent payment sale. Free tax software for 2012 Single sale of several assets. Free tax software for 2012 Sale of a business. Free tax software for 2012 Unstated interest and original issue discount. Free tax software for 2012 Disposition of an installment obligation. Free tax software for 2012 Repossession. Free tax software for 2012 Interest on deferred tax. Free tax software for 2012 Electing Out of the Installment Method If you elect not to use the installment method, you generally report the entire gain in the year of sale, even though you do not receive all the sale proceeds in that year. Free tax software for 2012 To figure the amount of gain to report, use the fair market value (FMV) of the buyer's installment obligation that represents the buyer's debt to you. Free tax software for 2012 Notes, mortgages, and land contracts are examples of obligations that are included at FMV. Free tax software for 2012 You must figure the FMV of the buyer's installment obligation, whether or not you would actually be able to sell it. Free tax software for 2012 If you use the cash method of accounting, the FMV of the obligation will never be considered to be less than the FMV of the property sold (minus any other consideration received). Free tax software for 2012 Example. Free tax software for 2012 You sold a parcel of land for $50,000. Free tax software for 2012 You received a $10,000 down payment and will receive the balance over the next 10 years at $4,000 a year, plus 8% interest. Free tax software for 2012 The buyer gave you a note for $40,000. Free tax software for 2012 The note had an FMV of $40,000. Free tax software for 2012 You paid a commission of 6%, or $3,000, to a broker for negotiating the sale. Free tax software for 2012 The land cost $25,000, and you owned it for more than one year. Free tax software for 2012 You decide to elect out of the installment method and report the entire gain in the year of sale. Free tax software for 2012 Gain realized:     Selling price $50,000 Minus: Property's adj. Free tax software for 2012 basis $25,000     Commission 3,000 28,000 Gain realized $22,000 Gain recognized in year of sale:   Cash $10,000 Market value of note 40,000 Total realized in year of sale $50,000 Minus: Property's adj. Free tax software for 2012 basis $25,000     Commission 3,000 28,000 Gain recognized $22,000 The recognized gain of $22,000 is long-term capital gain. Free tax software for 2012 You include the entire gain in income in the year of sale, so you do not include in income any principal payments you receive in later tax years. Free tax software for 2012 The interest on the note is ordinary income and is reported as interest income each year. Free tax software for 2012 How to elect out. Free tax software for 2012   To make this election, do not report your sale on Form 6252. Free tax software for 2012 Instead, report it on Form 8949, Sales and Other Dispositions of Capital Assets, Form 4797, or both. Free tax software for 2012 When to elect out. Free tax software for 2012   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. Free tax software for 2012 Automatic six-month extension. Free tax software for 2012   If you timely file your tax return without making the election, you still can make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). Free tax software for 2012 Write “Filed pursuant to section 301. Free tax software for 2012 9100-2” at the top of the amended return and file it where the original return was filed. Free tax software for 2012 Revoking the election. Free tax software for 2012   Once made, the election can be revoked only with IRS approval. Free tax software for 2012 A revocation is retroactive. Free tax software for 2012 You will not be allowed to revoke the election if either of the following applies. Free tax software for 2012 One of the purposes is to avoid federal income tax. Free tax software for 2012 The tax year in which any payment was received has closed. Free tax software for 2012 Payments Received or Considered Received You must figure your gain each year on the payments you receive, or are treated as receiving, from an installment sale. Free tax software for 2012 In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. Free tax software for 2012 These situations occur when the buyer assumes or pays any of your debts, such as a loan, or pays any of your expenses, such as a sales commission. Free tax software for 2012 However, as discussed later, the buyer's assumption of your debt is treated as a recovery of your basis rather than as a payment in many cases. Free tax software for 2012 Buyer Pays Seller's Expenses If the buyer pays any of your expenses related to the sale of your property, it is considered a payment to you in the year of sale. Free tax software for 2012 Include these expenses in the selling and contract prices when figuring the gross profit percentage. Free tax software for 2012 Buyer Assumes Mortgage If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. Free tax software for 2012 Mortgage not more than basis. Free tax software for 2012   If the buyer assumes a mortgage that is not more than your installment sale basis in the property, it is not considered a payment to you. Free tax software for 2012 It is considered a recovery of your basis. Free tax software for 2012 The contract price is the selling price minus the mortgage. Free tax software for 2012 Example. Free tax software for 2012 You sell property with an adjusted basis of $19,000. Free tax software for 2012 You have selling expenses of $1,000. Free tax software for 2012 The buyer assumes your existing mortgage of $15,000 and agrees to pay you $10,000 (a cash down payment of $2,000 and $2,000 (plus 12% interest) in each of the next 4 years). Free tax software for 2012 The selling price is $25,000 ($15,000 + $10,000). Free tax software for 2012 Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). Free tax software for 2012 The contract price is $10,000 ($25,000 − $15,000 mortgage). Free tax software for 2012 Your gross profit percentage is 50% ($5,000 ÷ $10,000). Free tax software for 2012 You report half of each $2,000 payment received as gain from the sale. Free tax software for 2012 You also report all interest you receive as ordinary income. Free tax software for 2012 Mortgage more than basis. Free tax software for 2012   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. Free tax software for 2012 The part of the mortgage greater than your basis is treated as a payment received in the year of sale. Free tax software for 2012   To figure the contract price, subtract the mortgage from the selling price. Free tax software for 2012 This is the total amount (other than interest) you will receive directly from the buyer. Free tax software for 2012 Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). Free tax software for 2012 The contract price is then the same as your gross profit from the sale. Free tax software for 2012    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. Free tax software for 2012 Example. Free tax software for 2012 The selling price for your property is $9,000. Free tax software for 2012 The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. Free tax software for 2012 Your adjusted basis in the property is $4,400. Free tax software for 2012 You have selling expenses of $600, for a total installment sale basis of $5,000. Free tax software for 2012 The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). Free tax software for 2012 This amount is included in the contract price and treated as a payment received in the year of sale. Free tax software for 2012 The contract price is $4,000: Selling price $9,000 Minus: Mortgage (6,000) Amount actually received $3,000 Add difference:   Mortgage $6,000   Minus: Installment sale basis 5,000 1,000 Contract price $4,000       Your gross profit on the sale is also $4,000: Selling price $9,000 Minus: Installment sale basis (5,000) Gross profit $4,000 Your gross profit percentage is 100%. Free tax software for 2012 Report 100% of each payment (less interest) as gain from the sale. Free tax software for 2012 Treat the $1,000 difference between the mortgage and your installment sale basis as a payment and report 100% of it as gain in the year of sale. Free tax software for 2012 Mortgage Canceled If the buyer of your property is the person who holds the mortgage on it, your debt is canceled, not assumed. Free tax software for 2012 You are considered to receive a payment equal to the outstanding canceled debt. Free tax software for 2012 Example. Free tax software for 2012 Mary Jones loaned you $45,000 in 2009 in exchange for a note and a mortgage in a tract of land you owned. Free tax software for 2012 On April 4, 2013, she bought the land for $70,000. Free tax software for 2012 At that time, $30,000 of her loan to you was outstanding. Free tax software for 2012 She agreed to forgive this $30,000 debt and to pay you $20,000 (plus interest) on August 1, 2013, and $20,000 on August 1, 2014. Free tax software for 2012 She did not assume an existing mortgage. Free tax software for 2012 She canceled the $30,000 debt you owed her. Free tax software for 2012 You are considered to have received a $30,000 payment at the time of the sale. Free tax software for 2012 Buyer Assumes Other Debts If the buyer assumes any other debts, such as a loan or back taxes, it may be considered a payment to you in the year of sale. Free tax software for 2012 If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. Free tax software for 2012 Compare the debt to your installment sale basis in the property being sold. Free tax software for 2012 If the debt is less than your installment sale basis, none of it is treated as a payment. Free tax software for 2012 If it is more, only the difference is treated as a payment. Free tax software for 2012 If the buyer assumes more than one debt, any part of the total that is more than your installment sale basis is considered a payment. Free tax software for 2012 These rules are the same as the rules discussed earlier under Buyer Assumes Mortgage . Free tax software for 2012 However, they apply only to the following types of debt the buyer assumes. Free tax software for 2012 Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. Free tax software for 2012 Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. Free tax software for 2012 If the buyer assumes any other type of debt, such as a personal loan or your legal fees relating to the sale, it is treated as if the buyer had paid off the debt at the time of the sale. Free tax software for 2012 The value of the assumed debt is then considered a payment to you in the year of sale. Free tax software for 2012 Property Used As a Payment If you receive property other than money from the buyer, it is still considered a payment in the year received. Free tax software for 2012 However, see Like-Kind Exchange , later. Free tax software for 2012 Generally, the amount of the payment is the property's FMV on the date you receive it. Free tax software for 2012 Exception. Free tax software for 2012   If the property the buyer gives you is payable on demand or readily tradable, the amount you should consider as payment in the year received is: The FMV of the property on the date you receive it if you use the cash method of accounting, The face amount of the obligation on the date you receive it if you use the accrual method of accounting, or The stated redemption price at maturity less any original issue discount (OID) or, if there is no OID, the stated redemption price at maturity appropriately discounted to reflect total unstated interest. Free tax software for 2012 See Unstated Interest and Original Issue Discount (OID) , later. Free tax software for 2012 Debt not payable on demand. Free tax software for 2012   Any evidence of debt you receive from the buyer not payable on demand is not considered a payment. Free tax software for 2012 This is true even if the debt is guaranteed by a third party, including a government agency. Free tax software for 2012 Fair market value (FMV). Free tax software for 2012   This is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of all the necessary facts. Free tax software for 2012 Third-party note. Free tax software for 2012   If the property the buyer gives you is a third-party note (or other obligation of a third party), you are considered to have received a payment equal to the note's FMV. Free tax software for 2012 Because the FMV of the note is itself a payment on your installment sale, any payments you later receive from the third party are not considered payments on the sale. Free tax software for 2012 The excess of the note's face value over its FMV is interest. Free tax software for 2012 Exclude this interest in determining the selling price of the property. Free tax software for 2012 However, see Exception under Property Used As a Payment, earlier. Free tax software for 2012 Example. Free tax software for 2012 You sold real estate in an installment sale. Free tax software for 2012 As part of the down payment, the buyer assigned to you a $50,000, 8% interest third-party note. Free tax software for 2012 The FMV of the third-party note at the time of the sale was $30,000. Free tax software for 2012 This amount, not $50,000, is a payment to you in the year of sale. Free tax software for 2012 The third-party note had an FMV equal to 60% of its face value ($30,000 ÷ $50,000), so 60% of each principal payment you receive on this note is a nontaxable return of capital. Free tax software for 2012 The remaining 40% is interest taxed as ordinary income. Free tax software for 2012 Bond. Free tax software for 2012   A bond or other evidence of debt you receive from the buyer that is payable on demand or readily tradable in an established securities market is treated as a payment in the year you receive it. Free tax software for 2012 For more information on the amount you should treat as a payment, see Exception under Property Used As a Payment, earlier. Free tax software for 2012    If you receive a government or corporate bond for a sale before October 22, 2004, and the bond has interest coupons attached or can be readily traded in an established securities market, you are considered to have received payment equal to the bond's FMV. Free tax software for 2012 However, see Exception under Property Used As a Payment, earlier. Free tax software for 2012 Buyer's note. Free tax software for 2012   The buyer's note (unless payable on demand) is not considered payment on the sale. Free tax software for 2012 However, its full face value is included when figuring the selling price and the contract price. Free tax software for 2012 Payments you receive on the note are used to figure your gain in the year received. Free tax software for 2012 Installment Obligation Used as Security (Pledge Rule) If you use an installment obligation to secure any debt, the net proceeds from the debt may be treated as a payment on the installment obligation. Free tax software for 2012 This is known as the pledge rule, and it applies if the selling price of the property is over $150,000. Free tax software for 2012 It does not apply to the following dispositions. Free tax software for 2012 Sales of property used or produced in farming. Free tax software for 2012 Sales of personal-use property. Free tax software for 2012 Qualifying sales of time-shares and residential lots. Free tax software for 2012 The net debt proceeds are the gross debt minus the direct expenses of getting the debt. Free tax software for 2012 The amount treated as a payment is considered received on the later of the following dates. Free tax software for 2012 The date the debt becomes secured. Free tax software for 2012 The date you receive the debt proceeds. Free tax software for 2012 A debt is secured by an installment obligation to the extent that payment of principal or interest on the debt is directly secured (under the terms of the loan or any underlying arrangement) by any interest in the installment obligation. Free tax software for 2012 For sales after December 16, 1999, payment on a debt is treated as directly secured by an interest in an installment obligation to the extent an arrangement allows you to satisfy all or part of the debt with the installment obligation. Free tax software for 2012 Limit. Free tax software for 2012   The net debt proceeds treated as a payment on the pledged installment obligation cannot be more than the excess of item (1) over item (2), below. Free tax software for 2012 The total contract price on the installment sale. Free tax software for 2012 Any payments received on the installment obligation before the date the net debt proceeds are treated as a payment. Free tax software for 2012 Installment payments. Free tax software for 2012   The pledge rule accelerates the reporting of the installment obligation payments. Free tax software for 2012 Do not report payments received on the obligation after it has been pledged until the payments received exceed the amount reported under the pledge rule. Free tax software for 2012 Exception. Free tax software for 2012   The pledge rule does not apply to pledges made after December 17, 1987, to refinance a debt under the following circumstances. Free tax software for 2012 The debt was outstanding on December 17, 1987. Free tax software for 2012 The debt was secured by that installment sale obligation on that date and at all times thereafter until the refinancing occurred. Free tax software for 2012   A refinancing as a result of the creditor's calling of the debt is treated as a continuation of the original debt so long as a person other than the creditor or a person related to the creditor provides the refinancing. Free tax software for 2012   This exception applies only to refinancing that does not exceed the principal of the original debt immediately before the refinancing. Free tax software for 2012 Any excess is treated as a payment on the installment obligation. Free tax software for 2012 Escrow Account In some cases, the sales agreement or a later agreement may call for the buyer to establish an irrevocable escrow account from which the remaining installment payments (including interest) are to be made. Free tax software for 2012 These sales cannot be reported on the installment method. Free tax software for 2012 The buyer's obligation is paid in full when the balance of the purchase price is deposited into the escrow account. Free tax software for 2012 When an escrow account is established, you no longer rely on the buyer for the rest of the payments, but on the escrow arrangement. Free tax software for 2012 Example. Free tax software for 2012 You sell property for $100,000. Free tax software for 2012 The sales agreement calls for a down payment of $10,000 and payment of $15,000 in each of the next 6 years to be made from an irrevocable escrow account containing the balance of the purchase price plus interest. Free tax software for 2012 You cannot report the sale on the installment method because the full purchase price is considered received in the year of sale. Free tax software for 2012 You report the entire gain in the year of sale. Free tax software for 2012 Escrow established in a later year. Free tax software for 2012   If you make an installment sale and in a later year an irrevocable escrow account is established to pay the remaining installments plus interest, the amount placed in the escrow account represents payment of the balance of the installment obligation. Free tax software for 2012 Substantial restriction. Free tax software for 2012   If an escrow arrangement imposes a substantial restriction on your right to receive the sale proceeds, the sale can be reported on the installment method, provided it otherwise qualifies. Free tax software for 2012 For an escrow arrangement to impose a substantial restriction, it must serve a bona fide purpose of the buyer, that is, a real and definite restriction placed on the seller or a specific economic benefit conferred on the buyer. Free tax software for 2012 Depreciation Recapture Income If you sell property for which you claimed or could have claimed a depreciation deduction, you must report any depreciation recapture income in the year of sale, whether or not an installment payment was received that year. Free tax software for 2012 Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. Free tax software for 2012 Report the recapture income in Part II of Form 4797 as ordinary income in the year of sale. Free tax software for 2012 The recapture income is also included in Part I of Form 6252. Free tax software for 2012 However, the gain equal to the recapture income is reported in full in the year of the sale. Free tax software for 2012 Only the gain greater than the recapture income is reported on the installment method. Free tax software for 2012 For more information on depreciation recapture, see chapter 3 in Publication 544. Free tax software for 2012 The recapture income reported in the year of sale is included in your installment sale basis in determining your gross profit on the installment sale. Free tax software for 2012 Determining gross profit is discussed under General Rules , earlier. Free tax software for 2012 Sale to a Related Person If you sell depreciable property to a related person and the sale is an installment sale, you may not be able to report the sale using the installment method. Free tax software for 2012 If you sell property to a related person and the related person disposes of the property before you receive all payments with respect to the sale, you may have to treat the amount realized by the related person as received by you when the related person disposes of the property. Free tax software for 2012 These rules are explained under Sale of Depreciable Property and under Sale and Later Disposition , later. Free tax software for 2012 Sale of Depreciable Property If you sell depreciable property to certain related persons, you generally cannot report the sale using the installment method. Free tax software for 2012 Instead, all payments to be received are considered received in the year of sale. Free tax software for 2012 However, see Exception , below. Free tax software for 2012 Depreciable property for this rule is any property the purchaser can depreciate. Free tax software for 2012 Payments to be received include the total of all noncontingent payments and the FMV of any payments contingent as to amount. Free tax software for 2012 In the case of contingent payments for which the FMV cannot be reasonably determined, your basis in the property is recovered proportionately. Free tax software for 2012 The purchaser cannot increase the basis of the property acquired in the sale before the seller includes a like amount in income. Free tax software for 2012 Exception. Free tax software for 2012   You can use the installment method to report a sale of depreciable property to a related person if no significant tax deferral benefit will be derived from the sale. Free tax software for 2012 You must show to the satisfaction of the IRS that avoidance of federal income tax was not one of the principal purposes of the sale. Free tax software for 2012 Related person. Free tax software for 2012   Related persons include the following. Free tax software for 2012 A person and all controlled entities with respect to that person. Free tax software for 2012 A taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless that beneficiary's interest in the trust is a remote contingent interest. Free tax software for 2012 Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of that estate. Free tax software for 2012 Two or more partnerships in which the same person owns, directly or indirectly, more than 50% of the capital interests or the profits interests. Free tax software for 2012   For information about which entities are controlled entities, see section 1239(c). Free tax software for 2012 Sale and Later Disposition Generally, a special rule applies if you sell or exchange property to a related person on the installment method (first disposition) who then sells, exchanges, or gives away the property (second disposition) under the following circumstances. Free tax software for 2012 The related person makes the second disposition before making all payments on the first disposition. Free tax software for 2012 The related person disposes of the property within 2 years of the first disposition. Free tax software for 2012 This rule does not apply if the property involved is marketable securities. Free tax software for 2012 Under this rule, you treat part or all of the amount the related person realizes (or the FMV if the disposed property is not sold or exchanged) from the second disposition as if you received it at the time of the second disposition. Free tax software for 2012 See Exception , later. Free tax software for 2012 Related person. Free tax software for 2012   Related persons include the following. Free tax software for 2012 Members of a family, including only brothers and sisters (either whole or half), husband and wife, ancestors, and lineal descendants. Free tax software for 2012 A partnership or estate and a partner or beneficiary. Free tax software for 2012 A trust (other than a section 401(a) employees trust) and a beneficiary. Free tax software for 2012 A trust and an owner of the trust. Free tax software for 2012 Two corporations that are members of the same controlled group as defined in section 267(f). Free tax software for 2012 The fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Free tax software for 2012 A tax-exempt educational or charitable organization and a person (if an individual, including members of the individual's family) who directly or indirectly controls such an organization. Free tax software for 2012 An individual and a corporation when the individual owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. Free tax software for 2012 A fiduciary of a trust and a corporation when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. Free tax software for 2012 The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Free tax software for 2012 Any two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Free tax software for 2012 An S corporation and a corporation that is not an S corporation if the same persons own more than 50% in value of the outstanding stock of each corporation. Free tax software for 2012 A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. Free tax software for 2012 An executor and a beneficiary of an estate unless the sale is in satisfaction of a pecuniary bequest. Free tax software for 2012 Example 1. Free tax software for 2012 In 2012, Harvey Green sold farm land to his son Bob for $500,000, which was to be paid in five equal payments over 5 years, plus adequate stated interest on the balance due. Free tax software for 2012 His installment sale basis for the farm land was $250,000 and the property was not subject to any outstanding liens or mortgages. Free tax software for 2012 His gross profit percentage is 50% (gross profit of $250,000 ÷ contract price of $500,000). Free tax software for 2012 He received $100,000 in 2012 and included $50,000 in income for that year ($100,000 × 0. Free tax software for 2012 50). Free tax software for 2012 Bob made no improvements to the property and sold it to Alfalfa Inc. Free tax software for 2012 , in 2013 for $600,000 after making the payment for that year. Free tax software for 2012 The amount realized from the second disposition is $600,000. Free tax software for 2012 Harvey figures his installment sale income for 2013 as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $500,000 Subtract: Sum of payments from Bob in 2012 and 2013 - 200,000 Amount treated as received because of second disposition $300,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $400,000 Multiply by gross profit % × . Free tax software for 2012 50 Installment sale income for 2013 $200,000 Harvey will not include in his installment sale income any principal payments he receives on the installment obligation for 2014, 2015, and 2016 because he has already reported the total payments of $500,000 from the first disposition ($100,000 in 2012 and $400,000 in 2013). Free tax software for 2012 Example 2. Free tax software for 2012 Assume the facts are the same as Example 1 except that Bob sells the property for only $400,000. Free tax software for 2012 The gain for 2013 is figured as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $400,000 Subtract: Sum of payments from Bob in 2012 and 2013 − 200,000 Amount treated as received because of second disposition $200,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $300,000 Multiply by gross profit % × . Free tax software for 2012 50 Installment sale income for 2013 $150,000     Harvey receives a $100,000 payment in 2014 and another in 2015. Free tax software for 2012 They are not taxed because he treated the $200,000 from the disposition in 2013 as a payment received and paid tax on the installment sale income. Free tax software for 2012 In 2016, he receives the final $100,000 payment. Free tax software for 2012 He figures the installment sale income he must recognize in 2016 as follows: Total payments from the first disposition received by the end of 2016 $500,000 Minus the sum of:     Payment from 2012 $100,000   Payment from 2013 100,000   Amount treated as received in 2013 200,000   Total on which gain was previously recognized  − 400,000 Payment on which gain is recognized for 2016  $100,000 Multiply by gross profit % × . Free tax software for 2012 50 Installment sale income for 2016 $ 50,000 Exception. Free tax software for 2012   This rule does not apply to a second disposition, and any later transfer, if you can show to the satisfaction of the IRS that neither the first disposition (to the related person) nor the second disposition had as one of its principal purposes the avoidance of federal income tax. Free tax software for 2012 Generally, an involuntary second disposition will qualify under the nontax avoidance exception, such as when a creditor of the related person forecloses on the property or the related person declares bankruptcy. Free tax software for 2012   The nontax avoidance exception also applies to a second disposition that is also an installment sale if the terms of payment under the installment resale are substantially equal to or longer than those for the first installment sale. Free tax software for 2012 However, the exception does not apply if the resale terms permit significant deferral of recognition of gain from the first sale. Free tax software for 2012   In addition, any sale or exchange of stock to the issuing corporation is not treated as a first disposition. Free tax software for 2012 An involuntary conversion is not treated as a second disposition if the first disposition occurred before the threat of conversion. Free tax software for 2012 A transfer after the death of the person making the first disposition or the related person's death, whichever is earlier, is not treated as a second disposition. Free tax software for 2012 Like-Kind Exchange If you trade business or investment property solely for the same kind of property to be held as business or investment property, you can postpone reporting the gain. Free tax software for 2012 These trades are known as like-kind exchanges. Free tax software for 2012 The property you receive in a like-kind exchange is treated as if it were a continuation of the property you gave up. Free tax software for 2012 You do not have to report any part of your gain if you receive only like-kind property. Free tax software for 2012 However, if you also receive money or other property (boot) in the exchange, you must report your gain to the extent of the money and the FMV of the other property received. Free tax software for 2012 For more information on like-kind exchanges, see Like-Kind Exchanges in chapter 1 of Publication 544. Free tax software for 2012 Installment payments. Free tax software for 2012   If, in addition to like-kind property, you receive an installment obligation in the exchange, the following rules apply to determine the installment sale income each year. Free tax software for 2012 The contract price is reduced by the FMV of the like-kind property received in the trade. Free tax software for 2012 The gross profit is reduced by any gain on the trade that can be postponed. Free tax software for 2012 Like-kind property received in the trade is not considered payment on the installment obligation. Free tax software for 2012 Example. Free tax software for 2012 In 2013, George Brown trades personal property with an installment sale basis of $400,000 for like-kind property having an FMV of $200,000. Free tax software for 2012 He also receives an installment note for $800,000 in the trade. Free tax software for 2012 Under the terms of the note, he is to receive $100,000 (plus interest) in 2014 and the balance of $700,000 (plus interest) in 2015. Free tax software for 2012 George's selling price is $1,000,000 ($800,000 installment note + $200,000 FMV of like-kind property received). Free tax software for 2012 His gross profit is $600,000 ($1,000,000 − $400,000 installment sale basis). Free tax software for 2012 The contract price is $800,000 ($1,000,000 − $200,000). Free tax software for 2012 The gross profit percentage is 75% ($600,000 ÷ $800,000). Free tax software for 2012 He reports no gain in 2013 because the like-kind property he receives is not treated as a payment for figuring gain. Free tax software for 2012 He reports $75,000 gain for 2014 (75% of $100,000 payment received) and $525,000 gain for 2015 (75% of $700,000 payment received). Free tax software for 2012 Deferred exchanges. Free tax software for 2012   A deferred exchange is one in which you transfer property you use in business or hold for investment and receive like-kind property later that you will use in business or hold for investment. Free tax software for 2012 Under this type of exchange, the person receiving your property may be required to place funds in an escrow account or trust. Free tax software for 2012 If certain rules are met, these funds will not be considered a payment until you have the right to receive the funds or, if earlier, the end of the exchange period. Free tax software for 2012 See Regulations section 1. Free tax software for 2012 1031(k)-1(j)(2) for these rules. Free tax software for 2012 Contingent Payment Sale A contingent payment sale is one in which the total selling price cannot be determined by the end of the tax year of sale. Free tax software for 2012 This happens, for example, if you sell your business and the selling price includes a percentage of its profits in future years. Free tax software for 2012 If the selling price cannot be determined by the end of the tax year, you must use different rules to figure the contract price and the gross profit percentage than those you use for an installment sale with a fixed selling price. Free tax software for 2012 For rules on using the installment method for a contingent payment sale, see Regulations section 15a. Free tax software for 2012 453-1(c). Free tax software for 2012 Single Sale of Several Assets If you sell different types of assets in a single sale, you must identify each asset to determine whether you can use the installment method to report the sale of that asset. Free tax software for 2012 You also have to allocate part of the selling price to each asset. Free tax software for 2012 If you sell assets that constitute a trade or business, see Sale of a Business , later. Free tax software for 2012 Unless an allocation of the selling price has been agreed to by both parties in an arm's-length transaction, you must allocate the selling price to an asset based on its FMV. Free tax software for 2012 If the buyer assumes a debt, or takes the property subject to a debt, you must reduce the FMV of the property by the debt. Free tax software for 2012 This becomes the net FMV. Free tax software for 2012 A sale of separate and unrelated assets of the same type under a single contract is reported as one transaction for the installment method. Free tax software for 2012 However, if an asset is sold at a loss, its disposition cannot be reported on the installment method. Free tax software for 2012 It must be reported separately. Free tax software for 2012 The remaining assets sold at a gain are reported together. Free tax software for 2012 Example. Free tax software for 2012 You sold three separate and unrelated parcels of real property (A, B, and C) under a single contract calling for a total selling price of $130,000. Free tax software for 2012 The total selling price consisted of a cash payment of $20,000, the buyer's assumption of a $30,000 mortgage on parcel B, and an installment obligation of $80,000 payable in eight annual installments, plus interest at 8% a year. Free tax software for 2012 Your installment sale basis for each parcel was $15,000. Free tax software for 2012 Your net gain was $85,000 ($130,000 − $45,000). Free tax software for 2012 You report the gain on the installment method. Free tax software for 2012 The sales contract did not allocate the selling price or the cash payment received in the year of sale among the individual parcels. Free tax software for 2012 The FMV of parcels A, B, and C were $60,000, $60,000, and $10,000, respectively. Free tax software for 2012 The installment sale basis for parcel C was more than its FMV, so it was sold at a loss and must be treated separately. Free tax software for 2012 You must allocate the total selling price and the amounts received in the year of sale between parcel C and the remaining parcels. Free tax software for 2012 Of the total $130,000 selling price, you must allocate $120,000 to parcels A and B together and $10,000 to parcel C. Free tax software for 2012 You should allocate the cash payment of $20,000 received in the year of sale and the note receivable on the basis of their proportionate net FMV. Free tax software for 2012 The allocation is figured as follows:   Parcels   A and B Parcel C FMV $120,000 $10,000 Minus: Mortgage assumed 30,000 -0- Net FMV $ 90,000 $10,000 Proportionate net FMV:     Percentage of total 90% 10% Payments in year of sale:     $20,000 × 90% $18,000   $20,000 × 10%   $2,000 Excess of parcel B mortgage over installment sale basis 15,000 -0- Allocation of payments  received (or considered  received) in year of sale $ 33,000 $ 2,000 You cannot report the sale of parcel C on the installment method because the sale results in a loss. Free tax software for 2012 You report this loss of $5,000 ($10,000 selling price − $15,000 installment sale basis) in the year of sale. Free tax software for 2012 However, if parcel C was held for personal use, the loss is not deductible. Free tax software for 2012 You allocate the installment obligation of $80,000 to the properties sold based on their proportionate net FMVs (90% to parcels A and B, 10% to parcel C). Free tax software for 2012 Sale of a Business The installment sale of an entire business for one overall price under a single contract is not the sale of a single asset. Free tax software for 2012 Allocation of Selling Price To determine whether any of the gain on the sale of the business can be reported on the installment method, you must allocate the total selling price and the payments received in the year of sale between each of the following classes of assets. Free tax software for 2012 Assets sold at a loss. Free tax software for 2012 Real and personal property eligible for the installment method. Free tax software for 2012 Real and personal property ineligible for the installment method, including: Inventory, Dealer property, and Stocks and securities. Free tax software for 2012 Inventory. Free tax software for 2012   The sale of inventories of personal property cannot be reported on the installment method. Free tax software for 2012 All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. Free tax software for 2012   If inventory items are included in an installment sale, you may have an agreement stating which payments are for inventory and which are for the other assets being sold. Free tax software for 2012 If you do not, each payment must be allocated between the inventory and the other assets sold. Free tax software for 2012   Report the amount you receive (or will receive) on the sale of inventory items as ordinary business income. Free tax software for 2012 Use your basis in the inventory to figure the cost of goods sold. Free tax software for 2012 Deduct the part of the selling expenses allocated to inventory as an ordinary business expense. Free tax software for 2012 Residual method. Free tax software for 2012   Except for assets exchanged under the like-kind exchange rules, both the buyer and seller of a business must use the residual method to allocate the sale price to each business asset sold. Free tax software for 2012 This method determines gain or loss from the transfer of each asset and the buyer's basis in the assets. Free tax software for 2012   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. Free tax software for 2012 This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b). Free tax software for 2012   A group of assets constitutes a trade or business if goodwill or going concern value could, under any circumstances, attach to the assets or if the use of the assets would constitute an active trade or business under section 355. Free tax software for 2012   The residual method provides for the consideration to be reduced first by cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). Free tax software for 2012 The consideration remaining after this reduction must be allocated among the various business assets in a certain order. Free tax software for 2012   For asset acquisitions occurring after March 15, 2001, make the allocation among the following assets in proportion to (but not more than) their fair market value on the purchase date in the following order. Free tax software for 2012 Certificates of deposit, U. Free tax software for 2012 S. Free tax software for 2012 Government securities, foreign currency, and actively traded personal property, including stock and securities. Free tax software for 2012 Accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. Free tax software for 2012 However, see Regulations section 1. Free tax software for 2012 338-6(b)(2)(iii) for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. Free tax software for 2012 Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. Free tax software for 2012 All other assets except section 197 intangibles. Free tax software for 2012 Section 197 intangibles except goodwill and going concern value. Free tax software for 2012 Goodwill and going concern value (whether or not they qualify as section 197 intangibles). Free tax software for 2012   If an asset described in (1) through (6) is includible in more than one category, include it in the lower number category. Free tax software for 2012 For example, if an asset is described in both (4) and (6), include it in (4). Free tax software for 2012 Agreement. Free tax software for 2012   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. Free tax software for 2012 This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Free tax software for 2012 Reporting requirement. Free tax software for 2012   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Free tax software for 2012 Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Free tax software for 2012 The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Free tax software for 2012 Sale of Partnership Interest A partner who sells a partnership interest at a gain may be able to report the sale on the installment method. Free tax software for 2012 The sale of a partnership interest is treated as the sale of a single capital asset. Free tax software for 2012 The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary income. Free tax software for 2012 (The term “unrealized receivables” includes depreciation recapture income, discussed earlier. Free tax software for 2012 ) The gain allocated to the unrealized receivables and the inventory cannot be reported under the installment method. Free tax software for 2012 The gain allocated to the other assets can be reported under the installment method. Free tax software for 2012 For more information on the treatment of unrealized receivables and inventory, see Publication 541. Free tax software for 2012 Example — Sale of a Business On June 4, 2013, you sold the machine shop you had operated since 2005. Free tax software for 2012 You received a $100,000 down payment and the buyer's note for $120,000. Free tax software for 2012 The note payments are $15,000 each, plus 10% interest, due every July 1 and January 1, beginning in 2014. Free tax software for 2012 The total selling price is $220,000. Free tax software for 2012 Your selling expenses are $11,000. Free tax software for 2012 The selling expenses are divided among all the assets sold, including inventory. Free tax software for 2012 Your selling expense for each asset is 5% of the asset's selling price ($11,000 selling expense ÷ $220,000 total selling price). Free tax software for 2012 The FMV, adjusted basis, and depreciation claimed on each asset sold are as follows:     Depre- ciation Adj. Free tax software for 2012 Asset FMV Claimed Basis Inventory $ 10,000 -0- $ 8,000 Land 42,000 -0- 15,000 Building 48,000 $9,000 36,000 Machine A 71,000 27,200 63,800 Machine B 24,000 12,960 22,040 Truck 6,500 18,624 5,376   $201,500 $67,784 $150,216         Under the residual method, you allocate the selling price to each of the assets based on their FMV ($201,500). Free tax software for 2012 The remaining $18,500 ($220,000 - $201,500) is allocated to your section 197 intangible, goodwill. Free tax software for 2012 The assets included in the sale, their selling prices based on their FMVs, the selling expense allocated to each asset, the adjusted basis, and the gain for each asset are shown in the following chart. Free tax software for 2012   Sale  Price Sale   Exp. Free tax software for 2012 Adj. Free tax software for 2012   Basis Gain Inventory $ 10,000 $ 500 $ 8,000 $ 1,500 Land 42,000 2,100 15,000 24,900 Building 48,000 2,400 36,000 9,600 Mch. Free tax software for 2012 A 71,000 3,550 63,800 3,650 Mch. Free tax software for 2012 B 24,000 1,200 22,040 760 Truck 6,500 325 5,376 799 Goodwill 18,500 925 -0- 17,575   $220,000 $11,000 $150,216 $58,784 The building was acquired in 2005, the year the business began, and it is section 1250 property. Free tax software for 2012 There is no depreciation recapture income because the building was depreciated using the straight line method. Free tax software for 2012 All gain on the truck, machine A, and machine B is depreciation recapture income since it is the lesser of the depreciation claimed or the gain on the sale. Free tax software for 2012 Figure depreciation recapture in Part III of Form 4797. Free tax software for 2012 The total depreciation recapture income reported in Part II of Form 4797 is $5,209. Free tax software for 2012 This consists of $3,650 on machine A, $799 on the truck, and $760 on machine B (the gain on each item because it was less than the depreciation claimed). Free tax software for 2012 These gains are reported in full in the year of sale and are not included in the installment sale computation. Free tax software for 2012 Of the $220,000 total selling price, the $10,000 for inventory assets cannot be reported using the installment method. Free tax software for 2012 The selling prices of the truck and machines are also removed from the total selling price because gain on these items is reported in full in the year of sale. Free tax software for 2012 The selling price equals the contract price for the installment sale ($108,500). Free tax software for 2012 The assets included in the installment sale, their selling price, and their installment sale bases are shown in the following chart. Free tax software for 2012   Selling  Price Install- ment  Sale  Basis Gross  Profit Land $ 42,000 $17,100 $24,900 Building 48,000 38,400 9,600 Goodwill 18,500 925 17,575 Total $108,500 $56,425 $52,075         The gross profit percentage (gross profit ÷ contract price) for the installment sale is 48% ($52,075 ÷ $108,500). Free tax software for 2012 The gross profit percentage for each asset is figured as follows: Percentage Land— $24,900 ÷ $108,500 22. Free tax software for 2012 95 Building— $9,600 ÷ $108,500 8. Free tax software for 2012 85 Goodwill— $17,575 ÷ $108,500 16. Free tax software for 2012 20 Total 48. Free tax software for 2012 00 The sale includes assets sold on the installment method and assets for which the gain is reported in full in the year of sale, so payments must be allocated between the installment part of the sale and the part reported in the year of sale. Free tax software for 2012 The selling price for the installment sale is $108,500. Free tax software for 2012 This is 49. Free tax software for 2012 3% of the total selling price of $220,000 ($108,500 ÷ $220,000). Free tax software for 2012 The selling price of assets not reported on the installment method is $111,500. Free tax software for 2012 This is 50. Free tax software for 2012 7% ($111,500 ÷ $220,000) of the total selling price. Free tax software for 2012 Multiply principal payments by 49. Free tax software for 2012 3% to determine the part of the payment for the installment sale. Free tax software for 2012 The balance, 50. Free tax software for 2012 7%, is for the part reported in the year of the sale. Free tax software for 2012 The gain on the sale of the inventory, machines, and truck is reported in full in the year of sale. Free tax software for 2012 When you receive principal payments in later years, no part of the payment for the sale of these assets is included in gross income. Free tax software for 2012 Only the part for the installment sale (49. Free tax software for 2012 3%) is used in the installment sale computation. Free tax software for 2012 The only payment received in 2013 is the down payment of $100,000. Free tax software for 2012 The part of the payment for the installment sale is $49,300 ($100,000 × 49. Free tax software for 2012 3%). Free tax software for 2012 This amount is used in the installment sale computation. Free tax software for 2012 Installment income for 2013. Free tax software for 2012   Your installment income for each asset is the gross profit percentage for that asset times $49,300, the installment income received in 2013. Free tax software for 2012 Income Land—22. Free tax software for 2012 95% of $49,300 $11,314 Building—8. Free tax software for 2012 85% of $49,300 4,363 Goodwill—16. Free tax software for 2012 2% of $49,300 7,987 Total installment income for 2013 $23,664 Installment income after 2013. Free tax software for 2012   You figure installment income for years after 2013 by applying the same gross profit percentages to 49. Free tax software for 2012 3% of the total payments you receive on the buyer's note during the year. Free tax software for 2012 Unstated Interest and Original Issue Discount (OID) An installment sale contract may provide that each deferred payment on the sale will include interest or that there will be an interest payment in addition to the principal payment. Free tax software for 2012 Interest provided in the contract is called stated interest. Free tax software for 2012 If an installment sale contract does not provide for adequate stated interest, part of the stated principal amount of the contract may be recharacterized as interest. Free tax software for 2012 If section 483 applies to the contract, this interest is called unstated interest. Free tax software for 2012 If section 1274 applies to the contract, this interest is called original issue discount (OID). Free tax software for 2012 An installment sale contract does not provide for adequate stated interest if the stated interest rate is lower than the test rate (defined later). Free tax software for 2012 Treatment of unstated interest and OID. Free tax software for 2012   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. Free tax software for 2012 As a result, the buyer cannot deduct the unstated interest. Free tax software for 2012 The seller must report the unstated interest as income. Free tax software for 2012   Personal-use property is any property in which substantially all of its use by the buyer is not in connection with a trade or business or an investment activity. Free tax software for 2012   If the debt is subject to the section 483 rules and is also subject to the below-market loan rules, such as a gift loan, compensation-related loan, or corporation-shareholder loan, then both parties are subject to the below-market loan rules rather than the unstated interest rules. Free tax software for 2012 Rules for the seller. Free tax software for 2012   If either section 1274 or section 483 applies to the installment sale contract, you must treat part of the installment sale price as interest, even though interest is not called for in the sales agreement. Free tax software for 2012 If either section applies, you must reduce the stated selling price of the property and increase your interest income by this unstated interest. Free tax software for 2012   Include the unstated interest in income based on your regular method of accounting. Free tax software for 2012 Include OID in income over the term of the contract. Free tax software for 2012   The OID includible in income each year is based on the constant yield method described in section 1272. Free tax software for 2012 (In some cases, the OID on an installment sale contract also may include all or part of the stated interest, especially if the stated interest is not paid at least annually. Free tax software for 2012 )   If you do not use the installment method to report the sale, report the entire gain under your method of accounting in the year of sale. Free tax software for 2012 Reduce the selling price by any stated principal treated as interest to determine the gain. Free tax software for 2012   Report unstated interest or OID on your tax return, in addition to stated interest. Free tax software for 2012 Rules for the buyer. Free tax software for 2012   Any part of the stated selling price of an installment sale contract treated by the buyer as interest reduces the buyer's basis in the property and increases the buyer's interest expense. Free tax software for 2012 These rules do not apply to personal-use property (for example, property not used in a trade or business). Free tax software for 2012 Adequate stated interest. Free tax software for 2012   An installment sale contract generally provides for adequate stated interest if the contract's stated principal amount is at least equal to the sum of the present values of all principal and interest payments called for under the contract. Free tax software for 2012 The present value of a payment is determined based on the test rate of interest, defined next. Free tax software for 2012 (If section 483 applies to the contract, payments due within six months after the sale are taken into account at face value. Free tax software for 2012 ) In general, an installment sale contract provides for adequate stated interest if the stated interest rate (based on an appropriate compounding period) is at least equal to the test rate of interest. Free tax software for 2012 Test rate of interest. Free tax software for 2012   The test rate of interest for a contract is the 3-month rate. Free tax software for 2012 The 3-month rate is the lower of the following applicable federal rates (AFRs). Free tax software for 2012 The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the first month in which there is a binding written contract that substantially provides the terms under which the sale or exchange is ultimately completed. Free tax software for 2012 The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the month in which the sale or exchange occurs. Free tax software for 2012 Applicable federal rate (AFR). Free tax software for 2012   The AFR depends on the month the binding
Español

Education and Training

Find government information on education and training including primary, secondary and higher education, resources for students, parents, teachers, foreign students and more.


The Free Tax Software For 2012

Free tax software for 2012 5. Free tax software for 2012   Additional Rules for Listed Property Table of Contents Introduction Useful Items - You may want to see: What Is Listed Property?Passenger Automobiles Other Property Used for Transportation Computers and Related Peripheral Equipment Can Employees Claim a Deduction? What Is the Business-Use Requirement?How To Allocate Use Qualified Business Use Recapture of Excess Depreciation Lessee's Inclusion Amount Do the Passenger Automobile Limits Apply?Maximum Depreciation Deduction Deductions After the Recovery Period Deductions For Passenger Automobiles Acquired in a Trade-in What Records Must Be Kept?Adequate Records How Is Listed Property Information Reported? Introduction This chapter discusses the deduction limits and other special rules that apply to certain listed property. Free tax software for 2012 Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers. Free tax software for 2012 Deductions for listed property (other than certain leased property) are subject to the following special rules and limits. Free tax software for 2012 Deduction for employees. Free tax software for 2012 If your use of the property is not for your employer's convenience or is not required as a condition of your employment, you cannot deduct depreciation or rent expenses for your use of the property as an employee. Free tax software for 2012 Business-use requirement. Free tax software for 2012 If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance. Free tax software for 2012 In addition, you must figure any depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS) using the straight line method over the ADS recovery period. Free tax software for 2012 You may also have to recapture (include in income) any excess depreciation claimed in previous years. Free tax software for 2012 A similar inclusion amount applies to certain leased property. Free tax software for 2012 Passenger automobile limits and rules. Free tax software for 2012 Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. Free tax software for 2012 You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period. Free tax software for 2012 This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. Free tax software for 2012 It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return. Free tax software for 2012 Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. Free tax software for 2012 What Is Listed Property? Listed property is any of the following. Free tax software for 2012 Passenger automobiles (as defined later). Free tax software for 2012 Any other property used for transportation, unless it is an excepted vehicle. Free tax software for 2012 Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment). Free tax software for 2012 Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. Free tax software for 2012 A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business as discussed in Publication 587. Free tax software for 2012 Improvements to listed property. Free tax software for 2012   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. Free tax software for 2012 The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. Free tax software for 2012 For example, if you must depreciate the listed property using the straight line method, you also must depreciate the improvement using the straight line method. Free tax software for 2012 Passenger Automobiles A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). Free tax software for 2012 It includes any part, component, or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile. Free tax software for 2012 The following vehicles are not considered passenger automobiles for these purposes. Free tax software for 2012 An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business. Free tax software for 2012 A vehicle used directly in the trade or business of transporting persons or property for pay or hire. Free tax software for 2012 A truck or van that is a qualified nonpersonal use vehicle. Free tax software for 2012 Qualified nonpersonal use vehicles. Free tax software for 2012   Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Free tax software for 2012 They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation , next. Free tax software for 2012 They also include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. Free tax software for 2012 For a detailed discussion of passenger automobiles, including leased passenger automobiles, see  Publication 463. Free tax software for 2012 Other Property Used for Transportation Although vehicles used to transport persons or property for pay or hire and vehicles rated at more than the 6,000-pound threshold are not passenger automobiles, they are still “other property used for transportation” and are subject to the special rules for listed property. Free tax software for 2012 Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods. Free tax software for 2012 Excepted vehicles. Free tax software for 2012   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ). Free tax software for 2012 Clearly marked police and fire vehicles. Free tax software for 2012 Unmarked vehicles used by law enforcement officers if the use is officially authorized. Free tax software for 2012 Ambulances used as such and hearses used as such. Free tax software for 2012 Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo. Free tax software for 2012 Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks. Free tax software for 2012 Combines, cranes and derricks, and forklifts. Free tax software for 2012 Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat. Free tax software for 2012 Qualified moving vans. Free tax software for 2012 Qualified specialized utility repair trucks. Free tax software for 2012 School buses used in transporting students and employees of schools. Free tax software for 2012 Other buses with a capacity of at least 20 passengers that are used as passenger buses. Free tax software for 2012 Tractors and other special purpose farm vehicles. Free tax software for 2012 Clearly marked police and fire vehicle. Free tax software for 2012   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements. Free tax software for 2012 It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit. Free tax software for 2012 It is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times. Free tax software for 2012 It is prohibited from being used for personal use (other than commuting) outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency. Free tax software for 2012 It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. Free tax software for 2012 A marking on a license plate is not a clear marking for these purposes. Free tax software for 2012 Qualified moving van. Free tax software for 2012   A qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met. Free tax software for 2012 No personal use of the van is allowed other than for travel to and from a move site or for minor personal use, such as a stop for lunch on the way from one move site to another. Free tax software for 2012 Personal use for travel to and from a move site happens no more than five times a month on average. Free tax software for 2012 Personal use is limited to situations in which it is more convenient to the employer, because of the location of the employee's residence in relation to the location of the move site, for the van not to be returned to the employer's business location. Free tax software for 2012 Qualified specialized utility repair truck. Free tax software for 2012   A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply. Free tax software for 2012 The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts. Free tax software for 2012 Shelves, racks, or other permanent interior construction has been installed to carry and store the tools, equipment, or parts and would make it unlikely that the truck would be used, other than minimally, for personal purposes. Free tax software for 2012 The employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity, gas, telephone, water, sewer, or steam utility services. Free tax software for 2012 Computers and Related Peripheral Equipment A computer is a programmable, electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention. Free tax software for 2012 It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. Free tax software for 2012 Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. Free tax software for 2012 The following are neither computers nor related peripheral equipment. Free tax software for 2012 Any equipment that is an integral part of other property that is not a computer. Free tax software for 2012 Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment. Free tax software for 2012 Equipment of a kind used primarily for the user's amusement or entertainment, such as video games. Free tax software for 2012 Can Employees Claim a Deduction? If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. Free tax software for 2012 The use of your property in performing services as an employee is a business use only if both the following requirements are met. Free tax software for 2012 The use is for your employer's convenience. Free tax software for 2012 The use is required as a condition of your employment. Free tax software for 2012 If these requirements are not met, you cannot deduct depreciation (including the section 179 deduction) or rent expenses for your use of the property as an employee. Free tax software for 2012 Employer's convenience. Free tax software for 2012   Whether the use of listed property is for your employer's convenience must be determined from all the facts. Free tax software for 2012 The use is for your employer's convenience if it is for a substantial business reason of the employer. Free tax software for 2012 The use of listed property during your regular working hours to carry on your employer's business generally is for the employer's convenience. Free tax software for 2012 Condition of employment. Free tax software for 2012   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. Free tax software for 2012 The use of property must be required for you to perform your duties properly. Free tax software for 2012 Your employer does not have to require explicitly that you use the property. Free tax software for 2012 However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient. Free tax software for 2012 Example 1. Free tax software for 2012 Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. Free tax software for 2012 She owns and uses a motorcycle to deliver packages to downtown offices. Free tax software for 2012 We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. Free tax software for 2012 Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. Free tax software for 2012 Example 2. Free tax software for 2012 Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. Free tax software for 2012 He must travel to these sites on a regular basis. Free tax software for 2012 Uplift does not furnish an automobile or explicitly require him to use his own automobile. Free tax software for 2012 However, it pays him for any costs he incurs in traveling to the various sites. Free tax software for 2012 The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. Free tax software for 2012 Example 3. Free tax software for 2012 Assume the same facts as in Example 2 except that Uplift furnishes a car to Bill, who chooses to use his own car and receive payment for using it. Free tax software for 2012 The use of his own car is neither for the convenience of Uplift nor required as a condition of employment. Free tax software for 2012 Example 4. Free tax software for 2012 Marilyn Lee is a pilot for Y Company, a small charter airline. Free tax software for 2012 Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. Free tax software for 2012 Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. Free tax software for 2012 Marilyn owns her own airplane. Free tax software for 2012 The use of her airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment. Free tax software for 2012 Example 5. Free tax software for 2012 David Rule is employed as an engineer with Zip, an engineering contracting firm. Free tax software for 2012 He occasionally takes work home at night rather than work late in the office. Free tax software for 2012 He owns and uses a home computer which is virtually identical to the office model. Free tax software for 2012 His use of the computer is neither for the convenience of his employer nor required as a condition of employment. Free tax software for 2012 What Is the Business-Use Requirement? You can claim the section 179 deduction and a special depreciation allowance for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. Free tax software for 2012 To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. Free tax software for 2012 If this requirement is not met, the following rules apply. Free tax software for 2012 Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction. Free tax software for 2012 Property not used predominantly for qualified business use during the year it is placed in service does not qualify for a special depreciation allowance. Free tax software for 2012 Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. Free tax software for 2012 This rule applies each year of the recovery period. Free tax software for 2012 Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use. Free tax software for 2012 A lessee must add an inclusion amount to income in the first year in which the leased property is not used predominantly for qualified business use. Free tax software for 2012 Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as electing the straight line method. Free tax software for 2012 It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. Free tax software for 2012 Exception for leased property. Free tax software for 2012   The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. Free tax software for 2012   You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. Free tax software for 2012 This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. Free tax software for 2012 Occasional or incidental leasing activity is insufficient. Free tax software for 2012 For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. Free tax software for 2012 An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. Free tax software for 2012 How To Allocate Use To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses. Free tax software for 2012 For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. Free tax software for 2012 You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year. Free tax software for 2012 For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). Free tax software for 2012 For example, you can determine the percentage of business use of a computer by dividing the number of hours you used the computer for business purposes during the year by the total number of hours you used the computer for all purposes (including business use) during the year. Free tax software for 2012 Entertainment use. Free tax software for 2012   Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense. Free tax software for 2012 Commuting use. Free tax software for 2012   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. Free tax software for 2012 For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. Free tax software for 2012 This is also true for a business meeting held in a car while commuting to work. Free tax software for 2012 Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. Free tax software for 2012 The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use. Free tax software for 2012 Use of your automobile by another person. Free tax software for 2012   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies. Free tax software for 2012 That use is directly connected with your business. Free tax software for 2012 You properly report the value of the use as income to the other person and withhold tax on the income where required. Free tax software for 2012 You are paid a fair market rent. Free tax software for 2012 Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3). Free tax software for 2012 Employee deductions. Free tax software for 2012   If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. Free tax software for 2012 See Can Employees Claim a Deduction , earlier. Free tax software for 2012 Qualified Business Use Qualified business use of listed property is any use of the property in your trade or business. Free tax software for 2012 However, it does not include the following uses. Free tax software for 2012 The leasing of property to any 5% owner or related person (to the extent the property is used by a 5% owner or person related to the owner or lessee of the property). Free tax software for 2012 The use of property as pay for the services of a 5% owner or related person. Free tax software for 2012 The use of property as pay for services of any person (other than a 5% owner or related person), unless the value of the use is included in that person's gross income and income tax is withheld on that amount where required. Free tax software for 2012 Property does not stop being used predominantly for qualified business use because of a transfer at death. Free tax software for 2012 Exception for leasing or compensatory use of aircraft. Free tax software for 2012   Treat the leasing of any aircraft by a 5% owner or related person, or the compensatory use of any aircraft, as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use. Free tax software for 2012 5% owner. Free tax software for 2012   For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business. Free tax software for 2012   For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following. Free tax software for 2012 More than 5% of the outstanding stock of the corporation. Free tax software for 2012 Stock possessing more than 5% of the total combined voting power of all stock in the corporation. Free tax software for 2012 Related persons. Free tax software for 2012   For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 . Free tax software for 2012 For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Free tax software for 2012 Examples. Free tax software for 2012   The following examples illustrate whether the use of business property is qualified business use. Free tax software for 2012 Example 1. Free tax software for 2012 John Maple is the sole proprietor of a plumbing contracting business. Free tax software for 2012 John employs his brother, Richard, in the business. Free tax software for 2012 As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. Free tax software for 2012 The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. Free tax software for 2012 The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use. Free tax software for 2012 Example 2. Free tax software for 2012 John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. Free tax software for 2012 He does not include the value of the personal use of the company automobiles as part of their compensation and he does not withhold tax on the value of the use of the automobiles. Free tax software for 2012 This use of company automobiles by employees is not a qualified business use. Free tax software for 2012 Example 3. Free tax software for 2012 James Company Inc. Free tax software for 2012 owns several automobiles that its employees use for business purposes. Free tax software for 2012 The employees also are allowed to take the automobiles home at night. Free tax software for 2012 The fair market value of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. Free tax software for 2012 This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company. Free tax software for 2012 Investment Use The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. Free tax software for 2012 However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year. Free tax software for 2012 Example 1. Free tax software for 2012 Sarah Bradley uses a home computer 50% of the time to manage her investments. Free tax software for 2012 She also uses the computer 40% of the time in her part-time consumer research business. Free tax software for 2012 Sarah's home computer is listed property because it is not used at a regular business establishment. Free tax software for 2012 She does not use the computer predominantly for qualified business use. Free tax software for 2012 Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. Free tax software for 2012 She must depreciate it using the straight line method over the ADS recovery period. Free tax software for 2012 Her combined business/investment use for determining her depreciation deduction is 90%. Free tax software for 2012 Example 2. Free tax software for 2012 If Sarah uses her computer 30% of the time to manage her investments and 60% of the time in her consumer research business, it is used predominantly for qualified business use. Free tax software for 2012 She can elect a section 179 deduction and, if she does not deduct all the computer's cost, she can claim a special depreciation allowance and depreciate the computer using the 200% declining balance method over the GDS recovery period. Free tax software for 2012 Her combined business/investment use for determining her depreciation deduction is 90%. Free tax software for 2012 Recapture of Excess Depreciation If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. Free tax software for 2012 You also increase the adjusted basis of your property by the same amount. Free tax software for 2012 Excess depreciation is: The depreciation allowable for the property (including any section 179 deduction and special depreciation allowance claimed) for years before the first year you do not use the property predominantly for qualified business use, minus The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service. Free tax software for 2012 To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period. Free tax software for 2012 Example. Free tax software for 2012 In June 2009, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. Free tax software for 2012 She used it only for qualified business use for 2009 through 2012. Free tax software for 2012 Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. Free tax software for 2012 She began depreciating it using the 200% DB method over a 5-year GDS recovery period. Free tax software for 2012 The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply. Free tax software for 2012 During 2013, she used the truck 50% for business and 50% for personal purposes. Free tax software for 2012 She includes $4,018 excess depreciation in her gross income for 2013. Free tax software for 2012 The excess depreciation is determined as follows. Free tax software for 2012 Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2009 through 2012. Free tax software for 2012 (Depreciation is from Table A-1. Free tax software for 2012 ) $16,618 Minus: Depreciation allowable (Table A-8):     2009 – 10% of $18,000 $1,800   2010 – 20% of $18,000 3,600   2011 – 20% of $18,000 3,600   2012 – 20% of $18,000 3,600 12,600 Excess depreciation $4,018 If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2015, there will be no excess depreciation. Free tax software for 2012 The total depreciation allowable using Table A-8 through 2015 will be $18,000, which equals the total of the section 179 deduction and depreciation she will have claimed. Free tax software for 2012 Where to figure and report recapture. Free tax software for 2012   Use Form 4797, Part IV, to figure the recapture amount. Free tax software for 2012 Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. Free tax software for 2012 For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. Free tax software for 2012 If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21. Free tax software for 2012 Lessee's Inclusion Amount If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. Free tax software for 2012 Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). Free tax software for 2012 For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463. Free tax software for 2012 The inclusion amount is the sum of Amount A and Amount B, described next. Free tax software for 2012 However, see the special rules for the inclusion amount, later, if your lease begins in the last 9 months of your tax year or is for less than one year. Free tax software for 2012 Amount A. Free tax software for 2012   Amount A is: The fair market value of the property, multiplied by The business/investment use for the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A-19 in Appendix A . Free tax software for 2012   The fair market value of the property is the value on the first day of the lease term. Free tax software for 2012 If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the fair market value. Free tax software for 2012 Amount B. Free tax software for 2012   Amount B is: The fair market value of the property, multiplied by The average of the business/investment use for all tax years the property was leased that precede the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A–20 in Appendix A . Free tax software for 2012 Maximum inclusion amount. Free tax software for 2012   The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income. Free tax software for 2012 Inclusion amount worksheet. Free tax software for 2012   The following worksheet is provided to help you figure the inclusion amount for leased listed property. Free tax software for 2012 Inclusion Amount Worksheet for Leased Listed Property 1. Free tax software for 2012 Fair market value   2. Free tax software for 2012 Business/investment use for first year business use is 50% or less   3. Free tax software for 2012 Multiply line 1 by line 2. Free tax software for 2012   4. Free tax software for 2012 Rate (%) from Table A-19   5. Free tax software for 2012 Multiply line 3 by line 4. Free tax software for 2012 This is Amount A. Free tax software for 2012   6. Free tax software for 2012 Fair market value   7. Free tax software for 2012 Average business/investment use for years property leased before the first year business use is 50% or less . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012   8. Free tax software for 2012 Multiply line 6 by line 7   9. Free tax software for 2012 Rate (%) from Table A-20   10. Free tax software for 2012 Multiply line 8 by line 9. Free tax software for 2012 This is Amount B. Free tax software for 2012   11. Free tax software for 2012 Add line 5 and line 10. Free tax software for 2012 This is your inclusion amount. Free tax software for 2012 Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. Free tax software for 2012 )         Example. Free tax software for 2012 On February 1, 2011, Larry House, a calendar year taxpayer, leased and placed in service a computer with a fair market value of $3,000. Free tax software for 2012 The lease is for a period of 5 years. Free tax software for 2012 Larry does not use the computer at a regular business establishment, so it is listed property. Free tax software for 2012 His business use of the property (all of which is qualified business use) is 80% in 2011, 60% in 2012, and 40% in 2013. Free tax software for 2012 He must add an inclusion amount to gross income for 2013, the first tax year his qualified business-use percentage is 50% or less. Free tax software for 2012 The computer has a 5-year recovery period under both GDS and ADS. Free tax software for 2012 2013 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19. Free tax software for 2012 8%. Free tax software for 2012 The applicable percentage from Table A-20 is 22. Free tax software for 2012 0%. Free tax software for 2012 Larry's deductible rent for the computer for 2013 is $800. Free tax software for 2012 Larry uses the Inclusion amount worksheet. Free tax software for 2012 to figure the amount he must include in income for 2013. Free tax software for 2012 His inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B). Free tax software for 2012 Inclusion Amount Worksheet for Leased Listed Property 1. Free tax software for 2012 Fair market value $3,000   2. Free tax software for 2012 Business/investment use for first year business use is 50% or less 40 % 3. Free tax software for 2012 Multiply line 1 by line 2. Free tax software for 2012 1,200   4. Free tax software for 2012 Rate (%) from Table A-19 −19. Free tax software for 2012 8 % 5. Free tax software for 2012 Multiply line 3 by line 4. Free tax software for 2012 This is Amount A. Free tax software for 2012 −238   6. Free tax software for 2012 Fair market value 3,000   7. Free tax software for 2012 Average business/investment use for years property leased before the first year business use is 50% or less 70 % 8. Free tax software for 2012 Multiply line 6 by line 7 2,100   9. Free tax software for 2012 Rate (%) from Table A-20 22. Free tax software for 2012 0 % 10. Free tax software for 2012 Multiply line 8 by line 9. Free tax software for 2012 This is Amount B. Free tax software for 2012 462   11. Free tax software for 2012 Add line 5 and line 10. Free tax software for 2012 This is your inclusion amount. Free tax software for 2012 Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. Free tax software for 2012 ) $224           Lease beginning in the last 9 months of your tax year. Free tax software for 2012    The inclusion amount is subject to a special rule if all the following apply. Free tax software for 2012 The lease term begins within 9 months before the close of your tax year. Free tax software for 2012 You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year. Free tax software for 2012 The lease term continues into your next tax year. Free tax software for 2012 Under this special rule, add the inclusion amount to income in the next tax year. Free tax software for 2012 Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. Free tax software for 2012 Skip lines 6 through 9 of the worksheet and enter zero on line 10. Free tax software for 2012 Example 1. Free tax software for 2012 On August 1, 2012, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. Free tax software for 2012 The property is 5-year property with a fair market value of $10,000. Free tax software for 2012 Her property has a recovery period of 5 years under ADS. Free tax software for 2012 The lease is for 5 years. Free tax software for 2012 Her business use of the property was 50% in 2012 and 90% in 2013. Free tax software for 2012 She paid rent of $3,600 for 2012, of which $3,240 is deductible. Free tax software for 2012 She must include $147 in income in 2013. Free tax software for 2012 The $147 is the sum of Amount A and Amount B. Free tax software for 2012 Amount A is $147 ($10,000 × 70% × 2. Free tax software for 2012 1%), the product of the fair market value, the average business use for 2012 and 2013, and the applicable percentage for year one from Table A-19 . Free tax software for 2012 Amount B is zero. Free tax software for 2012 Lease for less than one year. Free tax software for 2012   A special rule for the inclusion amount applies if the lease term is less than one year and you do not use the property predominantly (more than 50%) for qualified business use. Free tax software for 2012 The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. Free tax software for 2012 The numerator of the fraction is the number of days in the lease term and the denominator is 365 (or 366 for leap years). Free tax software for 2012   The lease term for listed property other than residential rental or nonresidential real property includes options to renew. Free tax software for 2012 If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease. Free tax software for 2012 Example 2. Free tax software for 2012 On October 1, 2012, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. Free tax software for 2012 This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. Free tax software for 2012 The lease term was 6 months (ending on March 31, 2013), during which he used the property 45% in business. Free tax software for 2012 He must include $71 in income in 2013. Free tax software for 2012 The $71 is the sum of Amount A and Amount B. Free tax software for 2012 Amount A is $71 ($15,000 × 45% × 2. Free tax software for 2012 1% × 183/365), the product of the fair market value, the average business use for both years, and the applicable percentage for year one from Table A-19 , prorated for the length of the lease. Free tax software for 2012 Amount B is zero. Free tax software for 2012 Where to report inclusion amount. Free tax software for 2012   Report the inclusion amount figured as described in the preceding discussions as other income on the same form or schedule on which you took the deduction for your rental costs. Free tax software for 2012 For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. Free tax software for 2012 If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21. Free tax software for 2012 Do the Passenger Automobile Limits Apply? The depreciation deduction, including the section 179 deduction and special depreciation allowance, you can claim for a passenger automobile (defined earlier) each year is limited. Free tax software for 2012 This section describes the maximum depreciation deduction amounts for 2013 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit. Free tax software for 2012 Exception for leased cars. Free tax software for 2012   The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. Free tax software for 2012 For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property , earlier, under What Is the Business-Use Requirement . Free tax software for 2012 Maximum Depreciation Deduction The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. Free tax software for 2012 They are based on the date you placed the automobile in service. Free tax software for 2012 Passenger Automobiles The maximum deduction amounts for most passenger automobiles are shown in the following table. Free tax software for 2012 Maximum Depreciation Deduction for Passenger Automobiles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,1601 $5,100 $3,050 $1,875 2012 11,1601 5,100 3,050 1,875 2011 11,0602 4,900 2,950 1,775 2010 11,0602  4,900 2,950 1,775 2009 10,9603 4,800 2,850 1,775 2008 10,9603  4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6104 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7105 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6606 4,900 2,950 1,775 1If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. Free tax software for 2012 2If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. Free tax software for 2012 3If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $2,960. Free tax software for 2012 4If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $2,960. Free tax software for 2012 5If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. Free tax software for 2012 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. Free tax software for 2012 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. Free tax software for 2012 If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year. Free tax software for 2012 If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. Free tax software for 2012 The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12. Free tax software for 2012 Example. Free tax software for 2012 On April 15, 2013, Virginia Hart bought and placed in service a new car for $14,500. Free tax software for 2012 She used the car only in her business. Free tax software for 2012 She files her tax return based on the calendar year. Free tax software for 2012 She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Free tax software for 2012 Under MACRS, a car is 5-year property. Free tax software for 2012 Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. Free tax software for 2012 Virginia multiplies the $14,500 unadjusted basis of her car by 0. Free tax software for 2012 20 to get her MACRS depreciation of $2,900 for 2013. Free tax software for 2012 This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2013. Free tax software for 2012 She can deduct the full $2,900. Free tax software for 2012 Electric Vehicles The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. Free tax software for 2012 The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. Free tax software for 2012 Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts later for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts for trucks and vans later, for electric vehicles classified as trucks and vans. Free tax software for 2012 Maximum Depreciation Deduction For Electric Vehicles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2006 $8,980 $14,400 $8,650 $5,225 2005 8,880 14,200 8,450 5,125 2004 31,8301 14,300 8,550 5,125 5/06/2003– 12/31/2003 32,0302 14,600 8,750 5,225 1/01/2003– 5/05/2003 22,8803 14,600 8,750 5,225 1If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880. Free tax software for 2012 2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. Free tax software for 2012 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. Free tax software for 2012 3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. Free tax software for 2012 Trucks and Vans The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. Free tax software for 2012 The maximum deduction amounts for trucks and vans are shown in the following table. Free tax software for 2012 Maximum Depreciation Deduction For Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 11,3601 5,300 3,150 1,875 2011 11,2602 5,200 3,150 1,875 2010 11,1603 5,100 3,050 1,875 2009 11,0604 4,900 2,950 1,775 2008 11,1605 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2006 3,260 5,200 3,150 1,875 2005 3,260 5,200 3,150 1,875 2004 10,9106 5,300 3,150 1,875 5/06/2003– 12/31/2003 11,0107 5,400 3,250 1,975 1/01/2003– 5/05/2003 7,9608 5,400 3,250 1,975 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,360. Free tax software for 2012 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,260. Free tax software for 2012 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. Free tax software for 2012 4 If you elect not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,060. Free tax software for 2012 5If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,160. Free tax software for 2012 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, or the maximum deduction is $3,260. Free tax software for 2012 7 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. Free tax software for 2012 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. Free tax software for 2012 8 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. Free tax software for 2012 Depreciation Worksheet for Passenger Automobiles You can use the following worksheet to figure your depreciation deduction using the percentage tables. Free tax software for 2012 Then use the information from this worksheet to prepare Form 4562. Free tax software for 2012 Depreciation Worksheet for Passenger Automobiles   Part I   1. Free tax software for 2012 MACRS system (GDS or ADS)     2. Free tax software for 2012 Property class     3. Free tax software for 2012 Date placed in service     4. Free tax software for 2012 Recovery period     5. Free tax software for 2012 Method and convention     6. Free tax software for 2012 Depreciation rate (from tables)     7. Free tax software for 2012 Maximum depreciation deduction for this year from the appropriate table       8. Free tax software for 2012 Business/investment-use percentage       9. Free tax software for 2012 Multiply line 7 by line 8. Free tax software for 2012 This is your adjusted maximum depreciation deduction       10. Free tax software for 2012 Section 179 deduction claimed this year (not more than line 9). Free tax software for 2012 Enter -0- if this is not the year you placed the car in service. Free tax software for 2012         Note. Free tax software for 2012  1) If line 10 is equal to line 9, stop here. Free tax software for 2012 Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. Free tax software for 2012  2) If line 10 is less than line 9, complete Part II. Free tax software for 2012   Part II   11. Free tax software for 2012 Subtract line 10 from line 9. Free tax software for 2012 This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance )       12. Free tax software for 2012 Cost or other basis (reduced by any alternative motor vehicle credit 1or credit for electric vehicles 2)       13. Free tax software for 2012 Multiply line 12 by line 8. Free tax software for 2012 This is your business/investment cost       14. Free tax software for 2012 Section 179 deduction claimed in the year you placed the car in service       15. Free tax software for 2012 Subtract line 14 from line 13. Free tax software for 2012 This is your tentative basis for depreciation       16. Free tax software for 2012 Multiply line 15 by . Free tax software for 2012 50 if the 50% special depreciation allowance applies. Free tax software for 2012 This is your special depreciation allowance. Free tax software for 2012 Enter -0- if this is not the year you placed the car in service, the car is not qualified property, or you elected not to claim a special depreciation allowance       Note 1) If line 16 is equal to line 11, stop here. Free tax software for 2012 Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. Free tax software for 2012  2) If line 16 is less than line 11, complete Part III. Free tax software for 2012   Part III   17. Free tax software for 2012 Subtract line 16 from 11. Free tax software for 2012 This is the limit on the amount you can deduct for MACRS depreciation       18. Free tax software for 2012 Subtract line 16 from line 15. Free tax software for 2012 This is your basis for depreciation. Free tax software for 2012       19. Free tax software for 2012 Multiply line 18 by line 6. Free tax software for 2012 This is your tentative MACRS depreciation deduction. Free tax software for 2012       20. Free tax software for 2012 Enter the lesser of line 17 or line 19. Free tax software for 2012 This is your MACRS depreciation deduction. Free tax software for 2012     1 When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. Free tax software for 2012 2 Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount. Free tax software for 2012             Deductions After the Recovery Period If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. Free tax software for 2012 If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. Free tax software for 2012 You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. Free tax software for 2012 The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. Free tax software for 2012 See Maximum Depreciation Deduction , earlier. Free tax software for 2012 Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied. Free tax software for 2012 You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. Free tax software for 2012 There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period. Free tax software for 2012 Example. Free tax software for 2012 In May 2007, you bought and placed in service a car costing $31,500. Free tax software for 2012 The car was 5-year property under GDS (MACRS). Free tax software for 2012 You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Free tax software for 2012 You used the car exclusively for business during the recovery period (2007 through 2012). Free tax software for 2012 You figured your depreciation as shown below. Free tax software for 2012 Year Percentage Amount Limit   Allowed 2007 20. Free tax software for 2012 0% $6,300 $2,960   $2,960 2008 32. Free tax software for 2012 0 10,080 4,800   4,800 2009 19. Free tax software for 2012 2 6,048 2,850   2,850 2010 11. Free tax software for 2012 52 3,629 1,675   1,675 2011 11. Free tax software for 2012 52 3,629 1,675   1,675 2012 5. Free tax software for 2012 76 1,814 1,675   1,675 Total   $15,635 At the end of 2012, you had an unrecovered basis of $15,865 ($31,500 − $15,635). Free tax software for 2012 If in 2013 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,675 or your remaining unrecovered basis. Free tax software for 2012 If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. Free tax software for 2012 However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. Free tax software for 2012 For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,519 ($15,865 × 60%), but you still would have to reduce your basis by $15,865 to determine your unrecovered basis. Free tax software for 2012 Deductions For Passenger Automobiles Acquired in a Trade-in If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. Free tax software for 2012 Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. Free tax software for 2012 This excess basis is the additional cash paid for the new automobile in the trade-in. Free tax software for 2012 The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. Free tax software for 2012 Special rules apply in determining the passenger automobile limits. Free tax software for 2012 These rules and examples are discussed in section 1. Free tax software for 2012 168(i)-6(d)(3) of the regulations. Free tax software for 2012 Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. Free tax software for 2012 For more information, including how to make this election, see Election out under Property Acquired in a Like-kind Exchange or Involuntary Conversion in chapter 4 and sections 1. Free tax software for 2012 168(i)-6(i) and 1. Free tax software for 2012 168(i)-6(j) of the regulations. Free tax software for 2012 What Records Must Be Kept? You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. Free tax software for 2012 For listed property, you must keep records for as long as any recapture can still occur. Free tax software for 2012 Recapture can occur in any tax year of the recovery period. Free tax software for 2012 Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. Free tax software for 2012 You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. Free tax software for 2012 However, your records should back up your receipts in an orderly manner. Free tax software for 2012 Elements of expenditure or use. Free tax software for 2012   Your records or other documentary evidence must support all the following. Free tax software for 2012 The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses. Free tax software for 2012 The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year. Free tax software for 2012 The date of the expenditure or use. Free tax software for 2012 The business or investment purpose for the expenditure or use. Free tax software for 2012   Written documents of your expenditure or use are generally better evidence than oral statements alone. Free tax software for 2012 You do not have to keep a daily log. Free tax software for 2012 However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time of the expenditure or use and backed up by other documents is preferable to a statement you prepare later. Free tax software for 2012 Timeliness. Free tax software for 2012   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. Free tax software for 2012 An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use generally is considered a timely record if, in the regular course of business: The statement is given by an employee to the employer, or The statement is given by an independent contractor to the client or customer. Free tax software for 2012   For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use. Free tax software for 2012 Business purpose supported. Free tax software for 2012   Generally, an adequate record of business purpose must be in the form of a written statement. Free tax software for 2012 However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. Free tax software for 2012 A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. Free tax software for 2012 For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. Free tax software for 2012 Business use supported. Free tax software for 2012   An adequate record contains enough information on each element of every business or investment use. Free tax software for 2012 The amount of detail required to support the use depends on the facts and circumstances. Free tax software for 2012 For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. Free tax software for 2012   Although you generally must prepare an adequate written record, you can prepare a record of the business use of listed property in a computer memory device that uses a logging program. Free tax software for 2012 Separate or combined expenditures or uses. Free tax software for 2012   Each use by you normally is considered a separate use. Free tax software for 2012 However, you can combine repeated uses as a single item. Free tax software for 2012   Record each expenditure as a separate item. Free tax software for 2012 Do not combine it with other expenditures. Free tax software for 2012 If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. Free tax software for 2012 If you combine these expenses, you do not need to support the business purpose of each expense. Free tax software for 2012 Instead, you can divide the expenses based on the total business use of the listed property. Free tax software for 2012   You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. Free tax software for 2012 For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. Free tax software for 2012 You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. Free tax software for 2012 Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. Free tax software for 2012 Confidential information. Free tax software for 2012   If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. Free tax software for 2012 You must keep it elsewhere and make it available as support to the IRS director for your area on request. Free tax software for 2012 Substantial compliance. Free tax software for 2012   If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate. Free tax software for 2012   If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows. Free tax software for 2012 By your own oral or written statement containing detailed information as to the element. Free tax software for 2012 By other evidence sufficient to establish the element. Free tax software for 2012   If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct evidence, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. Free tax software for 2012 If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. Free tax software for 2012 Sampling. Free tax software for 2012   You can maintain an adequate record for part of a tax year and use that record to support your business and investment use of listed property for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of the use throughout the year. Free tax software for 2012 Example 1. Free tax software for 2012 Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. Free tax software for 2012 She uses her automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. Free tax software for 2012 There is no other business use of the automobile, but she and family members also use it for personal purposes. Free tax software for 2012 She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. Free tax software for 2012 Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. Free tax software for 2012 If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. Free tax software for 2012 Example 2. Free tax software for 2012 Assume the same facts as in Example 1, except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business. Free tax software for 2012 Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile's business use throughout the month. Free tax software for 2012 The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. Free tax software for 2012 Example 3. Free tax software for 2012 Bill Baker, a sole proprietor and calendar year taxpayer, is a salesman in a large metropolitan area for a company that manufactures household products. Free tax software for 2012 For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. Free tax software for 2012 During these weeks, his business use of the automobile does not follow a consistent pattern. Free tax software for 2012 During the fourth week of each month, he delivers all business orders taken during the previous month. Free tax software for 2012 The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. Free tax software for 2012 The determination based on the record maintained during the fourth week of the month that his business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because his use during that week is not representative of use during other periods. Free tax software for 2012 Loss of records. Free tax software for 2012   When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. Free tax software for 2012 How Is Listed Property Information Reported? You must provide the information about your listed property requested in Part V of Form 4562, Section A, if you claim either of the following deductions. Free tax software for 2012 Any deduction for a vehicle. Free tax software for 2012 A depreciation deduction for any other listed property. Free tax software for 2012 If you claim any deduction for a vehicle, you also must provide the information requested in Section B. Free tax software for 2012 If you provide the vehicle for your employee's use, the employee must give you this information. Free tax software for 2012 If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle. Free tax software for 2012 Vehicles used by your employees. Free tax software for 2012   You do not have to complete Section B, Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements. Free tax software for 2012 You maintain a written policy statement that prohibits one of the following uses of the vehicles. Free tax software for 2012 All personal use including commuting. Free tax software for 2012 Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners. Free tax software for 2012 You treat all use of the vehicles by your employees as personal use. Free tax software for 2012 You provide more than five vehicles for use by your employees, and you keep in your records the information on their use given to you by the employees. Free tax software for 2012 For demonstrator automobiles provided to full-time salespersons, you maintain a written policy statement that limits the total mileage outside the salesperson's normal working hours and prohibits use of the automobile by anyone else, for vacation trips, or to store personal possessions. Free tax software for 2012 Exceptions. Free tax software for 2012   If you file Form 2106, 2106-EZ, or Schedule C-EZ (Form 1040), and you are not required to file Form 4562, report information about listed property on that form and not on Form 4562. Free tax software for 2012 Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562. Free tax software for 2012 Prev  Up  Next   Home   More Online Publications