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

LB&I Directives provide administrative guidance to LB&I examiners to ensure consistent tax administration and on matters relating to internal operations. The Directives do not establish Service position on legal issues and are not legal guidance.

LB&I (formerly LMSB) Directives

 
2014
02-28-14 Large Business and International Directive on Information Document Requests Enforcement Process
01-27-14 Updated Guidance on the Examination of Milestone Payments in the Acquisition of Businesses
01-21-14 De-coordination of All LB&I Coordinated Issue Papers
2013  
11-04-13 Large Business and International Directive on Information Document Requests Enforcement Process
10-29-13 Updated Guidance for Examiners on I.R.C. § 199 Benefits and Burdens of Ownership Analysis in Contract Manufacturing Arrangements
07-24-13 Guidance for Examiners on I.R.C. § 199 Benefits and Burdens of Ownership Analysis in Contract Manufacturing Arrangements
06-18-13 Large Business & International on Information Document Requests (IDRs)
06-10-13 Large Business & International Directive for Taxpayers Changing to the Method of Accounting Provided in Rev. Proc. 2013-24 for Steam or Electric Generation Property
05-02-13 Extension of Transition Rules for Taxpayers Adopting the Safe Harbor Method of Accounting for Electric Transmission and Distribution Property - LB&I Directive #2
04-29-13 Examination of Milestone Payments in the Acquisition of Businesses
03-22-13 UPDATED LB&I DIRECTIVE for Taxpayers Who Adopted a Method of Accounting Relating to the Conversion of Capitalized Assets to Repair Expense under I.R.C. Section 263(a)
2012  
12-07-12 Railroad Industry Capitalization Issues Impacted by the March 15, 2012, Stand Down Directive (LB&I-4-0312-004) Released after the Temporary Tangible Regulations were Issued December 23, 2011
12-07-12 Guidance for Computing and Substantiating the Credit for Increasing Research Activities under Section 41 of the Internal Revenue Code for Activities involved in Developing New Pharmaceutical Drugs and Therapeutic Biologics
08-17-12 Tiered Issues
07-30-12 I.R.C. §166: LB&I Directive Related to Partial Worthlessness Deduction for Eligible Securities Reported by Insurance Companies
03-15-12 LB&I Directive for TPs who adopted a Method of Accounting Relating to the Conversion of Capitalized Assets to Repair Expense under I.R.C. § 263(a)
01-23-12 Large Business and International Directive Wireless Telecommunication Assets
01-23-12 Large Business & International Directive Telecommunication Carriers Change in Method of Accounting Relating to Conversion of Capitalized Assets to Repair Expense Under I.R.C. Section 263(a)
2011  
11-25-11 Large Business & International Directive Transition Rules for Taxpayers Adopting the Safe Harbor Method of Accounting for Electric Transmission and Distribution Property
11-09-11 Consent of Director Provisions for a Voluntary Change in Method of Accounting under Rev. Proc. 2011-14, APPENDIX Section 15.11
11-01-11 UTP Guidance and Procedures for the Field
08-31-11 UTP Guidance and Procedures for the Compliance Assurance Process (CAP) Program
07-28-11 Examination of Success-Based Fees in the Acquisition of Businesses
 
07-15-11 Guidance for Examiners and Managers on the Codified Economic Substance Doctrine and Related Penalties
05-11-11 Centralized Management of LB&I Returns with UTP Schedules
04-14-11

I.R.C. §475: Field Directive related to Mark-to-Market Valuation
Frequently Asked Questions for I.R.C. § 475

03-30-11 Industry Director’s Directive # 2—Employment Tax and the Employees on the U.S. Outer Continental Shelf
03-28-11 LB&I Alert - Cases Forwarded to Appeals That Involve a Section 965 Transfer Pricing Adjustment Under Section 482
03-01-11 Field Guidance on the Planning & Examination of Sales-Based Royalty Payments and Sales-Based Vendor Allowances
02-04-11 Industry Directive to Withdraw Prior IDD on FSC IRC § 921-927 Bundle of Rights in Software Issue
2010  
09-24-10 Field Directive on Treatment of Sales-Based Vendor Allowances (“SBVA”) and Margin Protection Payments (“MPP”) under § 471
09-14-10 Codification of Economic Substance Doctrine and Related Penalties

07-26-10

Directive on Examination Action With Respect to Certain Gain Recognition Agreements

05-20-10 Examination of Dividends Received Deduction on Separate Accounts of Life Insurance Companies

05-13-10

Use of Delegation Order (DO) 4-25 on Appeals Settlement Position (ASP) for the I.R.C. § 41 Research Credit – Intra-Group Receipts from Foreign Affiliates (IRM 4.46.5.6)
2009  
11-03-09 Field Directive on the Use of Estimates from Probability Samples
10-28-09 Industry Director Directive #1 on United States Outer Continental Shelf Activity

2006

 
07-31-06 Industry Director Directive on Deductibility of Casino Complimentary Goods and Services
07-11-06 Industry Director Directive on Asset Class and Depreciation for Casino Construction Costs
04-11-06 Industry Director Directive on Qualified Intermediary Audit Reports for Audit Years after 2004
03-16-06 Industry Director Directive on Treatment of Semiconductor Assembly and Test Activities as Manufacturing
01-13-06 Industry Director Directive on Examination of IRC § 847
01-12-06 Industry Director Directive on Examination of Multiple Parties in Intermediary Transaction Tax Shelters as described in Notice 2001-16

2005

 
11-28-05 Industry Director Directive on the Planning and Examination of Cost Segregation Issues in the Biotech/Pharmaceutical Industry
08-26-05 Industry Director Directive Amended Returns/Refund Claims Containing Invalid IRC § 280(C)(3) Elections
05-20-05 Industry Director Directive Examination of Transaction Costs in the Acquisition of Businesses
03-14-05 Industry Director Directive in Response to Electric Utility Taxpayers' Attempts to Reclassify Utility Property for MACRS Depreciation Purposes
03-04-05 Field Guidance on the Planning and Examination of the Cyclical Overhauls, Betterments, and Rebuilds of Locomotives for Class I Railroads
03-04-05 Field Guidance on the Planning and Examination of the Cyclical Overhauls, Betterments, and Rebuilds of Freight Cars for Class I Railroads
01-05-05 Industry Director Directive on Disposition of Income Forecast Method Issues

2004

 
12-27-04 Planning and Examination of Cost Segregation Issues in the Restaurant Industry
12-16-04 Planning and Examination of Cost Segregation Issues in the Retail Industry
10-12-04 IRC Sec. 907 Evaluating Taxpayer Methods of Determining Foreign Oil and Gas Extraction Income (FOGEI) and Foreign Oil Related Income (FORI)
07-31-04 Cost Depletion - Determination of Recoverable Reserves
04-30-04 Planning and Examination of Research Credit Issues in a Branded Pharmaceutical Company
 
 
 
 
04-16-04 Timber Casualty Losses
 

° Exhibit A - Timber Casualty Loss Audit Techniques Guide

 

° Exhibit B - Issue Paper on Timber Casualty Losses - Valuation of a Single Identifiable Property

02-02-04 IRC § 29 Credits Claimed on Solid Synthetic Fuel from Coal - Significant Chemical Change Issue

2003

 

11-14-03

Foreign Sales Corporations (FSC) IRC § 921-927 Bundle of Rights in Software Issue

10-24-03

Examination Procedures for Sports Franchise Acquisitions

10-24-03

Examination of Sports Franchise Acquisitions

10-17-03

Examination of Legally Mandated Research and Experimentation Expenses in the Biotech and Pharmaceutical Industries

06-02-03

Qualified Intermediary Audit Reports for Audit Years Before 2005

03-24-03

Planning and Examination of Construction "Tenant" Allowances for Leases Greater Than 15 Years

03-14-03

Assertion of the Penalty for Failure to Deposit Employment Taxes

03-07-03

Asset Class and Depreciation for Casino Construction Costs

03-07-03

Audit Procedures to Determine Recovery Period of Various Components of a Casino/Hotel Complex

01-21-03

Planning and Examination of Research Credit - Generic Drugs

2002

 

10-16-02

Planning and Examination of Developer Inducements

04-26-02

Guidelines for Intangibles Under IRC § 263(a)

04-08-02

MACRS Asset Categories for Refinery Assets

02-26-02

Guidelines for the Application of Advance Notice of Rulemaking for Intangibles Under IRC § 263(a)

02-25-02

Audit Procedures for Golf Course Land Improvements - Change in Accounting Method

02-07-02

Depreciable Golf Course Land Improvements and the Impact of Rev. Rul. 2001-60

2001

 

12-12-01

Conformity Election for Bank Bad Debts

06-08-01

Field Guidance on the Planning and Examination of the Heavy Maintenance Visit (HMV) on Airframes
Page Last Reviewed or Updated: 28-Feb-2014

The H And R Free

H and r free Publication 970 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionComparison table. H and r free Ordering forms and publications. H and r free Tax questions. H and r free Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 970, such as legislation enacted after it was published, go to www. H and r free irs. H and r free gov/pub970. H and r free What's New Lifetime learning credit. H and r free  For 2013, the amount of your lifetime learning credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). H and r free You cannot claim a credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). H and r free This is an increase from the 2012 limits of $52,000 and $62,000 ($104,000 and $124,000 if filing a joint return). H and r free For more information, see chapter 3, Lifetime Learning Credit . H and r free Business deduction for work-related education. H and r free  For 2013, if you drive your car to and from school and qualify to deduct transportation expenses, the amount you can deduct for miles driven from January 1, 2013 through December 31, 2013 is 56. H and r free 5 cents per mile. H and r free See chapter 12, Business Deduction for Work-Related Education , for more information. H and r free Reminders Form 1098-T, Tuition Statement. H and r free  When figuring an education credit or the tuition and fees deduction, use only the amounts you paid and are deemed to have paid during the tax year for qualified education expenses. H and r free In most cases, the student should receive Form 1098-T from the eligible educational institution by January 31, 2014. H and r free An institution my choose to report either payments received during calendar year 2013 (box 1), or amounts billed during the calendar year 2013 (box 2), for qualified education expenses. H and r free However, the amounts in boxes 1 and 2 of Form 1098-T might be different than the amount you actually paid and are deemed to have paid. H and r free In addition, the Form 1098-T should give you other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements, or refunds, and whether the student was enrolled at least half-time or was a graduate student. H and r free The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer identification number. H and r free Hope Scholarship Credit. H and r free  For 2013, the Hope Scholarship Credit is not available. H and r free However, you may be able to claim an American opportunity or lifetime learning credit. H and r free See chapter 2, American Opportunity Credit , and chapter 3, Lifetime Learning Credit , for more information. H and r free Estimated tax payments. H and r free  If you have taxable income from any of your education benefits and the payer does not withhold enough income tax, you may need to make estimated tax payments. H and r free For more information, see Publication 505, Tax Withholding and Estimated Tax. H and r free Photographs of missing children. H and r free  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. H and r free Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. H and r free You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. H and r free Introduction This publication explains tax benefits that may be available to you if you are saving for or paying education costs for yourself or, in many cases, another student who is a member of your immediate family. H and r free Most benefits apply only to higher education. H and r free What is in this publication. H and r free    Chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions , explains the tax treatment of various types of educational assistance, including scholarships, fellowships, and tuition reductions. H and r free   Two tax credits for which you may be eligible are explained in chapter 2, American Opportunity Credit , and chapter 3, Lifetime Learning Credit . H and r free These benefits, which reduce the amount of income tax you may have to pay, are: The American opportunity credit, and The lifetime learning credit. H and r free    Ten other types of benefits are explained in chapters 4 through 12. H and r free These benefits, which reduce the amount of income tax you may have to pay, are: Deduct student loan interest; Receive tax-free treatment of a canceled student loan; Receive tax-free student loan repayment assistance; Deduct tuition and fees for education; Establish and contribute to a Coverdell education savings account (ESA), which features tax-free earnings; Participate in a qualified tuition program (QTP), which features tax-free earnings; Take early distributions from any type of individual retirement arrangement (IRA) for education costs without paying the 10% additional tax on early distributions; Cash in savings bonds for education costs without having to pay tax on the interest; Receive tax-free educational benefits from your employer; and Take a business deduction for work-related education. H and r free Note. H and r free You generally cannot claim more than one of the benefits described in the list above for the same qualifying education expense. H and r free Comparison table. H and r free   Some of the features of these benefits are highlighted in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 , later, in this publication. H and r free This general comparison table may guide you in determining which benefits you may be eligible for and which chapters you may want to read. H and r free When you figure your taxes, you may want to compare these tax benefits so you can choose the method(s) that gives you the lowest tax liability. H and r free If you qualify, you may find that a combination of credit(s) and deduction(s) gives you the lowest tax. H and r free Analyzing your tax withholding. H and r free   After you estimate your education tax benefits for the year, you may be able to reduce the amount of your federal income tax withholding. H and r free Also, you may want to recheck your withholding during the year if your personal or financial situation changes. H and r free See Publication 919, How Do I Adjust My Tax Withholding, for more information. H and r free Glossary. H and r free   In this publication, wherever appropriate, we have tried to use the same or similar terminology when referring to the basic components of each education benefit. H and r free Some of the terms used are: Qualified education expenses, Eligible educational institution, and Modified adjusted gross income. H and r free   Even though the same term, such as qualified education expenses, is used to label a basic component of many of the education benefits, the same expenses are not necessarily allowed for each benefit. H and r free For example, the cost of room and board is a qualified education expense for the qualified tuition program, but not for the education savings bond program. H and r free   Many of the terms used in the publication are defined in the glossary near the end of the publication. H and r free The glossary is not intended to be a substitute for reading the chapter on a particular education benefit, but it will give you an overview of how certain terms are used in discussing the different benefits. H and r free Comments and suggestions. H and r free   We welcome your comments about this publication and your suggestions for future editions. H and r free   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. H and r free NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. H and r free Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. H and r free   You can send your comments from www. H and r free irs. H and r free gov/formspubs/. H and r free Click on “More Information” and then on “Comment on Tax Forms and Publications”. H and r free   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. H and r free Ordering forms and publications. H and r free   Visit www. H and r free irs. H and r free gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. H and r free Internal Revenue Service 1201 N. H and r free Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. H and r free   If you have a tax question, check the information available on IRS. H and r free gov or call 1-800-829-1040. H and r free We cannot answer tax questions sent to either of the above addresses. H and r free Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 1040 U. H and r free S. H and r free Individual Income Tax Return 1040A U. H and r free S. H and r free Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1040NR U. H and r free S. H and r free Nonresident Alien Income Tax Return 1040NR-EZ U. H and r free S. H and r free Income Tax Return for Certain Nonresident Aliens With No Dependents 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 5329 Additional Taxes on Qualified Plans and Other Tax-Favored Accounts 8815 Exclusion of Interest From Series EE and I U. H and r free S. H and r free Savings Bonds Issued After 1989 8863 Education Credits 8917 Tuition and Fees Deduction Schedule A (Form 1040) Itemized Deductions  See chapter 13, How To Get Tax Help , for information about getting these publications and forms. H and r free Prev  Up  Next   Home   More Online Publications