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H&r Block State Tax Coupon

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H&r block state tax coupon 5. H&r block state tax coupon   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&r block state tax coupon Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers. H&r block state tax coupon Deductions for listed property (other than certain leased property) are subject to the following special rules and limits. H&r block state tax coupon Deduction for employees. H&r block state tax coupon 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&r block state tax coupon Business-use requirement. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon You may also have to recapture (include in income) any excess depreciation claimed in previous years. H&r block state tax coupon A similar inclusion amount applies to certain leased property. H&r block state tax coupon Passenger automobile limits and rules. H&r block state tax coupon Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. H&r block state tax coupon You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period. H&r block state tax coupon 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&r block state tax coupon It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return. H&r block state tax coupon 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&r block state tax coupon What Is Listed Property? Listed property is any of the following. H&r block state tax coupon Passenger automobiles (as defined later). H&r block state tax coupon Any other property used for transportation, unless it is an excepted vehicle. H&r block state tax coupon Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment). H&r block state tax coupon Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. H&r block state tax coupon 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&r block state tax coupon Improvements to listed property. H&r block state tax coupon   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. H&r block state tax coupon The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon The following vehicles are not considered passenger automobiles for these purposes. H&r block state tax coupon An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business. H&r block state tax coupon A vehicle used directly in the trade or business of transporting persons or property for pay or hire. H&r block state tax coupon A truck or van that is a qualified nonpersonal use vehicle. H&r block state tax coupon Qualified nonpersonal use vehicles. H&r block state tax coupon   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&r block state tax coupon They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation , next. H&r block state tax coupon 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&r block state tax coupon For a detailed discussion of passenger automobiles, including leased passenger automobiles, see  Publication 463. H&r block state tax coupon 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&r block state tax coupon Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods. H&r block state tax coupon Excepted vehicles. H&r block state tax coupon   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ). H&r block state tax coupon Clearly marked police and fire vehicles. H&r block state tax coupon Unmarked vehicles used by law enforcement officers if the use is officially authorized. H&r block state tax coupon Ambulances used as such and hearses used as such. H&r block state tax coupon Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo. H&r block state tax coupon Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks. H&r block state tax coupon Combines, cranes and derricks, and forklifts. H&r block state tax coupon Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat. H&r block state tax coupon Qualified moving vans. H&r block state tax coupon Qualified specialized utility repair trucks. H&r block state tax coupon School buses used in transporting students and employees of schools. H&r block state tax coupon Other buses with a capacity of at least 20 passengers that are used as passenger buses. H&r block state tax coupon Tractors and other special purpose farm vehicles. H&r block state tax coupon Clearly marked police and fire vehicle. H&r block state tax coupon   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements. H&r block state tax coupon It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. H&r block state tax coupon A marking on a license plate is not a clear marking for these purposes. H&r block state tax coupon Qualified moving van. H&r block state tax coupon   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&r block state tax coupon 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&r block state tax coupon Personal use for travel to and from a move site happens no more than five times a month on average. H&r block state tax coupon 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&r block state tax coupon Qualified specialized utility repair truck. H&r block state tax coupon   A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply. H&r block state tax coupon The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. H&r block state tax coupon Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. H&r block state tax coupon The following are neither computers nor related peripheral equipment. H&r block state tax coupon Any equipment that is an integral part of other property that is not a computer. H&r block state tax coupon Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment. H&r block state tax coupon Equipment of a kind used primarily for the user's amusement or entertainment, such as video games. H&r block state tax coupon 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&r block state tax coupon The use of your property in performing services as an employee is a business use only if both the following requirements are met. H&r block state tax coupon The use is for your employer's convenience. H&r block state tax coupon The use is required as a condition of your employment. H&r block state tax coupon 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&r block state tax coupon Employer's convenience. H&r block state tax coupon   Whether the use of listed property is for your employer's convenience must be determined from all the facts. H&r block state tax coupon The use is for your employer's convenience if it is for a substantial business reason of the employer. H&r block state tax coupon 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&r block state tax coupon Condition of employment. H&r block state tax coupon   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. H&r block state tax coupon The use of property must be required for you to perform your duties properly. H&r block state tax coupon Your employer does not have to require explicitly that you use the property. H&r block state tax coupon However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient. H&r block state tax coupon Example 1. H&r block state tax coupon Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. H&r block state tax coupon She owns and uses a motorcycle to deliver packages to downtown offices. H&r block state tax coupon We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. H&r block state tax coupon Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. H&r block state tax coupon Example 2. H&r block state tax coupon Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. H&r block state tax coupon He must travel to these sites on a regular basis. H&r block state tax coupon Uplift does not furnish an automobile or explicitly require him to use his own automobile. H&r block state tax coupon However, it pays him for any costs he incurs in traveling to the various sites. H&r block state tax coupon 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&r block state tax coupon Example 3. H&r block state tax coupon 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&r block state tax coupon The use of his own car is neither for the convenience of Uplift nor required as a condition of employment. H&r block state tax coupon Example 4. H&r block state tax coupon Marilyn Lee is a pilot for Y Company, a small charter airline. H&r block state tax coupon Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. H&r block state tax coupon Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. H&r block state tax coupon Marilyn owns her own airplane. H&r block state tax coupon 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&r block state tax coupon Example 5. H&r block state tax coupon David Rule is employed as an engineer with Zip, an engineering contracting firm. H&r block state tax coupon He occasionally takes work home at night rather than work late in the office. H&r block state tax coupon He owns and uses a home computer which is virtually identical to the office model. H&r block state tax coupon His use of the computer is neither for the convenience of his employer nor required as a condition of employment. H&r block state tax coupon 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&r block state tax coupon To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. H&r block state tax coupon If this requirement is not met, the following rules apply. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon This rule applies each year of the recovery period. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon Exception for leased property. H&r block state tax coupon   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&r block state tax coupon   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&r block state tax coupon 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&r block state tax coupon Occasional or incidental leasing activity is insufficient. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon Entertainment use. H&r block state tax coupon   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&r block state tax coupon Commuting use. H&r block state tax coupon   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. H&r block state tax coupon 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&r block state tax coupon This is also true for a business meeting held in a car while commuting to work. H&r block state tax coupon Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. H&r block state tax coupon 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&r block state tax coupon Use of your automobile by another person. H&r block state tax coupon   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies. H&r block state tax coupon That use is directly connected with your business. H&r block state tax coupon You properly report the value of the use as income to the other person and withhold tax on the income where required. H&r block state tax coupon You are paid a fair market rent. H&r block state tax coupon Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3). H&r block state tax coupon Employee deductions. H&r block state tax coupon   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&r block state tax coupon See Can Employees Claim a Deduction , earlier. H&r block state tax coupon Qualified Business Use Qualified business use of listed property is any use of the property in your trade or business. H&r block state tax coupon However, it does not include the following uses. H&r block state tax coupon 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&r block state tax coupon The use of property as pay for the services of a 5% owner or related person. H&r block state tax coupon 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&r block state tax coupon Property does not stop being used predominantly for qualified business use because of a transfer at death. H&r block state tax coupon Exception for leasing or compensatory use of aircraft. H&r block state tax coupon   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&r block state tax coupon 5% owner. H&r block state tax coupon   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&r block state tax coupon   For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following. H&r block state tax coupon More than 5% of the outstanding stock of the corporation. H&r block state tax coupon Stock possessing more than 5% of the total combined voting power of all stock in the corporation. H&r block state tax coupon Related persons. H&r block state tax coupon   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&r block state tax coupon 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&r block state tax coupon Examples. H&r block state tax coupon   The following examples illustrate whether the use of business property is qualified business use. H&r block state tax coupon Example 1. H&r block state tax coupon John Maple is the sole proprietor of a plumbing contracting business. H&r block state tax coupon John employs his brother, Richard, in the business. H&r block state tax coupon As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. H&r block state tax coupon The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. H&r block state tax coupon 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&r block state tax coupon Example 2. H&r block state tax coupon John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. H&r block state tax coupon 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&r block state tax coupon This use of company automobiles by employees is not a qualified business use. H&r block state tax coupon Example 3. H&r block state tax coupon James Company Inc. H&r block state tax coupon owns several automobiles that its employees use for business purposes. H&r block state tax coupon The employees also are allowed to take the automobiles home at night. H&r block state tax coupon 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&r block state tax coupon This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company. H&r block state tax coupon Investment Use The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. H&r block state tax coupon However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year. H&r block state tax coupon Example 1. H&r block state tax coupon Sarah Bradley uses a home computer 50% of the time to manage her investments. H&r block state tax coupon She also uses the computer 40% of the time in her part-time consumer research business. H&r block state tax coupon Sarah's home computer is listed property because it is not used at a regular business establishment. H&r block state tax coupon She does not use the computer predominantly for qualified business use. H&r block state tax coupon Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. H&r block state tax coupon She must depreciate it using the straight line method over the ADS recovery period. H&r block state tax coupon Her combined business/investment use for determining her depreciation deduction is 90%. H&r block state tax coupon Example 2. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon Her combined business/investment use for determining her depreciation deduction is 90%. H&r block state tax coupon 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&r block state tax coupon You also increase the adjusted basis of your property by the same amount. H&r block state tax coupon 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&r block state tax coupon To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period. H&r block state tax coupon Example. H&r block state tax coupon In June 2009, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. H&r block state tax coupon She used it only for qualified business use for 2009 through 2012. H&r block state tax coupon Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. H&r block state tax coupon She began depreciating it using the 200% DB method over a 5-year GDS recovery period. H&r block state tax coupon 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&r block state tax coupon During 2013, she used the truck 50% for business and 50% for personal purposes. H&r block state tax coupon She includes $4,018 excess depreciation in her gross income for 2013. H&r block state tax coupon The excess depreciation is determined as follows. H&r block state tax coupon Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2009 through 2012. H&r block state tax coupon (Depreciation is from Table A-1. H&r block state tax coupon ) $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&r block state tax coupon 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&r block state tax coupon Where to figure and report recapture. H&r block state tax coupon   Use Form 4797, Part IV, to figure the recapture amount. H&r block state tax coupon Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. H&r block state tax coupon For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. H&r block state tax coupon If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21. H&r block state tax coupon 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&r block state tax coupon Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). H&r block state tax coupon For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463. H&r block state tax coupon The inclusion amount is the sum of Amount A and Amount B, described next. H&r block state tax coupon 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&r block state tax coupon Amount A. H&r block state tax coupon   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&r block state tax coupon   The fair market value of the property is the value on the first day of the lease term. H&r block state tax coupon 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&r block state tax coupon Amount B. H&r block state tax coupon   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&r block state tax coupon Maximum inclusion amount. H&r block state tax coupon   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&r block state tax coupon Inclusion amount worksheet. H&r block state tax coupon   The following worksheet is provided to help you figure the inclusion amount for leased listed property. H&r block state tax coupon Inclusion Amount Worksheet for Leased Listed Property 1. H&r block state tax coupon Fair market value   2. H&r block state tax coupon Business/investment use for first year business use is 50% or less   3. H&r block state tax coupon Multiply line 1 by line 2. H&r block state tax coupon   4. H&r block state tax coupon Rate (%) from Table A-19   5. H&r block state tax coupon Multiply line 3 by line 4. H&r block state tax coupon This is Amount A. H&r block state tax coupon   6. H&r block state tax coupon Fair market value   7. H&r block state tax coupon Average business/investment use for years property leased before the first year business use is 50% or less . H&r block state tax coupon . H&r block state tax coupon . H&r block state tax coupon . H&r block state tax coupon . H&r block state tax coupon . H&r block state tax coupon . H&r block state tax coupon . H&r block state tax coupon . H&r block state tax coupon . H&r block state tax coupon . H&r block state tax coupon . H&r block state tax coupon . H&r block state tax coupon   8. H&r block state tax coupon Multiply line 6 by line 7   9. H&r block state tax coupon Rate (%) from Table A-20   10. H&r block state tax coupon Multiply line 8 by line 9. H&r block state tax coupon This is Amount B. H&r block state tax coupon   11. H&r block state tax coupon Add line 5 and line 10. H&r block state tax coupon This is your inclusion amount. H&r block state tax coupon 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&r block state tax coupon )         Example. H&r block state tax coupon 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&r block state tax coupon The lease is for a period of 5 years. H&r block state tax coupon Larry does not use the computer at a regular business establishment, so it is listed property. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon The computer has a 5-year recovery period under both GDS and ADS. H&r block state tax coupon 2013 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19. H&r block state tax coupon 8%. H&r block state tax coupon The applicable percentage from Table A-20 is 22. H&r block state tax coupon 0%. H&r block state tax coupon Larry's deductible rent for the computer for 2013 is $800. H&r block state tax coupon Larry uses the Inclusion amount worksheet. H&r block state tax coupon to figure the amount he must include in income for 2013. H&r block state tax coupon His inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B). H&r block state tax coupon Inclusion Amount Worksheet for Leased Listed Property 1. H&r block state tax coupon Fair market value $3,000   2. H&r block state tax coupon Business/investment use for first year business use is 50% or less 40 % 3. H&r block state tax coupon Multiply line 1 by line 2. H&r block state tax coupon 1,200   4. H&r block state tax coupon Rate (%) from Table A-19 −19. H&r block state tax coupon 8 % 5. H&r block state tax coupon Multiply line 3 by line 4. H&r block state tax coupon This is Amount A. H&r block state tax coupon −238   6. H&r block state tax coupon Fair market value 3,000   7. H&r block state tax coupon Average business/investment use for years property leased before the first year business use is 50% or less 70 % 8. H&r block state tax coupon Multiply line 6 by line 7 2,100   9. H&r block state tax coupon Rate (%) from Table A-20 22. H&r block state tax coupon 0 % 10. H&r block state tax coupon Multiply line 8 by line 9. H&r block state tax coupon This is Amount B. H&r block state tax coupon 462   11. H&r block state tax coupon Add line 5 and line 10. H&r block state tax coupon This is your inclusion amount. H&r block state tax coupon 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&r block state tax coupon ) $224           Lease beginning in the last 9 months of your tax year. H&r block state tax coupon    The inclusion amount is subject to a special rule if all the following apply. H&r block state tax coupon The lease term begins within 9 months before the close of your tax year. H&r block state tax coupon You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year. H&r block state tax coupon The lease term continues into your next tax year. H&r block state tax coupon Under this special rule, add the inclusion amount to income in the next tax year. H&r block state tax coupon 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&r block state tax coupon Skip lines 6 through 9 of the worksheet and enter zero on line 10. H&r block state tax coupon Example 1. H&r block state tax coupon On August 1, 2012, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. H&r block state tax coupon The property is 5-year property with a fair market value of $10,000. H&r block state tax coupon Her property has a recovery period of 5 years under ADS. H&r block state tax coupon The lease is for 5 years. H&r block state tax coupon Her business use of the property was 50% in 2012 and 90% in 2013. H&r block state tax coupon She paid rent of $3,600 for 2012, of which $3,240 is deductible. H&r block state tax coupon She must include $147 in income in 2013. H&r block state tax coupon The $147 is the sum of Amount A and Amount B. H&r block state tax coupon Amount A is $147 ($10,000 × 70% × 2. H&r block state tax coupon 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&r block state tax coupon Amount B is zero. H&r block state tax coupon Lease for less than one year. H&r block state tax coupon   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&r block state tax coupon The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. H&r block state tax coupon 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&r block state tax coupon   The lease term for listed property other than residential rental or nonresidential real property includes options to renew. H&r block state tax coupon 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&r block state tax coupon Example 2. H&r block state tax coupon 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&r block state tax coupon This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. H&r block state tax coupon The lease term was 6 months (ending on March 31, 2013), during which he used the property 45% in business. H&r block state tax coupon He must include $71 in income in 2013. H&r block state tax coupon The $71 is the sum of Amount A and Amount B. H&r block state tax coupon Amount A is $71 ($15,000 × 45% × 2. H&r block state tax coupon 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&r block state tax coupon Amount B is zero. H&r block state tax coupon Where to report inclusion amount. H&r block state tax coupon   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&r block state tax coupon For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. H&r block state tax coupon If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon Exception for leased cars. H&r block state tax coupon   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&r block state tax coupon 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&r block state tax coupon Maximum Depreciation Deduction The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. H&r block state tax coupon They are based on the date you placed the automobile in service. H&r block state tax coupon Passenger Automobiles The maximum deduction amounts for most passenger automobiles are shown in the following table. H&r block state tax coupon 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&r block state tax coupon 2If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 5If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. H&r block state tax coupon The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12. H&r block state tax coupon Example. H&r block state tax coupon On April 15, 2013, Virginia Hart bought and placed in service a new car for $14,500. H&r block state tax coupon She used the car only in her business. H&r block state tax coupon She files her tax return based on the calendar year. H&r block state tax coupon She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. H&r block state tax coupon Under MACRS, a car is 5-year property. H&r block state tax coupon 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&r block state tax coupon Virginia multiplies the $14,500 unadjusted basis of her car by 0. H&r block state tax coupon 20 to get her MACRS depreciation of $2,900 for 2013. H&r block state tax coupon This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2013. H&r block state tax coupon She can deduct the full $2,900. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon The maximum deduction amounts for trucks and vans are shown in the following table. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 7 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon Depreciation Worksheet for Passenger Automobiles You can use the following worksheet to figure your depreciation deduction using the percentage tables. H&r block state tax coupon Then use the information from this worksheet to prepare Form 4562. H&r block state tax coupon Depreciation Worksheet for Passenger Automobiles   Part I   1. H&r block state tax coupon MACRS system (GDS or ADS)     2. H&r block state tax coupon Property class     3. H&r block state tax coupon Date placed in service     4. H&r block state tax coupon Recovery period     5. H&r block state tax coupon Method and convention     6. H&r block state tax coupon Depreciation rate (from tables)     7. H&r block state tax coupon Maximum depreciation deduction for this year from the appropriate table       8. H&r block state tax coupon Business/investment-use percentage       9. H&r block state tax coupon Multiply line 7 by line 8. H&r block state tax coupon This is your adjusted maximum depreciation deduction       10. H&r block state tax coupon Section 179 deduction claimed this year (not more than line 9). H&r block state tax coupon Enter -0- if this is not the year you placed the car in service. H&r block state tax coupon         Note. H&r block state tax coupon  1) If line 10 is equal to line 9, stop here. H&r block state tax coupon Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. H&r block state tax coupon  2) If line 10 is less than line 9, complete Part II. H&r block state tax coupon   Part II   11. H&r block state tax coupon Subtract line 10 from line 9. H&r block state tax coupon This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance )       12. H&r block state tax coupon Cost or other basis (reduced by any alternative motor vehicle credit 1or credit for electric vehicles 2)       13. H&r block state tax coupon Multiply line 12 by line 8. H&r block state tax coupon This is your business/investment cost       14. H&r block state tax coupon Section 179 deduction claimed in the year you placed the car in service       15. H&r block state tax coupon Subtract line 14 from line 13. H&r block state tax coupon This is your tentative basis for depreciation       16. H&r block state tax coupon Multiply line 15 by . H&r block state tax coupon 50 if the 50% special depreciation allowance applies. H&r block state tax coupon This is your special depreciation allowance. H&r block state tax coupon 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&r block state tax coupon Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. H&r block state tax coupon  2) If line 16 is less than line 11, complete Part III. H&r block state tax coupon   Part III   17. H&r block state tax coupon Subtract line 16 from 11. H&r block state tax coupon This is the limit on the amount you can deduct for MACRS depreciation       18. H&r block state tax coupon Subtract line 16 from line 15. H&r block state tax coupon This is your basis for depreciation. H&r block state tax coupon       19. H&r block state tax coupon Multiply line 18 by line 6. H&r block state tax coupon This is your tentative MACRS depreciation deduction. H&r block state tax coupon       20. H&r block state tax coupon Enter the lesser of line 17 or line 19. H&r block state tax coupon This is your MACRS depreciation deduction. H&r block state tax coupon     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&r block state tax coupon 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&r block state tax coupon             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&r block state tax coupon If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. H&r block state tax coupon You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. H&r block state tax coupon 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&r block state tax coupon See Maximum Depreciation Deduction , earlier. H&r block state tax coupon 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&r block state tax coupon You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. H&r block state tax coupon 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&r block state tax coupon Example. H&r block state tax coupon In May 2007, you bought and placed in service a car costing $31,500. H&r block state tax coupon The car was 5-year property under GDS (MACRS). H&r block state tax coupon You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. H&r block state tax coupon You used the car exclusively for business during the recovery period (2007 through 2012). H&r block state tax coupon You figured your depreciation as shown below. H&r block state tax coupon Year Percentage Amount Limit   Allowed 2007 20. H&r block state tax coupon 0% $6,300 $2,960   $2,960 2008 32. H&r block state tax coupon 0 10,080 4,800   4,800 2009 19. H&r block state tax coupon 2 6,048 2,850   2,850 2010 11. H&r block state tax coupon 52 3,629 1,675   1,675 2011 11. H&r block state tax coupon 52 3,629 1,675   1,675 2012 5. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon This excess basis is the additional cash paid for the new automobile in the trade-in. H&r block state tax coupon The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. H&r block state tax coupon Special rules apply in determining the passenger automobile limits. H&r block state tax coupon These rules and examples are discussed in section 1. H&r block state tax coupon 168(i)-6(d)(3) of the regulations. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon 168(i)-6(i) and 1. H&r block state tax coupon 168(i)-6(j) of the regulations. H&r block state tax coupon 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&r block state tax coupon For listed property, you must keep records for as long as any recapture can still occur. H&r block state tax coupon Recapture can occur in any tax year of the recovery period. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon However, your records should back up your receipts in an orderly manner. H&r block state tax coupon Elements of expenditure or use. H&r block state tax coupon   Your records or other documentary evidence must support all the following. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon The date of the expenditure or use. H&r block state tax coupon The business or investment purpose for the expenditure or use. H&r block state tax coupon   Written documents of your expenditure or use are generally better evidence than oral statements alone. H&r block state tax coupon You do not have to keep a daily log. H&r block state tax coupon 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&r block state tax coupon Timeliness. H&r block state tax coupon   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. H&r block state tax coupon 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&r block state tax coupon   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&r block state tax coupon Business purpose supported. H&r block state tax coupon   Generally, an adequate record of business purpose must be in the form of a written statement. H&r block state tax coupon However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. H&r block state tax coupon A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. H&r block state tax coupon 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&r block state tax coupon Business use supported. H&r block state tax coupon   An adequate record contains enough information on each element of every business or investment use. H&r block state tax coupon The amount of detail required to support the use depends on the facts and circumstances. H&r block state tax coupon 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&r block state tax coupon   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&r block state tax coupon Separate or combined expenditures or uses. H&r block state tax coupon   Each use by you normally is considered a separate use. H&r block state tax coupon However, you can combine repeated uses as a single item. H&r block state tax coupon   Record each expenditure as a separate item. H&r block state tax coupon Do not combine it with other expenditures. H&r block state tax coupon 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&r block state tax coupon If you combine these expenses, you do not need to support the business purpose of each expense. H&r block state tax coupon Instead, you can divide the expenses based on the total business use of the listed property. H&r block state tax coupon   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&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. H&r block state tax coupon Confidential information. H&r block state tax coupon   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&r block state tax coupon You must keep it elsewhere and make it available as support to the IRS director for your area on request. H&r block state tax coupon Substantial compliance. H&r block state tax coupon   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&r block state tax coupon   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&r block state tax coupon By your own oral or written statement containing detailed information as to the element. H&r block state tax coupon By other evidence sufficient to establish the element. H&r block state tax coupon   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&r block state tax coupon If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. H&r block state tax coupon Sampling. H&r block state tax coupon   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&r block state tax coupon Example 1. H&r block state tax coupon Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. H&r block state tax coupon 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&r block state tax coupon There is no other business use of the automobile, but she and family members also use it for personal purposes. H&r block state tax coupon She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. H&r block state tax coupon Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. H&r block state tax coupon 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&r block state tax coupon Example 2. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. H&r block state tax coupon Example 3. H&r block state tax coupon 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&r block state tax coupon For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. H&r block state tax coupon During these weeks, his business use of the automobile does not follow a consistent pattern. H&r block state tax coupon During the fourth week of each month, he delivers all business orders taken during the previous month. H&r block state tax coupon The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. H&r block state tax coupon 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&r block state tax coupon Loss of records. H&r block state tax coupon   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&r block state tax coupon 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&r block state tax coupon Any deduction for a vehicle. H&r block state tax coupon A depreciation deduction for any other listed property. H&r block state tax coupon If you claim any deduction for a vehicle, you also must provide the information requested in Section B. H&r block state tax coupon If you provide the vehicle for your employee's use, the employee must give you this information. H&r block state tax coupon 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&r block state tax coupon Vehicles used by your employees. H&r block state tax coupon   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&r block state tax coupon You maintain a written policy statement that prohibits one of the following uses of the vehicles. H&r block state tax coupon All personal use including commuting. H&r block state tax coupon Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners. H&r block state tax coupon You treat all use of the vehicles by your employees as personal use. H&r block state tax coupon 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&r block state tax coupon 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&r block state tax coupon Exceptions. H&r block state tax coupon   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&r block state tax coupon 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&r block state tax coupon Prev  Up  Next   Home   More Online Publications
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CP 297A - Notice of Levy and Notice of Your Right to a Hearing

Details About This Notice:
Sample Content: Page 1, Page 2
Purpose:   We send CP 297A to notify the recipient of our levy and of  their right to a hearing.
Reason for Issuance:   There is a balance due on the recipient's account we've previously asked them to pay. We're sending the notice to inform them the account is still unpaid and to notify them of our levy and of their right to receive appeals consideration.
Account Balance:   Balance Due
Possible Enclosures:  

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Page Last Reviewed or Updated: 31-Mar-2014

The H&r Block State Tax Coupon

H&r block state tax coupon 6. H&r block state tax coupon   How To Figure Cost of Goods Sold Table of Contents Introduction Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42Line 35 Inventory at Beginning of Year Line 36 Purchases Less Cost of Items Withdrawn for Personal Use Line 37 Cost of Labor Line 38 Materials and Supplies Line 39 Other Costs Line 40 Add Lines 35 through 39 Line 41 Inventory at End of Year Line 42 Cost of Goods Sold Introduction If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. H&r block state tax coupon However, to determine these costs, you must value your inventory at the beginning and end of each tax year. H&r block state tax coupon This chapter applies to you if you are a manufacturer, wholesaler, or retailer or if you are engaged in any business that makes, buys, or sells goods to produce income. H&r block state tax coupon This chapter does not apply to a personal service business, such as the business of a doctor, lawyer, carpenter, or painter. H&r block state tax coupon However, if you work in a personal service business and also sell or charge for the materials and supplies normally used in your business, this chapter applies to you. H&r block state tax coupon If you must account for an inventory in your business, you must generally use an accrual method of accounting for your purchases and sales. H&r block state tax coupon For more information, see chapter 2. H&r block state tax coupon Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42 Figure your cost of goods sold by filling out lines 35 through 42 of Schedule C. H&r block state tax coupon These lines are reproduced below and are explained in the discussion that follows. H&r block state tax coupon 35 Inventory at beginning of year. H&r block state tax coupon If different from last year's closing inventory, attach explanation   36 Purchases less cost of items withdrawn for personal use   37 Cost of labor. H&r block state tax coupon Do not include any amounts paid to yourself   38 Materials and supplies   39 Other costs   40 Add lines 35 through 39   41 Inventory at end of year   42 Cost of goods sold. H&r block state tax coupon Subtract line 41 from line 40. H&r block state tax coupon  Enter the result here and on line 4   Line 35 Inventory at Beginning of Year If you are a merchant, beginning inventory is the cost of merchandise on hand at the beginning of the year that you will sell to customers. H&r block state tax coupon If you are a manufacturer or producer, it includes the total cost of raw materials, work in process, finished goods, and materials and supplies used in manufacturing the goods (see Inventories in chapter 2). H&r block state tax coupon Opening inventory usually will be identical to the closing inventory of the year before. H&r block state tax coupon You must explain any difference in a schedule attached to your return. H&r block state tax coupon Donation of inventory. H&r block state tax coupon   If you contribute inventory (property that you sell in the course of your business), the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis. H&r block state tax coupon The basis of donated inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. H&r block state tax coupon You must remove the amount of your contribution deduction from your opening inventory. H&r block state tax coupon It is not part of the cost of goods sold. H&r block state tax coupon   If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you cannot claim a charitable contribution deduction. H&r block state tax coupon Treat the inventory's cost as you would ordinarily treat it under your method of accounting. H&r block state tax coupon For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year. H&r block state tax coupon   A special rule may apply to certain donations of food inventory. H&r block state tax coupon See Publication 526, Charitable Contributions. H&r block state tax coupon Example 1. H&r block state tax coupon You are a calendar year taxpayer who uses an accrual method of accounting. H&r block state tax coupon In 2013, you contributed property from inventory to a church. H&r block state tax coupon It had a fair market value of $600. H&r block state tax coupon The closing inventory at the end of 2012 properly included $400 of costs due to the acquisition of the property, and in 2012, you properly deducted $50 of administrative and other expenses attributable to the property as business expenses. H&r block state tax coupon The charitable contribution allowed for 2013 is $400 ($600 − $200). H&r block state tax coupon The $200 is the amount that would be ordinary income if you had sold the contributed inventory at fair market value on the date of the gift. H&r block state tax coupon The cost of goods sold you use in determining gross income for 2013 must not include the $400. H&r block state tax coupon You remove that amount from opening inventory for 2013. H&r block state tax coupon Example 2. H&r block state tax coupon If, in Example 1, you acquired the contributed property in 2013 at a cost of $400, you would include the $400 cost of the property in figuring the cost of goods sold for 2013 and deduct the $50 of administrative and other expenses attributable to the property for that year. H&r block state tax coupon You would not be allowed any charitable contribution deduction for the contributed property. H&r block state tax coupon Line 36 Purchases Less Cost of Items Withdrawn for Personal Use If you are a merchant, use the cost of all merchandise you bought for sale. H&r block state tax coupon If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into a finished product. H&r block state tax coupon Trade discounts. H&r block state tax coupon   The differences between the stated prices of articles and the actual prices you pay for them are called trade discounts. H&r block state tax coupon You must use the prices you pay (not the stated prices) in figuring your cost of purchases. H&r block state tax coupon Do not show the discount amount separately as an item in gross income. H&r block state tax coupon   An automobile dealer must record the cost of a car in inventory reduced by any manufacturer's rebate that represents a trade discount. H&r block state tax coupon Cash discounts. H&r block state tax coupon   Cash discounts are amounts your suppliers let you deduct from your purchase invoices for prompt payments. H&r block state tax coupon There are two methods of accounting for cash discounts. H&r block state tax coupon You can either credit them to a separate discount account or deduct them from total purchases for the year. H&r block state tax coupon Whichever method you use, you must be consistent. H&r block state tax coupon If you want to change your method of figuring inventory cost, you must file Form 3115, Application for Change in Accounting Method. H&r block state tax coupon For more information, see Change in Accounting Method in chapter 2. H&r block state tax coupon   If you credit cash discounts to a separate account, you must include this credit balance in your business income at the end of the tax year. H&r block state tax coupon If you use this method, do not reduce your cost of goods sold by the cash discounts. H&r block state tax coupon Purchase returns and allowances. H&r block state tax coupon   You must deduct all returns and allowances from your total purchases during the year. H&r block state tax coupon Merchandise withdrawn from sale. H&r block state tax coupon   If you withdraw merchandise for your personal or family use, you must exclude this cost from the total amount of merchandise you bought for sale. H&r block state tax coupon Do this by crediting the purchases or sales account with the cost of merchandise you withdraw for personal use. H&r block state tax coupon You must also charge the amount to your drawing account. H&r block state tax coupon   A drawing account is a separate account you should keep to record the business income you withdraw to pay for personal and family expenses. H&r block state tax coupon As stated above, you also use it to record withdrawals of merchandise for personal or family use. H&r block state tax coupon This account is also known as a “withdrawals account” or “personal account. H&r block state tax coupon ” Line 37 Cost of Labor Labor costs are usually an element of cost of goods sold only in a manufacturing or mining business. H&r block state tax coupon Small merchandisers (wholesalers, retailers, etc. H&r block state tax coupon ) usually do not have labor costs that can properly be charged to cost of goods sold. H&r block state tax coupon In a manufacturing business, labor costs properly allocable to the cost of goods sold include both the direct and indirect labor used in fabricating the raw material into a finished, saleable product. H&r block state tax coupon Direct labor. H&r block state tax coupon   Direct labor costs are the wages you pay to those employees who spend all their time working directly on the product being manufactured. H&r block state tax coupon They also include a part of the wages you pay to employees who work directly on the product part time if you can determine that part of their wages. H&r block state tax coupon Indirect labor. H&r block state tax coupon   Indirect labor costs are the wages you pay to employees who perform a general factory function that does not have any immediate or direct connection with making the saleable product, but that is a necessary part of the manufacturing process. H&r block state tax coupon Other labor. H&r block state tax coupon   Other labor costs not properly chargeable to the cost of goods sold can be deducted as selling or administrative expenses. H&r block state tax coupon Generally, the only kinds of labor costs properly chargeable to your cost of goods sold are the direct or indirect labor costs and certain other costs treated as overhead expenses properly charged to the manufacturing process, as discussed later under Line 39 Other Costs. H&r block state tax coupon Line 38 Materials and Supplies Materials and supplies, such as hardware and chemicals, used in manufacturing goods are charged to cost of goods sold. H&r block state tax coupon Those that are not used in the manufacturing process are treated as deferred charges. H&r block state tax coupon You deduct them as a business expense when you use them. H&r block state tax coupon Business expenses are discussed in chapter 8. H&r block state tax coupon Line 39 Other Costs Examples of other costs incurred in a manufacturing or mining process that you charge to your cost of goods sold are as follows. H&r block state tax coupon Containers. H&r block state tax coupon   Containers and packages that are an integral part of the product manufactured are a part of your cost of goods sold. H&r block state tax coupon If they are not an integral part of the manufactured product, their costs are shipping or selling expenses. H&r block state tax coupon Freight-in. H&r block state tax coupon   Freight-in, express-in, and cartage-in on raw materials, supplies you use in production, and merchandise you purchase for sale are all part of cost of goods sold. H&r block state tax coupon Overhead expenses. H&r block state tax coupon   Overhead expenses include expenses such as rent, heat, light, power, insurance, depreciation, taxes, maintenance, labor, and supervision. H&r block state tax coupon The overhead expenses you have as direct and necessary expenses of the manufacturing operation are included in your cost of goods sold. H&r block state tax coupon Line 40 Add Lines 35 through 39 The total of lines 35 through 39 equals the cost of the goods available for sale during the year. H&r block state tax coupon Line 41 Inventory at End of Year Subtract the value of your closing inventory (including, as appropriate, the allocable parts of the cost of raw materials and supplies, direct labor, and overhead expenses) from line 40. H&r block state tax coupon Inventory at the end of the year is also known as closing or ending inventory. H&r block state tax coupon Your ending inventory will usually become the beginning inventory of your next tax year. H&r block state tax coupon Line 42 Cost of Goods Sold When you subtract your closing inventory (inventory at the end of the year) from the cost of goods available for sale, the remainder is your cost of goods sold during the tax year. H&r block state tax coupon Prev  Up  Next   Home   More Online Publications