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H&r Free Tax

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H&r Free Tax

H&r free tax Index Symbols 529 program (see Qualified tuition program (QTP)) A Academic period American opportunity credit, Academic period. H&r free tax Lifetime learning credit, Academic period. H&r free tax Student loan interest deduction, Academic period. H&r free tax Tuition and fees deduction, Academic period. H&r free tax Accountable plans, Accountable Plans, Allocating your reimbursements for meals. H&r free tax Additional tax Coverdell ESA On excess contributions, Additional Tax on Excess Contributions, Figuring and reporting the additional tax. H&r free tax On taxable distributions, Additional Tax on Taxable Distributions IRA distributions, education exception, Education Exception to Additional Tax on Early IRA Distributions Qualified tuition program (QTP), on taxable distributions, Additional Tax on Taxable Distributions Adjusted qualified education expenses (see Qualified education expenses) American opportunity credit Adjustments to qualified education expenses, Adjustments to Qualified Education Expenses Claiming dependent's expenses, Who Can Claim a Dependent's Expenses, Tuition reduction. H&r free tax Tuition reduction, Tuition reduction. H&r free tax Claiming the credit, Can You Claim the Credit, Who Cannot Claim the Credit, Claiming the Credit Qualifying to claim (Figure 2-1), Coordination with Coverdell ESA distributions, Figuring the Taxable Portion of a Distribution Coordination with qualified tuition program (QTP) distributions, Coordination With American Opportunity and Lifetime Learning Credits Eligible educational institution, Eligible educational institution. H&r free tax Eligible student, Who Is an Eligible Student Requirements (Figure 2-2), Expenses qualifying for, What Expenses Qualify, Adjustments to Qualified Education Expenses Figuring the credit, Figuring the Credit Income level, effect on amount of credit, Effect of the Amount of Your Income on the Amount of Your Credit, Phaseout. H&r free tax Income limits, Effect of the Amount of Your Income on the Amount of Your Credit, Phaseout. H&r free tax Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). H&r free tax Worksheet 2-1, Claiming the Credit Overview of American opportunity credit (Table 2-1), Introduction Phaseout, Phaseout. H&r free tax Qualified education expenses, Qualified Education Expenses Tax benefit of, What is the tax benefit of the American opportunity credit. H&r free tax Armed Forces Health Professions Scholarship and Financial Assistance Program, Exceptions. H&r free tax Assistance (see Tax help) Athletic scholarships, Athletic Scholarships B Bar review course, Bar or CPA Review Course Bonds, education savings (see Education savings bond program) Business deduction for work-related education, Business Deduction for Work-Related Education, Illustrated Example Accountable plans, Accountable Plans, Allocating your reimbursements for meals. H&r free tax Adjustments to qualifying work-related education expenses, Adjustments to Qualifying Work-Related Education Expenses Allocating meal reimbursements, Allocating your reimbursements for meals. H&r free tax Deductible education expenses, What Expenses Can Be Deducted, Adjustments to Qualifying Work-Related Education Expenses Deducting business expenses, Deducting Business Expenses, Impairment-Related Work Expenses Double benefit not allowed, No Double Benefit Allowed Education required by employer or by law, Education Required by Employer or by Law Education to maintain or improve skills, Education To Maintain or Improve Skills Education to meet minimum requirements, Education To Meet Minimum Requirements, Certification in a new state. H&r free tax Education to qualify for new trade or business, Education That Qualifies You for a New Trade or Business, Teaching and Related Duties Excess expenses, accountable plan, Excess expenses. H&r free tax , Allocating your reimbursements for meals. H&r free tax Indefinite absence, Education during indefinite absence. H&r free tax Maintaining skills vs. H&r free tax qualifying for new job, Maintaining skills vs. H&r free tax qualifying for new job. H&r free tax Nonaccountable plans, Nonaccountable Plans Nondeductible expenses, Nondeductible expenses. H&r free tax Qualified education expenses, What Expenses Can Be Deducted, Adjustments to Qualifying Work-Related Education Expenses Recordkeeping requirements, Recordkeeping, Examples of records to keep. H&r free tax Reimbursements, treatment of, How To Treat Reimbursements, Reimbursements for nondeductible expenses. H&r free tax Tax benefit of, What is the tax benefit of taking a business deduction for work-related education. H&r free tax Tax-free educational assistance, Tax-free educational assistance. H&r free tax Teachers, Requirements for Teachers, Teaching and Related Duties Temporary absence to acquire education, Education during temporary absence. H&r free tax Transportation expenses, Transportation Expenses, Using your car. H&r free tax Travel expenses, Travel Expenses C Cancellation of student loan (see Student loan cancellation) Candidate for a degree Scholarships and fellowships, Candidate for a degree. H&r free tax Change of designated beneficiary Coverdell ESA, Changing the Designated Beneficiary Qualified tuition program, Changing the Designated Beneficiary Collapsed loans, Interest on refinanced student loans. H&r free tax Comprehensive or bundled fees American opportunity credit, Comprehensive or bundled fees. H&r free tax Lifetime learning credit, Comprehensive or bundled fees. H&r free tax Tuition and fees deduction, Comprehensive or bundled fees. H&r free tax Consolidated loans used to refinance student loans, Interest on refinanced student loans. H&r free tax Conventions outside U. H&r free tax S. H&r free tax , Cruises and conventions. H&r free tax Coverdell education savings account (ESA), Coverdell Education Savings Account (ESA), Figuring the Taxable Portion of a Distribution, Coordination With American Opportunity and Lifetime Learning Credits, Worksheet 7-3. H&r free tax Coverdell ESA—Taxable Distributions and Basis Additional tax On excess contributions, Additional Tax on Excess Contributions, Figuring and reporting the additional tax. H&r free tax On taxable distributions, Additional Tax on Taxable Distributions Assets to be distributed at age 30 or death of beneficiary, When Assets Must Be Distributed Contribution limits, Contribution Limits, Figuring the limit. H&r free tax Figuring the limit (Worksheet 6-2), Figuring the limit. H&r free tax Contributions to, Contributions, Figuring and reporting the additional tax. H&r free tax Table 7-2, Contributions Coordination with American opportunity and lifetime learning credits, Coordination With American Opportunity and Lifetime Learning Credits Coordination with qualified tuition program (QTP), Coordination With Qualified Tuition Program (QTP) Distributions Defined, What Is a Coverdell ESA Distributions, Distributions, How To Figure the Taxable Earnings Overview (Table 7-3), Distributions Divorce, transfer due to, Transfer Because of Divorce Eligible educational institution, Eligible Educational Institution Figuring taxable portion of distribution, Figuring the Taxable Portion of a Distribution Worksheet 7-3, Worksheet 7-3. H&r free tax Coverdell ESA—Taxable Distributions and Basis Figuring the taxable earnings in required distribution, How To Figure the Taxable Earnings Losses, Losses on Coverdell ESA Investments Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). H&r free tax , MAGI when using Form 1040NR-EZ. H&r free tax Worksheet 6-1, Worksheet 7-1. H&r free tax MAGI for a Coverdell ESA Overview (Table 6-1), Coverdell Education Savings Account (ESA) Qualified education expenses, Qualified Education Expenses, Qualified Elementary and Secondary Education Expenses Rollovers, Rollovers Tax benefit of, What is the tax benefit of the Coverdell ESA. H&r free tax Tax-free distributions, Tax-Free Distributions Taxable distributions, Taxable Distributions, Figuring the additional tax. H&r free tax Worksheet 7-3 to figure, Worksheet 7-3. H&r free tax Coverdell ESA—Taxable Distributions and Basis Transfers, Rollovers CPA review course, Bar or CPA Review Course Credits American opportunity (see American opportunity credit) Lifetime learning (see Lifetime learning credit) Cruises, educational, Cruises and conventions. H&r free tax D Deductions (see Business deduction for work-related education) Designated beneficiary Coverdell ESA, What Is a Coverdell ESA, Changing the Designated Beneficiary Qualified tuition program (QTP), Designated beneficiary. H&r free tax , Changing the Designated Beneficiary Disabilities, persons with Impairment-related work expenses, Impairment-Related Work Expenses Distributions (see specific benefit ) Divorce Coverdell ESA transfer due to, Transfer Because of Divorce Expenses paid under decree American opportunity credit, Expenses paid by dependent. H&r free tax Lifetime learning credit, Expenses paid by dependent. H&r free tax Tuition and fees deduction, Expenses paid under divorce decree. H&r free tax Double benefit not allowed American opportunity credit, No Double Benefit Allowed Lifetime learning credit, No Double Benefit Allowed Student loan interest deduction, No Double Benefit Allowed Tuition and fees deduction, No Double Benefit Allowed Work-related education, No Double Benefit Allowed E Early distributions from IRAs, Education Exception to Additional Tax on Early IRA Distributions, Reporting Early Distributions Eligible educational institution, Eligible educational institution. H&r free tax Figuring amount not subject to 10% tax, Figuring the Amount Not Subject to the 10% Tax Qualified education expenses, Qualified education expenses. H&r free tax Reporting, Reporting Early Distributions Education IRA (see Coverdell education savings account (ESA)) Education loans (see Student loan interest deduction) Education savings account (see Coverdell education savings account (ESA)) Education savings bond program Cashing in bonds tax free, Who Can Cash In Bonds Tax Free, MAGI when using Form 1040. H&r free tax Claiming dependent's exemption, Dependent for whom you claim an exemption. H&r free tax Claiming exclusion, Claiming the Exclusion Eligible educational institution, Eligible educational institution. H&r free tax Figuring tax-free amount, Figuring the Tax-Free Amount Income level, effect on amount of exclusion, Effect of the Amount of Your Income on the Amount of Your Exclusion Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). H&r free tax , MAGI when using Form 1040. H&r free tax Phaseout, Effect of the Amount of Your Income on the Amount of Your Exclusion Qualified education expenses, Qualified education expenses. H&r free tax Educational assistance, employer-provided (see Employer-provided educational assistance) Eligible educational institution American opportunity credit, Eligible educational institution. H&r free tax Cancellation of student loan, Eligible educational institution. H&r free tax Coverdell ESA, Eligible Educational Institution Early distributions from IRAs, Eligible educational institution. H&r free tax Education savings bond program, Eligible educational institution. H&r free tax Lifetime learning credit, Eligible educational institution. H&r free tax Qualified tuition program (QTP), Eligible educational institution. H&r free tax Qualified tuition reduction, Qualified Tuition Reduction Scholarships and fellowships, Eligible educational institution. H&r free tax , Eligible educational institution. H&r free tax Student loan cancellation, Eligible educational institution. H&r free tax Student loan interest deduction, Eligible educational institution. H&r free tax Tuition and fees deduction, Eligible educational institution. H&r free tax Eligible elementary or secondary school Coverdell ESA, Eligible elementary or secondary school. H&r free tax Eligible student American opportunity credit, Who Is an Eligible Student Lifetime learning credit, Who Is an Eligible Student Student loan interest deduction, Eligible student. H&r free tax Tuition and fees deduction, Who Is an Eligible Student Employees Deducting work-related education expenses, Employees Employer-provided educational assistance, Employer-Provided Educational Assistance, Working condition fringe benefit. H&r free tax ESAs (see Coverdell education savings account (ESA)) Estimated tax, Reminders Excess contributions Coverdell ESA, Additional Tax on Excess Contributions, Figuring and reporting the additional tax. H&r free tax Excess expenses, accountable plan, Excess expenses. H&r free tax , Allocating your reimbursements for meals. H&r free tax Expenses (see specific benefit ) F Family members, beneficiary Coverdell ESA, Members of the beneficiary's family. H&r free tax Qualified tuition program (QTP), Members of the beneficiary's family. H&r free tax Fee-basis officials, work-related education deduction, Performing Artists and Fee-Basis Officials Fellowships (see Scholarships and fellowships) Figures (see Tables and figures) Financial aid (see Scholarships and fellowships) Form 1098-E Student loan interest deduction, Loan origination fee. H&r free tax , Form 1098-E. H&r free tax Form 1098-T, Reminders American opportunity credit, Form 1098-T. H&r free tax Lifetime learning credit, Form 1098-T. H&r free tax Tuition and fees deduction, Form 1098-T. H&r free tax Form 1099-Q Coverdell ESA, Exceptions. H&r free tax , Earnings and basis. H&r free tax Qualified tuition program (QTP), Earnings and return of investment. H&r free tax Form 1099-R Early distributions from IRAs, Reporting Early Distributions Form 2106, 50% limit on meals. H&r free tax , Form 2106 or 2106-EZ. H&r free tax Form 2106-EZ, 50% limit on meals. H&r free tax , Form 2106 or 2106-EZ. H&r free tax , Using Form 2106-EZ. H&r free tax Filled-in example, Form 5329 Coverdell ESA, Figuring the additional tax. H&r free tax Early distributions from IRAs, Reporting Early Distributions Qualified tuition program (QTP), Figuring the additional tax. H&r free tax Form 8815, MAGI when using Form 1040. H&r free tax , Claiming the Exclusion Form 8863 Filled-in examples, Form 8917 Filled-in examples, Form W-9S, Form 1098-T. H&r free tax , Form 1098-T. H&r free tax , Form 1098-E. H&r free tax , Form 1098-T. H&r free tax Free tax services, Free help with your tax return. H&r free tax Fulbright grants, Fulbright Grants G Glossary, Glossary. H&r free tax , Glossary, Transfer: Graduate education tuition reduction, Graduate Education Grants Fulbright, Fulbright Grants Pell, Pell Grants and Other Title IV Need-Based Education Grants Title IV need-based education, Pell Grants and Other Title IV Need-Based Education Grants H Half-time student American opportunity credit, Enrolled at least half-time. H&r free tax Coverdell ESA, Half-time student. H&r free tax Early distributions from IRAs, Half-time student. H&r free tax Student loan interest deduction, Enrolled at least half-time. H&r free tax Help (see Tax help) I Illustrated example of education credits (Appendix A), Appendix A. H&r free tax Illustrated Example of Education Credits, Impairment-related work expenses Work-related education deduction, Impairment-Related Work Expenses Individual retirement arrangements (IRAs), Coverdell Education Savings Account (ESA) Early distributions (see Early distributions from IRAs) L Lifetime learning credit, Differences between the American opportunity and lifetime learning credits. H&r free tax Academic period, Academic period. H&r free tax Adjustments to qualified education expenses, Adjustments to Qualified Education Expenses Claiming dependent's expenses, Who Can Claim a Dependent's Expenses Tuition reduction, Tuition reduction. H&r free tax Claiming the credit, Can You Claim the Credit, Who Cannot Claim the Credit, Claiming the Credit Qualifying to claim (Figure 3-1), Coordination with Coverdell ESA distributions, Figuring the Taxable Portion of a Distribution, Coordination With American Opportunity and Lifetime Learning Credits Coordination with qualified tuition program (QTP) distributions, Coordination With American Opportunity and Lifetime Learning Credits Eligible educational institution, Eligible educational institution. H&r free tax Eligible student, Who Is an Eligible Student Expenses qualifying for, What Expenses Qualify, Amounts that do not reduce qualified education expenses. H&r free tax Figuring the credit, Figuring the Credit, Claiming the Credit Income level, effect on amount of credit, Effect of the Amount of Your Income on the Amount of Your Credit Income limits, Effect of the Amount of Your Income on the Amount of Your Credit Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). H&r free tax Worksheet 3-1, MAGI when using Form 1040. H&r free tax Overview (Table 3-1), Table 3-1. H&r free tax Overview of the Lifetime Learning Credit Phaseout, Phaseout. H&r free tax Qualified education expenses, Qualified Education Expenses, Amounts that do not reduce qualified education expenses. H&r free tax Qualifying to claim (Figure 3-1), Tax benefit of, What is the tax benefit of the lifetime learning credit. H&r free tax Loans Cancellation (see Student loan cancellation) Capitalized interest on student loan, Capitalized interest. H&r free tax Origination fees on student loan, Loan origination fee. H&r free tax Qualified education expenses paid with American opportunity credit, Academic period. H&r free tax Lifetime learning credit, Paid with borrowed funds. H&r free tax Student loan repayment assistance, Student Loan Repayment Assistance Losses, deducting Coverdell ESA, Losses on Coverdell ESA Investments Qualified tuition program (QTP), Losses on QTP Investments Luxury water transportation, Cruises and conventions. H&r free tax M Mileage deduction for work-related education, What's New, Using your car. H&r free tax Military academy cadets, Payment to Service Academy Cadets Missing children, photographs of, Reminders Modified adjusted gross income (MAGI) American opportunity credit Worksheet 2-1, Claiming the Credit Coverdell ESA, Modified adjusted gross income (MAGI). H&r free tax , MAGI when using Form 1040NR-EZ. H&r free tax Worksheet 6-1, Worksheet 7-1. H&r free tax MAGI for a Coverdell ESA Education savings bond program, Modified adjusted gross income (MAGI). H&r free tax , MAGI when using Form 1040. H&r free tax Lifetime learning credit, Modified adjusted gross income (MAGI). H&r free tax Worksheet 3-1, MAGI when using Form 1040. H&r free tax Student loan interest deduction, Modified adjusted gross income (MAGI). H&r free tax Table 4-2, Table 4-2. H&r free tax Effect of MAGI on Student Loan Interest Deduction Tuition and fees deduction, Modified adjusted gross income (MAGI). H&r free tax Table 6-2, Table 6-2. H&r free tax Effect of MAGI on Maximum Tuition and Fees Deduction Worksheet 6-1, Worksheet 6-1. H&r free tax MAGI for the Tuition and Fees Deduction N National Health Service Corps Scholarship Program, Exceptions. H&r free tax , Exceptions. H&r free tax Nonaccountable plans Work-related education, Nonaccountable Plans P Pell grants, Pell Grants and Other Title IV Need-Based Education Grants, Coordination with Pell grants and other scholarships. H&r free tax , Coordination with Pell grants and other scholarships. H&r free tax Performing artists, work-related education deduction, Performing Artists and Fee-Basis Officials Phaseout American opportunity credit, Phaseout. H&r free tax Education savings bond program, Effect of the Amount of Your Income on the Amount of Your Exclusion Lifetime learning credit, Phaseout. H&r free tax Student loan interest deduction, Phaseout. H&r free tax , Effect of the Amount of Your Income on the Amount of Your Deduction Publications (see Tax help) Q Qualified education expenses Adjustments to American opportunity credit, Adjustments to Qualified Education Expenses Coverdell ESA, Adjusted qualified education expenses. H&r free tax Education savings bond program, Adjusted qualified education expenses. H&r free tax Lifetime learning credit, Adjustments to Qualified Education Expenses Qualified tuition program (QTP), Adjusted qualified education expenses. H&r free tax Student loan interest deduction, Adjustments to Qualified Education Expenses Tuition and fees deduction, Adjustments to Qualified Education Expenses Work-related education, Adjustments to Qualifying Work-Related Education Expenses American opportunity credit, Qualified Education Expenses, Adjustments to Qualified Education Expenses Coverdell ESA, Qualified Education Expenses, Qualified Elementary and Secondary Education Expenses Early distributions from IRAs, Qualified education expenses. H&r free tax Education savings bond program, Qualified education expenses. H&r free tax Expenses not qualified American opportunity credit, Expenses That Do Not Qualify, Comprehensive or bundled fees. H&r free tax Lifetime learning credit, Expenses That Do Not Qualify Tuition and fees deduction, Expenses That Do Not Qualify Lifetime learning credit, Qualified Education Expenses, Amounts that do not reduce qualified education expenses. H&r free tax Qualified tuition program (QTP), Qualified education expenses. H&r free tax Scholarships and fellowships, Qualified education expenses. H&r free tax Student loan interest deduction, Qualified Education Expenses Tuition and fees deduction, What Expenses Qualify, Adjustments to Qualified Education Expenses Work-related education, What Expenses Can Be Deducted, Adjustments to Qualifying Work-Related Education Expenses Qualified elementary and secondary education expenses Coverdell ESAs, Qualified Elementary and Secondary Education Expenses Qualified employer plans Student loan interest deduction not allowed, Qualified employer plan. H&r free tax Qualified student loans, Qualified Student Loan, Qualified employer plan. H&r free tax Qualified tuition program (QTP), Qualified Tuition Program (QTP), Changing the Designated Beneficiary Additional tax on taxable distributions, Additional Tax on Taxable Distributions Change of designated beneficiary, Changing the Designated Beneficiary Contributions to, How Much Can You Contribute Coordination with American opportunity and lifetime learning credits, Coordination With American Opportunity and Lifetime Learning Credits Coordination with Coverdell ESA distributions, Coordination With Coverdell ESA Distributions Defined, What Is a Qualified Tuition Program Eligible educational institution, Eligible educational institution. H&r free tax Figuring taxable portion of distribution, Figuring the Taxable Portion of a Distribution, Losses on QTP Investments Losses, Losses on QTP Investments Qualified education expenses, Qualified education expenses. H&r free tax Rollovers, Rollovers and Other Transfers, Changing the Designated Beneficiary Tax benefit of, What is the tax benefit of a QTP. H&r free tax Taxability of distributions, Are Distributions Taxable, Figuring the additional tax. H&r free tax Taxable earnings, Taxable earnings. H&r free tax Transfers, Rollovers and Other Transfers, Changing the Designated Beneficiary Qualified tuition reduction, Qualified Tuition Reduction, How To Report Qualified U. H&r free tax S. H&r free tax savings bonds, Qualified U. H&r free tax S. H&r free tax savings bonds. H&r free tax Qualifying work-related education, Qualifying Work-Related Education, Teaching and Related Duties Determining if qualified (Figure 11-1), R Recapture American opportunity credit, Credit recapture. H&r free tax Lifetime learning credit, Credit recapture. H&r free tax Tuition and fees deduction, Credit recapture. H&r free tax Recordkeeping requirements Work-related education, Recordkeeping, Examples of records to keep. H&r free tax Refinanced student loans, Interest on refinanced student loans. H&r free tax , Refinanced Loan Reimbursements Nondeductible expenses, Reimbursements for nondeductible expenses. H&r free tax Work-related education, How To Treat Reimbursements, Reimbursements for nondeductible expenses. H&r free tax Related persons Coverdell ESA, Members of the beneficiary's family. H&r free tax Qualified tuition program (QTP), Members of the beneficiary's family. H&r free tax Student loan interest deduction, Related person. H&r free tax Repayment programs (see Student loan repayment assistance) Reporting American opportunity credit, Claiming the Credit Coverdell ESA, Exceptions. H&r free tax , Figuring and reporting the additional tax. H&r free tax , Figuring the Taxable Portion of a Distribution, Figuring the additional tax. H&r free tax Early distributions from IRAs, Reporting Early Distributions Education savings bond program, Claiming the Exclusion Lifetime learning credit, Claiming the Credit Qualified tuition program (QTP), Taxable earnings. H&r free tax , Losses on QTP Investments, Rollovers Scholarships and fellowships, taxable, Reporting Scholarships and Fellowships Student loan interest deduction, Claiming the Deduction Tuition and fees deduction, Claiming the Deduction Tuition reduction, taxable, How To Report Work-related education expenses, Deducting Business Expenses, Impairment-Related Work Expenses Revolving lines of credit, interest on, Interest on revolving lines of credit. H&r free tax Rollovers Coverdell ESA, Rollovers Qualified tuition program (QTP), Rollovers and Other Transfers, Changing the Designated Beneficiary S Scholarships and fellowships, Scholarships and Fellowships, Form 1040NR-EZ. H&r free tax , Coordination with Pell grants and other scholarships. H&r free tax , Coordination with Pell grants and other scholarships. H&r free tax Athletic scholarships, Athletic Scholarships Eligible educational institution, Eligible educational institution. H&r free tax , Eligible educational institution. H&r free tax Figuring tax-free and taxable parts (Worksheet 1-1), Worksheet 1-1. H&r free tax Qualified education expenses, Qualified education expenses. H&r free tax Reporting, Reporting Scholarships and Fellowships Scholarship, defined, Scholarships and Fellowships Tax treatment of (Table 1-1), Tax-Free Scholarships and Fellowships Tax-free, Tax-Free Scholarships and Fellowships, Athletic Scholarships Taxable, Taxable Scholarships and Fellowships Section 501(c)(3) organizations (see Student loan cancellation) Section 529 program (see Qualified tuition program (QTP)) Self-employed persons Deducting work-related education expenses, Self-Employed Persons Service academy cadets, Payment to Service Academy Cadets Sports, games, hobbies, and noncredit courses American opportunity credit, Sports, games, hobbies, and noncredit courses. H&r free tax Education savings bond program, Qualified education expenses. H&r free tax Lifetime learning credit, Sports, games, hobbies, and noncredit courses. H&r free tax Tuition and fees deduction, Sports, games, hobbies, and noncredit courses. H&r free tax Standard mileage rate Work-related education, What's New, Using your car. H&r free tax State prepaid education accounts (see Qualified tuition program (QTP)) Student loan cancellation, Student Loan Cancellation Eligible educational institution, Eligible educational institution. H&r free tax Section 501(c)(3) organizations, Section 501(c)(3) organization. H&r free tax Student loan interest deduction Academic period, Academic period. H&r free tax Adjustments to qualified education expenses, Adjustments to Qualified Education Expenses Allocation between interest and principal, Allocating Payments Between Interest and Principal Claiming the deduction, Claiming the Deduction Eligible educational institution, Eligible educational institution. H&r free tax Eligible student, Eligible student. H&r free tax Figuring the deduction, Figuring the Deduction, Which Worksheet To Use Include as interest, Include As Interest Income level, effect on amount of deduction, Effect of the Amount of Your Income on the Amount of Your Deduction Loan repayment assistance, Do Not Include As Interest Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). H&r free tax , Which Worksheet To Use Table 4-2, Table 4-2. H&r free tax Effect of MAGI on Student Loan Interest Deduction Not included as interest, Do Not Include As Interest Phaseout, Phaseout. H&r free tax , Effect of the Amount of Your Income on the Amount of Your Deduction Qualified education expenses, Qualified Education Expenses Qualified employer plans, Qualified employer plan. H&r free tax Qualified student loans, Qualified Student Loan, Qualified employer plan. H&r free tax Reasonable period of time, Reasonable period of time. H&r free tax Related persons, Related person. H&r free tax Student loan interest, defined, Student Loan Interest Defined, When Must Interest Be Paid Third party interest payments, Interest paid by others. H&r free tax When interest must be paid, When Must Interest Be Paid Worksheet 4-1, Worksheet 4-1. H&r free tax Student Loan Interest Deduction Worksheet Student loan repayment assistance, Student Loan Repayment Assistance Surviving spouse Coverdell ESA transfer to, Exception for Transfer to Surviving Spouse or Family Member T Tables and figures American opportunity credit Eligible student requirements (Figure 2-2), Overview (Table 2-1), Introduction Qualifying to claim (Figure 2-1), Comparison of education tax benefits (Appendix B), Coverdell ESAs Contributions to (Table 7-2), Contribution Limits Distributions (Table 7-3), Distributions Overview (Table 6-1), Coverdell Education Savings Account (ESA) Education credits Overview of American opportunity credit (Table 2-1), Introduction Overview of lifetime learning credit (Table 3-1), Table 3-1. H&r free tax Overview of the Lifetime Learning Credit Lifetime learning credit Overview (Table 3-1), Table 3-1. H&r free tax Overview of the Lifetime Learning Credit Qualifying to claim (Figure 3-1), Scholarships and fellowships, taxability of (Table 1-1), Tax-Free Scholarships and Fellowships Student loan interest deduction MAGI, effect of (Table 4-2), Table 4-2. H&r free tax Effect of MAGI on Student Loan Interest Deduction Overview (Table 4-1), Table 4-1. H&r free tax Student Loan Interest Deduction at a Glance Summary chart of differences between education tax benefits (Appendix B), Tuition and fees deduction MAGI, effect of (Table 6-2), Table 6-2. H&r free tax Effect of MAGI on Maximum Tuition and Fees Deduction Overview (Table 6-1), Table 6-1. H&r free tax Tuition and Fees Deduction at a Glance Work-related education, qualifying (Figure 112-1), Tax help, How To Get Tax Help Tax-free educational assistance American opportunity credit, Tax-free educational assistance. H&r free tax Coverdell ESA, Adjusted qualified education expenses. H&r free tax Early distributions from IRAs, Figuring the Amount Not Subject to the 10% Tax Education savings bond program, Adjusted qualified education expenses. H&r free tax Lifetime learning credit, Tax-free educational assistance. H&r free tax Qualified tuition program (QTP), Adjusted qualified education expenses. H&r free tax Tuition and fees deduction, Tax-free educational assistance. H&r free tax Work-related education, Tax-free educational assistance. H&r free tax Taxable scholarships and fellowships, Taxable Scholarships and Fellowships Teachers, Requirements for Teachers, Teaching and Related Duties Temporary-basis student, transportation expenses of, Temporary basis. H&r free tax Title IV need-based education grants, Pell Grants and Other Title IV Need-Based Education Grants Transfers Coverdell ESA, Rollovers Qualified tuition program (QTP), Rollovers and Other Transfers, Changing the Designated Beneficiary Transportation expenses Work-related education, Transportation Expenses, Using your car. H&r free tax Travel expenses 50% limit on meals, 50% limit on meals. H&r free tax Not deductible as form of education, Travel as Education Work-related education, Travel Expenses TTY/TDD information, How To Get Tax Help Tuition and fees deduction, Tuition and Fees Deduction, Illustrated Example Academic period, Academic period. H&r free tax Adjustments to qualified education expenses, Adjustments to Qualified Education Expenses Can you claim the deduction, Can You Claim the Deduction Claiming dependent's expenses, Who Can Claim a Dependent's Expenses Claiming the deduction, Claiming the Deduction Double benefit not allowed, No Double Benefit Allowed Eligible educational institution, Eligible educational institution. H&r free tax Eligible student, Who Is an Eligible Student Expenses not qualifying for, Expenses That Do Not Qualify Expenses qualifying for, What Expenses Qualify, Adjustments to Qualified Education Expenses Figuring the deduction, Figuring the Deduction, MAGI when using Form 1040. H&r free tax Income level, effect on amount of deduction, Effect of the Amount of Your Income on the Amount of Your Deduction Loan used to pay tuition and fees, Paid with borrowed funds. H&r free tax Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). H&r free tax Table 6-2, Table 6-2. H&r free tax Effect of MAGI on Maximum Tuition and Fees Deduction Worksheet 6-1, Worksheet 6-1. H&r free tax MAGI for the Tuition and Fees Deduction Overview (Table 4-1), Table 4-1. H&r free tax Student Loan Interest Deduction at a Glance Overview (Table 6-1), Table 6-1. H&r free tax Tuition and Fees Deduction at a Glance Qualified education expenses, What Expenses Qualify, Adjustments to Qualified Education Expenses Qualifying for deduction, Can You Claim the Deduction Tax benefit of, What is the tax benefit of the tuition and fees deduction. H&r free tax Tax-free educational assistance, Tax-free educational assistance. H&r free tax Tuition reduction American opportunity credit, Tuition reduction. H&r free tax Lifetime learning credit, Tuition reduction. H&r free tax Qualified, Qualified Tuition Reduction, How To Report Tuition and fees deduction, Tuition reduction. H&r free tax U U. H&r free tax S. H&r free tax savings bonds, Qualified U. H&r free tax S. H&r free tax savings bonds. H&r free tax Unclaimed reimbursement Work-related education, Unclaimed reimbursement. H&r free tax V Veterans' benefits, Veterans' Benefits Voluntary interest payments, Voluntary interest payments. H&r free tax W Withholding, Analyzing your tax withholding. H&r free tax Work-related education (see Business deduction for work-related education) Working condition fringe benefit, Working condition fringe benefit. H&r free tax Worksheets Coverdell ESA Contribution limit (Worksheet 6-2), Figuring the limit. H&r free tax MAGI, calculation of (Worksheet 6-1), Worksheet 7-1. H&r free tax MAGI for a Coverdell ESA Taxable distributions and basis (Worksheet 6-3), Worksheet 7-3. H&r free tax Coverdell ESA—Taxable Distributions and Basis Taxable distributions and basis (Worksheet 7-3), Worksheet 7-3. H&r free tax Coverdell ESA—Taxable Distributions and Basis Lifetime learning credit MAGI calculation (Worksheet 3-1), MAGI when using Form 1040. H&r free tax Scholarships and fellowships, taxable income (Worksheet 1-1), Worksheet 1-1. H&r free tax Student loan interest deduction (Worksheet 4-1), Worksheet 4-1. H&r free tax Student Loan Interest Deduction Worksheet Tuition and fees deduction, MAGI calculation (Worksheet 6-1), Worksheet 6-1. H&r free tax MAGI for the Tuition and Fees Deduction Prev  Up     Home   More Online Publications
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The H&r Free Tax

H&r free tax 7. H&r free tax   Depreciation, Depletion, and Amortization Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Overview of DepreciationWhat Property Can Be Depreciated? What Property Cannot Be Depreciated? When Does Depreciation Begin and End? Can You Use MACRS To Depreciate Your Property? What Is the Basis of Your Depreciable Property? How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions? Section 179 Expense DeductionWhat Property Qualifies? What Property Does Not Qualify? How Much Can You Deduct? How Do You Elect the Deduction? When Must You Recapture the Deduction? Claiming the Special Depreciation AllowanceWhat is Qualified Property? How Can You Elect Not To Claim the Allowance? When Must You Recapture an Allowance Figuring Depreciation Under MACRSWhich Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS? What Is the Placed-in-Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies? Which Convention Applies? Which Depreciation Method Applies? How Is the Depreciation Deduction Figured? How Do You Use General Asset Accounts? When Do You Recapture MACRS Depreciation? Additional Rules for Listed PropertyWhat Is Listed Property? What Is the Business-Use Requirement? Do the Passenger Automobile Limits Apply? Depletion Who Can Claim Depletion? Figuring Depletion AmortizationBusiness Start-Up Costs Reforestation Costs Section 197 Intangibles What's New for 2013 Increased section 179 expense deduction dollar limits. H&r free tax  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. H&r free tax This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. H&r free tax See Dollar Limits under Section 179 Expense Deduction , later. H&r free tax Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. H&r free tax . H&r free tax  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. H&r free tax See Claiming the Special Depreciation Allowance , later. H&r free tax Expiration of the 3- year recovery period for certain race horses. H&r free tax  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. H&r free tax Introduction If you buy or make improvements to farm property such as machinery, equipment, livestock, or a structure with a useful life of more than a year, you generally cannot deduct its entire cost in one year. H&r free tax Instead, you must spread the cost over the time you use the property and deduct part of it each year. H&r free tax For most types of property, this is called depreciation. H&r free tax This chapter gives information on depreciation methods that generally apply to property placed in service after 1986. H&r free tax For information on depreciating pre-1987 property, see Publication 534, Depreciating Property Placed in Service Before 1987. H&r free tax Topics - This chapter discusses: Overview of depreciation Section 179 expense deduction Special depreciation allowance Modified Accelerated Cost Recovery System (MACRS) Listed property Basic information on cost depletion (including timber depletion) and percentage depletion Amortization of the costs of going into business, reforestation costs, the costs of pollution control facilities, and the costs of section 197 intangibles Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) T (Timber), Forest Activities Schedule 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. H&r free tax It is important to keep good records for property you depreciate. H&r free tax Do not file these records with your return. H&r free tax Instead, you should keep them as part of the permanent records of the depreciated property. H&r free tax They will help you verify the accuracy of the depreciation of assets placed in service in the current and previous tax years. H&r free tax For general information on recordkeeping, see Publication 583, Starting a Business and Keeping Records. H&r free tax For specific information on keeping records for section 179 property and listed property, see Publication 946, How To Depreciate Property. H&r free tax Overview of Depreciation This overview discusses basic information on the following. H&r free tax What property can be depreciated. H&r free tax What property cannot be depreciated. H&r free tax When depreciation begins and ends. H&r free tax Whether MACRS can be used to figure depreciation. H&r free tax What is the basis of your depreciable property. H&r free tax How to treat repairs and improvements. H&r free tax When you must file Form 4562. H&r free tax How you can correct depreciation claimed incorrectly. H&r free tax What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, equipment, vehicles, certain livestock, and furniture. H&r free tax You can also depreciate certain intangible property, such as copyrights, patents, and computer software. H&r free tax To be depreciable, the property must meet all the following requirements. H&r free tax It must be property you own. H&r free tax It must be used in your business or income-producing activity. H&r free tax It must have a determinable useful life. H&r free tax It must have a useful life that extends substantially beyond the year you place it in service. H&r free tax Property You Own To claim depreciation, you usually must be the owner of the property. H&r free tax You are considered as owning property even if it is subject to a debt. H&r free tax Leased property. H&r free tax   You can depreciate leased property only if you retain the incidents of ownership in the property. H&r free tax This means you bear the burden of exhaustion of the capital investment in the property. H&r free tax Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. H&r free tax You can, however, depreciate any capital improvements you make to the leased property. H&r free tax See Additions and Improvements under Which Recovery Period Applies in chapter 4 of Publication 946. H&r free tax   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. H&r free tax However, you cannot depreciate the cost of the property if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased. H&r free tax Life tenant. H&r free tax   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. H&r free tax See Certain term interests in property , later, for an exception. H&r free tax Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. H&r free tax If you use property to produce income (investment use), the income must be taxable. H&r free tax You cannot depreciate property that you use solely for personal activities. H&r free tax However, if you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the percentage of business or investment use. H&r free tax Example 1. H&r free tax   If you use your car for farm business, you can deduct depreciation based on its percentage of use in farming. H&r free tax If you also use it for investment purposes, you can depreciate it based on its percentage of investment use. H&r free tax Example 2. H&r free tax   If you use part of your home for business, you may be able to deduct depreciation on that part based on its business use. H&r free tax For more information, see Business Use of Your Home in chapter 4. H&r free tax Inventory. H&r free tax   You can never depreciate inventory because it is not held for use in your business. H&r free tax Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. H&r free tax Livestock. H&r free tax   Livestock purchased for draft, breeding, or dairy purposes can be depreciated only if they are not kept in an inventory account. H&r free tax Livestock you raise usually has no depreciable basis because the costs of raising them are deducted and not added to their basis. H&r free tax However, see Immature livestock under When Does Depreciation Begin and End , later, for a special rule. H&r free tax Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. H&r free tax This means it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. H&r free tax Irrigation systems and water wells. H&r free tax   Irrigation systems and wells used in a trade or business can be depreciated if their useful life can be determined. H&r free tax You can depreciate irrigation systems and wells composed of masonry, concrete, tile, metal, or wood. H&r free tax In addition, you can depreciate costs for moving dirt to construct irrigation systems and water wells composed of these materials. H&r free tax However, land preparation costs for center pivot irrigation systems are not depreciable. H&r free tax Dams, ponds, and terraces. H&r free tax   In general, you cannot depreciate earthen dams, ponds, and terraces unless the structures have a determinable useful life. H&r free tax What Property Cannot Be Depreciated? Certain property cannot be depreciated, even if the requirements explained earlier are met. H&r free tax This includes the following. H&r free tax Land. H&r free tax You can never depreciate the cost of land because land does not wear out, become obsolete, or get used up. H&r free tax The cost of land generally includes the cost of clearing, grading, planting, and landscaping. H&r free tax Although you cannot depreciate land, you can depreciate certain costs incurred in preparing land for business use. H&r free tax See chapter 1 of Publication 946. H&r free tax Property placed in service and disposed of in the same year. H&r free tax Determining when property is placed in service is explained later. H&r free tax Equipment used to build capital improvements. H&r free tax You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. H&r free tax Intangible property such as section 197 intangibles. H&r free tax This property does not have a determinable useful life and generally cannot be depreciated. H&r free tax However, see Amortization , later. H&r free tax Special rules apply to computer software (discussed below). H&r free tax Certain term interests (discussed below). H&r free tax Computer software. H&r free tax   Computer software is generally not a section 197 intangible even if acquired in connection with the acquisition of a business, if it meets all of the following tests. H&r free tax It is readily available for purchase by the general public. H&r free tax It is subject to a nonexclusive license. H&r free tax It has not been substantially modified. H&r free tax   If the software meets the tests above, it can be depreciated and may qualify for the section 179 expense deduction and the special depreciation allowance (if applicable), discussed later. H&r free tax Certain term interests in property. H&r free tax   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. H&r free tax This rule does not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. H&r free tax For more information, see chapter 1 of Publication 946. H&r free tax When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. H&r free tax You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. H&r free tax Placed in Service Property is placed in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. H&r free tax Even if you are not using the property, it is in service when it is ready and available for its specific use. H&r free tax Example. H&r free tax You bought a planter for use in your farm business. H&r free tax The planter was delivered in December 2012 after harvest was over. H&r free tax You begin to depreciate the planter for 2012 because it was ready and available for its specific use in 2012, even though it will not be used until the spring of 2013. H&r free tax If your planter comes unassembled in December 2012 and is put together in February 2013, it is not placed in service until 2013. H&r free tax You begin to depreciate it in 2013. H&r free tax If your planter was delivered and assembled in February 2013 but not used until April 2013, it is placed in service in February 2013, because this is when the planter was ready for its specified use. H&r free tax You begin to depreciate it in 2013. H&r free tax Fruit or nut trees and vines. H&r free tax   If you acquire an orchard, grove, or vineyard before the trees or vines have reached the income-producing stage, and they have a preproductive period of more than 2 years, you must capitalize the preproductive-period costs under the uniform capitalization rules (unless you elect not to use these rules). H&r free tax See chapter 6 for information about the uniform capitalization rules. H&r free tax Your depreciation begins when the trees and vines reach the income-producing stage (that is, when they bear fruit, nuts, or grapes in quantities sufficient to commercially warrant harvesting). H&r free tax Immature livestock. H&r free tax   Depreciation for livestock begins when the livestock reaches the age of maturity. H&r free tax If you bought immature livestock for drafting purposes, depreciation begins when they can be worked. H&r free tax If you bought immature livestock for dairy purposes, depreciation begins when they can be milked. H&r free tax If you bought immature livestock for breeding purposes, depreciation begins when they can be bred. H&r free tax Your basis for depreciation is your initial cost for the immature livestock. H&r free tax Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle. H&r free tax For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. H&r free tax Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. H&r free tax This happens when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. H&r free tax Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. H&r free tax You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. H&r free tax You sell or exchange the property. H&r free tax You convert the property to personal use. H&r free tax You abandon the property. H&r free tax You transfer the property to a supplies or scrap account. H&r free tax The property is destroyed. H&r free tax For information on abandonment of property, see chapter 8. H&r free tax For information on destroyed property, see chapter 11 and Publication 547, Casualties, Disasters, and Thefts. H&r free tax Can You Use MACRS To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most business and investment property placed in service after 1986. H&r free tax MACRS is explained later under Figuring Depreciation Under MACRS . H&r free tax You cannot use MACRS to depreciate the following property. H&r free tax Property you placed in service before 1987. H&r free tax Use the methods discussed in Publication 534. H&r free tax Certain property owned or used in 1986. H&r free tax See chapter 1 of Publication 946. H&r free tax Intangible property. H&r free tax Films, video tapes, and recordings. H&r free tax Certain corporate or partnership property acquired in a nontaxable transfer. H&r free tax Property you elected to exclude from MACRS. H&r free tax For more information, see chapter 1 of Publication 946. H&r free tax What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. H&r free tax To determine basis, you need to know the cost or other basis of your property. H&r free tax Cost or other basis. H&r free tax   The basis of property you buy is usually its cost plus amounts you paid for items such as sales tax, freight charges, and installation and testing fees. H&r free tax The cost includes the amount you pay in cash, debt obligations, other property, or services. H&r free tax   There are times when you cannot use cost as basis. H&r free tax In these situations, the fair market value (FMV) or the adjusted basis of the property may be used. H&r free tax Adjusted basis. H&r free tax   To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. H&r free tax Basis adjustment for depreciation allowed or allowable. H&r free tax   After you place your property in service, you must reduce the basis of the property by the depreciation allowed or allowable, whichever is greater. H&r free tax Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). H&r free tax Depreciation allowable is depreciation you are entitled to deduct. H&r free tax   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. H&r free tax   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). H&r free tax   For more information, see chapter 6. H&r free tax How Do You Treat Repairs and Improvements? You generally deduct the cost of repairing business property in the same way as any other business expense. H&r free tax However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. H&r free tax Treat improvements as separate depreciable property. H&r free tax See chapter 1 of Publication 946 for more information. H&r free tax Example. H&r free tax You repair a small section on a corner of the roof of a barn that you rent to others. H&r free tax You deduct the cost of the repair as a business expense. H&r free tax However, if you replace the entire roof, the new roof is considered to be an improvement because it increases the value and lengthens the life for the property. H&r free tax You depreciate the cost of the new roof. H&r free tax Improvements to rented property. H&r free tax   You can depreciate permanent improvements you make to business property you rent from someone else. H&r free tax Do You Have To File Form 4562? Use Form 4562 to claim your deduction for depreciation and amortization. H&r free tax You must complete and attach Form 4562 to your tax return if you are claiming any of the following. H&r free tax A section 179 expense deduction for the current year or a section 179 carryover from a prior year. H&r free tax Depreciation for property placed in service during the current year. H&r free tax Depreciation on any vehicle or other listed property, regardless of when it was placed in service. H&r free tax Amortization of costs that began in the current year. H&r free tax For more information, see the Instructions for Form 4562. H&r free tax How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. H&r free tax You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. H&r free tax You claimed the incorrect amount because of a mathematical error made in any year. H&r free tax You claimed the incorrect amount because of a posting error made in any year, for example, omitting an asset from the depreciation schedule. H&r free tax You have not adopted a method of accounting for the property placed in service by you in tax years ending after December 29, 2003. H&r free tax You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. H&r free tax Note. H&r free tax You have adopted a method of accounting if you used the same incorrect method of depreciation for two or more consecutively filed returns. H&r free tax If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. H&r free tax See the Instructions for Form 3115. H&r free tax Section 179 Expense Deduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. H&r free tax This is the section 179 expense deduction. H&r free tax You can elect the section 179 expense deduction instead of recovering the cost by taking depreciation deductions. H&r free tax This part of the chapter explains the rules for the section 179 expense deduction. H&r free tax It explains what property qualifies for the deduction, what property does not qualify for the deduction, the limits that may apply, how to elect the deduction, and when you may have to recapture the deduction. H&r free tax For more information, see chapter 2 of Publication 946. H&r free tax What Property Qualifies? To qualify for the section 179 expense deduction, your property must meet all the following requirements. H&r free tax It must be eligible property. H&r free tax It must be acquired for business use. H&r free tax It must have been acquired by purchase. H&r free tax Eligible Property To qualify for the section 179 expense deduction, your property must be one of the following types of depreciable property. H&r free tax Tangible personal property. H&r free tax Qualified real property. H&r free tax (Special rules apply to qualified real property that you elect to treat as qualified section 179 real property. H&r free tax For more information, see chapter 2 of Publication 946 and section 179(f) of the Internal Revenue Code. H&r free tax ) Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services; A research facility used in connection with any of the activities in (a) above; or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. H&r free tax Single purpose agricultural (livestock) or horticultural structures. H&r free tax Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. H&r free tax Off-the-shelf computer software that is readily available for purchase by the general public, is subject to a nonexclusive lease, and has not been substantially modified. H&r free tax Tangible personal property. H&r free tax   Tangible personal property is any tangible property that is not real property. H&r free tax It includes the following property. H&r free tax Machinery and equipment. H&r free tax Property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment. H&r free tax Gasoline storage tanks and pumps at retail service stations. H&r free tax Livestock, including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals. H&r free tax Facility used for the bulk storage of fungible commodities. H&r free tax   A facility used for the bulk storage of fungible commodities is qualifying property for purposes of the section 179 expense deduction if it is used in connection with any of the activities listed earlier in item (3)(a). H&r free tax Bulk storage means the storage of a commodity in a large mass before it is used. H&r free tax Grain bins. H&r free tax   A grain bin is an example of a storage facility that is qualifying section 179 property. H&r free tax It is a facility used in connection with the production of grain or livestock for the bulk storage of fungible commodities. H&r free tax Single purpose agricultural or horticultural structures. H&r free tax   A single purpose agricultural (livestock) or horticultural structure is qualifying property for purposes of the section 179 expense deduction. H&r free tax Agricultural structure. H&r free tax   A single purpose agricultural (livestock) structure is any building or enclosure specifically designed, constructed, and used for both the following reasons. H&r free tax To house, raise, and feed a particular type of livestock and its produce. H&r free tax To house the equipment, including any replacements, needed to house, raise, or feed the livestock. H&r free tax For this purpose, livestock includes poultry. H&r free tax   Single purpose structures are qualifying property if used, for example, to breed chickens or hogs, produce milk from dairy cattle, or produce feeder cattle or pigs, broiler chickens, or eggs. H&r free tax The facility must include, as an integral part of the structure or enclosure, equipment necessary to house, raise, and feed the livestock. H&r free tax Horticultural structure. H&r free tax   A single purpose horticultural structure is either of the following. H&r free tax A greenhouse specifically designed, constructed, and used for the commercial production of plants. H&r free tax A structure specifically designed, constructed, and used for the commercial production of mushrooms. H&r free tax Use of structure. H&r free tax   A structure must be used only for the purpose that qualified it. H&r free tax For example, a hog barn will not be qualifying property if you use it to house poultry. H&r free tax Similarly, using part of your greenhouse to sell plants will make the greenhouse nonqualifying property. H&r free tax   If a structure includes work space, the work space can be used only for the following activities. H&r free tax Stocking, caring for, or collecting livestock or plants or their produce. H&r free tax Maintaining the enclosure or structure. H&r free tax Maintaining or replacing the equipment or stock enclosed or housed in the structure. H&r free tax Property Acquired by Purchase To qualify for the section 179 expense deduction, your property must have been acquired by purchase. H&r free tax For example, property acquired by gift or inheritance does not qualify. H&r free tax Property acquired from a related person (that is, your spouse, ancestors, or lineal descendants) is not considered acquired by purchase. H&r free tax Example. H&r free tax Ken is a farmer. H&r free tax He purchased two tractors, one from his brother and one from his father. H&r free tax He placed both tractors in service in the same year he bought them. H&r free tax The tractor purchased from his father does not qualify for the section 179 expense deduction because he is a related person (as defined above). H&r free tax The tractor purchased from his brother does qualify for the deduction because Ken is not a related person (as defined above). H&r free tax What Property Does Not Qualify? Land and improvements. H&r free tax   Land and land improvements, do not qualify as section 179 property. H&r free tax Land improvements include nonagricultural fences, swimming pools, paved parking areas, wharves, docks, bridges, and fences. H&r free tax However, agricultural fences do qualify as section 179 property. H&r free tax Similarly, field drainage tile also qualifies as section 179 property. H&r free tax Excepted property. H&r free tax   Even if the requirements explained in the preceding discussions are met, farmers cannot elect the section 179 expense deduction for the following property. H&r free tax Certain property you lease to others (if you are a noncorporate lessor). H&r free tax Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. H&r free tax Property used by a tax-exempt organization (other than a tax-exempt farmers' cooperative) unless the property is used mainly in a taxable unrelated trade or business. H&r free tax Property used by governmental units or foreign persons or entities (except property used under a lease with a term of less than 6 months). H&r free tax How Much Can You Deduct? Your section 179 expense deduction is generally the cost of the qualifying property. H&r free tax However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. H&r free tax These limits apply to each taxpayer, not to each business. H&r free tax However, see Married individuals under Dollar Limits , later. H&r free tax See also the special rules for applying the limits for partnerships and S corporations under Partnerships and S Corporations , later. H&r free tax If you deduct only part of the cost of qualifying property as a section 179 expense deduction, you can generally depreciate the cost you do not deduct. H&r free tax Use Part I of Form 4562 to figure your section 179 expense deduction. H&r free tax Partial business use. H&r free tax   When you use property for business and nonbusiness purposes, you can elect the section 179 expense deduction only if you use it more than 50% for business in the year you place it in service. H&r free tax If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. H&r free tax Use the resulting business cost to figure your section 179 expense deduction. H&r free tax Trade-in of other property. H&r free tax   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 expense deduction includes only the cash you paid. H&r free tax For example, if you buy (for cash and a trade-in) a new tractor for use in your business, your cost for the section 179 expense deduction is the cash you paid. H&r free tax It does not include the adjusted basis of the old tractor you trade for the new tractor. H&r free tax Example. H&r free tax J-Bar Farms traded two cultivators having a total adjusted basis of $6,800 for a new cultivator costing $13,200. H&r free tax They received an $8,000 trade-in allowance for the old cultivators and paid $5,200 cash for the new cultivator. H&r free tax J-Bar also traded a used pickup truck with an adjusted basis of $8,000 for a new pickup truck costing $35,000. H&r free tax They received a $5,000 trade-in allowance and paid $30,000 cash for the new pickup truck. H&r free tax Only the cash paid by J-Bar qualifies for the section 179 expense deduction. H&r free tax J-Bar's business costs that qualify for a section 179 expense deduction are $35,200 ($5,200 + $30,000). H&r free tax Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 is $500,000. H&r free tax If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 expense deduction among the items in any way, as long as the total deduction is not more than $500,000. H&r free tax Qualified real property that you elect to treat as section 179 property is limited to $250,000 of the maximum section 179 deduction of $500,000 for 2013. H&r free tax You do not have to claim the full $500,000. H&r free tax For specific information on the section 179 dollar limits, see chapter 2 of Publication 946. H&r free tax Reduced dollar limit for cost exceeding $2 million. H&r free tax   If the cost of your qualifying section 179 property placed in service in 2013 is over $2 million, you must reduce the dollar limit (but not below zero) by the amount of cost over $2 million. H&r free tax If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 expense deduction and you cannot carry over the cost that is more than $2,500,000. H&r free tax Example. H&r free tax This year, James Smith placed in service machinery costing $2,050,000. H&r free tax Because this cost is $50,000 more than $2 million, he must reduce his dollar limit to $450,000 ($500,000 − $50,000). H&r free tax Limits for sport utility vehicles. H&r free tax   The total amount you can elect to deduct for certain sport utility vehicles and certain other vehicles placed in service in 2013 is $25,000. H&r free tax This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, and highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. H&r free tax   For more information, see chapter 2 of Publication 946. H&r free tax Limits for passenger automobiles. H&r free tax   For a passenger automobile that is placed in service in 2013, the total section 179 and depreciation deduction is limited. H&r free tax See Do the Passenger Automobile Limits Apply , later. H&r free tax Married individuals. H&r free tax   If you are married, how you figure your section 179 expense deduction depends on whether you file jointly or separately. H&r free tax If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. H&r free tax If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2 million. H&r free tax You must allocate the dollar limit (after any reduction) equally between you, unless you both elect a different allocation. H&r free tax If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. H&r free tax Joint return after separate returns. H&r free tax   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. H&r free tax The dollar limit (after reduction for any cost of section 179 property over $2 million). H&r free tax The total cost of section 179 property you and your spouse elected to expense on your separate returns. H&r free tax Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. H&r free tax Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. H&r free tax Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. H&r free tax See Carryover of disallowed deduction , later. H&r free tax Taxable income. H&r free tax   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. H&r free tax In addition to net income or loss from a sole proprietorship, partnership, or S corporation, net income or loss derived from a trade or business also includes the following items. H&r free tax Section 1231 gains (or losses) as discussed in chapter 9. H&r free tax Interest from working capital of your trade or business. H&r free tax Wages, salaries, tips, or other pay earned by you (or your spouse if you file a joint return) as an employee of any employer. H&r free tax   In addition, figure taxable income without regard to any of the following. H&r free tax The section 179 expense deduction. H&r free tax The self-employment tax deduction. H&r free tax Any net operating loss carryback or carryforward. H&r free tax Any unreimbursed employee business expenses. H&r free tax Two different taxable income limits. H&r free tax   In addition to the business income limit for your section 179 expense deduction, you may have a taxable income limit for some other deduction (for example, charitable contributions). H&r free tax You may have to figure the limit for this other deduction taking into account the section 179 expense deduction. H&r free tax If so, complete the following steps. H&r free tax Step Action 1 Figure taxable income without the section 179 expense deduction or the other deduction. H&r free tax 2 Figure a hypothetical section 179 expense deduction using the taxable income figured in Step 1. H&r free tax 3 Subtract the hypothetical section 179 expense deduction figured in Step 2 from the taxable income figured in Step 1. H&r free tax 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. H&r free tax 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in  Step 1. H&r free tax 6 Figure your actual section 179 expense deduction using the taxable income figured in Step 5. H&r free tax 7 Subtract your actual section 179 expense deduction figured in Step 6 from the taxable income figured in Step 1. H&r free tax 8 Figure your actual other deduction using the taxable income figured in Step 7. H&r free tax Example. H&r free tax On February 1, 2013, the XYZ farm corporation purchased and placed in service qualifying section 179 property that cost $500,000. H&r free tax It elects to expense the entire $500,000 cost under section 179. H&r free tax In June, the corporation gave a charitable contribution of $10,000. H&r free tax A corporation's limit on charitable contributions is figured after subtracting any section 179 expense deduction. H&r free tax The business income limit for the section 179 expense deduction is figured after subtracting any allowable charitable contributions. H&r free tax XYZ's taxable income figured without the section 179 expense deduction or the deduction for charitable contributions is $520,000. H&r free tax XYZ figures its section 179 expense deduction and its deduction for charitable contributions as follows. H&r free tax Step 1. H&r free tax Taxable income figured without either deduction is $520,000. H&r free tax Step 2. H&r free tax Using $520,000 as taxable income, XYZ's hypothetical section 179 expense deduction is $500,000. H&r free tax Step 3. H&r free tax $20,000 ($520,000 − $500,000). H&r free tax Step 4. H&r free tax Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. H&r free tax Step 5. H&r free tax $518,000 ($520,000 − $2,000). H&r free tax Step 6. H&r free tax Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 expense deduction. H&r free tax Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 expense deduction. H&r free tax Step 7. H&r free tax $20,000 ($520,000 − $500,000). H&r free tax Step 8. H&r free tax Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. H&r free tax Carryover of disallowed deduction. H&r free tax   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. H&r free tax   The amount you carry over is used in determining your section 179 expense deduction in the next year. H&r free tax However, it is subject to the limits in that year. H&r free tax If you place more than one property in service in a year, you can select the properties for which all or a part of the cost will be carried forward. H&r free tax Your selections must be shown in your books and records. H&r free tax Example. H&r free tax Last year, Joyce Jones placed in service a machine that cost $8,000 and elected to deduct all $8,000 under section 179. H&r free tax The taxable income from her business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) was $6,000. H&r free tax Her section 179 expense deduction was limited to $6,000. H&r free tax The $2,000 cost that was not allowed as a section 179 expense deduction (because of the business income limit) is carried to this year. H&r free tax This year, Joyce placed another machine in service that cost $9,000. H&r free tax Her taxable income from business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) is $10,000. H&r free tax Joyce can deduct the full cost of the machine ($9,000) but only $1,000 of the carryover from last year because of the business income limit. H&r free tax She can carry over the balance of $1,000 to next year. H&r free tax Partnerships and S Corporations The section 179 expense deduction limits apply both to the partnership or S corporation and to each partner or shareholder. H&r free tax The partnership or S corporation determines its section 179 expense deduction subject to the limits. H&r free tax It then allocates the deduction among its partners or shareholders. H&r free tax If you are a partner in a partnership or shareholder of an S corporation, you add the amount allocated from the partnership or S corporation to any section 179 costs not related to the partnership or S corporation and then apply the dollar limit to this total. H&r free tax To determine any reduction in the dollar limit for costs over $560,000, you do not include any of the cost of section 179 property placed in service by the partnership or S corporation. H&r free tax After you apply the dollar limit, you apply the business income limit to any remaining section 179 costs. H&r free tax For more information, see chapter 2 of Publication 946. H&r free tax Example. H&r free tax In 2013, Partnership P placed in service section 179 property with a total cost of $2,160,000. H&r free tax P must reduce its dollar limit by $160,000 ($2,160,000 − $2,000,000). H&r free tax Its maximum section 179 expense deduction is $340,000 ($500,000 − $160,000), and it elects to expense that amount. H&r free tax Because P's taxable income from the active conduct of all its trades or businesses for the year was $400,000, it can deduct the full $340,000. H&r free tax P allocates $100,000 of its section 179 expense deduction and $110,000 of its taxable income to John, one of its partners. H&r free tax John also conducts a business as a sole proprietor and in 2013, placed in service in that business, section 179 property costing $28,000. H&r free tax John's taxable income from that business was $10,000. H&r free tax In addition to the $100,000 allocated from P, he elects to expense the $28,000 of his sole proprietorship's section 179 costs. H&r free tax However, John's deduction is limited to his business taxable income of $120,000 ($110,000 from P plus $10,000 from his sole proprietorship). H&r free tax He carries over $8,000 ($128,000 − $120,000) of the elected section 179 costs to 2014. H&r free tax How Do You Elect the Deduction? You elect to take the section 179 expense deduction by completing Part I of Form 4562. H&r free tax If you elect the deduction for listed property, complete Part V of  Form 4562 before completing Part I. H&r free tax   File Form 4562 with either of the following: Your original tax return (whether or not you filed it timely), or An amended return filed within the time prescribed by law. H&r free tax An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. H&r free tax The amended return must also include any resulting adjustments to taxable income. H&r free tax Revoking an election. H&r free tax   An election (or any specification made in the election) to take a section 179 expense deduction for 2013 can be revoked without IRS approval by filing an amended return. H&r free tax The amended return must be filed within the time prescribed by law. H&r free tax The amended return must also include any resulting adjustments to taxable income (for example, allowable depreciation in that tax year for the item of section 179 property for which the election pertains. H&r free tax ) Once made, the revocation is irrevocable. H&r free tax When Must You Recapture the Deduction? You may have to recapture the section 179 expense deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. H&r free tax In the year the business use drops to 50% or less, you include the recapture amount as ordinary income. H&r free tax You also increase the basis of the property by the recapture amount. H&r free tax Recovery periods for property are discussed later. H&r free tax If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. H&r free tax Instead, use the rules for recapturing depreciation explained in  chapter 9 under Section 1245 Property. H&r free tax   If the property is listed property, do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. H&r free tax Instead, use the rules for recapturing depreciation explained in chapter 5 of Publication 946 under Recapture of Excess Depreciation. H&r free tax Figuring the recapture amount. H&r free tax   To figure the amount to recapture, take the following steps. H&r free tax Figure the allowable depreciation for the section 179 expense deduction you claimed. H&r free tax Begin with the year you placed the property in service and include the year of recapture. H&r free tax Subtract the depreciation figured in (1) from the section 179 expense deduction you actually claimed. H&r free tax The result is the amount you must recapture. H&r free tax Example. H&r free tax In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. H&r free tax The property is not listed property. H&r free tax He elected a $5,000 section 179 expense deduction for the property and also elected not to claim a special depreciation allowance. H&r free tax He used the property only for business in 2011 and 2012. H&r free tax During 2013, he used the property 40% for business and 60% for personal use. H&r free tax He figures his recapture amount as follows. H&r free tax Section 179 expense deduction claimed (2011) $5,000 Minus: Allowable depreciation (instead of section 179 expense deduction):   2011 $1,250   2012 1,875   2013 ($1,250 × 40% (business)) 500 3,625 2013 — Recapture amount $1,375     Paul must include $1,375 in income for 2013. H&r free tax Where to report recapture. H&r free tax   Report any recapture of the section 179 expense deduction as ordinary income in Part IV of Form 4797 and include it in income on Schedule F (Form 1040). H&r free tax Recapture for qualified section 179 GO Zone property. H&r free tax   If any qualified section 179 GO Zone property ceases to be used in the GO Zone in a later year, you must recapture the benefit of the increased section 179 expense deduction as “other income. H&r free tax ” Claiming the Special Depreciation Allowance For qualified property (defined below) placed in service in 2013, you can take an additional 50% special depreciation allowance. H&r free tax The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS. H&r free tax Figure the special depreciation allowance by multiplying the depreciable basis of the qualified property by 50%. H&r free tax What is Qualified Property? For farmers, qualified property generally is certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. H&r free tax Certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. H&r free tax   Certain qualified property (defined below) acquired after December 31, 2007, and before January 1, 2014, is eligible for a 50% special depreciation allowance. H&r free tax   Qualified property includes the following: Tangible property depreciated under the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less. H&r free tax Water utility property. H&r free tax Off-the-shelf computer software. H&r free tax Qualified leasehold improvement property. H&r free tax   Qualified property must also meet all of the following tests: You must have acquired qualified property by purchase after December 31, 2007. H&r free tax If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. H&r free tax Qualified property must be placed in service after December 31, 2007 and placed in service before January 1, 2014 (before January 1, 2015 for certain property with a long production period and for certain aircraft). H&r free tax The original use of the property must begin with you after December 31, 2007. H&r free tax For more information, see chapter 3 of Publication 946. H&r free tax How Can You Elect Not To Claim the Allowance? You can elect, for any class of property, not to deduct the special depreciation allowance for all property in such class placed in service during the tax year. H&r free tax To make the election, attach a statement to your return indicating the class of property for which you are making the election. H&r free tax Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. H&r free tax However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). H&r free tax Attach the election statement to the amended return. H&r free tax On the amended return, write “Filed pursuant to section 301. H&r free tax 9100-2. H&r free tax ” Once made, the election may not be revoked without IRS consent. H&r free tax If you elect not to have the special depreciation allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. H&r free tax When Must You Recapture an Allowance When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. H&r free tax For more information, see chapter 3 of Publication 946. H&r free tax Figuring Depreciation Under MACRS The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. H&r free tax MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). H&r free tax Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. H&r free tax To be sure you can use MACRS to figure depreciation for your property, see Can You Use MACRS To Depreciate Your Property, earlier. H&r free tax This part explains how to determine which MACRS depreciation system applies to your property. H&r free tax It also discusses the following information that you need to know before you can figure depreciation under MACRS. H&r free tax Property's recovery class. H&r free tax Placed-in-service date. H&r free tax Basis for depreciation. H&r free tax Recovery period. H&r free tax Convention. H&r free tax Depreciation method. H&r free tax Finally, this part explains how to use this information to figure your depreciation deduction. H&r free tax Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. H&r free tax You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. H&r free tax Required use of ADS. H&r free tax   You must use ADS for the following property. H&r free tax All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. H&r free tax Listed property used 50% or less in a qualified business use. H&r free tax See Additional Rules for Listed Property , later. H&r free tax Any tax-exempt use property. H&r free tax Any tax-exempt bond-financed property. H&r free tax Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. H&r free tax Any tangible property used predominantly outside the United States during the year. H&r free tax If you are required to use ADS to depreciate your property, you cannot claim the special depreciation allowance. H&r free tax Electing ADS. H&r free tax   Although your property may qualify for GDS, you can elect to use ADS. H&r free tax The election generally must cover all property in the same property class you placed in service during the year. H&r free tax However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. H&r free tax Once you make this election, you can never revoke it. H&r free tax   You make the election by completing line 20 in Part III of Form 4562. H&r free tax Which Property Class Applies Under GDS? The following is a list of the nine property classes under GDS. H&r free tax 3-year property. H&r free tax 5-year property. H&r free tax 7-year property. H&r free tax 10-year property. H&r free tax 15-year property. H&r free tax 20-year property. H&r free tax 25-year property. H&r free tax Residential rental property. H&r free tax Nonresidential real property. H&r free tax See Which Property Class Applies Under GDS in chapter 4 of Publication 946 for examples of the types of property included in each class. H&r free tax What Is the Placed-in-Service Date? You begin to claim depreciation when your property is placed in service for use either in a trade or business or for the production of income. H&r free tax The placed-in-service date for your property is the date the property is ready and available for a specific use. H&r free tax It is therefore not necessarily the date it is first used. H&r free tax If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. H&r free tax See Placed in Service under When Does Depreciation Begin and End , earlier, for examples illustrating when property is placed in service. H&r free tax What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. H&r free tax Reduce that amount by any credits and deductions allocable to the property. H&r free tax The following are examples of some of the credits and deductions that reduce basis. H&r free tax Any deduction for section 179 property. H&r free tax Any deduction for removal of barriers to the disabled and the elderly. H&r free tax Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. H&r free tax Any special depreciation allowance. H&r free tax Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. H&r free tax For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property , earlier. H&r free tax Also, see chapter 6. H&r free tax For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. H&r free tax Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. H&r free tax It is determined based on the depreciation system (GDS or ADS) used. H&r free tax See Table 7-1 for recovery periods under both GDS and ADS for some commonly used assets. H&r free tax For a complete list of recovery periods, see the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. H&r free tax House trailers for farm laborers. H&r free tax   To depreciate a house trailer you supply as housing for those who work on your farm, use one of the following recovery periods if the house trailer is mobile (it has wheels and a history of movement). H&r free tax A 7-year recovery period under GDS. H&r free tax A 10-year recovery period under ADS. H&r free tax   However, if the house trailer is not mobile (its wheels have been removed and permanent utilities and pipes attached to it), use one of the following recovery periods. H&r free tax A 20-year recovery period under GDS. H&r free tax A 25-year recovery period under ADS. H&r free tax Water wells. H&r free tax   Water wells used to provide water for raising poultry and livestock are land improvements. H&r free tax If they are depreciable, use one of the following recovery periods. H&r free tax A 15-year recovery period under GDS. H&r free tax A 20-year recovery period under ADS. H&r free tax   The types of water wells that can be depreciated were discussed earlier in Irrigation systems and water wells under Property Having a Determinable Useful Life . H&r free tax Table 7-1. H&r free tax Farm Property Recovery Periods   Recovery Period in Years Assets GDS ADS Agricultural structures (single purpose) 10 15 Automobiles 5 5 Calculators and copiers 5 6 Cattle (dairy or breeding) 5 7 Communication equipment1 7 10 Computer and peripheral equipment 5 5 Drainage facilities 15 20 Farm buildings2 20 25 Farm machinery and equipment 7 10 Fences (agricultural) 7 10 Goats and sheep (breeding) 5 5 Grain bin 7 10 Hogs (breeding) 3 3 Horses (age when placed in service)     Breeding and working (12 years or less) 7 10 Breeding and working (more than 12 years) 3 10 Racing horses 3 12 Horticultural structures (single purpose) 10 15 Logging machinery and equipment3 5 6 Nonresidential real property 394 40 Office furniture, fixtures, and equipment (not calculators, copiers, or typewriters) 7 10 Paved lots 15 20 Residential rental property 27. H&r free tax 5 40 Tractor units (over-the-road) 3 4 Trees or vines bearing fruit or nuts 10 20 Truck (heavy duty, unloaded weight 13,000 lbs. H&r free tax or more) 5 6 Truck (actual weight less than 13,000 lbs) 5 5 Water wells 15 20 1 Not including communication equipment listed in other classes. H&r free tax 2 Not including single purpose agricultural or horticultural structures. H&r free tax 3 Used by logging and sawmill operators for cutting of timber. H&r free tax 4 For property placed in service after May 12, 1993; for property placed in service before May 13, 1993,  the recovery period is 31. H&r free tax 5 years. H&r free tax Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. H&r free tax The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. H&r free tax Use one of the following conventions. H&r free tax The half-year convention. H&r free tax The mid-month convention. H&r free tax The mid-quarter convention. H&r free tax For a detailed explanation of each convention, see Which Convention Applies in chapter 4 of Publication 946. H&r free tax Also, see the Instructions for Form 4562. H&r free tax Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. H&r free tax The 200% declining balance method over a GDS recovery period. H&r free tax The 150% declining balance method over a GDS recovery period. H&r free tax The straight line method over a GDS recovery period. H&r free tax The straight line method over an ADS recovery period. H&r free tax Depreciation Table. H&r free tax   The following table lists the types of property you can depreciate under each method. H&r free tax The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. H&r free tax Depreciation Table System/Method   Type of Property GDS using  150% DB • All property used in a farming business (except real property)   • All 15- and 20-year property   • Nonfarm 3-, 5-, 7-, and 10-year property1 GDS using SL • Nonresidential real property   • Residential rental property   • Trees or vines bearing fruit or nuts   • All 3-, 5-, 7-, 10-, 15-, and 20-year property1 ADS using SL • Property used predomi- nantly outside the United States   • Farm property used when an election not to apply the uniform capitalization rules is in effect   • Tax-exempt property   • Tax-exempt bond-financed property   • Imported property2   • Any property for which you elect to use this method1 GDS using  200% DB • Nonfarm 3-, 5-, 7-, and 10-year property 1Elective method 2See section 168(g)(6) of the Internal Revenue  Code Property used in farming business. H&r free tax   For personal property placed in service after 1988 in a farming business, you must use the 150% declining balance method over a GDS recovery period or you can elect one of the following methods. H&r free tax The straight line method over a GDS recovery period. H&r free tax The straight line method over an ADS recovery period. H&r free tax For property placed in service before 1999, you could have elected to use the 150% declining balance method using the ADS recovery periods for certain property classes. H&r free tax If you made this election, continue to use the same method and recovery period for that property. H&r free tax Real property. H&r free tax   You can depreciate real property using the straight line method under either GDS or ADS. H&r free tax Switching to straight line. H&r free tax   If you use a declining balance method, you switch to the straight line method in the year it provides an equal or greater deduction. H&r free tax If you use the MACRS percentage tables, discussed later under How Is the Depreciation Deduction Figured , you do not need to determine in which year your deduction is greater using the straight line method. H&r free tax The tables have the switch to the straight line method built into their rates. H&r free tax Fruit or nut trees and vines. H&r free tax   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a 10-year recovery period. H&r free tax ADS required for some farmers. H&r free tax   If you elect not to apply the uniform capitalization rules to any plant shown in Table 6-1 of chapter 6 and produced in your farming business, you must use ADS for all property you place in service in any year the election is in effect. H&r free tax See chapter 6 for a discussion of the application of the uniform capitalization rules to farm property. H&r free tax Electing a different method. H&r free tax   As shown in the Depreciation Table , you can elect a different method for depreciation for certain types of property. H&r free tax You must make the election by the due date of the return (including extensions) for the year you placed the property in service. H&r free tax However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). H&r free tax Attach the election to the amended return and write “Filed pursuant to section 301. H&r free tax 9100-2” on the election statement. H&r free tax File the amended return at the same address you filed the original return. H&r free tax Once you make the election, you cannot change it. H&r free tax    If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. H&r free tax However, you can make the election on a property-by-property basis for residential rental and nonresidential real property. H&r free tax Straight line election. H&r free tax   Instead of using the declining balance method, you can elect to use the straight line method over the GDS recovery period. H&r free tax Make the election by entering “S/L” under column (f) in Part III of Form 4562. H&r free tax ADS election. H&r free tax   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. H&r free tax ADS uses the straight line method of depreciation over the ADS recovery periods, which are generally longer than the GDS recovery periods. H&r free tax The ADS recovery periods for many assets used in the business of farming are listed in Table 7–1. H&r free tax Additional ADS recovery periods for other classes of property may be found in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. H&r free tax How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed-in-service date, basis amount, recovery period, convention, and depreciation method that applies to your property. H&r free tax Then you are ready to figure your depreciation deduction. H&r free tax You can figure it in one of two ways. H&r free tax You can use the percentage tables provided by the IRS. H&r free tax You can figure your own deduction without using the tables. H&r free tax Figuring your own MACRS deduction will generally result in a slightly different amount than using the tables. H&r free tax Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. H&r free tax These percentage tables are in Appendix A of Publication 946. H&r free tax Rules for using the tables. H&r free tax   The following rules cover the use of the percentage tables. H&r free tax You must apply the rates in the percentage tables to your property's unadjusted basis. H&r free tax Unadjusted basis is the same basis amount you would use to figure gain on a sale but figured without reducing your original basis by any MACRS depreciation taken in earlier years. H&r free tax You cannot use the percentage tables for a short tax year. H&r free tax See chapter 4 of Publication 946 for information on how to figure the deduction for a short tax year. H&r free tax You generally must continue to use them for the entire recovery period of the property. H&r free tax You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to the property, which is depreciated as a separate property. H&r free tax Basis adjustment due to casualty loss. H&r free tax   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. H&r free tax For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. H&r free tax See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. H&r free tax Figuring depreciation using the 150% DB method and half-year convention. H&r free tax    Table 7-2 has the percentages for 3-, 5-, 7-, and 20-year property. H&r free tax The percentages are based on the 150% declining balance method with a change to the straight line method. H&r free tax This table covers only the half-year convention and the first 8 years for 20-year property. H&r free tax See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. H&r free tax   The following examples show how to figure depreciation under MACRS using the percentages in Table 7-2 . H&r free tax Example 1. H&r free tax During the year, you bought an item of 7-year property for $10,000 and placed it in service. H&r free tax You do not elect a section 179 expense deduction for this property. H&r free tax In addition, the property is not qualified property for purposes of the special depreciation allowance. H&r free tax The unadjusted basis of the property is $10,000. H&r free tax You use the percentages in Table 7-2 to figure your deduction. H&r free tax Since this is 7-year property, you multiply $10,000 by 10. H&r free tax 71% to get this year's depreciation of $1,071. H&r free tax For next year, your depreciation will be $1,913 ($10,000 × 19. H&r free tax 13%). H&r free tax Example 2. H&r free tax You had a barn constructed on your farm at a cost of $20,000. H&r free tax You placed the barn in service this year. H&r free tax You elect not to claim the special depreciation allowance. H&r free tax The barn is 20-year property and you use the table percentages to figure your deduction. H&r free tax You figure this year's depreciation by multiplying $20,000 (unadjusted basis) by 3. H&r free tax 75% to get $750. H&r free tax For next year, your depreciation will be $1,443. H&r free tax 80 ($20,000 × 7. H&r free tax 219%). H&r free tax Table 7-2. H&r free tax 150% Declining Balance Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 25. H&r free tax 0 % 15. H&r free tax 00 % 10. H&r free tax 71 % 3. H&r free tax 750 % 2 37. H&r free tax 5   25. H&r free tax 50   19. H&r free tax 13   7. H&r free tax 219   3 25. H&r free tax 0   17. H&r free tax 85   15. H&r free tax 03   6. H&r free tax 677   4 12. H&r free tax 5   16. H&r free tax 66   12. H&r free tax 25   6. H&r free tax 177   5     16. H&r free tax 66   12. H&r free tax 25   5. H&r free tax 713   6     8. H&r free tax 33   12. H&r free tax 25   5. H&r free tax 285   7         12. H&r free tax 25   4. H&r free tax 888   8         6. H&r free tax 13   4. H&r free tax 522   Figuring depreciation using the straight line method and half-year convention. H&r free tax   The following table has the straight line percentages for 3-, 5-, 7-, and 20-year property using the half-year convention. H&r free tax The table covers only the first 8 years for 20-year property. H&r free tax See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. H&r free tax Table 7-3. H&r free tax Straight Line Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 16. H&r free tax 67 % 10 % 7. H&r free tax 14 % 2. H&r free tax 5 % 2 33. H&r free tax 33   20   14. H&r free tax 29   5. H&r free tax 0   3 33. H&r free tax 33   20   14. H&r free tax 29   5. H&r free tax 0   4 16. H&r free tax 67   20   14. H&r free tax 28   5. H&r free tax 0   5     20   14. H&r free tax 29   5. H&r free tax 0   6     10   14. H&r free tax 28   5. H&r free tax 0   7         14. H&r free tax 29   5. H&r free tax 0   8         7. H&r free tax 14   5. H&r free tax 0