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How To Fill Out 1040x

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How To Fill Out 1040x

How to fill out 1040x Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. How to fill out 1040x S. How to fill out 1040x Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. How to fill out 1040x S. How to fill out 1040x Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. How to fill out 1040x S. How to fill out 1040x Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. How to fill out 1040x Employee business expenses. How to fill out 1040x Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. How to fill out 1040x You can change your choice for each year's taxes. How to fill out 1040x To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. How to fill out 1040x S. How to fill out 1040x tax return. How to fill out 1040x However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. How to fill out 1040x See How To Figure the Credit , later. How to fill out 1040x To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. How to fill out 1040x Figure your tax both ways—claiming the credit and claiming the deduction. How to fill out 1040x Then fill out your return the way that benefits you more. How to fill out 1040x See Why Choose the Credit, later. How to fill out 1040x Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. How to fill out 1040x If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. How to fill out 1040x You cannot deduct any of them. How to fill out 1040x Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. How to fill out 1040x You cannot take a credit for any of them. How to fill out 1040x See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. How to fill out 1040x There are exceptions to this general rule, which are described next. How to fill out 1040x Exceptions for foreign taxes not allowed as a credit. How to fill out 1040x   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. How to fill out 1040x Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. How to fill out 1040x S. How to fill out 1040x tax purposes. How to fill out 1040x For more information, see Internal Revenue Code section 901(m). How to fill out 1040x The IRS intends to issue guidance that will explain this provision in greater detail. How to fill out 1040x   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. How to fill out 1040x Foreign taxes that are not income taxes. How to fill out 1040x   In most cases, only foreign income taxes qualify for the foreign tax credit. How to fill out 1040x Other taxes, such as foreign real and personal property taxes, do not qualify. How to fill out 1040x But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. How to fill out 1040x   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. How to fill out 1040x However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). How to fill out 1040x Carrybacks and carryovers. How to fill out 1040x   There is a limit on the credit you can claim in a tax year. How to fill out 1040x If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. How to fill out 1040x If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. How to fill out 1040x That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. How to fill out 1040x   For more information on the limit, see How To Figure the Credit , later. How to fill out 1040x For more information on carrybacks and carryovers, see Carryback and Carryover , later. How to fill out 1040x Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. How to fill out 1040x You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. How to fill out 1040x Example. How to fill out 1040x You paid foreign taxes for the last 13 years and chose to deduct them on your U. How to fill out 1040x S. How to fill out 1040x income tax returns. How to fill out 1040x You were timely in both filing your returns and paying your U. How to fill out 1040x S. How to fill out 1040x tax liability. How to fill out 1040x In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. How to fill out 1040x Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). How to fill out 1040x Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. How to fill out 1040x Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. How to fill out 1040x If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. How to fill out 1040x Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. How to fill out 1040x Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. How to fill out 1040x However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. How to fill out 1040x You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. How to fill out 1040x See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. How to fill out 1040x Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. How to fill out 1040x In most cases, if the foreign tax rate is higher than the U. How to fill out 1040x S. How to fill out 1040x rate, there will be no U. How to fill out 1040x S. How to fill out 1040x tax on the foreign income. How to fill out 1040x If the foreign tax rate is lower than the U. How to fill out 1040x S. How to fill out 1040x rate, U. How to fill out 1040x S. How to fill out 1040x tax on the foreign income will be limited to the difference between the rates. How to fill out 1040x The foreign tax credit can only reduce U. How to fill out 1040x S. How to fill out 1040x taxes on foreign source income; it cannot reduce U. How to fill out 1040x S. How to fill out 1040x taxes on U. How to fill out 1040x S. How to fill out 1040x source income. How to fill out 1040x Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. How to fill out 1040x This is because: A credit reduces your actual U. How to fill out 1040x S. How to fill out 1040x income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. How to fill out 1040x You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. How to fill out 1040x (See Limit on credit under How To Figure the Credit, later. How to fill out 1040x ) Example 1. How to fill out 1040x For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. How to fill out 1040x None of the dividends are qualified dividends. How to fill out 1040x You file a joint return and can claim two $3,900 exemptions. How to fill out 1040x You had to pay $2,000 in foreign income taxes on the dividend income. How to fill out 1040x If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. How to fill out 1040x Your taxable income then is $57,500 and your tax is $7,736. How to fill out 1040x If you take the credit instead, your itemized deductions are only $13,000. How to fill out 1040x Your taxable income then is $59,500 and your tax before the credit is $8,036. How to fill out 1040x After the credit, however, your tax is only $6,036. How to fill out 1040x Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. How to fill out 1040x Example 2. How to fill out 1040x In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. How to fill out 1040x You report on your U. How to fill out 1040x S. How to fill out 1040x return this income as well as $56,000 of U. How to fill out 1040x S. How to fill out 1040x source wages and an allowable $49,000 partnership loss from a U. How to fill out 1040x S. How to fill out 1040x partnership. How to fill out 1040x Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. How to fill out 1040x You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. How to fill out 1040x If you deduct the foreign tax on your U. How to fill out 1040x S. How to fill out 1040x return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. How to fill out 1040x If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. How to fill out 1040x You can take a credit of only $113 because of limits discussed later. How to fill out 1040x Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. How to fill out 1040x If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). How to fill out 1040x When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. How to fill out 1040x Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. How to fill out 1040x “Tax year” refers to the tax year for which your U. How to fill out 1040x S. How to fill out 1040x return is filed, not the tax year for which your foreign return is filed. How to fill out 1040x Accrual method of accounting. How to fill out 1040x   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. How to fill out 1040x You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. How to fill out 1040x   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. How to fill out 1040x Generally, this occurs on the last day of the tax year for which your foreign return is filed. How to fill out 1040x Contesting your foreign tax liability. How to fill out 1040x   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. How to fill out 1040x However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. How to fill out 1040x Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. How to fill out 1040x If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . How to fill out 1040x You may have to post a bond. How to fill out 1040x   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. How to fill out 1040x   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. How to fill out 1040x Cash method of accounting. How to fill out 1040x   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. How to fill out 1040x You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. How to fill out 1040x Choosing to take credit in the year taxes accrue. How to fill out 1040x   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. How to fill out 1040x You make the choice by checking the box in Part II of Form 1116. How to fill out 1040x Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. How to fill out 1040x   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. How to fill out 1040x You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. How to fill out 1040x   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. How to fill out 1040x Credit based on taxes paid in earlier year. How to fill out 1040x   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. How to fill out 1040x Example. How to fill out 1040x Last year you took the credit based on taxes paid. How to fill out 1040x This year you chose to take the credit based on taxes accrued. How to fill out 1040x During the year you paid foreign income taxes owed for last year. How to fill out 1040x You also accrued foreign income taxes for this year that you did not pay by the end of the year. How to fill out 1040x You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. How to fill out 1040x Foreign Currency and Exchange Rates U. How to fill out 1040x S. How to fill out 1040x income tax is imposed on income expressed in U. How to fill out 1040x S. How to fill out 1040x dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. How to fill out 1040x Therefore, fluctuations in the value of the foreign currency relative to the U. How to fill out 1040x S. How to fill out 1040x dollar may affect the foreign tax credit. How to fill out 1040x Translating foreign currency into U. How to fill out 1040x S. How to fill out 1040x dollars. How to fill out 1040x   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. How to fill out 1040x S. How to fill out 1040x dollars. How to fill out 1040x How and when you do this depends on your functional currency. How to fill out 1040x In most cases, your functional currency is the U. How to fill out 1040x S. How to fill out 1040x dollar unless you are required to use the currency of a foreign country. How to fill out 1040x   You must make all federal income tax determinations in your functional currency. How to fill out 1040x The U. How to fill out 1040x S. How to fill out 1040x dollar is the functional currency for all taxpayers except some qualified business units. How to fill out 1040x A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. How to fill out 1040x Unless you are self-employed, your functional currency is the U. How to fill out 1040x S. How to fill out 1040x dollar. How to fill out 1040x   Even if you are self-employed and have a qualified business unit, your functional currency is the U. How to fill out 1040x S. How to fill out 1040x dollar if any of the following apply. How to fill out 1040x You conduct the business primarily in dollars. How to fill out 1040x The principal place of business is located in the United States. How to fill out 1040x You choose to or are required to use the dollar as your functional currency. How to fill out 1040x The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. How to fill out 1040x   If your functional currency is the U. How to fill out 1040x S. How to fill out 1040x dollar, you must immediately translate into dollars all items of income, expense, etc. How to fill out 1040x , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. How to fill out 1040x If there is more than one exchange rate, use the one that most properly reflects your income. How to fill out 1040x In most cases, you can get exchange rates from banks and U. How to fill out 1040x S. How to fill out 1040x Embassies. How to fill out 1040x   If your functional currency is not the U. How to fill out 1040x S. How to fill out 1040x dollar, make all income tax determinations in your functional currency. How to fill out 1040x At the end of the year, translate the results, such as income or loss, into U. How to fill out 1040x S. How to fill out 1040x dollars to report on your income tax return. How to fill out 1040x    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. How to fill out 1040x   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. How to fill out 1040x If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. How to fill out 1040x If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. How to fill out 1040x   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). How to fill out 1040x Exception. How to fill out 1040x   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. How to fill out 1040x This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. How to fill out 1040x The foreign taxes are paid on or after the first day of the tax year to which they relate. How to fill out 1040x The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. How to fill out 1040x The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). How to fill out 1040x (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. How to fill out 1040x )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. How to fill out 1040x Election to use exchange rate on date paid. How to fill out 1040x   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. How to fill out 1040x If any of the accrued taxes are unpaid, you must translate them into U. How to fill out 1040x S. How to fill out 1040x dollars using the exchange rate on the last day of the U. How to fill out 1040x S. How to fill out 1040x tax year to which those taxes relate. How to fill out 1040x You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. How to fill out 1040x S. How to fill out 1040x dollar functional currency. How to fill out 1040x Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. How to fill out 1040x The election is available for tax years beginning after 2004. How to fill out 1040x It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. How to fill out 1040x Make the election by attaching a statement to the applicable tax return. How to fill out 1040x The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. How to fill out 1040x S. How to fill out 1040x dollar functional currency. How to fill out 1040x Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. How to fill out 1040x S. How to fill out 1040x foreign tax credit claimed. How to fill out 1040x The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. How to fill out 1040x If a foreign tax redetermination occurs, a redetermination of your U. How to fill out 1040x S. How to fill out 1040x tax liability is required if any of the following conditions apply. How to fill out 1040x The accrued taxes when paid differ from the amounts claimed as a credit. How to fill out 1040x The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. How to fill out 1040x If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. How to fill out 1040x You will not be allowed a credit for the unpaid taxes until you pay them. How to fill out 1040x When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. How to fill out 1040x S. How to fill out 1040x dollars using the exchange rate as of the date they were paid. How to fill out 1040x The foreign tax credit is allowed for the year to which the foreign tax relates. How to fill out 1040x See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. How to fill out 1040x The foreign taxes you paid are refunded in whole or in part. How to fill out 1040x For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. How to fill out 1040x However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. How to fill out 1040x S. How to fill out 1040x tax year. How to fill out 1040x In this case, you must adjust your U. How to fill out 1040x S. How to fill out 1040x tax in the tax year in which the accrued foreign taxes are paid. How to fill out 1040x Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. How to fill out 1040x S. How to fill out 1040x tax liability for each tax year affected by the redetermination. How to fill out 1040x In most cases, you must file Form 1040X, Amended U. How to fill out 1040x S. How to fill out 1040x Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. How to fill out 1040x S. How to fill out 1040x tax liability for the year or years affected. How to fill out 1040x See Contents of statement , later. How to fill out 1040x You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. How to fill out 1040x There are other exceptions to this requirement. How to fill out 1040x They are discussed later under Due date of notification to IRS . How to fill out 1040x Contents of statement. How to fill out 1040x   The statement must include all of the following. How to fill out 1040x Your name, address, and taxpayer identification number. How to fill out 1040x The tax year or years that are affected by the foreign tax redetermination. How to fill out 1040x The date or dates the foreign taxes were accrued, if applicable. How to fill out 1040x The date or dates the foreign taxes were paid. How to fill out 1040x The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. How to fill out 1040x Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. How to fill out 1040x   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. How to fill out 1040x   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). How to fill out 1040x Due date of notification to IRS. How to fill out 1040x   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. How to fill out 1040x There is no limit on the time the IRS has to redetermine and assess the correct U. How to fill out 1040x S. How to fill out 1040x tax due. How to fill out 1040x If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. How to fill out 1040x S. How to fill out 1040x taxes. How to fill out 1040x See Time Limit on Refund Claims , later. How to fill out 1040x   Exceptions to this due date are explained in the next two paragraphs. How to fill out 1040x Multiple redeterminations of U. How to fill out 1040x S. How to fill out 1040x tax liability for same tax year. How to fill out 1040x   Where more than one foreign tax redetermination requires a redetermination of U. How to fill out 1040x S. How to fill out 1040x tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. How to fill out 1040x If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. How to fill out 1040x However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. How to fill out 1040x S. How to fill out 1040x tax liability is required may occur after the due date for providing that notification. How to fill out 1040x In this situation, you may have to file more than one Form 1040X for that tax year. How to fill out 1040x Additional U. How to fill out 1040x S. How to fill out 1040x tax due eliminated by foreign tax credit carryback or carryover. How to fill out 1040x   If a foreign tax redetermination requires a redetermination of U. How to fill out 1040x S. How to fill out 1040x tax liability that would otherwise result in an additional amount of U. How to fill out 1040x S. How to fill out 1040x tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. How to fill out 1040x Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. How to fill out 1040x You must file the statement by the due date (with extensions) of that return. How to fill out 1040x The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. How to fill out 1040x S. How to fill out 1040x tax liability is required). How to fill out 1040x Failure-to-notify penalty. How to fill out 1040x   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. How to fill out 1040x   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. How to fill out 1040x S. How to fill out 1040x tax. How to fill out 1040x This penalty cannot be more than 25% of the tax due. How to fill out 1040x Foreign tax refund. How to fill out 1040x   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. How to fill out 1040x S. How to fill out 1040x tax for the time before the date of the refund. How to fill out 1040x   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. How to fill out 1040x The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. How to fill out 1040x Interest also is owed from the time you receive a refund until you pay the additional tax due. How to fill out 1040x Foreign tax imposed on foreign refund. How to fill out 1040x   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. How to fill out 1040x However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. How to fill out 1040x Example. How to fill out 1040x You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. How to fill out 1040x When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. How to fill out 1040x Time Limit on Refund Claims You have 10 years to file a claim for refund of U. How to fill out 1040x S. How to fill out 1040x tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. How to fill out 1040x The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. How to fill out 1040x You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. How to fill out 1040x The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). How to fill out 1040x The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. How to fill out 1040x See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. How to fill out 1040x Who Can Take the Credit? U. How to fill out 1040x S. How to fill out 1040x citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. How to fill out 1040x S. How to fill out 1040x tax on foreign source income may be able to take a foreign tax credit. How to fill out 1040x U. How to fill out 1040x S. How to fill out 1040x Citizens If you are a U. How to fill out 1040x S. How to fill out 1040x citizen, you are taxed by the United States on your worldwide income wherever you live. How to fill out 1040x You are normally entitled to take a credit for foreign taxes you pay or accrue. How to fill out 1040x Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. How to fill out 1040x S. How to fill out 1040x citizens. How to fill out 1040x If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. How to fill out 1040x Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. How to fill out 1040x For information on alien status, see Publication 519. How to fill out 1040x Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. How to fill out 1040x However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. How to fill out 1040x S. How to fill out 1040x possession on income from foreign sources that is effectively connected with a trade or business in the United States. How to fill out 1040x But if you must pay tax to a foreign country or U. How to fill out 1040x S. How to fill out 1040x possession on income from U. How to fill out 1040x S. How to fill out 1040x sources only because you are a citizen or a resident of that country or U. How to fill out 1040x S. How to fill out 1040x possession, do not use that tax in figuring the amount of your credit. How to fill out 1040x For information on alien status and effectively connected income, see Publication 519. How to fill out 1040x What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. How to fill out 1040x The tax must be imposed on you. How to fill out 1040x You must have paid or accrued the tax. How to fill out 1040x The tax must be the legal and actual foreign tax liability. How to fill out 1040x The tax must be an income tax (or a tax in lieu of an income tax). How to fill out 1040x Certain foreign taxes do not qualify for the credit even if the four tests are met. How to fill out 1040x See Foreign Taxes for Which You Cannot Take a Credit, later. How to fill out 1040x Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. How to fill out 1040x S. How to fill out 1040x possession. How to fill out 1040x For example, a tax that is deducted from your wages is considered to be imposed on you. How to fill out 1040x You cannot shift the right to claim the credit by contract or other means. How to fill out 1040x Foreign country. How to fill out 1040x   A foreign country includes any foreign state and its political subdivisions. How to fill out 1040x Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. How to fill out 1040x U. How to fill out 1040x S. How to fill out 1040x possessions. How to fill out 1040x   For foreign tax credit purposes, all qualified taxes paid to U. How to fill out 1040x S. How to fill out 1040x possessions are considered foreign taxes. How to fill out 1040x For this purpose, U. How to fill out 1040x S. How to fill out 1040x possessions include Puerto Rico and American Samoa. How to fill out 1040x   When the term “foreign country” is used in this publication, it includes U. How to fill out 1040x S. How to fill out 1040x possessions unless otherwise stated. How to fill out 1040x You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. How to fill out 1040x S. How to fill out 1040x possession. How to fill out 1040x However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. How to fill out 1040x Joint return. How to fill out 1040x   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. How to fill out 1040x Combined income. How to fill out 1040x   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. How to fill out 1040x 901-2(f)(3)(iii). How to fill out 1040x Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. How to fill out 1040x   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. How to fill out 1040x However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. How to fill out 1040x For more details, see paragraphs (f) and (h) of Regulations section 1. How to fill out 1040x 901-2. How to fill out 1040x For similar rules applicable to prior tax years, see Regulations section 1. How to fill out 1040x 901-2 (revised as of April 1, 2011). How to fill out 1040x Example. How to fill out 1040x You and your spouse reside in Country X, which imposes income tax on your combined incomes. How to fill out 1040x Both of you use the “u” as your functional currency. How to fill out 1040x Country X apportions tax based on income. How to fill out 1040x You had income of 30,000u and your spouse had income of 20,000u. How to fill out 1040x Your filing status on your U. How to fill out 1040x S. How to fill out 1040x income tax return is married filing separately. How to fill out 1040x You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. How to fill out 1040x S income tax return. How to fill out 1040x Your spouse can claim only 40% (20,000u/50,000u). How to fill out 1040x Partner or S corporation shareholder. How to fill out 1040x   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. How to fill out 1040x These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. How to fill out 1040x However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. How to fill out 1040x Beneficiary. How to fill out 1040x   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. How to fill out 1040x This amount will be shown on the Schedule K-1 you receive from the estate or trust. How to fill out 1040x However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. How to fill out 1040x Mutual fund shareholder. How to fill out 1040x   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. How to fill out 1040x You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. How to fill out 1040x If you do not receive this information, you will need to contact the fund. How to fill out 1040x Controlled foreign corporation shareholder. How to fill out 1040x   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. How to fill out 1040x If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. How to fill out 1040x Controlled foreign corporation. How to fill out 1040x   A controlled foreign corporation is a foreign corporation in which U. How to fill out 1040x S. How to fill out 1040x shareholders own more than 50% of the voting power or value of the stock. How to fill out 1040x You are considered a U. How to fill out 1040x S. How to fill out 1040x shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. How to fill out 1040x See Internal Revenue Code sections 951(b) and 958(b) for more information. How to fill out 1040x Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. How to fill out 1040x Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. How to fill out 1040x Foreign tax refund. How to fill out 1040x   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. How to fill out 1040x   For example, the United States has tax treaties with many countries allowing U. How to fill out 1040x S. How to fill out 1040x citizens and residents reductions in the rates of tax of those foreign countries. How to fill out 1040x However, some treaty countries require U. How to fill out 1040x S. How to fill out 1040x citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. How to fill out 1040x The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. How to fill out 1040x Subsidy received. How to fill out 1040x   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. How to fill out 1040x This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. How to fill out 1040x A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. How to fill out 1040x   The term “subsidy” includes any type of benefit. How to fill out 1040x Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. How to fill out 1040x Shareholder receiving refund for corporate tax in integrated system. How to fill out 1040x   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. How to fill out 1040x You may be able to claim a refund of these taxes from the foreign government. How to fill out 1040x You must include the refund (including any amount withheld) in your income in the year received. How to fill out 1040x Any tax withheld from the refund is a qualified foreign tax. How to fill out 1040x Example. How to fill out 1040x You are a shareholder of a French corporation. How to fill out 1040x You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. How to fill out 1040x The French government imposes a 15% withholding tax ($15) on the refund you received. How to fill out 1040x You receive a check for $85. How to fill out 1040x You include $100 in your income. How to fill out 1040x The $15 of tax withheld is a qualified foreign tax. How to fill out 1040x Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. How to fill out 1040x Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. How to fill out 1040x Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. How to fill out 1040x See Taxes in Lieu of Income Taxes , later. How to fill out 1040x Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. How to fill out 1040x A foreign levy is an income tax only if it meets both of the following requirements. How to fill out 1040x It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. How to fill out 1040x The predominant character of the tax is that of an income tax in the U. How to fill out 1040x S. How to fill out 1040x sense. How to fill out 1040x A foreign levy may meet these requirements even if the foreign tax law differs from U. How to fill out 1040x S. How to fill out 1040x tax law. How to fill out 1040x The foreign law may include in income items that U. How to fill out 1040x S. How to fill out 1040x law does not include, or it may allow certain exclusions or deductions that U. How to fill out 1040x S. How to fill out 1040x law does not allow. How to fill out 1040x Specific economic benefit. How to fill out 1040x   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. How to fill out 1040x   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. How to fill out 1040x   However, see the exception discussed later under Pension, unemployment, and disability fund payments . How to fill out 1040x Economic benefits. How to fill out 1040x   Economic benefits include the following. How to fill out 1040x Goods. How to fill out 1040x Services. How to fill out 1040x Fees or other payments. How to fill out 1040x Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. How to fill out 1040x Discharges of contractual obligations. How to fill out 1040x   In most cases, the right or privilege merely to engage in business is not an economic benefit. How to fill out 1040x Dual-capacity taxpayers. How to fill out 1040x   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. How to fill out 1040x ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. How to fill out 1040x    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. How to fill out 1040x   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. How to fill out 1040x    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. How to fill out 1040x For more information about these agreements, see Publication 54. How to fill out 1040x Soak-up taxes. How to fill out 1040x   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. How to fill out 1040x A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. How to fill out 1040x This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. How to fill out 1040x Penalties and interest. How to fill out 1040x   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. How to fill out 1040x Taxes not based on income. How to fill out 1040x   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. How to fill out 1040x Taxes based on assets, such as property taxes, do not qualify for the credit. How to fill out 1040x Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. How to fill out 1040x A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. How to fill out 1040x A tax in lieu of an income tax does not have to be based on realized net income. How to fill out 1040x A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. How to fill out 1040x In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. How to fill out 1040x However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. How to fill out 1040x The soak-up tax. How to fill out 1040x The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. How to fill out 1040x Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. How to fill out 1040x These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. How to fill out 1040x S. How to fill out 1040x persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. How to fill out 1040x Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. How to fill out 1040x S. How to fill out 1040x gross income. How to fill out 1040x Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. How to fill out 1040x S. How to fill out 1040x income under the foreign earned income exclusion or the foreign housing exclusion. How to fill out 1040x See Publication 54 for more information on the foreign earned income and housing exclusions. How to fill out 1040x Wages completely excluded. How to fill out 1040x   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. How to fill out 1040x Wages partly excluded. How to fill out 1040x   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. How to fill out 1040x You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. How to fill out 1040x   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. How to fill out 1040x Deductible expenses do not include the foreign housing deduction. How to fill out 1040x   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). How to fill out 1040x If the foreign law taxes foreign earned income and some other income (for example, earned income from U. How to fill out 1040x S. How to fill out 1040x sources or a type of income not subject to U. How to fill out 1040x S. How to fill out 1040x tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. How to fill out 1040x Example. How to fill out 1040x You are a U. How to fill out 1040x S. How to fill out 1040x citizen and a cash basis taxpayer, employed by Company X and living in Country A. How to fill out 1040x Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. How to fill out 1040x To find that part, do the following. How to fill out 1040x First, find the amount of business expenses allocable to excluded wages and therefore not deductible. How to fill out 1040x To do this, multiply the otherwise deductible expenses by a fraction. How to fill out 1040x That fraction is the excluded wages over your foreign earned income. How to fill out 1040x   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. How to fill out 1040x To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). How to fill out 1040x The result is $81,984. How to fill out 1040x Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). How to fill out 1040x Finally, multiply the foreign tax you paid by the resulting fraction. How to fill out 1040x   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. How to fill out 1040x Taxes on Income From Puerto Rico Exempt From U. How to fill out 1040x S. How to fill out 1040x Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. How to fill out 1040x For information on figuring the reduction, see Publication 570. How to fill out 1040x Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. How to fill out 1040x For more information on this exclusion, see Publication 570. How to fill out 1040x Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. How to fill out 1040x However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. How to fill out 1040x Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. How to fill out 1040x However, you can claim an itemized deduction for these taxes. How to fill out 1040x See Choosing To Take Credit or Deduction , earlier. How to fill out 1040x Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. How to fill out 1040x The following countries meet this description for 2013. How to fill out 1040x Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. How to fill out 1040x Cuba. How to fill out 1040x Iran. How to fill out 1040x Libya (but see Note later). How to fill out 1040x North Korea. How to fill out 1040x Sudan. How to fill out 1040x Syria. How to fill out 1040x Waiver of denial of the credit. How to fill out 1040x   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. How to fill out 1040x S. How to fill out 1040x companies in the sanctioned country. How to fill out 1040x The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. How to fill out 1040x Note. How to fill out 1040x Effective December 10, 2004, the President granted a waiver to Libya. How to fill out 1040x Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. How to fill out 1040x Limit on credit. How to fill out 1040x   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. How to fill out 1040x You must fill out a separate Form 1116 for this income. How to fill out 1040x This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. How to fill out 1040x Example. How to fill out 1040x You lived and worked in Iran until August, when you were transferred to Italy. How to fill out 1040x You paid taxes to each country on the income earned in that country. How to fill out 1040x You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. How to fill out 1040x Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. How to fill out 1040x You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. How to fill out 1040x Figuring the credit when a sanction ends. How to fill out 1040x    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. How to fill out 1040x For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. How to fill out 1040x Example. How to fill out 1040x The sanctions against Country X ended on July 31. How to fill out 1040x On August 19, you receive a distribution from a mutual fund of Country X income. How to fill out 1040x The fund paid Country X income tax for you on the distribution. How to fill out 1040x Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. How to fill out 1040x Amounts for the nonsanctioned period. How to fill out 1040x   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. How to fill out 1040x Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. How to fill out 1040x   Number of nonsanctioned days in year  Number of days in year Example. How to fill out 1040x You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. How to fill out 1040x Sanctions against Country X ended on July 11, 2013. How to fill out 1040x You are unable to determine how much of the income or tax is for the nonsanctioned period. How to fill out 1040x Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. How to fill out 1040x You would compute the income for the nonsanctioned period as follows. How to fill out 1040x 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. How to fill out 1040x 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. How to fill out 1040x Further information. How to fill out 1040x   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. How to fill out 1040x This Cumulative Bulletin can be found in many libraries and IRS offices. How to fill out 1040x Table 1. How to fill out 1040x Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. How to fill out 1040x Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. How to fill out 1040x The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). How to fill out 1040x The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. How to fill out 1040x If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. How to fill out 1040x When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. How to fill out 1040x Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. How to fill out 1040x Withholding tax. How to fill out 1040x   For this purpose, withholding tax includes any tax determined on a gross basis. How to fill out 1040x It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. How to fill out 1040x Ex-dividend date. How to fill out 1040x   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. How to fill out 1040x Example 1. How to fill out 1040x You bought common stock from a foreign corporation on November 3. How to fill out 1040x You sold the stock on November 19. How to fill out 1040x You received a dividend on this stock because you owned it on the ex-dividend date of November 5. How to fill out 1040x To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). How to fill out 1040x Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. How to fill out 1040x Example 2. How to fill out 1040x The facts are the same as in Example 1 except that you sold the stock on November 14. How to fill out 1040x You held the stock for only 11 days. How to fill out 1040x You are not entitled to the credit. How to fill out 1040x Exception. How to fill out 1040x   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. How to fill out 1040x See section 901(k)(4) of the Internal Revenue Code for more information. How to fill out 1040x Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. How to fill out 1040x When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. How to fill out 1040x Withholding tax. How to fill out 1040x   For this purpose, withholding tax includes any tax determined on a gross basis. How to fill out 1040x It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. How to fill out 1040x Exception for dealers. How to fill out 1040x   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. How to fill out 1040x See section 901(I)(2) of the Internal Revenue Code for more information. How to fill out 1040x Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. How to fill out 1040x A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. How to fill out 1040x S. How to fill out 1040x tax purposes but not for foreign tax purposes. How to fill out 1040x For more information, see Internal Revenue Code section 901(m). How to fill out 1040x The IRS intends to issue guidance that will explain this provision in greater detail. How to fill out 1040x Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. How to fill out 1040x Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. How to fill out 1040x For details, see Regulations section 1. How to fill out 1040x 901-3. How to fill out 1040x Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. How to fill out 1040x See the instructions for line 12 in the Form 1116 instructions to figure this reduction. How to fill out 1040x In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. How to fill out 1040x List of boycotting countries. How to fill out 1040x   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. How to fill out 1040x As of November 2013, the following countries are listed. How to fill out 1040x Iraq. How to fill out 1040x Kuwait. How to fill out 1040x Lebanon. How to fill out 1040x Libya. How to fill out 1040x Qatar. How to fill out 1040x Saudi Arabia. How to fill out 1040x Syria. How to fill out 1040x United Arab Emirates. How to fill out 1040x Yemen. How to fill out 1040x    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. How to fill out 1040x   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. How to fill out 1040x The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. How to fill out 1040x Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. How to fill out 1040x Public inspection. How to fill out 1040x   A determination and any related background file is open to public inspection. How to fill out 1040x However, your identity and certain other information will remain confidential. How to fill out 1040x Reporting requirements. How to fill out 1040x   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. How to fill out 1040x A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. How to fill out 1040x A partnership in which you are a partner. How to fill out 1040x A trust you are treated as owning. How to fill out 1040x Form 5713 required. How to fill out 1040x   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. How to fill out 1040x See the Instructions for Form 5713 for information on when and where to file the form. How to fill out 1040x Penalty for failure to file. How to fill out 1040x   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. How to fill out 1040x Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. How to fill out 1040x The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. How to fill out 1040x S. How to fill out 1040x tax liability (Form 1040, line 44) divided by your worldwide taxable income. How to fill out 1040x You may be entitled to carry over to other years taxes reduced under this rule. How to fill out 1040x See Internal Revenue Code section 907(f). How to fill out 1040x Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. How to fill out 1040x Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. How to fill out 1040x Taxes of U. How to fill out 1040x S. How to fill out 1040x Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. How to fill out 1040x If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. How to fill out 1040x See Penalty for not filing Form 5471 or Form 8865 , later. How to fill out 1040x U. How to fill out 1040x S. How to fill out 1040x persons controlling foreign corporations. How to fill out 1040x   If you are a U. How to fill out 1040x S. How to fill out 1040x citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. How to fill out 1040x S. How to fill out 1040x Persons With Respect To Certain Foreign Corporations. How to fill out 1040x Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. How to fill out 1040x U. How to fill out 1040x S. How to fill out 1040x persons controlling foreign partnerships. How to fill out 1040x   If you are a U. How to fill out 1040x S. How to fill out 1040x citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file
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Plug-In Electric Drive Vehicle Credit (IRC 30D)

Internal Revenue Code Section 30D provides a credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks.  

For vehicles acquired after December 31, 2009, the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500.

The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009). For additional information see Notice 2009-89.

Section 30D originally was enacted in the Energy Improvement and Extension Act of 2008. The American Recovery and Reinvestment Act of 2009 amended section 30D effective for vehicles acquired after December 31, 2009.  Section 30D was also modified by the American Taxpayer Relief Act (ATRA) 2013 for certain 2 or 3 wheeled vehicles acquired after December 31, 2011 and before January 1, 2014.

The vehicles must be acquired for use or lease and not for resale. Additionally, the original use of the vehicle must commence with the taxpayer and the vehicle must be used predominantly in the United States. For purposes of the 30D credit, a vehicle is not considered acquired prior to the time when title to the vehicle passes to the taxpayer under state law.

Notice 2009-89 applies to vehicles acquired subsequent to December 31, 2009 and provides procedures that a vehicle manufacturer may use if it chooses to certify that a vehicle meets certain requirements that must be satisfied to claim the Qualified Plug-in Electric Drive Motor Vehicle Credit and the amount of the credit allowable with respect to that vehicle

Credit Amounts for Qualified Vehicles Acquired After December 31, 2009

Qualified Plug-In Electric Drive Motor Vehicle Credit (IRC 30D) Phase Out
The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009) (“phase-out period”). Qualifying vehicles manufactured by that manufacturer are eligible for 50 percent of the credit if acquired in the first two quarters of the phase-out period and 25 percent of the credit if acquired in the third or fourth quarter of the phase-out period.  Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after the phase-out period.

Quarterly Sales by Manufacturer

Page Last Reviewed or Updated: 13-Feb-2014

The How To Fill Out 1040x

How to fill out 1040x 4. How to fill out 1040x   Transportation Table of Contents Parking fees. How to fill out 1040x Advertising display on car. How to fill out 1040x Car pools. How to fill out 1040x Hauling tools or instruments. How to fill out 1040x Union members' trips from a union hall. How to fill out 1040x Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. How to fill out 1040x These expenses include the cost of transportation by air, rail, bus, taxi, etc. How to fill out 1040x , and the cost of driving and maintaining your car. How to fill out 1040x Transportation expenses include the ordinary and necessary costs of all of the following. How to fill out 1040x Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. How to fill out 1040x Tax home is defined in chapter 1. How to fill out 1040x Visiting clients or customers. How to fill out 1040x Going to a business meeting away from your regular workplace. How to fill out 1040x Getting from your home to a temporary workplace when you have one or more regular places of work. How to fill out 1040x These temporary workplaces can be either within the area of your tax home or outside that area. How to fill out 1040x Transportation expenses do not include expenses you have while traveling away from home overnight. How to fill out 1040x Those expenses are travel expenses discussed in chapter 1 . How to fill out 1040x However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. How to fill out 1040x See Car Expenses , later. How to fill out 1040x Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. How to fill out 1040x However, there may be exceptions to this general rule. How to fill out 1040x You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. How to fill out 1040x Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. How to fill out 1040x Illustration of transportation expenses. How to fill out 1040x    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. How to fill out 1040x You may want to refer to it when deciding whether you can deduct your transportation expenses. How to fill out 1040x Temporary work location. How to fill out 1040x   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. How to fill out 1040x   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. How to fill out 1040x   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. How to fill out 1040x   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. How to fill out 1040x It will not be treated as temporary after the date you determine it will last more than 1 year. How to fill out 1040x   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. How to fill out 1040x You may have deductible travel expenses as discussed in chapter 1 . How to fill out 1040x No regular place of work. How to fill out 1040x   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. How to fill out 1040x   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. How to fill out 1040x   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. How to fill out 1040x These are nondeductible commuting expenses. How to fill out 1040x Two places of work. How to fill out 1040x   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. How to fill out 1040x However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. How to fill out 1040x   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. How to fill out 1040x You cannot deduct them. How to fill out 1040x Armed Forces reservists. How to fill out 1040x   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. How to fill out 1040x You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . How to fill out 1040x   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. How to fill out 1040x In this case, your transportation generally is a nondeductible commuting expense. How to fill out 1040x However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. How to fill out 1040x   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. How to fill out 1040x   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. How to fill out 1040x These expenses are discussed in chapter 1 . How to fill out 1040x   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. How to fill out 1040x For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. How to fill out 1040x Commuting expenses. How to fill out 1040x   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. How to fill out 1040x These costs are personal commuting expenses. How to fill out 1040x You cannot deduct commuting expenses no matter how far your home is from your regular place of work. How to fill out 1040x You cannot deduct commuting expenses even if you work during the commuting trip. How to fill out 1040x Example. How to fill out 1040x You sometimes use your cell phone to make business calls while commuting to and from work. How to fill out 1040x Sometimes business associates ride with you to and from work, and you have a business discussion in the car. How to fill out 1040x These activities do not change the trip from personal to business. How to fill out 1040x You cannot deduct your commuting expenses. How to fill out 1040x Parking fees. How to fill out 1040x    Fees you pay to park your car at your place of business are nondeductible commuting expenses. How to fill out 1040x You can, however, deduct business-related parking fees when visiting a customer or client. How to fill out 1040x Advertising display on car. How to fill out 1040x   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. How to fill out 1040x If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. How to fill out 1040x Car pools. How to fill out 1040x   You cannot deduct the cost of using your car in a nonprofit car pool. How to fill out 1040x Do not include payments you receive from the passengers in your income. How to fill out 1040x These payments are considered reimbursements of your expenses. How to fill out 1040x However, if you operate a car pool for a profit, you must include payments from passengers in your income. How to fill out 1040x You can then deduct your car expenses (using the rules in this publication). How to fill out 1040x Hauling tools or instruments. How to fill out 1040x   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. How to fill out 1040x However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). How to fill out 1040x Union members' trips from a union hall. How to fill out 1040x   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. How to fill out 1040x Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. How to fill out 1040x Office in the home. How to fill out 1040x   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. How to fill out 1040x (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. How to fill out 1040x ) Examples of deductible transportation. How to fill out 1040x   The following examples show when you can deduct transportation expenses based on the location of your work and your home. How to fill out 1040x Example 1. How to fill out 1040x You regularly work in an office in the city where you live. How to fill out 1040x Your employer sends you to a 1-week training session at a different office in the same city. How to fill out 1040x You travel directly from your home to the training location and return each day. How to fill out 1040x You can deduct the cost of your daily round-trip transportation between your home and the training location. How to fill out 1040x Example 2. How to fill out 1040x Your principal place of business is in your home. How to fill out 1040x You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. How to fill out 1040x Example 3. How to fill out 1040x You have no regular office, and you do not have an office in your home. How to fill out 1040x In this case, the location of your first business contact inside the metropolitan area is considered your office. How to fill out 1040x Transportation expenses between your home and this first contact are nondeductible commuting expenses. How to fill out 1040x Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. How to fill out 1040x While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. How to fill out 1040x Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. How to fill out 1040x You generally can use one of the two following methods to figure your deductible expenses. How to fill out 1040x Standard mileage rate. How to fill out 1040x Actual car expenses. How to fill out 1040x If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. How to fill out 1040x See Leasing a Car , later. How to fill out 1040x In this publication, “car” includes a van, pickup, or panel truck. How to fill out 1040x For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. How to fill out 1040x Rural mail carriers. How to fill out 1040x   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. How to fill out 1040x Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. How to fill out 1040x   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). How to fill out 1040x You must complete Form 2106 and attach it to your Form 1040, U. How to fill out 1040x S. How to fill out 1040x Individual Income Tax Return. How to fill out 1040x   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. How to fill out 1040x It is given as an equipment maintenance allowance (EMA) to employees of the U. How to fill out 1040x S. How to fill out 1040x Postal Service. How to fill out 1040x It is at the rate contained in the 1991 collective bargaining agreement. How to fill out 1040x Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. How to fill out 1040x See your employer for information on your reimbursement. How to fill out 1040x    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. How to fill out 1040x Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. How to fill out 1040x For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. How to fill out 1040x If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. How to fill out 1040x You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. How to fill out 1040x See Choosing the standard mileage rate and Standard mileage rate not allowed, later. How to fill out 1040x You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. How to fill out 1040x See chapter 6 for more information on reimbursements . How to fill out 1040x Choosing the standard mileage rate. How to fill out 1040x   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. How to fill out 1040x Then, in later years, you can choose to use either the standard mileage rate or actual expenses. How to fill out 1040x   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. How to fill out 1040x For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. How to fill out 1040x   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. How to fill out 1040x You cannot revoke the choice. How to fill out 1040x However, in later years, you can switch from the standard mileage rate to the actual expenses method. How to fill out 1040x If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. How to fill out 1040x Example. How to fill out 1040x Larry is an employee who occasionally uses his own car for business purposes. How to fill out 1040x He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. How to fill out 1040x Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. How to fill out 1040x   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. How to fill out 1040x Standard mileage rate not allowed. How to fill out 1040x   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. How to fill out 1040x (See Rural mail carriers , earlier. How to fill out 1040x ) Note. How to fill out 1040x You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. How to fill out 1040x Five or more cars. How to fill out 1040x   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. How to fill out 1040x However, you may be able to deduct your actual expenses for operating each of the cars in your business. How to fill out 1040x See Actual Car Expenses , later, for information on how to figure your deduction. How to fill out 1040x   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. How to fill out 1040x   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. How to fill out 1040x Example 1. How to fill out 1040x Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. How to fill out 1040x She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. How to fill out 1040x Example 2. How to fill out 1040x Tony and his employees use his four pickup trucks in his landscaping business. How to fill out 1040x During the year, he traded in two of his old trucks for two newer ones. How to fill out 1040x Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. How to fill out 1040x Example 3. How to fill out 1040x Chris owns a repair shop and an insurance business. How to fill out 1040x He and his employees use his two pickup trucks and van for the repair shop. How to fill out 1040x Chris alternates using his two cars for the insurance business. How to fill out 1040x No one else uses the cars for business purposes. How to fill out 1040x Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. How to fill out 1040x Example 4. How to fill out 1040x Maureen owns a car and four vans that are used in her housecleaning business. How to fill out 1040x Her employees use the vans, and she uses the car to travel to various customers. How to fill out 1040x Maureen cannot use the standard mileage rate for the car or the vans. How to fill out 1040x This is because all five vehicles are used in Maureen's business at the same time. How to fill out 1040x She must use actual expenses for all vehicles. How to fill out 1040x Interest. How to fill out 1040x   If you are an employee, you cannot deduct any interest paid on a car loan. How to fill out 1040x This applies even if you use the car 100% for business as an employee. How to fill out 1040x   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. How to fill out 1040x For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). How to fill out 1040x You cannot deduct the part of the interest expense that represents your personal use of the car. How to fill out 1040x    If you use a home equity loan to purchase your car, you may be able to deduct the interest. How to fill out 1040x See Publication 936, Home Mortgage Interest Deduction, for more information. How to fill out 1040x Personal property taxes. How to fill out 1040x   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. How to fill out 1040x You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. How to fill out 1040x   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). How to fill out 1040x If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). How to fill out 1040x Parking fees and tolls. How to fill out 1040x   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. How to fill out 1040x (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. How to fill out 1040x ) Sale, trade-in, or other disposition. How to fill out 1040x   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. How to fill out 1040x See Disposition of a Car , later. How to fill out 1040x Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. How to fill out 1040x If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. How to fill out 1040x Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. How to fill out 1040x Continue to keep records, as explained later in chapter 5 . How to fill out 1040x Business and personal use. How to fill out 1040x   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. How to fill out 1040x You can divide your expense based on the miles driven for each purpose. How to fill out 1040x Example. How to fill out 1040x You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. How to fill out 1040x You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. How to fill out 1040x Employer-provided vehicle. How to fill out 1040x   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. How to fill out 1040x You cannot use the standard mileage rate. How to fill out 1040x See Vehicle Provided by Your Employer in chapter 6. How to fill out 1040x Interest on car loans. How to fill out 1040x   If you are an employee, you cannot deduct any interest paid on a car loan. How to fill out 1040x This interest is treated as personal interest and is not deductible. How to fill out 1040x If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. How to fill out 1040x Taxes paid on your car. How to fill out 1040x   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. How to fill out 1040x Enter the amount paid on line 7 of Schedule A (Form 1040). How to fill out 1040x Sales taxes. How to fill out 1040x   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. How to fill out 1040x Fines and collateral. How to fill out 1040x   You cannot deduct fines you pay or collateral you forfeit for traffic violations. How to fill out 1040x Casualty and theft losses. How to fill out 1040x   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. How to fill out 1040x See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. How to fill out 1040x Depreciation and section 179 deductions. How to fill out 1040x   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. How to fill out 1040x Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. How to fill out 1040x However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. How to fill out 1040x Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. How to fill out 1040x The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. How to fill out 1040x   Generally, there are limits on these deductions. How to fill out 1040x Special rules apply if you use your car 50% or less in your work or business. How to fill out 1040x   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. How to fill out 1040x   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. How to fill out 1040x Car defined. How to fill out 1040x   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. How to fill out 1040x Its unloaded gross vehicle weight must not be more than 6,000 pounds. How to fill out 1040x A car includes any part, component, or other item physically attached to it or usually included in the purchase price. How to fill out 1040x   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. How to fill out 1040x Qualified nonpersonal use vehicles. How to fill out 1040x   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. How to fill out 1040x They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. How to fill out 1040x Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. How to fill out 1040x More information. How to fill out 1040x   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. How to fill out 1040x Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. How to fill out 1040x If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. How to fill out 1040x There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. How to fill out 1040x See Depreciation Limits, later. How to fill out 1040x You can claim the section 179 deduction only in the year you place the car in service. How to fill out 1040x For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. How to fill out 1040x Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. How to fill out 1040x A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. How to fill out 1040x Example. How to fill out 1040x In 2012, you bought a new car and used it for personal purposes. How to fill out 1040x In 2013, you began to use it for business. How to fill out 1040x Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. How to fill out 1040x However, you can claim a depreciation deduction for the business use of the car starting in 2013. How to fill out 1040x See Depreciation Deduction , later. How to fill out 1040x More than 50% business use requirement. How to fill out 1040x   You must use the property more than 50% for business to claim any section 179 deduction. How to fill out 1040x If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. How to fill out 1040x The result is the cost of the property that can qualify for the section 179 deduction. How to fill out 1040x Example. How to fill out 1040x Peter purchased a car in April 2013 for $24,500 and used it 60% for business. How to fill out 1040x Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). How to fill out 1040x But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. How to fill out 1040x Limits. How to fill out 1040x   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. How to fill out 1040x Limit on the amount of the section 179 deduction. How to fill out 1040x   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. How to fill out 1040x   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. How to fill out 1040x 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 deduction. How to fill out 1040x   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. How to fill out 1040x   If you are married and 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. How to fill out 1040x   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. How to fill out 1040x You must allocate the dollar limit (after any reduction) between you. How to fill out 1040x   For more information on the above section 179 deduction limits, see Publication 946. How to fill out 1040x Limit for sport utility and certain other vehicles. How to fill out 1040x   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. How to fill out 1040x This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. How to fill out 1040x However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or That has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. How to fill out 1040x    Limit on total section 179, special depreciation allowance, and depreciation deduction. How to fill out 1040x   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. How to fill out 1040x The limit is reduced if your business use of the car is less than 100%. How to fill out 1040x See Depreciation Limits , later, for more information. How to fill out 1040x Example. How to fill out 1040x In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. How to fill out 1040x However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). How to fill out 1040x Cost of car. How to fill out 1040x   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. How to fill out 1040x For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. How to fill out 1040x Your cost includes only the cash you paid. How to fill out 1040x Basis of car for depreciation. How to fill out 1040x   The amount of the section 179 deduction reduces your basis in your car. How to fill out 1040x If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. How to fill out 1040x The resulting amount is the basis in your car you use to figure your depreciation deduction. How to fill out 1040x When to choose. How to fill out 1040x   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. How to fill out 1040x How to choose. How to fill out 1040x    Employees use Form 2106 to make this choice and report the section 179 deduction. How to fill out 1040x All others use Form 4562. How to fill out 1040x   File the appropriate form with either of the following. How to fill out 1040x Your original tax return filed for the year the property was placed in service (whether or not you file it timely). How to fill out 1040x An amended return filed within the time prescribed by law. How to fill out 1040x 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. How to fill out 1040x The amended return must also include any resulting adjustments to taxable income. How to fill out 1040x    You must keep records that show the specific identification of each piece of qualifying section 179 property. How to fill out 1040x These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. How to fill out 1040x Revoking an election. How to fill out 1040x   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. How to fill out 1040x Recapture of section 179 deduction. How to fill out 1040x   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. How to fill out 1040x If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. How to fill out 1040x Any section 179 deduction claimed on the car is included in calculating the excess depreciation. How to fill out 1040x For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. How to fill out 1040x Dispositions. How to fill out 1040x   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. How to fill out 1040x You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). How to fill out 1040x For information on the disposition of a car, see Disposition of a Car , later. How to fill out 1040x Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. How to fill out 1040x The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). How to fill out 1040x The special depreciation allowance applies only for the first year the car is placed in service. How to fill out 1040x To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). How to fill out 1040x Combined depreciation. How to fill out 1040x   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). How to fill out 1040x For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). How to fill out 1040x See Depreciation Limits , later in this chapter. How to fill out 1040x Qualified car. How to fill out 1040x   To be a qualified car (including trucks and vans), the car must meet all of the following tests. How to fill out 1040x You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. How to fill out 1040x Election not to claim the special depreciation allowance. How to fill out 1040x   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. How to fill out 1040x If you make this election, it applies to all 5-year property placed in service during the year. How to fill out 1040x   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. How to fill out 1040x    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. How to fill out 1040x Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. How to fill out 1040x This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. How to fill out 1040x You generally need to know the following things about the car you intend to depreciate. How to fill out 1040x Your basis in the car. How to fill out 1040x The date you place the car in service. How to fill out 1040x The method of depreciation and recovery period you will use. How to fill out 1040x Basis. How to fill out 1040x   Your basis in a car for figuring depreciation is generally its cost. How to fill out 1040x This includes any amount you borrow or pay in cash, other property, or services. How to fill out 1040x   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). How to fill out 1040x However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). How to fill out 1040x For one of these situations see Exception under Methods of depreciation, later. How to fill out 1040x   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. How to fill out 1040x Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . How to fill out 1040x Placed in service. How to fill out 1040x   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. How to fill out 1040x Depreciation begins when the car is placed in service for use in your work or business or for the production of income. How to fill out 1040x   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. How to fill out 1040x Car placed in service and disposed of in the same year. How to fill out 1040x   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. How to fill out 1040x Methods of depreciation. How to fill out 1040x   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). How to fill out 1040x MACRS is discussed later in this chapter. How to fill out 1040x Exception. How to fill out 1040x   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. How to fill out 1040x You must use straight line depreciation over the estimated remaining useful life of the car. How to fill out 1040x   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. How to fill out 1040x The rate per mile varies depending on the year(s) you used the standard mileage rate. How to fill out 1040x For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. How to fill out 1040x   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . How to fill out 1040x You must use your adjusted basis in your car to figure your depreciation deduction. How to fill out 1040x For additional information on the straight line method of depreciation, see Publication 946. How to fill out 1040x More-than-50%-use test. How to fill out 1040x   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. How to fill out 1040x You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. How to fill out 1040x   If your business use is 50% or less, you must use the straight line method to depreciate your car. How to fill out 1040x This is explained later under Car Used 50% or Less for Business . How to fill out 1040x Qualified business use. How to fill out 1040x   A qualified business use is any use in your trade or business. How to fill out 1040x It does not include use for the production of income (investment use). How to fill out 1040x However, you do combine your business and investment use to compute your depreciation deduction for the tax year. How to fill out 1040x Use of your car by another person. How to fill out 1040x   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. How to fill out 1040x It is directly connected with your business. How to fill out 1040x It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). How to fill out 1040x It results in a payment of fair market rent. How to fill out 1040x This includes any payment to you for the use of your car. How to fill out 1040x Business use changes. How to fill out 1040x   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. How to fill out 1040x See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. How to fill out 1040x    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. How to fill out 1040x Use for more than one purpose. How to fill out 1040x   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. How to fill out 1040x You do this on the basis of mileage. How to fill out 1040x Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. How to fill out 1040x Change from personal to business use. How to fill out 1040x   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. How to fill out 1040x In this case, you figure the percentage of business use for the year as follows. How to fill out 1040x Determine the percentage of business use for the period following the change. How to fill out 1040x Do this by dividing business miles by total miles driven during that period. How to fill out 1040x Multiply the percentage in (1) by a fraction. How to fill out 1040x The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. How to fill out 1040x Example. How to fill out 1040x You use a car only for personal purposes during the first 6 months of the year. How to fill out 1040x During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. How to fill out 1040x This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. How to fill out 1040x Your business use for the year is 40% (80% × 6/12). How to fill out 1040x Limits. How to fill out 1040x   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. How to fill out 1040x The maximum amount you can claim depends on the year in which you placed your car in service. How to fill out 1040x You have to reduce the maximum amount if you did not use the car exclusively for business. How to fill out 1040x See Depreciation Limits , later. How to fill out 1040x Unadjusted basis. How to fill out 1040x   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . How to fill out 1040x Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. How to fill out 1040x   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. How to fill out 1040x Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. How to fill out 1040x Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. How to fill out 1040x Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. How to fill out 1040x 1, 2006), and alternative motor vehicle credit. How to fill out 1040x   See Form 8910 for information on the alternative motor vehicle credit. How to fill out 1040x If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. How to fill out 1040x See Car Used 50% or Less for Business, later, for more information. How to fill out 1040x If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. How to fill out 1040x Improvements. How to fill out 1040x   A major improvement to a car is treated as a new item of 5-year recovery property. How to fill out 1040x It is treated as placed in service in the year the improvement is made. How to fill out 1040x It does not matter how old the car is when the improvement is added. How to fill out 1040x Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. How to fill out 1040x However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. How to fill out 1040x Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. How to fill out 1040x See Depreciation Limits , later. How to fill out 1040x Car trade-in. How to fill out 1040x   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. How to fill out 1040x You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. How to fill out 1040x If you make this election, you treat the old car as disposed of at the time of the trade-in. How to fill out 1040x The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. How to fill out 1040x You then figure your depreciation deduction for the new car beginning with the date you placed it in service. How to fill out 1040x You make this election by completing Form 2106, Part II, Section D. How to fill out 1040x This method is explained later, beginning at Effect of trade-in on basis . How to fill out 1040x If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. How to fill out 1040x You must apply two depreciation limits (see Depreciation Limits , later). How to fill out 1040x The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. How to fill out 1040x The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. How to fill out 1040x You must use Form 4562 to compute your depreciation deduction. How to fill out 1040x You cannot use Form 2106, Part II, Section D. How to fill out 1040x This method is explained in Publication 946. How to fill out 1040x   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). How to fill out 1040x Otherwise, you must use the method described in (2). How to fill out 1040x Effect of trade-in on basis. How to fill out 1040x   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. How to fill out 1040x For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. How to fill out 1040x 168(i)-6(d)(3). How to fill out 1040x Traded car used only for business. How to fill out 1040x   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. How to fill out 1040x Example. How to fill out 1040x Paul trades in a car that has an adjusted basis of $5,000 for a new car. How to fill out 1040x In addition, he pays cash of $20,000 for the new car. How to fill out 1040x His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). How to fill out 1040x Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. How to fill out 1040x Traded car used partly in business. How to fill out 1040x   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. How to fill out 1040x This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. How to fill out 1040x (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. How to fill out 1040x See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. How to fill out 1040x )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. How to fill out 1040x Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. How to fill out 1040x For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. How to fill out 1040x Modified Accelerated Cost Recovery System (MACRS). How to fill out 1040x   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. How to fill out 1040x   The maximum amount you can deduct is limited, depending on the year you placed your car in service. How to fill out 1040x See Depreciation Limits , later. How to fill out 1040x Recovery period. How to fill out 1040x   Under MACRS, cars are classified as 5-year property. How to fill out 1040x You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. How to fill out 1040x This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. How to fill out 1040x Depreciation deduction for certain Indian reservation property. How to fill out 1040x   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. How to fill out 1040x The recovery that applies for a business-use car is 3 years instead of 5 years. How to fill out 1040x However, the depreciation limits, discussed later, will still apply. How to fill out 1040x   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. How to fill out 1040x Depreciation methods. How to fill out 1040x   You can use one of the following methods to depreciate your car. How to fill out 1040x The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. How to fill out 1040x The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. How to fill out 1040x The straight line method (SL) over a 5-year recovery period. How to fill out 1040x    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. How to fill out 1040x This is because the chart has the switch to the straight line method built into its rates. How to fill out 1040x   Before choosing a method, you may wish to consider the following facts. How to fill out 1040x Using the straight line method provides equal yearly deductions throughout the recovery period. How to fill out 1040x Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. How to fill out 1040x MACRS depreciation chart. How to fill out 1040x   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . How to fill out 1040x Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. How to fill out 1040x A similar chart appears in the Instructions for Form 2106. How to fill out 1040x    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. How to fill out 1040x   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. How to fill out 1040x You file your return on a fiscal year basis. How to fill out 1040x You file your return for a short tax year (less than 12 months). How to fill out 1040x During the year, all of the following conditions apply. How to fill out 1040x You placed some property in service from January through September. How to fill out 1040x You placed some property in service from October through December. How to fill out 1040x Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. How to fill out 1040x   You placed qualified property in service on an Indian reservation. How to fill out 1040x Depreciation in future years. How to fill out 1040x   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. How to fill out 1040x However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. How to fill out 1040x In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. How to fill out 1040x See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. How to fill out 1040x    In future years, do not use the chart in this edition of the publication. How to fill out 1040x Instead, use the chart in the publication or the form instructions for those future years. How to fill out 1040x Disposition of car during recovery period. How to fill out 1040x   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. How to fill out 1040x See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. How to fill out 1040x How to use the 2013 chart. How to fill out 1040x   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. How to fill out 1040x Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. How to fill out 1040x If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. How to fill out 1040x    Your deduction cannot be more than the maximum depreciation limit for cars. How to fill out 1040x See Depreciation Limits, later. How to fill out 1040x Example. How to fill out 1040x Phil bought a used truck in February 2012 to use exclusively in his landscape business. How to fill out 1040x He paid $9,200 for the truck with no trade-in. How to fill out 1040x Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. How to fill out 1040x Phil used the MACRS depreciation chart in 2012 to find his percentage. How to fill out 1040x The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. How to fill out 1040x He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. How to fill out 1040x In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. How to fill out 1040x His records show that the business use of his truck was 90% in 2013. How to fill out 1040x Phil used Table 4-1 to find his percentage. How to fill out 1040x Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. How to fill out 1040x He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. How to fill out 1040x Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. How to fill out 1040x The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. How to fill out 1040x The maximum amount you can deduct each year depends on the year you place the car in service. How to fill out 1040x These limits are shown in the following tables. How to fill out 1040x   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 10,9603 4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. How to fill out 1040x 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. How to fill out 1040x 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. How to fill out 1040x 4$7,660 if you acquired the car before 5/6/2003. How to fill out 1040x $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. How to fill out 1040x 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. How to fill out 1040x Trucks and vans. How to fill out 1040x   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. How to fill out 1040x A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. How to fill out 1040x For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. How to fill out 1040x Maximum Depreciation Deduction for Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 $11,3601 $5,300 $3,150 $1,875 2011 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. How to fill out 1040x 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. How to fill out 1040x Car used less than full year. How to fill out 1040x   The depreciation limits are not reduced if you use a car for less than a full year. How to fill out 1040x This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. How to fill out 1040x However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. How to fill out 1040x See Reduction for personal use , next. How to fill out 1040x Reduction for personal use. How to fill out 1040x   The depreciation limits are reduced based on your percentage of personal use. How to fill out 1040x If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. How to fill out 1040x Section 179 deduction. How to fill out 1040x   The section 179 deduction is treated as a depreciation deduction. How to fill out 1040x If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. How to fill out 1040x Example. How to fill out 1040x On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. How to fill out 1040x He used it 80% for his business, and he chooses to take a section 179 deduction for the car. How to fill out 1040x The car is not qualified property for purposes of the special depreciation allowance. How to fill out 1040x Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. How to fill out 1040x This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). How to fill out 1040x Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). How to fill out 1040x He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. How to fill out 1040x Jack has reached his maximum depreciation deduction for 2013. How to fill out 1040x For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. How to fill out 1040x Deductions in years after the recovery period. How to fill out 1040x   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. How to fill out 1040x If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. How to fill out 1040x Unrecovered basis. How to fill out 1040x   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. How to fill out 1040x The recovery period. How to fill out 1040x   For 5-year property, your recovery period is 6 calendar years. How to fill out 1040x A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. How to fill out 1040x   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. How to fill out 1040x You determine your unrecovered basis in the 7th year after you placed the car in service. How to fill out 1040x How to treat unrecovered basis. How to fill out 1040x   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. How to fill out 1040x The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. How to fill out 1040x For example, no deduction is allowed for a year you use your car 100% for personal purposes. How to fill out 1040x Example. How to fill out 1040x In April 2007, Bob bought and placed in service a car he used exclusively in his business. How to fill out 1040x The car cost $31,500. How to fill out 1040x Bob did not claim a section 179 deduction or the special depreciation allowance for the car. How to fill out 1040x He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). How to fill out 1040x For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. How to fill out 1040x Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. How to fill out 1040x      MACRS     Deprec. How to fill out 1040x Year % Amount Limit Allowed 2007 20. How to fill out 1040x 00 $6,300 $3,060 $ 3,060 2008 32. How to fill out 1040x 00 10,080 4,900 4,900 2009 19. How to fill out 1040x 20 6,048 2,850 2,850 2010 11. How to fill out 1040x 52 3,629 1,775 1,775 2011 11. How to fill out 1040x 52 3,629 1,775 1,775 2012 5. How to fill out 1040x 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. How to fill out 1040x   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). How to fill out 1040x If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. How to fill out 1040x   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. How to fill out 1040x However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. How to fill out 1040x For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. How to fill out 1040x Table 4-1. How to fill out 1040x 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. How to fill out 1040x ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. How to fill out 1040x   First, using the left column, find the date you first placed the car in service in 2013. How to fill out 1040x Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. How to fill out 1040x For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. How to fill out 1040x Refer back to the MACRS Depreciation Chart for the year you placed the car in service. How to fill out 1040x (See Car Used 50% or Less for Business . How to fill out 1040x )  Multiply the unadjusted basis of your car by your business use percentage. How to fill out 1040x Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. How to fill out 1040x (Also see Depreciation Limits . How to fill out 1040x )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. How to fill out 1040x 1—Sept. How to fill out 1040x 30 percentage instead of the Oct. How to fill out 1040x 1—Dec. How to fill out 1040x 31 percentage for your car. How to fill out 1040x               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. How to fill out 1040x If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. How to fill out 1040x 1—Sept. How to fill out 1040x 30 for figuring depreciation for your car. How to fill out 1040x See Which Convention Applies? in chapter 4 of Publication 946 for more details. How to fill out 1040x               Example. How to fill out 1040x You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. How to fill out 1040x You