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Irs free tax filing Publication 1542 - Introductory Material Table of Contents What's New IntroductionOrdering forms and publications. Irs free tax filing Tax questions. Irs free tax filing What's New Future developments. Irs free tax filing  The IRS has created a page on IRS. Irs free tax filing gov for information about Publication 1542, at www. Irs free tax filing irs. Irs free tax filing gov/pub1542. Irs free tax filing Information about any future developments affecting Publication 1542 (such as legislation enacted after we release it) will be posted on that page. Irs free tax filing Introduction This publication is for employers who pay a per diem allowance to employees for business travel away from home within the continental United States (CONUS) (the 48 contiguous states), on or after October 1, 2010, and before January 1, 2011. Irs free tax filing It gives the maximum per diem rate you can use without treating part of the per diem allowance as wages for tax purposes. Irs free tax filing For a detailed discussion on the tax treatment of a per diem allowance, see chapter 11 of Publication 535, Business Expenses, or Revenue Procedure 2011-47, 2011-42 I. Irs free tax filing R. Irs free tax filing B. Irs free tax filing 520, which can be found on the Internet at www. Irs free tax filing irs. Irs free tax filing gov/irb/2011-42_IRB/ar12. Irs free tax filing html. Irs free tax filing Per diem rates on the Internet. Irs free tax filing   You will find links to per diem rates at www. Irs free tax filing gsa. Irs free tax filing gov/perdiem, including links to: CONUS per diem rates; Per diem rates for areas outside the continental United States (OCONUS), such as Alaska, Hawaii, Puerto Rico, and U. Irs free tax filing S. Irs free tax filing possessions; and Foreign per diem rates. Irs free tax filing Publication 1542 revisions. Irs free tax filing   Publication 1542 is available only on the Internet at IRS. Irs free tax filing gov. Irs free tax filing Print copies can no longer be ordered. Irs free tax filing   During the year, as changes to the federal per diem rates (updates) are announced by the General Services Administration (GSA), we will incorporate the changes into Publication 1542. Irs free tax filing An article on IRS. Irs free tax filing gov will alert you to which locations have updated rates. Irs free tax filing To reach these articles, go to www. Irs free tax filing irs. Irs free tax filing gov/formspubs and click on “Changes to Current Tax Products,” under Important Changes. Irs free tax filing You will find the new rates in Table 4. Irs free tax filing   We will also incorporate mid-year changes to the high-low rates into Publication 1542. Irs free tax filing You will be alerted to these changes by a similar article on IRS. Irs free tax filing gov and can find the changes in Table 2 of the revised publication. Irs free tax filing   The annual changes, both federal per diem and high-low rates, will be incorporated into the publication as soon as possible after being announced by GSA and the IRS. Irs free tax filing The annual issue of the publication should be available each year in mid- to late-October. Irs free tax filing Comments and suggestions. Irs free tax filing   We welcome your comments about this publication and your suggestions for future editions. Irs free tax filing   You can write to us at the following address: Internal Revenue Service Individual Forms and Publications Branch SE:W:CAR:MP:T:I 1111 Constitution Ave. Irs free tax filing NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Irs free tax filing Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Irs free tax filing   You can email us at taxforms@irs. Irs free tax filing gov. Irs free tax filing Please put “Publications Comment” on the subject line. Irs free tax filing You can also send us comments from www. Irs free tax filing irs. Irs free tax filing gov/formspubs/, select “Comment on Tax Forms and Publications” under “Information about. Irs free tax filing ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Irs free tax filing Ordering forms and publications. Irs free tax filing   Visit www. Irs free tax filing irs. Irs free tax filing gov/formspubs/ to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received. Irs free tax filing Internal Revenue Service 1201 N. Irs free tax filing Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Irs free tax filing   If you have a tax question, check the information available on IRS. 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Irs free tax filing 2. Irs free tax filing   Electing the Section 179 Deduction Table of Contents Introduction Useful Items - You may want to see: What Property Qualifies?Eligible Property Property Acquired for Business Use Property Acquired by Purchase What Property Does Not Qualify?Land and Improvements Excepted Property How Much Can You Deduct?Dollar Limits Business Income Limit Partnerships and Partners S Corporations Other Corporations How Do You Elect the Deduction? When Must You Recapture the Deduction? Introduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Irs free tax filing This is the section 179 deduction. Irs free tax filing You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions. Irs free tax filing Estates and trusts cannot elect the section 179 deduction. Irs free tax filing This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. Irs free tax filing It also explains when and how to recapture the deduction. Irs free tax filing Useful Items - You may want to see: Publication 537 Installment Sales 544 Sales and Other Dispositions of Assets 954 Tax Incentives for Distressed Communities Form (and Instructions) 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. Irs free tax filing What Property Qualifies? To qualify for the section 179 deduction, your property must meet all the following requirements. Irs free tax filing It must be eligible property. Irs free tax filing It must be acquired for business use. Irs free tax filing It must have been acquired by purchase. Irs free tax filing It must not be property described later under What Property Does Not Qualify . Irs free tax filing The following discussions provide information about these requirements and exceptions. Irs free tax filing Eligible Property To qualify for the section 179 deduction, your property must be one of the following types of depreciable property. Irs free tax filing Tangible personal property. Irs free tax filing Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services, A research facility used in connection with any of the activities in (a) above, or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. Irs free tax filing Single purpose agricultural (livestock) or horticultural structures. Irs free tax filing See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures. Irs free tax filing Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Irs free tax filing Off-the-shelf computer software. Irs free tax filing Qualified real property (described below). Irs free tax filing Tangible personal property. Irs free tax filing   Tangible personal property is any tangible property that is not real property. Irs free tax filing It includes the following property. Irs free tax filing Machinery and equipment. Irs free tax filing Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. Irs free tax filing Gasoline storage tanks and pumps at retail service stations. Irs free tax filing Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals. Irs free tax filing   The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. Irs free tax filing For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law. Irs free tax filing Off-the-shelf computer software. Irs free tax filing   Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. Irs free tax filing This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Irs free tax filing It includes any program designed to cause a computer to perform a desired function. Irs free tax filing However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software. Irs free tax filing Qualified real property. Irs free tax filing   You can elect to treat certain qualified real property you placed in service as section 179 property for tax years beginning in 2013. Irs free tax filing If this election is made, the term “section 179 property” will include any qualified real property that is: Qualified leasehold improvement property, Qualified restaurant property, or Qualified retail improvement property. Irs free tax filing The maximum section 179 expense deduction that can be elected for qualified section 179 real property is $250,000 of the maximum section 179 deduction of $500,000 in 2013. Irs free tax filing For more information, see Special rules for qualified section 179 real property, later. Irs free tax filing Also, see Election for certain qualified section 179 real property, later, for information on how to make this election. Irs free tax filing Qualified leasehold improvement property. Irs free tax filing   Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. Irs free tax filing   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. Irs free tax filing A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. Irs free tax filing Examples include the following. Irs free tax filing A complete liquidation of a subsidiary. Irs free tax filing A transfer to a corporation controlled by the transferor. Irs free tax filing An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Irs free tax filing Qualified restaurant property. Irs free tax filing   Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service after December 31, 2008, and before January 1, 2014. Irs free tax filing Also, more than 50% of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals. Irs free tax filing Qualified retail improvement property. Irs free tax filing   Generally, this is any improvement (placed in service after December 31, 2008, and before January 1, 2014) to an interior portion of nonresidential real property if it meets the following requirements. Irs free tax filing The portion is open to the general public and is used in the retail trade or business of selling tangible property to the general public. Irs free tax filing The improvement is placed in service more than 3 years after the date the building was first placed in service. Irs free tax filing The expenses are not for the enlargement of the building, any elevator or escalator, any structural components benefiting a common area, or the internal structural framework of the building. Irs free tax filing In addition, an improvement made by the lessor does not qualify as qualified retail improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. Irs free tax filing A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. Irs free tax filing Examples include the following. Irs free tax filing A complete liquidation of a subsidiary. Irs free tax filing A transfer to a corporation controlled by the transferor. Irs free tax filing An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Irs free tax filing Property Acquired for Business Use To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. Irs free tax filing Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify. Irs free tax filing Partial business use. Irs free tax filing   When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. Irs free tax filing If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. Irs free tax filing Use the resulting business cost to figure your section 179 deduction. Irs free tax filing Example. Irs free tax filing May Oak bought and placed in service an item of section 179 property costing $11,000. Irs free tax filing She used the property 80% for her business and 20% for personal purposes. Irs free tax filing The business part of the cost of the property is $8,800 (80% × $11,000). Irs free tax filing Property Acquired by Purchase To qualify for the section 179 deduction, your property must have been acquired by purchase. Irs free tax filing For example, property acquired by gift or inheritance does not qualify. Irs free tax filing Property is not considered acquired by purchase in the following situations. Irs free tax filing It is acquired by one component member of a controlled group from another component member of the same group. Irs free tax filing Its basis is determined either— In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or Under the stepped-up basis rules for property acquired from a decedent. Irs free tax filing It is acquired from a related person. Irs free tax filing Related persons. Irs free tax filing   Related persons are described under Related persons earlier. Irs free tax filing However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only his or her spouse, ancestors, and lineal descendants and substitute "50%" for "10%" each place it appears. Irs free tax filing Example. Irs free tax filing Ken Larch is a tailor. Irs free tax filing He bought two industrial sewing machines from his father. Irs free tax filing He placed both machines in service in the same year he bought them. Irs free tax filing They do not qualify as section 179 property because Ken and his father are related persons. Irs free tax filing He cannot claim a section 179 deduction for the cost of these machines. Irs free tax filing What Property Does Not Qualify? Certain property does not qualify for the section 179 deduction. Irs free tax filing This includes the following. Irs free tax filing Land and Improvements Land and land improvements do not qualify as section 179 property. Irs free tax filing Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences. Irs free tax filing Excepted Property Even if the requirements explained earlier under What Property Qualifies are met, you cannot elect the section 179 deduction for the following property. Irs free tax filing Certain property you lease to others (if you are a noncorporate lessor). Irs free tax filing Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Irs free tax filing Air conditioning or heating units. Irs free tax filing Property used predominantly outside the United States, except property described in section 168(g)(4) of the Internal Revenue Code. Irs free tax filing Property used by certain tax-exempt organizations, except property used in connection with the production of income subject to the tax on unrelated trade or business income. Irs free tax filing Property used by governmental units or foreign persons or entities, except property used under a lease with a term of less than 6 months. Irs free tax filing Leased property. Irs free tax filing   Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. Irs free tax filing This rule does not apply to corporations. Irs free tax filing However, you can claim a section 179 deduction for the cost of the following property. Irs free tax filing Property you manufacture or produce and lease to others. Irs free tax filing Property you purchase and lease to others if both the following tests are met. Irs free tax filing The term of the lease (including options to renew) is less than 50% of the property's class life. Irs free tax filing For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property. Irs free tax filing Property used for lodging. Irs free tax filing   Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. Irs free tax filing However, this does not apply to the following types of property. Irs free tax filing Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities. Irs free tax filing Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients. Irs free tax filing Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures. Irs free tax filing Any energy property. Irs free tax filing Energy property. Irs free tax filing   Energy property is property that meets the following requirements. Irs free tax filing It is one of the following types of property. Irs free tax filing Equipment that uses solar energy to generate electricity, to heat or cool a structure, to provide hot water for use in a structure, or to provide solar process heat, except for equipment used to generate energy to heat a swimming pool. Irs free tax filing Equipment placed in service after December 31, 2005, and before January 1, 2017, that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Irs free tax filing Equipment used to produce, distribute, or use energy derived from a geothermal deposit. Irs free tax filing For electricity generated by geothermal power, this includes equipment up to (but not including) the electrical transmission stage. Irs free tax filing Qualified fuel cell property or qualified microturbine property placed in service after December 31, 2005, and before January 1, 2017. Irs free tax filing The construction, reconstruction, or erection of the property must be completed by you. Irs free tax filing For property you acquire, the original use of the property must begin with you. Irs free tax filing The property must meet the performance and quality standards, if any, prescribed by Income Tax Regulations in effect at the time you get the property. Irs free tax filing   For periods before February 14, 2008, energy property does not include any property that is public utility property as defined by section 46(f)(5) of the Internal Revenue Code (as in effect on November 4, 1990). Irs free tax filing How Much Can You Deduct? Your section 179 deduction is generally the cost of the qualifying property. Irs free tax filing However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. Irs free tax filing These limits apply to each taxpayer, not to each business. Irs free tax filing However, see Married Individuals under Dollar Limits , later. Irs free tax filing For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. Irs free tax filing See Do the Passenger Automobile Limits Apply in chapter 5 . Irs free tax filing If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct. Irs free tax filing Trade-in of other property. Irs free tax filing   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 deduction includes only the cash you paid. Irs free tax filing Example. Irs free tax filing Silver Leaf, a retail bakery, traded two ovens having a total adjusted basis of $680 for a new oven costing $1,320. Irs free tax filing They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. Irs free tax filing The bakery also traded a used van with an adjusted basis of $4,500 for a new van costing $9,000. Irs free tax filing They received a $4,800 trade-in allowance on the used van and paid $4,200 in cash for the new van. Irs free tax filing Only the portion of the new property's basis paid by cash qualifies for the section 179 deduction. Irs free tax filing Therefore, Silver Leaf's qualifying costs for the section 179 deduction are $4,720 ($520 + $4,200). Irs free tax filing Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 generally cannot be more than $500,000. Irs free tax filing If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. Irs free tax filing You do not have to claim the full $500,000. Irs free tax filing Qualified real property (described earlier) that you elected to treat as section 179 real property is limited to $250,000 of the maximum deduction of $500,000 for 2013. Irs free tax filing The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year. Irs free tax filing After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction. Irs free tax filing Example. Irs free tax filing In 2013, you bought and placed in service $500,000 in machinery and a $25,000 circular saw for your business. Irs free tax filing You elect to deduct $475,000 for the machinery and the entire $25,000 for the saw, a total of $500,000. Irs free tax filing This is the maximum amount you can deduct. Irs free tax filing Your $25,000 deduction for the saw completely recovered its cost. Irs free tax filing Your basis for depreciation is zero. Irs free tax filing The basis for depreciation of your machinery is $25,000. Irs free tax filing You figure this by subtracting your $475,000 section 179 deduction for the machinery from the $500,000 cost of the machinery. Irs free tax filing Situations affecting dollar limit. Irs free tax filing   Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. Irs free tax filing The general dollar limit is affected by any of the following situations. Irs free tax filing The cost of your section 179 property placed in service exceeds $2,000,000. Irs free tax filing Your business is an enterprise zone business. Irs free tax filing You placed in service a sport utility or certain other vehicles. Irs free tax filing You are married filing a joint or separate return. Irs free tax filing Costs exceeding $2,000,000 If the cost of your qualifying section 179 property placed in service in a year is more than $2,000,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,000,000. Irs free tax filing 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. Irs free tax filing Example. Irs free tax filing In 2013, Jane Ash placed in service machinery costing $2,100,000. Irs free tax filing This cost is $100,000 more than $2,000,000, so she must reduce her dollar limit to $400,000 ($500,000 − $100,000). Irs free tax filing Enterprise Zone Businesses An increased section 179 deduction is available to enterprise zone businesses for qualified zone property placed in service during the tax year, in an empowerment zone. Irs free tax filing For more information including the definitions of “enterprise zone business” and “qualified zone property,” see sections 1397A, 1397C, and 1397D of the Internal Revenue Code. Irs free tax filing The dollar limit on the section 179 deduction is increased by the smaller of: $35,000, or The cost of section 179 property that is also qualified zone property placed in service before January 1, 2014 (including such property placed in service by your spouse, even if you are filing a separate return). Irs free tax filing Note. Irs free tax filing   You take into account only 50% (instead of 100%) of the cost of qualified zone property placed in service in a year when figuring the reduced dollar limit for costs exceeding $2,000,000 (explained earlier). Irs free tax filing Sport Utility and Certain Other Vehicles You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. Irs free tax filing This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. Irs free tax filing However, the $25,000 limit does not apply to any vehicle: Designed to seat more than nine passengers behind the driver's seat, Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible 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. Irs free tax filing Married Individuals If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. Irs free tax filing If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Irs free tax filing If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2,000,000. Irs free tax filing You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. Irs free tax filing If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. Irs free tax filing Example. Irs free tax filing Jack Elm is married. Irs free tax filing He and his wife file separate returns. Irs free tax filing Jack bought and placed in service $2,000,000 of qualified farm machinery in 2013. Irs free tax filing His wife has her own business, and she bought and placed in service $30,000 of qualified business equipment. Irs free tax filing Their combined dollar limit is $470,000. Irs free tax filing This is because they must figure the limit as if they were one taxpayer. Irs free tax filing They reduce the $500,000 dollar limit by the $30,000 excess of their costs over $2,000,000. Irs free tax filing They elect to allocate the $470,000 dollar limit as follows. Irs free tax filing $446,500 ($470,000 x 95%) to Mr. Irs free tax filing Elm's machinery. Irs free tax filing $23,500 ($470,000 x 5%) to Mrs. Irs free tax filing Elm's equipment. Irs free tax filing If they did not make an election to allocate their costs in this way, they would have to allocate $235,000 ($470,000 × 50%) to each of them. Irs free tax filing Joint return after filing separate returns. Irs free tax filing   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. Irs free tax filing The dollar limit (after reduction for any cost of section 179 property over $2,000,000). Irs free tax filing The total cost of section 179 property you and your spouse elected to expense on your separate returns. Irs free tax filing Example. Irs free tax filing The facts are the same as in the previous example except that Jack elected to deduct $30,000 of the cost of section 179 property on his separate return and his wife elected to deduct $2,000. Irs free tax filing After the due date of their returns, they file a joint return. Irs free tax filing Their dollar limit for the section 179 deduction is $32,000. Irs free tax filing This is the lesser of the following amounts. Irs free tax filing $470,000—The dollar limit less the cost of section 179 property over $2,000,000. Irs free tax filing $32,000—The total they elected to expense on their separate returns. Irs free tax filing Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Irs free tax filing Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. Irs free tax filing Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Irs free tax filing Special rules apply to a 2013 deduction of qualified section 179 real property that is disallowed because of the business income limit. Irs free tax filing See Special rules for qualified section 179 property under Carryover of disallowed deduction, later. Irs free tax filing Taxable income. Irs free tax filing   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Irs free tax filing Net income or loss from a trade or business includes the following items. Irs free tax filing Section 1231 gains (or losses). Irs free tax filing Interest from working capital of your trade or business. Irs free tax filing Wages, salaries, tips, or other pay earned as an employee. Irs free tax filing For information about section 1231 gains and losses, see chapter 3 in Publication 544. Irs free tax filing   In addition, figure taxable income without regard to any of the following. Irs free tax filing The section 179 deduction. Irs free tax filing The self-employment tax deduction. Irs free tax filing Any net operating loss carryback or carryforward. Irs free tax filing Any unreimbursed employee business expenses. Irs free tax filing Two different taxable income limits. Irs free tax filing   In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. Irs free tax filing You may have to figure the limit for this other deduction taking into account the section 179 deduction. Irs free tax filing If so, complete the following steps. Irs free tax filing Step Action 1 Figure taxable income without the section 179 deduction or the other deduction. Irs free tax filing 2 Figure a hypothetical section 179 deduction using the taxable income figured in Step 1. Irs free tax filing 3 Subtract the hypothetical section 179 deduction figured in Step 2 from the taxable income figured in Step 1. Irs free tax filing 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. Irs free tax filing 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1. Irs free tax filing 6 Figure your actual section 179 deduction using the taxable income figured in Step 5. Irs free tax filing 7 Subtract your actual section 179 deduction figured in Step 6 from the taxable income figured in Step 1. Irs free tax filing 8 Figure your actual other deduction using the taxable income figured in Step 7. Irs free tax filing Example. Irs free tax filing On February 1, 2013, the XYZ corporation purchased and placed in service qualifying section 179 property that cost $500,000. Irs free tax filing It elects to expense the entire $500,000 cost under section 179. Irs free tax filing In June, the corporation gave a charitable contribution of $10,000. Irs free tax filing A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. Irs free tax filing The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. Irs free tax filing XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $520,000. Irs free tax filing XYZ figures its section 179 deduction and its deduction for charitable contributions as follows. Irs free tax filing Step 1– Taxable income figured without either deduction is $520,000. Irs free tax filing Step 2– Using $520,000 as taxable income, XYZ's hypothetical section 179 deduction is $500,000. Irs free tax filing Step 3– $20,000 ($520,000 − $500,000). Irs free tax filing Step 4– Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. Irs free tax filing Step 5– $518,000 ($520,000 − $2,000). Irs free tax filing Step 6– Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. Irs free tax filing Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 deduction. Irs free tax filing Step 7– $20,000 ($520,000 − $500,000). Irs free tax filing Step 8– Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. Irs free tax filing Carryover of disallowed deduction. Irs free tax filing   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. Irs free tax filing This disallowed deduction amount is shown on line 13 of Form 4562. Irs free tax filing You use the amount you carry over to determine your section 179 deduction in the next year. Irs free tax filing Enter that amount on line 10 of your Form 4562 for the next year. Irs free tax filing   If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. Irs free tax filing Your selections must be shown in your books and records. Irs free tax filing For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. Irs free tax filing If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year. Irs free tax filing   If costs from more than one year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first. Irs free tax filing Special rules for qualified section 179 real property. Irs free tax filing   You can carry over to 2013 a 2012 deduction attributable to qualified section 179 real property that you elected to expense but were unable to take because of the business income limitation. Irs free tax filing Any such 2012 carryover amounts that are not deducted in 2013, plus any 2013 disallowed section 179 expense deductions attributable to qualified real property, are not carried over to 2014. Irs free tax filing Instead these amounts are treated as property placed in service on the first day of 2013 for purposes of computing depreciation (including the special depreciation allowance, if applicable). Irs free tax filing See section 179(f) of the Internal Revenue Code and Notice 2013-59 for more information. Irs free tax filing If there is a sale or other disposition of your property (including a transfer at death) before you can use the full amount of any outstanding carryover of your disallowed section 179 deduction, neither you nor the new owner can deduct any of the unused amount. Irs free tax filing Instead, you must add it back to the property's basis. Irs free tax filing Partnerships and Partners The section 179 deduction limits apply both to the partnership and to each partner. Irs free tax filing The partnership determines its section 179 deduction subject to the limits. Irs free tax filing It then allocates the deduction among its partners. Irs free tax filing Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Irs free tax filing ) to his or her nonpartnership section 179 costs and then applies the dollar limit to this total. Irs free tax filing To determine any reduction in the dollar limit for costs over $2,000,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. Irs free tax filing After the dollar limit (reduced for any nonpartnership section 179 costs over $2,000,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit. Irs free tax filing Partnership's taxable income. Irs free tax filing   For purposes of the business income limit, figure the partnership's taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. Irs free tax filing See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). Irs free tax filing However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code. Irs free tax filing Partner's share of partnership's taxable income. Irs free tax filing   For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership's trades or businesses includes his or her allocable share of taxable income derived from the partnership's active conduct of any trade or business. Irs free tax filing Example. Irs free tax filing In 2013, Beech Partnership placed in service section 179 property with a total cost of $2,025,000. Irs free tax filing The partnership must reduce its dollar limit by $25,000 ($2,025,000 − $2,000,000). Irs free tax filing Its maximum section 179 deduction is $475,000 ($500,000 − $25,000), and it elects to expense that amount. Irs free tax filing The partnership's taxable income from the active conduct of all its trades or businesses for the year was $600,000, so it can deduct the full $475,000. Irs free tax filing It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners. Irs free tax filing In addition to being a partner in Beech Partnership, Dean is also a partner in the Cedar Partnership, which allocated to him a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. Irs free tax filing He also conducts a business as a sole proprietor and, in 2013, placed in service in that business qualifying section 179 property costing $55,000. Irs free tax filing He had a net loss of $5,000 from that business for the year. Irs free tax filing Dean does not have to include section 179 partnership costs to figure any reduction in his dollar limit, so his total section 179 costs for the year are not more than $2,000,000 and his dollar limit is not reduced. Irs free tax filing His maximum section 179 deduction is $500,000. Irs free tax filing He elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of his sole proprietorship's section 179 costs, and notes that information in his books and records. Irs free tax filing However, his deduction is limited to his business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership minus $5,000 loss from his sole proprietorship). Irs free tax filing He carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2014. Irs free tax filing He allocates the carryover amount to the cost of section 179 property placed in service in his sole proprietorship, and notes that allocation in his books and records. Irs free tax filing Different tax years. Irs free tax filing   For purposes of the business income limit, if the partner's tax year and that of the partnership differ, the partner's share of the partnership's taxable income for a tax year is generally the partner's distributive share for the partnership tax year that ends with or within the partner's tax year. Irs free tax filing Example. Irs free tax filing John and James Oak are equal partners in Oak Partnership. Irs free tax filing Oak Partnership uses a tax year ending January 31. Irs free tax filing John and James both use a tax year ending December 31. Irs free tax filing For its tax year ending January 31, 2013, Oak Partnership's taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2012. Irs free tax filing John and James each include $40,000 (each partner's entire share) of partnership taxable income in computing their business income limit for the 2013 tax year. Irs free tax filing Adjustment of partner's basis in partnership. Irs free tax filing   A partner must reduce the basis of his or her partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. Irs free tax filing If the partner disposes of his or her partnership interest, the partner's basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership. Irs free tax filing Adjustment of partnership's basis in section 179 property. Irs free tax filing   The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. Irs free tax filing This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits. Irs free tax filing S Corporations Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. Irs free tax filing The deduction limits apply to an S corporation and to each shareholder. Irs free tax filing The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits. Irs free tax filing Figuring taxable income for an S corporation. Irs free tax filing   To figure taxable income (or loss) from the active conduct by an S corporation of any trade or business, you total the net income and losses from all trades or businesses actively conducted by the S corporation during the year. Irs free tax filing   To figure the net income (or loss) from a trade or business actively conducted by an S corporation, you take into account the items from that trade or business that are passed through to the shareholders and used in determining each shareholder's tax liability. Irs free tax filing However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. Irs free tax filing For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. Irs free tax filing In figuring the taxable income of an S corporation, disregard any limits on the amount of an S corporation item that must be taken into account when figuring a shareholder's taxable income. Irs free tax filing Other Corporations A corporation's taxable income from its active conduct of any trade or business is its taxable income figured with the following changes. Irs free tax filing It is figured before deducting the section 179 deduction, any net operating loss deduction, and special deductions (as reported on the corporation's income tax return). Irs free tax filing It is adjusted for items of income or deduction included in the amount figured in 1, above, not derived from a trade or business actively conducted by the corporation during the tax year. Irs free tax filing How Do You Elect the Deduction? You elect to take the section 179 deduction by completing Part I of Form 4562. Irs free tax filing If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I. Irs free tax filing For property placed in service in 2013, file Form 4562 with either of the following. Irs free tax filing Your original 2013 tax return, whether or not you file it timely. Irs free tax filing An amended return for 2013 filed within the time prescribed by law. Irs free tax filing 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. Irs free tax filing The amended return must also include any resulting adjustments to taxable income. Irs free tax filing You must keep records that show the specific identification of each piece of qualifying section 179 property. Irs free tax filing These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Irs free tax filing Election for certain qualified section 179 real property. Irs free tax filing   You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2013. Irs free tax filing If you elect to treat this property as section 179 property, you must elect the application of the special rules for qualified real property described in section 179(f) of the Internal Revenue Code. Irs free tax filing   To make the election, attach a statement indicating you are “electing the application of section 179(f) of the Internal Revenue Code” with either of the following. Irs free tax filing Your original 2013 tax return, whether or not you file it timely. Irs free tax filing An amended return for 2013 filed within the time prescribed by law. Irs free tax filing The amended return must also include any adjustments to taxable income. Irs free tax filing   The statement should indicate your election to expense certain qualified real property under section 179(f) on your return. Irs free tax filing It must specify one or more of the three types of qualified property (described under Qualified real property ) to which the election applies, the cost of each such type, and the portion of the cost of each such property to be taken into account. Irs free tax filing Also, report this on line 6 of Form 4562. Irs free tax filing    The maximum section 179 expense deduction that can be taken for qualified section 179 real property is limited to $250,000. Irs free tax filing Revoking an election. Irs free tax filing   An election (or any specification made in the election) to take a section 179 deduction for 2013 can be revoked without IRS approval by filing an amended return. Irs free tax filing The amended return must be filed within the time prescribed by law. Irs free tax filing The amended return must also include any resulting adjustments to taxable income. Irs free tax filing Once made, the revocation is irrevocable. Irs free tax filing When Must You Recapture the Deduction? You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. Irs free tax filing In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV of Form 4797. Irs free tax filing You also increase the basis of the property by the recapture amount. Irs free tax filing Recovery periods for property are discussed under Which Recovery Period Applies in chapter 4 . Irs free tax filing If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Irs free tax filing Instead, use the rules for recapturing depreciation explained in chapter 3 of Publication 544 under Section 1245 Property. Irs free tax filing For qualified real property (described earlier), see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. Irs free tax filing If the property is listed property (described in chapter 5 ), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Irs free tax filing Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement. Irs free tax filing Figuring the recapture amount. Irs free tax filing   To figure the amount to recapture, take the following steps. Irs free tax filing Figure the depreciation that would have been allowable on the section 179 deduction you claimed. Irs free tax filing Begin with the year you placed the property in service and include the year of recapture. Irs free tax filing Subtract the depreciation figured in (1) from the section 179 deduction you claimed. Irs free tax filing The result is the amount you must recapture. Irs free tax filing Example. Irs free tax filing In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. Irs free tax filing The property is not listed property. Irs free tax filing The property is 3-year property. Irs free tax filing He elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. Irs free tax filing He used the property only for business in 2011 and 2012. Irs free tax filing In 2013, he used the property 40% for business and 60% for personal use. Irs free tax filing He figures his recapture amount as follows. Irs free tax filing Section 179 deduction claimed (2011) $5,000. Irs free tax filing 00 Minus: Allowable depreciation using Table A-1 (instead of section 179 deduction):   2011 $1,666. Irs free tax filing 50   2012 2,222. Irs free tax filing 50   2013 ($740. Irs free tax filing 50 × 40% (business)) 296. Irs free tax filing 20 4,185. Irs free tax filing 20 2013 — Recapture amount $ 814. Irs free tax filing 80 Paul must include $814. Irs free tax filing 80 in income for 2013. Irs free tax filing If any qualified zone property placed in service during the year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return. Irs free tax filing Prev  Up  Next   Home   More Online Publications