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Unemployment Tax Filing

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Unemployment Tax Filing

Unemployment tax filing 33. Unemployment tax filing   Credit for the Elderly or the Disabled Table of Contents Introduction Useful Items - You may want to see: Are You Eligible for the Credit?Qualified Individual Income Limits How to Claim the CreditCredit Figured for You Credit Figured by You Introduction If you qualify, you may be able to reduce the tax you owe by taking the credit for the elderly or the disabled which is figured on Schedule R (Form 1040A or 1040). Unemployment tax filing This chapter explains the following. Unemployment tax filing Who qualifies for the credit for the elderly or the disabled. Unemployment tax filing How to claim the credit. Unemployment tax filing You may be able to take the credit for the elderly or the disabled if: You are age 65 or older at the end of 2013, or You retired on permanent and total disability and have taxable disability income. Unemployment tax filing Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 554 Tax Guide for Seniors Form (and Instruction) Schedule R (Form 1040A or 1040) Credit for the Elderly or the Disabled Are You Eligible for the Credit? You can take the credit for the elderly or the disabled if you meet both of the following requirements. Unemployment tax filing You are a qualified individual. Unemployment tax filing Your income is not more than certain limits. Unemployment tax filing You can use Figure 33-A and Table 33-1 as guides to see if you are eligible for the credit. Unemployment tax filing Use Figure 33-A first to see if you are a qualified individual. Unemployment tax filing If you are, go to Table 33-1 to make sure your income is not too high to take the credit. Unemployment tax filing You can take the credit only if you file Form 1040 or Form 1040A. Unemployment tax filing You cannot take the credit if you file Form 1040EZ. Unemployment tax filing Qualified Individual You are a qualified individual for this credit if you are a U. Unemployment tax filing S. Unemployment tax filing citizen or resident alien, and either of the following applies. Unemployment tax filing You were age 65 or older at the end of 2013. Unemployment tax filing You were under age 65 at the end of 2013 and all three of the following statements are true. Unemployment tax filing You retired on permanent and total disability (explained later). Unemployment tax filing You received taxable disability income for 2013. Unemployment tax filing On January 1, 2013, you had not reached mandatory retirement age (defined later under Disability income ). Unemployment tax filing Age 65. Unemployment tax filing   You are considered to be age 65 on the day before your 65th birthday. Unemployment tax filing Therefore, if you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. Unemployment tax filing U. Unemployment tax filing S. Unemployment tax filing Citizen or Resident Alien You must be a U. Unemployment tax filing S. Unemployment tax filing citizen or resident alien (or be treated as a resident alien) to take the credit. Unemployment tax filing Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year. Unemployment tax filing Exceptions. Unemployment tax filing   You may be able to take the credit if you are a nonresident alien who is married to a U. Unemployment tax filing S. Unemployment tax filing citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U. Unemployment tax filing S. Unemployment tax filing resident alien. Unemployment tax filing If you make that choice, both you and your spouse are taxed on your worldwide incomes. Unemployment tax filing If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U. Unemployment tax filing S. Unemployment tax filing citizen or resident alien at the end of the year, you may be able to choose to be treated as a U. Unemployment tax filing S. Unemployment tax filing resident alien for the entire year. Unemployment tax filing In that case, you may be allowed to take the credit. Unemployment tax filing For information on these choices, see chapter 1 of Publication 519, U. Unemployment tax filing S. Unemployment tax filing Tax Guide for Aliens. Unemployment tax filing Married Persons Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. Unemployment tax filing However, if you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit. Unemployment tax filing Head of household. Unemployment tax filing   You can file as head of household and qualify to take the credit, even if your spouse lived with you during the first 6 months of the year, if you meet certain tests. Unemployment tax filing See Head of Household in chapter 2 for the tests you must meet. Unemployment tax filing Under Age 65 If you are under age 65 at the end of 2013, you can qualify for the credit only if you are retired on permanent and total disability (discussed next) and have taxable disability income (discussed later under Disability income ). Unemployment tax filing You are retired on permanent and total disability if: You were permanently and totally disabled when you retired, and You retired on disability before the close of the tax year. Unemployment tax filing Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability. Unemployment tax filing If you retired on disability before 1977, and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977. Unemployment tax filing Permanent and total disability. Unemployment tax filing    You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. Unemployment tax filing A qualified physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. Unemployment tax filing See Physician's statement , later. Unemployment tax filing Substantial gainful activity. Unemployment tax filing   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. Unemployment tax filing Full-time work (or part-time work done at your employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity. Unemployment tax filing   Substantial gainful activity is not work you do to take care of yourself or your home. Unemployment tax filing It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. Unemployment tax filing However, doing this kind of work may show that you are able to engage in substantial gainful activity. Unemployment tax filing    The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity. Unemployment tax filing Sheltered employment. Unemployment tax filing   Certain work offered at qualified locations to physically or mentally impaired persons is considered sheltered employment. Unemployment tax filing These qualified locations are in sheltered workshops, hospitals, and similar institutions, homebound programs, and Department of Veterans Affairs (VA) sponsored homes. Unemployment tax filing   Compared to commercial employment, pay is lower for sheltered employment. Unemployment tax filing Therefore, one usually does not look for sheltered employment if he or she can get other employment. Unemployment tax filing The fact that one has accepted sheltered employment is not proof of the person's ability to engage in substantial gainful activity. Unemployment tax filing Physician's statement. Unemployment tax filing   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. Unemployment tax filing You can use the statement in the Instructions for Schedule R. Unemployment tax filing    Figure 33-A. Unemployment tax filing Are You a Qualified Individual? This image is too large to be displayed in the current screen. Unemployment tax filing Please click the link to view the image. Unemployment tax filing Figure 33-A Are You a Qualified Individual?   You do not have to file this statement with your Form 1040 or Form 1040A, but you must keep it for your records. Unemployment tax filing Veterans. Unemployment tax filing   If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. Unemployment tax filing VA Form 21-0172 must be signed by a person authorized by the VA to do so. Unemployment tax filing You can get this form from your local VA regional office. Unemployment tax filing Physician's statement obtained in earlier year. Unemployment tax filing   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2013, you may not need to get another physician's statement for 2013. Unemployment tax filing For a detailed explanation of the conditions you must meet, see the instructions for Schedule R, Part II. Unemployment tax filing If you meet the required conditions, check the box on your Schedule R, Part II, line 2. Unemployment tax filing   If you checked box 4, 5, or 6 in Part I of Schedule R, enter in the space above the box on line 2 in Part II the first name(s) of the spouse(s) for whom the box is checked. Unemployment tax filing Table 33-1. Unemployment tax filing Income Limits IF your filing status is . Unemployment tax filing . Unemployment tax filing . Unemployment tax filing THEN, even if you qualify (see Figure 33-A ), you CANNOT take the credit if. Unemployment tax filing . Unemployment tax filing . Unemployment tax filing   Your adjusted gross income (AGI)* is equal to or more than. Unemployment tax filing . Unemployment tax filing . Unemployment tax filing     OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than. Unemployment tax filing . Unemployment tax filing . Unemployment tax filing   single, head of household, or qualifying widow(er) with dependent child   $17,500     $5,000   married filing jointly and only one spouse qualifies in Figure 33-A   $20,000     $5,000   married filing jointly and both spouses qualify in Figure 33-A   $25,000     $7,500   married filing separately and you lived apart from your spouse for all of 2013   $12,500     $3,750   * AGI is the amount on Form 1040A, line 22, or Form 1040, line 38. Unemployment tax filing Disability income. Unemployment tax filing   If you are under age 65, you must also have taxable disability income to qualify for the credit. Unemployment tax filing Disability income must meet both of the following requirements. Unemployment tax filing It must be paid under your employer's accident or health plan or pension plan. Unemployment tax filing It must be included in your income as wages (or payments instead of wages) for the time you are absent from work because of permanent and total disability. Unemployment tax filing Payments that are not disability income. Unemployment tax filing   Any payment you receive from a plan that does not provide for disability retirement is not disability income. Unemployment tax filing Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income. Unemployment tax filing   For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. Unemployment tax filing Mandatory retirement age is the age set by your employer at which you would have had to retire, had you not become disabled. Unemployment tax filing Income Limits To determine if you can claim the credit, you must consider two income limits. Unemployment tax filing The first limit is the amount of your adjusted gross income (AGI). Unemployment tax filing The second limit is the amount of nontaxable social security and other nontaxable pensions, annuities, or disability income you received. Unemployment tax filing The limits are shown in Table 33-1. Unemployment tax filing If your AGI and nontaxable pensions, annuities, or disability income are less than the income limits, you may be able to claim the credit. Unemployment tax filing See How to Claim the Credit , later. Unemployment tax filing If either your AGI or your nontaxable pensions, annuities, or disability income are equal to or more than the income limits, you cannot take the credit. Unemployment tax filing How to Claim the Credit You can figure the credit yourself or the Internal Revenue Service will figure it for you. Unemployment tax filing Credit Figured for You If you choose to have the IRS figure the credit for you, read the following discussion for the form you will file (Form 1040 or 1040A). Unemployment tax filing If you want the IRS to figure your tax, see chapter 30. Unemployment tax filing Form 1040. Unemployment tax filing   If you want the IRS to figure your credit, see Form 1040 Line Entries under Tax Figured by IRS in chapter 30. Unemployment tax filing Form 1040A. Unemployment tax filing   If you want the IRS to figure your credit, see Form 1040A Line Entries under Tax Figured by IRS in chapter 30. Unemployment tax filing Credit Figured by You If you choose to figure the credit yourself, fill out the front of Schedule R. Unemployment tax filing Next, fill out Schedule R, Part III. Unemployment tax filing If you file Form 1040A, enter the amount from Schedule R, line 22, on Form 1040A, line 30. Unemployment tax filing If you file Form 1040, include the amount from Schedule R, line 22, on line 53; check box c, and enter “Sch R” on the line next to that box. Unemployment tax filing For a step-by-step discussion about filling out Part III of Schedule R, see Figuring the Credit Yourself in Publication 524. Unemployment tax filing Limit on credit. Unemployment tax filing   The amount of the credit you can claim is generally limited to the amount of your tax. Unemployment tax filing Use the Credit Limit Worksheet in the Instructions for Schedule R to determine if your credit is limited. Unemployment tax filing Prev  Up  Next   Home   More Online Publications
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Tax Information for Members of the Military

Special EITC Rules
Special rules apply for calculating Earned Income Tax Credit or EITC for members of the military, ministers or members of the clergy.

Tax Information for Members of the U.S. Armed Forces
Members of the U.S. Armed Forces, especially those serving in combat zones, face some special tax situations and are entitled to some special tax benefits.

Special Tax Considerations for Veterans
Special tax considerations for disabled veterans occasionally result in a need for amended returns

2013 Publ3 (PDF)
Armed Forces' Tax Guide

Employers with Employees in a Combat Zone
FAQs for employers whose workers deploy to a combat zone

Extension of Deadlines — Combat Zone Service
Extension of deadlines for combat zone service

Retirement Plans FAQs regarding USERRA and SSCRA
Insights into the re-employment of veterans and the restoration of retirement plan benefits, as affected by the Uniformed Services and Reemployment Rights Act (USERRA) and the Veterans and Sailors Civil Relief Act (SSCRA).

Miscellaneous Provisions — Combat Zone Service
Miscellaneous provisions related to combat zone service

1040 Central
1040 Central has been updated for the last few weeks of Filing Season 2014.

Page Last Reviewed or Updated: 27-Mar-2014

The Unemployment Tax Filing

Unemployment tax filing 1. Unemployment tax filing   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. Unemployment tax filing It is an allowance for the wear and tear, deterioration, or obsolescence of the property. Unemployment tax filing This chapter discusses the general rules for depreciating property and answers the following questions. Unemployment tax filing What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. Unemployment tax filing What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. Unemployment tax filing You also can depreciate certain intangible property, such as patents, copyrights, and computer software. Unemployment tax filing To be depreciable, the property must meet all the following requirements. Unemployment tax filing It must be property you own. Unemployment tax filing It must be used in your business or income-producing activity. Unemployment tax filing It must have a determinable useful life. Unemployment tax filing It must be expected to last more than one year. Unemployment tax filing The following discussions provide information about these requirements. Unemployment tax filing Property You Own To claim depreciation, you usually must be the owner of the property. Unemployment tax filing You are considered as owning property even if it is subject to a debt. Unemployment tax filing Example 1. Unemployment tax filing You made a down payment to purchase rental property and assumed the previous owner's mortgage. Unemployment tax filing You own the property and you can depreciate it. Unemployment tax filing Example 2. Unemployment tax filing You bought a new van that you will use only for your courier business. Unemployment tax filing You will be making payments on the van over the next 5 years. Unemployment tax filing You own the van and you can depreciate it. Unemployment tax filing Leased property. Unemployment tax filing   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). Unemployment tax filing This means you bear the burden of exhaustion of the capital investment in the property. Unemployment tax filing Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Unemployment tax filing You can, however, depreciate any capital improvements you make to the property. Unemployment tax filing See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. Unemployment tax filing   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Unemployment tax filing However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. Unemployment tax filing Incidents of ownership. Unemployment tax filing   Incidents of ownership in property include the following. Unemployment tax filing The legal title to the property. Unemployment tax filing The legal obligation to pay for the property. Unemployment tax filing The responsibility to pay maintenance and operating expenses. Unemployment tax filing The duty to pay any taxes on the property. Unemployment tax filing The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. Unemployment tax filing Life tenant. Unemployment tax filing   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Unemployment tax filing However, see Certain term interests in property under Excepted Property, later. Unemployment tax filing Cooperative apartments. Unemployment tax filing   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. Unemployment tax filing   Figure your depreciation deduction as follows. Unemployment tax filing Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. Unemployment tax filing If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Unemployment tax filing Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. Unemployment tax filing Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Unemployment tax filing Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Unemployment tax filing Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Unemployment tax filing Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. Unemployment tax filing Multiply the result of (2) by the percentage you figured in (3). Unemployment tax filing This is your depreciation on the stock. Unemployment tax filing   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. Unemployment tax filing You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. Unemployment tax filing Example. Unemployment tax filing You figure your share of the cooperative housing corporation's depreciation to be $30,000. Unemployment tax filing Your adjusted basis in the stock of the corporation is $50,000. Unemployment tax filing You use one half of your apartment solely for business purposes. Unemployment tax filing Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). Unemployment tax filing Change to business use. Unemployment tax filing   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. Unemployment tax filing The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Unemployment tax filing The fair market value of the property on the date you change your apartment to business use. Unemployment tax filing This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Unemployment tax filing The corporation's adjusted basis in the property on that date. Unemployment tax filing Do not subtract depreciation when figuring the corporation's adjusted basis. Unemployment tax filing   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. Unemployment tax filing The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Unemployment tax filing   For a discussion of fair market value and adjusted basis, see Publication 551. Unemployment tax filing Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Unemployment tax filing If you use property to produce income (investment use), the income must be taxable. Unemployment tax filing You cannot depreciate property that you use solely for personal activities. Unemployment tax filing Partial business or investment use. Unemployment tax filing   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. Unemployment tax filing For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. Unemployment tax filing    You must keep records showing the business, investment, and personal use of your property. Unemployment tax filing For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. Unemployment tax filing    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. Unemployment tax filing For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. Unemployment tax filing Office in the home. Unemployment tax filing   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. Unemployment tax filing For information about depreciating your home office, see Publication 587. Unemployment tax filing Inventory. Unemployment tax filing   You cannot depreciate inventory because it is not held for use in your business. Unemployment tax filing Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Unemployment tax filing   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. Unemployment tax filing See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. Unemployment tax filing   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. Unemployment tax filing If it is unclear, examine carefully all the facts in the operation of the particular business. Unemployment tax filing The following example shows how a careful examination of the facts in two similar situations results in different conclusions. Unemployment tax filing Example. Unemployment tax filing Maple Corporation is in the business of leasing cars. Unemployment tax filing At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. Unemployment tax filing Maple does not have a showroom, used car lot, or individuals to sell the cars. Unemployment tax filing Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. Unemployment tax filing Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. Unemployment tax filing If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. Unemployment tax filing In this situation, the cars are held primarily for sale to customers in the ordinary course of business. Unemployment tax filing Containers. Unemployment tax filing   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. Unemployment tax filing However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. Unemployment tax filing They qualify as property used in your business. Unemployment tax filing Title to the containers does not pass to the buyer. Unemployment tax filing   To determine if these requirements are met, consider the following questions. Unemployment tax filing Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Unemployment tax filing This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Unemployment tax filing Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. Unemployment tax filing Example. Unemployment tax filing You maintain a library for use in your profession. Unemployment tax filing You can depreciate it. Unemployment tax filing However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. Unemployment tax filing Instead, you deduct their cost as a business expense. Unemployment tax filing What Property Cannot Be Depreciated? Certain property cannot be depreciated. Unemployment tax filing This includes land and certain excepted property. Unemployment tax filing Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. Unemployment tax filing The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Unemployment tax filing Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Unemployment tax filing These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Unemployment tax filing Example. Unemployment tax filing You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Unemployment tax filing Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. Unemployment tax filing If you replace the building, you would have to destroy the bushes and trees right next to it. Unemployment tax filing These bushes and trees are closely associated with the building, so they have a determinable useful life. Unemployment tax filing Therefore, you can depreciate them. Unemployment tax filing Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Unemployment tax filing Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. Unemployment tax filing Property placed in service and disposed of in the same year. Unemployment tax filing Determining when property is placed in service is explained later. Unemployment tax filing Equipment used to build capital improvements. Unemployment tax filing You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Unemployment tax filing See Uniform Capitalization Rules in Publication 551. Unemployment tax filing Section 197 intangibles. Unemployment tax filing You must amortize these costs. Unemployment tax filing Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. Unemployment tax filing Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. Unemployment tax filing See Intangible Property , later. Unemployment tax filing Certain term interests. Unemployment tax filing Certain term interests in property. Unemployment tax filing   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Unemployment tax filing A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. Unemployment tax filing Related persons. Unemployment tax filing   For a description of related persons, see Related Persons, later. Unemployment tax filing For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Unemployment tax filing Basis adjustments. Unemployment tax filing   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. Unemployment tax filing   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. Unemployment tax filing However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. Unemployment tax filing The term interest is held by an organization exempt from tax. Unemployment tax filing The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. Unemployment tax filing Exceptions. Unemployment tax filing   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Unemployment tax filing They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. Unemployment tax filing When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Unemployment tax filing You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Unemployment tax filing Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Unemployment tax filing Even if you are not using the property, it is in service when it is ready and available for its specific use. Unemployment tax filing Example 1. Unemployment tax filing Donald Steep bought a machine for his business. Unemployment tax filing The machine was delivered last year. Unemployment tax filing However, it was not installed and operational until this year. Unemployment tax filing It is considered placed in service this year. Unemployment tax filing If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. Unemployment tax filing Example 2. Unemployment tax filing On April 6, Sue Thorn bought a house to use as residential rental property. Unemployment tax filing She made several repairs and had it ready for rent on July 5. Unemployment tax filing At that time, she began to advertise it for rent in the local newspaper. Unemployment tax filing The house is considered placed in service in July when it was ready and available for rent. Unemployment tax filing She can begin to depreciate it in July. Unemployment tax filing Example 3. Unemployment tax filing James Elm is a building contractor who specializes in constructing office buildings. Unemployment tax filing He bought a truck last year that had to be modified to lift materials to second-story levels. Unemployment tax filing The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. Unemployment tax filing The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. Unemployment tax filing Conversion to business use. Unemployment tax filing   If you place property in service in a personal activity, you cannot claim depreciation. Unemployment tax filing However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. Unemployment tax filing You place the property in service in the business or income-producing activity on the date of the change. Unemployment tax filing Example. Unemployment tax filing You bought a home and used it as your personal home several years before you converted it to rental property. Unemployment tax filing Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Unemployment tax filing You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. Unemployment tax filing Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). Unemployment tax filing For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Unemployment tax filing Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Unemployment tax filing You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Unemployment tax filing See What Is the Basis of Your Depreciable Property , later. Unemployment tax filing Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Unemployment tax filing You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Unemployment tax filing You sell or exchange the property. Unemployment tax filing You convert the property to personal use. Unemployment tax filing You abandon the property. Unemployment tax filing You transfer the property to a supplies or scrap account. Unemployment tax filing The property is destroyed. Unemployment tax filing If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. Unemployment tax filing What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. Unemployment tax filing MACRS is discussed in chapter 4. Unemployment tax filing You cannot use MACRS to depreciate the following property. Unemployment tax filing Property you placed in service before 1987. Unemployment tax filing Certain property owned or used in 1986. Unemployment tax filing Intangible property. Unemployment tax filing Films, video tapes, and recordings. Unemployment tax filing Certain corporate or partnership property acquired in a nontaxable transfer. Unemployment tax filing Property you elected to exclude from MACRS. Unemployment tax filing The following discussions describe the property listed above and explain what depreciation method should be used. Unemployment tax filing Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). Unemployment tax filing Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. Unemployment tax filing For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. Unemployment tax filing Use of real property changed. Unemployment tax filing   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Unemployment tax filing Improvements made after 1986. Unemployment tax filing   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Unemployment tax filing Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Unemployment tax filing For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. Unemployment tax filing Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. Unemployment tax filing If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. Unemployment tax filing For the following discussions, do not treat property as owned before you placed it in service. Unemployment tax filing If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. Unemployment tax filing Personal property. Unemployment tax filing   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. Unemployment tax filing You or someone related to you owned or used the property in 1986. Unemployment tax filing You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. Unemployment tax filing You lease the property to a person (or someone related to this person) who owned or used the property in 1986. Unemployment tax filing You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. Unemployment tax filing Real property. Unemployment tax filing   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. Unemployment tax filing You or someone related to you owned the property in 1986. Unemployment tax filing You lease the property to a person who owned the property in 1986 (or someone related to that person). Unemployment tax filing You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. Unemployment tax filing MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. Unemployment tax filing It does not apply to the carried-over part of the basis. Unemployment tax filing Exceptions. Unemployment tax filing   The rules above do not apply to the following. Unemployment tax filing Residential rental property or nonresidential real property. Unemployment tax filing Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. Unemployment tax filing For information on how to figure depreciation under ACRS, see Publication 534. Unemployment tax filing Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. Unemployment tax filing Related persons. Unemployment tax filing   For this purpose, the following are related persons. Unemployment tax filing An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. Unemployment tax filing A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. Unemployment tax filing Two corporations that are members of the same controlled group. Unemployment tax filing A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. Unemployment tax filing The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Unemployment tax filing The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Unemployment tax filing A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. Unemployment tax filing Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. Unemployment tax filing A corporation and a partnership if the same persons own both of the following. Unemployment tax filing More than 10% of the value of the outstanding stock of the corporation. Unemployment tax filing More than 10% of the capital or profits interest in the partnership. Unemployment tax filing The executor and beneficiary of any estate. Unemployment tax filing A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. Unemployment tax filing Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. Unemployment tax filing The related person and a person who is engaged in trades or businesses under common control. Unemployment tax filing See section 52(a) and 52(b) of the Internal Revenue Code. Unemployment tax filing When to determine relationship. Unemployment tax filing   You must determine whether you are related to another person at the time you acquire the property. Unemployment tax filing   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. Unemployment tax filing For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. Unemployment tax filing Constructive ownership of stock or partnership interest. Unemployment tax filing   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. Unemployment tax filing Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Unemployment tax filing However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. Unemployment tax filing An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. Unemployment tax filing An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. Unemployment tax filing For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. Unemployment tax filing However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. Unemployment tax filing Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. Unemployment tax filing However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). Unemployment tax filing You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. Unemployment tax filing Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. Unemployment tax filing To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Unemployment tax filing Subtract the salvage value, if any, from the adjusted basis. Unemployment tax filing The balance is the total depreciation you can take over the useful life of the property. Unemployment tax filing Divide the balance by the number of years in the useful life. Unemployment tax filing This gives you your yearly depreciation deduction. Unemployment tax filing Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. Unemployment tax filing If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Unemployment tax filing Example. Unemployment tax filing In April, Frank bought a patent for $5,100 that is not a section 197 intangible. Unemployment tax filing He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. Unemployment tax filing He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. Unemployment tax filing He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. Unemployment tax filing Next year, Frank can deduct $300 for the full year. Unemployment tax filing Patents and copyrights. Unemployment tax filing   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. Unemployment tax filing The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. Unemployment tax filing However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. Unemployment tax filing Computer software. Unemployment tax filing   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. Unemployment tax filing   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Unemployment tax filing It is readily available for purchase by the general public. Unemployment tax filing It is subject to a nonexclusive license. Unemployment tax filing It has not been substantially modified. Unemployment tax filing   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. Unemployment tax filing If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. Unemployment tax filing    Tax-exempt use property subject to a lease. Unemployment tax filing   The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. Unemployment tax filing Certain created intangibles. Unemployment tax filing   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. Unemployment tax filing For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. Unemployment tax filing   The following are not eligible. Unemployment tax filing Any intangible asset acquired from another person. Unemployment tax filing Created financial interests. Unemployment tax filing Any intangible asset that has a useful life that can be estimated with reasonable accuracy. Unemployment tax filing Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. Unemployment tax filing Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. Unemployment tax filing   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. Unemployment tax filing For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. Unemployment tax filing Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. Unemployment tax filing Motion picture films or video tapes. Unemployment tax filing Sound recordings. Unemployment tax filing Copyrights. Unemployment tax filing Books. Unemployment tax filing Patents. Unemployment tax filing Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. Unemployment tax filing The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. Unemployment tax filing For more information, see section 167(g) of the Internal Revenue Code. Unemployment tax filing Films, video tapes, and recordings. Unemployment tax filing   You cannot use MACRS for motion picture films, video tapes, and sound recordings. Unemployment tax filing For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. Unemployment tax filing You can depreciate this property using either the straight line method or the income forecast method. Unemployment tax filing Participations and residuals. Unemployment tax filing   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. Unemployment tax filing The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. Unemployment tax filing For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. Unemployment tax filing   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. Unemployment tax filing Videocassettes. Unemployment tax filing   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. Unemployment tax filing If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. Unemployment tax filing Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. Unemployment tax filing You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. Unemployment tax filing However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. Unemployment tax filing The nontaxable transfers covered by this rule include the following. Unemployment tax filing A distribution in complete liquidation of a subsidiary. Unemployment tax filing A transfer to a corporation controlled by the transferor. Unemployment tax filing An exchange of property solely for corporate stock or securities in a reorganization. Unemployment tax filing A contribution of property to a partnership in exchange for a partnership interest. Unemployment tax filing A partnership distribution of property to a partner. Unemployment tax filing Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. Unemployment tax filing You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. Unemployment tax filing You must make this election by the return due date (including extensions) for the tax year you place your property in service. Unemployment tax filing However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). Unemployment tax filing Attach the election to the amended return and write “Filed pursuant to section 301. Unemployment tax filing 9100-2” on the election statement. Unemployment tax filing File the amended return at the same address you filed the original return. Unemployment tax filing Use of standard mileage rate. Unemployment tax filing   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. Unemployment tax filing See Publication 463 for a discussion of the standard mileage rate. Unemployment tax filing What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Unemployment tax filing To determine basis, you need to know the cost or other basis of your property. Unemployment tax filing Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. Unemployment tax filing The cost includes the amount you pay in cash, debt obligations, other property, or services. Unemployment tax filing Exception. Unemployment tax filing   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Unemployment tax filing If you make that choice, you cannot include those sales taxes as part of your cost basis. Unemployment tax filing Assumed debt. Unemployment tax filing   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. Unemployment tax filing Example. Unemployment tax filing You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. Unemployment tax filing Your total cost is $140,000, the cash you paid plus the mortgage you assumed. Unemployment tax filing Settlement costs. Unemployment tax filing   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. Unemployment tax filing These generally are shown on your settlement statement and include the following. Unemployment tax filing Legal and recording fees. Unemployment tax filing Abstract fees. Unemployment tax filing Survey charges. Unemployment tax filing Owner's title insurance. Unemployment tax filing Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Unemployment tax filing   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. Unemployment tax filing Property you construct or build. Unemployment tax filing   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. Unemployment tax filing For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. Unemployment tax filing Other Basis Other basis usually refers to basis that is determined by the way you received the property. Unemployment tax filing For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. Unemployment tax filing If you acquired property in this or some other way, see Publication 551 to determine your basis. Unemployment tax filing Property changed from personal use. Unemployment tax filing   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. Unemployment tax filing The fair market value (FMV) of the property on the date of the change in use. Unemployment tax filing Your original cost or other basis adjusted as follows. Unemployment tax filing Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. Unemployment tax filing Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. Unemployment tax filing Example. Unemployment tax filing Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. Unemployment tax filing Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. Unemployment tax filing Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. Unemployment tax filing Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). Unemployment tax filing On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Unemployment tax filing The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). Unemployment tax filing Property acquired in a nontaxable transaction. Unemployment tax filing   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. Unemployment tax filing Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. Unemployment tax filing See Like-kind exchanges and involuntary conversions. Unemployment tax filing under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. Unemployment tax filing   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. Unemployment tax filing See How Do You Use General Asset Accounts in chapter 4. Unemployment tax filing Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Unemployment tax filing These events could include the following. Unemployment tax filing Installing utility lines. Unemployment tax filing Paying legal fees for perfecting the title. Unemployment tax filing Settling zoning issues. Unemployment tax filing Receiving rebates. Unemployment tax filing Incurring a casualty or theft loss. Unemployment tax filing For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. Unemployment tax filing If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. Unemployment tax filing For more information, see What Is the Basis for Depreciation in chapter 4. Unemployment tax filing . Unemployment tax filing Basis adjustment for depreciation allowed or allowable. Unemployment tax filing   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Unemployment tax filing Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Unemployment tax filing Depreciation allowable is depreciation you are entitled to deduct. Unemployment tax filing   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Unemployment tax filing   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Unemployment tax filing How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. Unemployment tax filing Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. Unemployment tax filing You generally deduct the cost of repairing business property in the same way as any other business expense. Unemployment tax filing However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Unemployment tax filing Example. Unemployment tax filing You repair a small section on one corner of the roof of a rental house. Unemployment tax filing You deduct the cost of the repair as a rental expense. Unemployment tax filing However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. Unemployment tax filing You depreciate the cost of the new roof. Unemployment tax filing Improvements to rented property. Unemployment tax filing   You can depreciate permanent improvements you make to business property you rent from someone else. Unemployment tax filing Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. Unemployment tax filing Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. Unemployment tax filing A section 179 deduction for the current year or a section 179 carryover from a prior year. Unemployment tax filing See chapter 2 for information on the section 179 deduction. Unemployment tax filing Depreciation for property placed in service during the current year. Unemployment tax filing Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Unemployment tax filing See chapter 5 for information on listed property. Unemployment tax filing A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Unemployment tax filing Amortization of costs if the current year is the first year of the amortization period. Unemployment tax filing Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. Unemployment tax filing S. Unemployment tax filing Income Tax Return for an S Corporation) regardless of when it was placed in service. Unemployment tax filing You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. Unemployment tax filing Table 1-1 presents an overview of the purpose of the various parts of Form 4562. Unemployment tax filing Employee. Unemployment tax filing   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. Unemployment tax filing Instead, use either Form 2106 or Form 2106-EZ. Unemployment tax filing Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. Unemployment tax filing How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Unemployment tax filing See Filing an Amended Return , next. Unemployment tax filing If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Unemployment tax filing See Changing Your Accounting Method , later. Unemployment tax filing Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Unemployment tax filing You claimed the incorrect amount because of a mathematical error made in any year. Unemployment tax filing You claimed the incorrect amount because of a posting error made in any year. Unemployment tax filing You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Unemployment tax filing You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Unemployment tax filing Adoption of accounting method defined. Unemployment tax filing   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. Unemployment tax filing   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Unemployment tax filing irs. Unemployment tax filing gov/pub/irs-irbs/irb11-04. Unemployment tax filing pdf. Unemployment tax filing (Note. Unemployment tax filing Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Unemployment tax filing For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Unemployment tax filing irs. Unemployment tax filing gov/pub/irs-irbs/irb12-14. Unemployment tax filing pdf. Unemployment tax filing )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Unemployment tax filing irs. Unemployment tax filing gov/pub/irs-irbs/irb07-29. Unemployment tax filing pdf. Unemployment tax filing When to file. Unemployment tax filing   If an amended return is allowed, you must file it by the later of the following. Unemployment tax filing 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Unemployment tax filing A return filed before an unextended due date is considered filed on that due date. Unemployment tax filing 2 years from the time you paid your tax for that year. Unemployment tax filing Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Unemployment tax filing You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. Unemployment tax filing The following are examples of a change in method of accounting for depreciation. Unemployment tax filing A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. Unemployment tax filing A change in the treatment of an asset from nondepreciable to depreciable or vice versa. Unemployment tax filing A change in the depreciation method, period of recovery, or convention of a depreciable asset. Unemployment tax filing A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. Unemployment tax filing A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). Unemployment tax filing Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. Unemployment tax filing An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. Unemployment tax filing A change in use of an asset in the hands of the same taxpayer. Unemployment tax filing Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). Unemployment tax filing If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. Unemployment tax filing Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. Unemployment tax filing You must submit a request for a letter ruling to make a late election or revoke an election. Unemployment tax filing Any change in the placed in service date of a depreciable asset. Unemployment tax filing See section 1. Unemployment tax filing 446-1(e)(2)(ii)(d) of the regulations for more information and examples. Unemployment tax filing IRS approval. Unemployment tax filing   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. Unemployment tax filing If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. Unemployment tax filing B. Unemployment tax filing 680. Unemployment tax filing Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. Unemployment tax filing Additional guidance. Unemployment tax filing    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Unemployment tax filing irs. Unemployment tax filing gov/pub/irs-irbs/irb11-04. Unemployment tax filing pdf. Unemployment tax filing (Note. Unemployment tax filing Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Unemployment tax filing For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Unemployment tax filing irs. Unemployment tax filing gov/pub/irs-irbs/irb12-14. Unemployment tax filing pdf. Unemployment tax filing )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Unemployment tax filing irs. Unemployment tax filing gov/pub/irs-irbs/irb07-29. Unemployment tax filing pdf. Unemployment tax filing Table 1-1. Unemployment tax filing Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. Unemployment tax filing For more information, see Form 4562 and its instructions. Unemployment tax filing Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. Unemployment tax filing   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. Unemployment tax filing The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. Unemployment tax filing If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. Unemployment tax filing A negative section 481(a) adjustment results in a decrease in taxable income. Unemployment tax filing It is taken into account in the year of change and is reported on your business tax returns as “other expenses. Unemployment tax filing ” A positive section 481(a) adjustment results in an increase in taxable income. Unemployment tax filing It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. Unemployment tax filing ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. Unemployment tax filing Make the election by completing the appropriate line on Form 3115. Unemployment tax filing   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. Unemployment tax filing Prev  Up  Next   Home   More Online Publications