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Www. Www.1040x 1040x 11. Www.1040x   Social Security and Equivalent Railroad Retirement Benefits Table of Contents Introduction Useful Items - You may want to see: Are Any of Your Benefits Taxable? How To Report Your BenefitsHow Much Is Taxable? Examples Deductions Related to Your BenefitsRepayments More Than Gross Benefits Introduction This chapter explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. Www.1040x It explains the following topics. Www.1040x How to figure whether your benefits are taxable. Www.1040x How to use the social security benefits worksheet (with examples). Www.1040x How to report your taxable benefits. Www.1040x How to treat repayments that are more than the benefits you received during the year. Www.1040x Social security benefits include monthly retirement, survivor, and disability benefits. Www.1040x They do not include supplemental security income (SSI) payments, which are not taxable. Www.1040x Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. Www.1040x They are commonly called the social security equivalent benefit (SSEB) portion of tier 1 benefits. Www.1040x If you received these benefits during 2013, you should have received a Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Payments by the Railroad Retirement Board. Www.1040x These forms show the amounts received and repaid, and taxes withheld for the year. Www.1040x You may receive more than one of these forms for the same year. Www.1040x You should add the amounts shown on all the Forms SSA-1099 and Forms RRB-1099 you receive for the year to determine the total amounts received and repaid, and taxes withheld for that year. Www.1040x See the Appendix at the end of Publication 915 for more information. Www.1040x Note. Www.1040x When the term “benefits” is used in this chapter, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. Www.1040x What is not covered in this chapter. Www.1040x   This chapter does not cover the tax rules for the following railroad retirement benefits. Www.1040x Non-social security equivalent benefit (NSSEB) portion of tier 1 benefits. Www.1040x Tier 2 benefits. Www.1040x Vested dual benefits. Www.1040x Supplemental annuity benefits. Www.1040x For information on these benefits, see Publication 575, Pension and Annuity Income. Www.1040x   This chapter does not cover the tax rules for social security benefits reported on Form SSA-1042S, Social Security Benefit Statement, or Form RRB-1042S, Statement for Nonresident Alien Recipients of: Payments by the Railroad Retirement Board. Www.1040x For information about these benefits, see Publication 519, U. Www.1040x S. Www.1040x Tax Guide for Aliens, and Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Www.1040x   This chapter also does not cover the tax rules for foreign social security benefits. Www.1040x These benefits are taxable as annuities, unless they are exempt from U. Www.1040x S. Www.1040x tax or treated as a U. Www.1040x S. Www.1040x social security benefit under a tax treaty. Www.1040x Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 915 Social Security and Equivalent Railroad Retirement Benefits Forms (and Instructions) 1040-ES Estimated Tax for Individuals SSA-1099 Social Security Benefit Statement RRB-1099 Payments by the Railroad Retirement Board W-4V Voluntary Withholding Request Are Any of Your Benefits Taxable? To find out whether any of your benefits may be taxable, compare the base amount for your filing status with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. Www.1040x When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. Www.1040x S. Www.1040x savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned by bona fide residents of American Samoa or Puerto Rico. Www.1040x Children's benefits. Www.1040x   The rules in this chapter apply to benefits received by children. Www.1040x See Who is taxed , later. Www.1040x Figuring total income. Www.1040x   To figure the total of one-half of your benefits plus your other income, use Worksheet 11-1 later in this discussion. Www.1040x If the total is more than your base amount, part of your benefits may be taxable. Www.1040x    If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Www.1040x Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. Www.1040x    If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. Www.1040x If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. Www.1040x Base amount. Www.1040x   Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er), $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $-0- if you are married filing separately and lived with your spouse at any time during 2013. Www.1040x Worksheet 11-1. Www.1040x   You can use Worksheet 11-1 to figure the amount of income to compare with your base amount. Www.1040x This is a quick way to check whether some of your benefits may be taxable. Www.1040x Worksheet 11-1. Www.1040x A Quick Way To Check if Your Benefits May Be Taxable A. Www.1040x Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Www.1040x Include the full amount of any lump-sum benefit payments received in 2013, for 2013 and earlier years. Www.1040x (If you received more than one form, combine the amounts from box 5 and enter the total. Www.1040x ) A. Www.1040x   Note. Www.1040x If the amount on line A is zero or less, stop here; none of your benefits are taxable this year. Www.1040x B. Www.1040x Enter one-half of the amount on line A B. Www.1040x   C. Www.1040x Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Www.1040x   D. Www.1040x Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income (listed earlier) D. Www.1040x   E. Www.1040x Add lines B, C, and D E. Www.1040x   Note. Www.1040x Compare the amount on line E to your base amount for your filing status. Www.1040x If the amount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year. Www.1040x If the amount on line E is more than your base amount, some of your benefits may be taxable. Www.1040x You need to complete Worksheet 1 in Publication 915 (or the Social Security Benefits Worksheet in your tax form instructions). Www.1040x If none of your benefits are taxable, but you otherwise must file a tax return, see Benefits not taxable , later, under How To Report Your Benefits. Www.1040x Example. Www.1040x You and your spouse (both over 65) are filing a joint return for 2013 and you both received social security benefits during the year. Www.1040x In January 2014, you received a Form SSA-1099 showing net benefits of $7,500 in box 5. Www.1040x Your spouse received a Form SSA-1099 showing net benefits of $3,500 in box 5. Www.1040x You also received a taxable pension of $22,800 and interest income of $500. Www.1040x You did not have any tax-exempt interest income. Www.1040x Your benefits are not taxable for 2013 because your income, as figured in Worksheet 11-1, is not more than your base amount ($32,000) for married filing jointly. Www.1040x Even though none of your benefits are taxable, you must file a return for 2013 because your taxable gross income ($23,300) exceeds the minimum filing requirement amount for your filing status. Www.1040x Filled-in Worksheet 11-1. Www.1040x A Quick Way To Check if Your Benefits May Be Taxable A. Www.1040x Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Www.1040x Include the full amount of any lump-sum benefit payments received in 2013, for 2013 and earlier years. Www.1040x (If you received more than one form, combine the amounts from box 5 and enter the total. Www.1040x ) A. Www.1040x $11,000 Note. Www.1040x If the amount on line A is zero or less, stop here; none of your benefits are taxable this year. Www.1040x B. Www.1040x Enter one-half of the amount on line A B. Www.1040x 5,500 C. Www.1040x Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Www.1040x 23,300 D. Www.1040x Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income (listed earlier) D. Www.1040x -0- E. Www.1040x Add lines B, C, and D E. Www.1040x $28,800 Note. Www.1040x Compare the amount on line E to your base amount for your filing status. Www.1040x If the amount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year. Www.1040x If the amount on line E is more than your base amount, some of your benefits may be taxable. Www.1040x You need to complete Worksheet 1 in Publication 915 (or the Social Security Benefits Worksheet in your tax form instructions). Www.1040x If none of your benefits are taxable, but you otherwise must file a tax return, see Benefits not taxable , later, under How To Report Your Benefits. Www.1040x Who is taxed. Www.1040x   Benefits are included in the taxable income (to the extent they are taxable) of the person who has the legal right to receive the benefits. Www.1040x For example, if you and your child receive benefits, but the check for your child is made out in your name, you must use only your part of the benefits to see whether any benefits are taxable to you. Www.1040x One-half of the part that belongs to your child must be added to your child's other income to see whether any of those benefits are taxable to your child. Www.1040x Repayment of benefits. Www.1040x   Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. Www.1040x It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. Www.1040x If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. Www.1040x   Your gross benefits are shown in box 3 of Form SSA-1099 or RRB-1099. Www.1040x Your repayments are shown in box 4. Www.1040x The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). Www.1040x Use the amount in box 5 to figure whether any of your benefits are taxable. Www.1040x Tax withholding and estimated tax. Www.1040x   You can choose to have federal income tax withheld from your social security benefits and/or the SSEB portion of your tier 1 railroad retirement benefits. Www.1040x If you choose to do this, you must complete a Form W-4V. Www.1040x   If you do not choose to have income tax withheld, you may have to request additional withholding from other income or pay estimated tax during the year. Www.1040x For details, see Publication 505 or the instructions for Form 1040-ES. Www.1040x How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040 or Form 1040A. Www.1040x You cannot use Form 1040EZ. Www.1040x Reporting on Form 1040. Www.1040x   Report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on line 20a and the taxable part on line 20b. Www.1040x If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. Www.1040x Reporting on Form 1040A. Www.1040x   Report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on line 14a and the taxable part on line 14b. Www.1040x If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. Www.1040x Benefits not taxable. Www.1040x   If you are filing Form 1040EZ, do not report any benefits on your tax return. Www.1040x If you are filing Form 1040 or Form 1040A, report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. Www.1040x Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Www.1040x If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Www.1040x How Much Is Taxable? If part of your benefits are taxable, how much is taxable depends on the total amount of your benefits and other income. Www.1040x Generally, the higher that total amount, the greater the taxable part of your benefits. Www.1040x Maximum taxable part. Www.1040x   Generally, up to 50% of your benefits will be taxable. Www.1040x However, up to 85% of your benefits can be taxable if either of the following situations applies to you. Www.1040x The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). Www.1040x You are married filing separately and lived with your spouse at any time during 2013. Www.1040x Which worksheet to use. Www.1040x   A worksheet you can use to figure your taxable benefits is in the instructions for your Form 1040 or Form 1040A. Www.1040x You can use either that worksheet or Worksheet 1 in Publication 915, unless any of the following situations applies to you. Www.1040x You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse is covered by a retirement plan at work. Www.1040x In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. Www.1040x Situation (1) does not apply and you take an exclusion for interest from qualified U. Www.1040x S. Www.1040x savings bonds (Form 8815), for adoption benefits (Form 8839), for foreign earned income or housing (Form 2555 or Form 2555-EZ), or for income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. Www.1040x In this situation, you must use Worksheet 1 in Publication 915 to figure your taxable benefits. Www.1040x You received a lump-sum payment for an earlier year. Www.1040x In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. Www.1040x See Lump-sum election next. Www.1040x Lump-sum election. Www.1040x   You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. Www.1040x    This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. Www.1040x No part of the lump-sum death benefit is subject to tax. Www.1040x   Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. Www.1040x However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. Www.1040x You can elect this method if it lowers your taxable benefits. Www.1040x Making the election. Www.1040x   If you received a lump-sum benefit payment in 2013 that includes benefits for one or more earlier years, follow the instructions in Publication 915 under Lump-Sum Election to see whether making the election will lower your taxable benefits. Www.1040x That discussion also explains how to make the election. Www.1040x    Because the earlier year's taxable benefits are included in your 2013 income, no adjustment is made to the earlier year's return. Www.1040x Do not file an amended return for the earlier year. Www.1040x Examples The following are a few examples you can use as a guide to figure the taxable part of your benefits. Www.1040x Example 1. Www.1040x George White is single and files Form 1040 for 2013. Www.1040x He received the following income in 2013: Fully taxable pension $18,600 Wages from part-time job 9,400 Taxable interest income 990 Total $28,990 George also received social security benefits during 2013. Www.1040x The Form SSA-1099 he received in January 2014 shows $5,980 in box 5. Www.1040x To figure his taxable benefits, George completes the worksheet shown here. Www.1040x Filled-in Worksheet 1. Www.1040x Figuring Your Taxable Benefits 1. Www.1040x Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Www.1040x Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a $5,980 2. Www.1040x Enter one-half of line 1 2,990 3. Www.1040x Combine the amounts from:     Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21. Www.1040x     Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 28,990 4. Www.1040x Enter the amount, if any, from Form 1040 or 1040A, line 8b -0-       5. Www.1040x Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico -0-       6. Www.1040x Combine lines 2, 3, 4, and 5 31,980 7. Www.1040x Form 1040 filers: Enter the amount from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Www.1040x     Form 1040A filers: Enter the amount from Form 1040A, lines 16 and 17 -0- 8. Www.1040x Is the amount on line 7 less than the amount on line 6?     No. Www.1040x None of your social security benefits are taxable. Www.1040x Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Www.1040x   Yes. Www.1040x Subtract line 7 from line 6 31,980 9. Www.1040x If you are: Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 25,000   Note. Www.1040x If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Www.1040x 85) and enter the result on line 17. Www.1040x Then go to line 18. Www.1040x   10. Www.1040x Is the amount on line 9 less than the amount on line 8?     No. Www.1040x None of your benefits are taxable. Www.1040x Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Www.1040x If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Www.1040x     Yes. Www.1040x Subtract line 9 from line 8 6,980 11. Www.1040x Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 9,000 12. Www.1040x Subtract line 11 from line 10. Www.1040x If zero or less, enter -0- -0- 13. Www.1040x Enter the smaller of line 10 or line 11 6,980 14. Www.1040x Enter one-half of line 13 3,490 15. Www.1040x Enter the smaller of line 2 or line 14 2,990 16. Www.1040x Multiply line 12 by 85% (. Www.1040x 85). Www.1040x If line 12 is zero, enter -0- -0- 17. Www.1040x Add lines 15 and 16 2,990 18. Www.1040x Multiply line 1 by 85% (. Www.1040x 85) 5,083 19. Www.1040x Taxable benefits. Www.1040x Enter the smaller of line 17 or line 18. Www.1040x Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b $2,990 The amount on line 19 of George's worksheet shows that $2,990 of his social security benefits is taxable. Www.1040x On line 20a of his Form 1040, George enters his net benefits of $5,980. Www.1040x On line 20b, he enters his taxable benefits of $2,990. Www.1040x Example 2. Www.1040x Ray and Alice Hopkins file a joint return on Form 1040A for 2013. Www.1040x Ray is retired and received a fully taxable pension of $15,500. Www.1040x He also received social security benefits, and his Form SSA-1099 for 2013 shows net benefits of $5,600 in box 5. Www.1040x Alice worked during the year and had wages of $14,000. Www.1040x She made a deductible payment to her IRA account of $1,000. Www.1040x Ray and Alice have two savings accounts with a total of $250 in taxable interest income. Www.1040x They complete Worksheet 1, entering $29,750 ($15,500 + $14,000 + $250) on line 3. Www.1040x They find none of Ray's social security benefits are taxable. Www.1040x On Form 1040A, they enter $5,600 on line 14a and -0- on line 14b. Www.1040x Filled-in Worksheet 1. Www.1040x Figuring Your Taxable Benefits 1. Www.1040x Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Www.1040x Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a $5,600 2. Www.1040x Enter one-half of line 1 2,800 3. Www.1040x Combine the amounts from:     Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21. Www.1040x     Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 29,750 4. Www.1040x Enter the amount, if any, from Form 1040 or 1040A, line 8b -0-       5. Www.1040x Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico -0-       6. Www.1040x Combine lines 2, 3, 4, and 5 32,550 7. Www.1040x Form 1040 filers: Enter the amount from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Www.1040x     Form 1040A filers: Enter the amount from Form 1040A, lines 16 and 17 1,000 8. Www.1040x Is the amount on line 7 less than the amount on line 6?     No. Www.1040x None of your social security benefits are taxable. Www.1040x Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Www.1040x   Yes. Www.1040x Subtract line 7 from line 6 31,550 9. Www.1040x If you are: Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 32,000   Note. Www.1040x If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Www.1040x 85) and enter the result on line 17. Www.1040x Then go to line 18. Www.1040x   10. Www.1040x Is the amount on line 9 less than the amount on line 8?     No. Www.1040x None of your benefits are taxable. Www.1040x Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Www.1040x If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Www.1040x     Yes. Www.1040x Subtract line 9 from line 8   11. Www.1040x Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013   12. Www.1040x Subtract line 11 from line 10. Www.1040x If zero or less, enter -0-   13. Www.1040x Enter the smaller of line 10 or line 11   14. Www.1040x Enter one-half of line 13   15. Www.1040x Enter the smaller of line 2 or line 14   16. Www.1040x Multiply line 12 by 85% (. Www.1040x 85). Www.1040x If line 12 is zero, enter -0-   17. Www.1040x Add lines 15 and 16   18. Www.1040x Multiply line 1 by 85% (. Www.1040x 85)   19. Www.1040x Taxable benefits. Www.1040x Enter the smaller of line 17 or line 18. Www.1040x Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b   Example 3. Www.1040x Joe and Betty Johnson file a joint return on Form 1040 for 2013. Www.1040x Joe is a retired railroad worker and in 2013 received the social security equivalent benefit (SSEB) portion of tier 1 railroad retirement benefits. Www.1040x Joe's Form RRB-1099 shows $10,000 in box 5. Www.1040x Betty is a retired government worker and receives a fully taxable pension of $38,000. Www.1040x They had $2,300 in taxable interest income plus interest of $200 on a qualified U. Www.1040x S. Www.1040x savings bond. Www.1040x The savings bond interest qualified for the exclusion. Www.1040x They figure their taxable benefits by completing Worksheet 1. Www.1040x Because they have qualified U. Www.1040x S. Www.1040x savings bond interest, they follow the note at the beginning of the worksheet and use the amount from line 2 of their Schedule B (Form 1040A or 1040) on line 3 of the worksheet instead of the amount from line 8a of their Form 1040. Www.1040x On line 3 of the worksheet, they enter $40,500 ($38,000 + $2,500). Www.1040x Filled-in Worksheet 1. Www.1040x Figuring Your Taxable Benefits Before you begin: • If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Www.1040x • Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Www.1040x None of your benefits are taxable for 2013. Www.1040x For more information, see Repayments More Than Gross Benefits. Www.1040x • If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Www.1040x S. Www.1040x Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Www.1040x Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Www.1040x 1. Www.1040x Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Www.1040x Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a $10,000 2. Www.1040x Enter one-half of line 1 5,000 3. Www.1040x Combine the amounts from:     Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21. Www.1040x     Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 40,500 4. Www.1040x Enter the amount, if any, from Form 1040 or 1040A, line 8b -0-       5. Www.1040x Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico -0-       6. Www.1040x Combine lines 2, 3, 4, and 5 45,500 7. Www.1040x Form 1040 filers: Enter the amount from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Www.1040x     Form 1040A filers: Enter the amount from Form 1040A, lines 16 and 17 -0- 8. Www.1040x Is the amount on line 7 less than the amount on line 6?     No. Www.1040x None of your social security benefits are taxable. Www.1040x Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Www.1040x   Yes. Www.1040x Subtract line 7 from line 6 45,500 9. Www.1040x If you are: Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 32,000   Note. Www.1040x If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Www.1040x 85) and enter the result on line 17. Www.1040x Then go to line 18. Www.1040x   10. Www.1040x Is the amount on line 9 less than the amount on line 8?     No. Www.1040x None of your benefits are taxable. Www.1040x Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Www.1040x If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Www.1040x     Yes. Www.1040x Subtract line 9 from line 8 13,500 11. Www.1040x Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 12,000 12. Www.1040x Subtract line 11 from line 10. Www.1040x If zero or less, enter -0- 1,500 13. Www.1040x Enter the smaller of line 10 or line 11 12,000 14. Www.1040x Enter one-half of line 13 6,000 15. Www.1040x Enter the smaller of line 2 or line 14 5,000 16. Www.1040x Multiply line 12 by 85% (. Www.1040x 85). Www.1040x If line 12 is zero, enter -0- 1,275 17. Www.1040x Add lines 15 and 16 6,275 18. Www.1040x Multiply line 1 by 85% (. Www.1040x 85) 8,500 19. Www.1040x Taxable benefits. Www.1040x Enter the smaller of line 17 or line 18. Www.1040x Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b $6,275 More than 50% of Joe's net benefits are taxable because the income on line 8 of the worksheet ($45,500) is more than $44,000. Www.1040x Joe and Betty enter $10,000 on Form 1040, line 20a, and $6,275 on Form 1040, line 20b. Www.1040x Deductions Related to Your Benefits You may be entitled to deduct certain amounts related to the benefits you receive. Www.1040x Disability payments. Www.1040x   You may have received disability payments from your employer or an insurance company that you included as income on your tax return in an earlier year. Www.1040x If you received a lump-sum payment from SSA or RRB, and you had to repay the employer or insurance company for the disability payments, you can take an itemized deduction for the part of the payments you included in gross income in the earlier year. Www.1040x If the amount you repay is more than $3,000, you may be able to claim a tax credit instead. Www.1040x Claim the deduction or credit in the same way explained under Repayments More Than Gross Benefits , later. Www.1040x Legal expenses. Www.1040x   You can usually deduct legal expenses that you pay or incur to produce or collect taxable income or in connection with the determination, collection, or refund of any tax. Www.1040x   Legal expenses for collecting the taxable part of your benefits are deductible as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Www.1040x Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. Www.1040x If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. Www.1040x Do not use a worksheet in this case. Www.1040x If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. Www.1040x If you have any questions about this negative figure, contact your local SSA office or your local RRB field office. Www.1040x Joint return. Www.1040x   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5, but your spouse's does not, subtract the amount in box 5 of your form from the amount in box 5 of your spouse's form. Www.1040x You do this to get your net benefits when figuring if your combined benefits are taxable. Www.1040x Example. Www.1040x John and Mary file a joint return for 2013. Www.1040x John received Form SSA-1099 showing $3,000 in box 5. Www.1040x Mary also received Form SSA-1099 and the amount in box 5 was ($500). Www.1040x John and Mary will use $2,500 ($3,000 minus $500) as the amount of their net benefits when figuring if any of their combined benefits are taxable. Www.1040x Repayment of benefits received in an earlier year. Www.1040x   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. Www.1040x Deduction $3,000 or less. Www.1040x   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Www.1040x Claim it on Schedule A (Form 1040), line 23. Www.1040x Deduction more than $3,000. Www.1040x    If this deduction is more than $3,000, you should figure your tax two ways: Figure your tax for 2013 with the itemized deduction included on Schedule A, line 28. Www.1040x Figure your tax for 2013 in the following steps. Www.1040x Figure the tax without the itemized deduction included on Schedule A, line 28. Www.1040x For each year after 1983 for which part of the negative figure represents a repayment of benefits, refigure your taxable benefits as if your total benefits for the year were reduced by that part of the negative figure. Www.1040x Then refigure the tax for that year. Www.1040x Subtract the total of the refigured tax amounts in (b) from the total of your actual tax amounts. Www.1040x Subtract the result in (c) from the result in (a). Www.1040x Compare the tax figured in methods (1) and (2). Www.1040x Your tax for 2013 is the smaller of the two amounts. Www.1040x If method (1) results in less tax, take the itemized deduction on Schedule A (Form 1040), line 28. Www.1040x If method (2) results in less tax, claim a credit for the amount from step 2(c) above on Form 1040, line 71. Www.1040x Check box d and enter “I. Www.1040x R. Www.1040x C. Www.1040x 1341” in the space next to that box. Www.1040x If both methods produce the same tax, deduct the repayment on Schedule A (Form 1040), line 28. Www.1040x Prev  Up  Next   Home   More Online Publications
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Tax Information for Political Organizations

FEC Filing Required for Some 527 Organizations
Overview of FEC "electioneering communications" filings required for some section 527 exempt organizations.

Filing Requirements
Political parties; campaign committees for candidates for federal, state or local office; and political action committees are all political organizations subject to tax under IRC section 527 and may have filing requirements with the Service.

Political Organization Filing and Disclosure
File and search for notices and reports filed with the Service under IRC section 527.

Exemption Requirements - Political Organizations
A brief description of the requirements for exemption under IRC section 527.

Taxable Income - Political Organizations
A brief explanation of how political organizations are taxed under IRC section 527.

Solicitation Notice
A brief description of the solicitation notice requirements under IRC section 6113.

Employment Taxes for Exempt Organizations
Links to information about employment taxes for tax-exempt organizations.

Political organizations: Resource materials
Resources available on irs.gov concerning tax-exempt political organizations (section 527).

Page Last Reviewed or Updated: 12-Mar-2014

The Www.1040x

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