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Www Taxact Com 2011

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Www Taxact Com 2011

Www taxact com 2011 9. Www taxact com 2011   Dispositions of Property Used in Farming Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. Www taxact com 2011 Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sale Other Dispositions Other GainsExceptions. Www taxact com 2011 Amount to report as ordinary income. Www taxact com 2011 Applicable percentage. Www taxact com 2011 Amount to report as ordinary income. Www taxact com 2011 Applicable percentage. Www taxact com 2011 Introduction When you dispose of property used in your farm business, your taxable gain or loss is usually treated as ordinary income (which is taxed at the same rates as wages and interest income) or capital gain (which is generally taxed at lower rates) under the rules for section 1231 transactions. Www taxact com 2011 When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. Www taxact com 2011 Any gain remaining after applying the depreciation recapture rules is a section 1231 gain, which may be taxed as a capital gain. Www taxact com 2011 Gains and losses from property used in farming are reported on Form 4797, Sales of Business Property. Www taxact com 2011 Table 9-1 contains examples of items reported on Form 4797 and refers to the part of that form on which they first should be reported. Www taxact com 2011 Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Other gains Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Www taxact com 2011 Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (explained below). Www taxact com 2011 Their treatment as ordinary or capital gains depends on whether you have a net gain or a net loss from all of your section 1231 transactions in the tax year. Www taxact com 2011 Table 9-1. Www taxact com 2011 Where to First Report Certain Items on Form 4797 Type of property Held 1 year  or less Held more than  1 year 1 Depreciable trade or business property:       a Sold or exchanged at a gain Part II Part III (1245, 1250)   b Sold or exchanged at a loss Part II Part I 2 Farmland held less than 10 years for which soil, water, or land clearing expenses were deducted:       a Sold at a gain Part II Part III (1252)   b Sold at a loss Part II Part I 3 All other farmland Part II Part I 4 Disposition of cost-sharing payment property described in section 126 Part II Part III (1255) 5 Cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 24 mos. Www taxact com 2011 Held 24 mos. Www taxact com 2011  or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised cattle and horses sold at a gain Part II Part I 6 Livestock other than cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 12 mos. Www taxact com 2011 Held 12 mos. Www taxact com 2011   or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised livestock sold at a gain Part II Part I If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). Www taxact com 2011 Do not take that gain into account as section 1231 gain. Www taxact com 2011 Section 1231 transactions. Www taxact com 2011   Gain or loss on the following transactions is subject to section 1231 treatment. Www taxact com 2011 Sale or exchange of cattle and horses. Www taxact com 2011 The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 24 months or longer. Www taxact com 2011 Sale or exchange of other livestock. Www taxact com 2011 This livestock must be held for draft, breeding, dairy, or sporting purposes and held for 12 months or longer. Www taxact com 2011 Other livestock includes hogs, mules, sheep, goats, donkeys, and other fur-bearing animals. Www taxact com 2011 Other livestock does not include poultry. Www taxact com 2011 Sale or exchange of depreciable personal property. Www taxact com 2011 This property must be used in your business and held longer than 1 year. Www taxact com 2011 Generally, property held for the production of rents or royalties is considered to be used in a trade or business. Www taxact com 2011 Examples of depreciable personal property include farm machinery and trucks. Www taxact com 2011 It also includes amortizable section 197 intangibles. Www taxact com 2011 Sale or exchange of real estate. Www taxact com 2011 This property must be used in your business and held longer than 1 year. Www taxact com 2011 Examples are your farm or ranch (including barns and sheds). Www taxact com 2011 Sale or exchange of unharvested crops. Www taxact com 2011 The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person, and the land must have been held longer than 1 year. Www taxact com 2011 You cannot keep any right or option to reacquire the land directly or indirectly (other than a right customarily incident to a mortgage or other security transaction). Www taxact com 2011 Growing crops sold with a leasehold on the land, even if sold to the same person in a single transaction, are not included. Www taxact com 2011 Distributive share of partnership gains and losses. Www taxact com 2011 Your distributive share must be from the sale or exchange of property listed above and held longer than 1 year (or for the required period for certain livestock). Www taxact com 2011 Cutting or disposal of timber. Www taxact com 2011 Special rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange, or you enter into a cutting contract, as described in chapter 8 under Timber . Www taxact com 2011 Condemnation. Www taxact com 2011 The condemned property (defined in chapter 11) must have been held longer than 1 year. Www taxact com 2011 It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. Www taxact com 2011 It cannot be property held for personal use. Www taxact com 2011 Casualty or theft. Www taxact com 2011 The casualty or theft must have affected business property, property held for the production of rents or royalties, or investment property (such as notes and bonds). Www taxact com 2011 You must have held the property longer than 1 year. Www taxact com 2011 However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. Www taxact com 2011 Section 1231 does not apply to personal casualty gains and losses. Www taxact com 2011 See chapter 11 for information on how to treat those gains and losses. Www taxact com 2011 If the property is not held for the required holding period, the transaction is not subject to section 1231 treatment, and any gain or loss is ordinary income reported in Part II of Form 4797. Www taxact com 2011 See Table 9-1. Www taxact com 2011 Property for sale to customers. Www taxact com 2011   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. Www taxact com 2011 If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. Www taxact com 2011 Treatment as ordinary or capital. Www taxact com 2011   To determine the treatment of section 1231 gains and losses, combine all of your section 1231 gains and losses for the year. Www taxact com 2011 If you have a net section 1231 loss, it is an ordinary loss. Www taxact com 2011 If you have a net section 1231 gain, it is ordinary income up to your nonrecaptured section 1231 losses from previous years, explained next. Www taxact com 2011 The rest, if any, is long-term capital gain. Www taxact com 2011 Nonrecaptured section 1231 losses. Www taxact com 2011   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain by treating the gain as ordinary income. Www taxact com 2011 These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Www taxact com 2011 Example. Www taxact com 2011 In 2013, Ben has a $2,000 net section 1231 gain. Www taxact com 2011 To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. Www taxact com 2011 From 2008 through 2012 he had the following section 1231 gains and losses. Www taxact com 2011 Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800   Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. Www taxact com 2011 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 His remaining net section 1231 loss from 2010 is completely recaptured in 2013. Www taxact com 2011 Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if it is otherwise nontaxable) as ordinary income. Www taxact com 2011 To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. Www taxact com 2011 For more information, see chapter 3 of Publication 544. Www taxact com 2011 Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable. Www taxact com 2011 Any recognized gain that is more than the part that is ordinary income is a section 1231 gain. Www taxact com 2011 See Treatment as ordinary or capital under Section 1231 Gains and Losses , earlier. Www taxact com 2011 Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. Www taxact com 2011 Personal property (either tangible or intangible). Www taxact com 2011 Other tangible property (except buildings and their structural components) used as any of the following. Www taxact com 2011 See Buildings and structural components below. Www taxact com 2011 An integral part of manufacturing, production, or extraction, or of furnishing certain services. Www taxact com 2011 A research facility in any of the activities in (a). Www taxact com 2011 A facility in any of the activities in (a) above, for the bulk storage of fungible commodities (discussed later). Www taxact com 2011 That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. Www taxact com 2011 Amortization of certified pollution control facilities. Www taxact com 2011 The section 179 expense deduction. Www taxact com 2011 Deduction for clean-fuel vehicles and certain refueling property. Www taxact com 2011 Expenditures to remove architectural and transportation barriers to the handicapped and elderly. Www taxact com 2011 Certain reforestation expenditures (as described under Reforestation Costs in chapter 7. Www taxact com 2011 Single purpose agricultural (livestock) or horticultural structures. Www taxact com 2011 Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. Www taxact com 2011 Buildings and structural components. Www taxact com 2011   Section 1245 property does not include buildings and structural components. Www taxact com 2011 The term building includes a house, barn, warehouse, or garage. Www taxact com 2011 The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. Www taxact com 2011   Do not treat a structure that is essentially machinery or equipment as a building or structural component. Www taxact com 2011 Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. Www taxact com 2011   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. Www taxact com 2011 Structures such as oil and gas storage tanks, grain storage bins, and silos are not treated as buildings, but as section 1245 property. Www taxact com 2011 Facility for bulk storage of fungible commodities. Www taxact com 2011   This is a facility used mainly for the bulk storage of fungible commodities. Www taxact com 2011 Bulk storage means storage of a commodity in a large mass before it is used. Www taxact com 2011 For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. Www taxact com 2011 To be fungible, a commodity must be such that one part may be used in place of another. Www taxact com 2011 Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. Www taxact com 2011 The depreciation (which includes any section 179 deduction claimed) and amortization allowed or allowable on the property. Www taxact com 2011 The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). Www taxact com 2011 For any other disposition of section 1245 property, ordinary income is the lesser of (1) above or the amount by which its fair market value (FMV) is more than its adjusted basis. Www taxact com 2011 For details, see chapter 3 of Publication 544. Www taxact com 2011 Use Part III of Form 4797 to figure the ordinary income part of the gain. Www taxact com 2011 Depreciation claimed on other property or claimed by other taxpayers. Www taxact com 2011   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. Www taxact com 2011 Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. Www taxact com 2011 For details on exchanges of property that are not taxable, see Like-Kind Exchanges in chapter 8. Www taxact com 2011 Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift and part of the transfer is a sale or exchange). Www taxact com 2011 Example. Www taxact com 2011 Jeff Free paid $120,000 for a tractor in 2012. Www taxact com 2011 On February 23, 2013, he traded it for a chopper and paid an additional $30,000. Www taxact com 2011 To figure his depreciation deduction on the chopper for the current year, Jeff continues to use the basis of the tractor as he would have before the trade. Www taxact com 2011 Jeff can also depreciate the additional $30,000 for the chopper. Www taxact com 2011 Depreciation and amortization. Www taxact com 2011   Depreciation and amortization deductions that must be recaptured as ordinary income include (but are not limited to) the following items. Www taxact com 2011 See Depreciation Recapture in chapter 3 of Publication 544 for more details. Www taxact com 2011 Ordinary depreciation deductions. Www taxact com 2011 Section 179 deduction (see chapter 7). Www taxact com 2011 Any special depreciation allowance. Www taxact com 2011 Amortization deductions for all the following costs. Www taxact com 2011 Acquiring a lease. Www taxact com 2011 Lessee improvements. Www taxact com 2011 Pollution control facilities. Www taxact com 2011 Reforestation expenses. Www taxact com 2011 Section 197 intangibles. Www taxact com 2011 Qualified disaster expenses. Www taxact com 2011 Franchises, trademarks, and trade names acquired before August 11, 1993. Www taxact com 2011 Example. Www taxact com 2011 You file your returns on a calendar year basis. Www taxact com 2011 In February 2011, you bought and placed in service for 100% use in your farming business a light-duty truck (5-year property) that cost $10,000. Www taxact com 2011 You used the half-year convention and your MACRS deductions for the truck were $1,500 in 2011 and $2,550 in 2012. Www taxact com 2011 You did not claim the section 179 expense deduction for the truck. Www taxact com 2011 You sold it in May 2013 for $7,000. Www taxact com 2011 The MACRS deduction in 2013, the year of sale, is $893 (½ of $1,785). Www taxact com 2011 Figure the gain treated as ordinary income as follows. Www taxact com 2011 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $1,500 + $2,550 + $893) 4,943   4) Adjusted basis (subtract line 3 from line 2) $5,057 5) Gain realized (subtract line 4 from line 1) 1,943 6) Gain treated as ordinary income (lesser of line 3 or line 5) $1,943 Depreciation allowed or allowable. Www taxact com 2011   You generally use the greater of the depreciation allowed or allowable when figuring the part of gain to report as ordinary income. Www taxact com 2011 If, in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. Www taxact com 2011 If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. Www taxact com 2011 This treatment applies only when figuring what part of the gain is treated as ordinary income under the rules for section 1245 depreciation recapture. Www taxact com 2011 Disposition of plants and animals. Www taxact com 2011   If you elect not to use the uniform capitalization rules (see chapter 6), you must treat any plant you produce as section 1245 property. Www taxact com 2011 If you have a gain on the property's disposition, you must recapture the pre-productive expenses you would have capitalized if you had not made the election by treating the gain, up to the amount of these expenses, as ordinary income. Www taxact com 2011 For section 1231 transactions, show these expenses as depreciation on Form 4797, Part III, line 22. Www taxact com 2011 For plant sales that are reported on Schedule F (1040), Profit or Loss From Farming, this recapture rule does not change the reporting of income because the gain is already ordinary income. Www taxact com 2011 You can use the farm-price method or the unit-livestock-price method discussed in  chapter 2 to figure these expenses. Www taxact com 2011 Example. Www taxact com 2011 Janet Maple sold her apple orchard in 2013 for $80,000. Www taxact com 2011 Her adjusted basis at the time of sale was $60,000. Www taxact com 2011 She bought the orchard in 2006, but the trees did not produce a crop until 2009. Www taxact com 2011 Her pre-productive expenses were $6,000. Www taxact com 2011 She elected not to use the uniform capitalization rules. Www taxact com 2011 Janet must treat $6,000 of the gain as ordinary income. Www taxact com 2011 Section 1250 Property Section 1250 property includes all real property subject to an allowance for depreciation that is not and never has been section 1245 property. Www taxact com 2011 It includes buildings and structural components that are not section 1245 property (discussed earlier). Www taxact com 2011 It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. Www taxact com 2011 A fee simple interest in land is not section 1250 property because, like land, it is not depreciable. Www taxact com 2011 Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable. Www taxact com 2011 To determine the additional depreciation on section 1250 property, see Depreciation Recapture in chapter 3 of Publication 544. Www taxact com 2011 You will not have additional depreciation if any of the following apply to the property disposed of. Www taxact com 2011 You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method and you have held the property longer than 1 year. Www taxact com 2011 You chose the alternate ACRS (straight line) method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. Www taxact com 2011 The property was nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made) and you held it longer than 1 year. Www taxact com 2011 These properties are depreciated using the straight line method. Www taxact com 2011 Installment Sale If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. Www taxact com 2011 This applies even if no payments are received in that year. Www taxact com 2011 If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. Www taxact com 2011 For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. Www taxact com 2011 If you dispose of more than one asset in a single transaction, you must separately figure the gain on each asset so that it may be properly reported. Www taxact com 2011 To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Www taxact com 2011 Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. Www taxact com 2011 For more information on installment sales, see chapter 10. Www taxact com 2011 Other Dispositions Chapter 3 of Publication 544 discusses the tax treatment of the following transfers of depreciable property. Www taxact com 2011 By gift. Www taxact com 2011 At death. Www taxact com 2011 In like-kind exchanges. Www taxact com 2011 In involuntary conversions. Www taxact com 2011 Publication 544 also explains how to handle a single transaction involving multiple properties. Www taxact com 2011 Other Gains This section discusses gain on the disposition of farmland for which you were allowed either of the following. Www taxact com 2011 Deductions for soil and water conservation expenditures (section 1252 property). Www taxact com 2011 Exclusions from income for certain cost sharing payments (section 1255 property). Www taxact com 2011 Section 1252 property. Www taxact com 2011   If you disposed of farmland you held more than 1 year and less than 10 years at a gain and you were allowed deductions for soil and water conservation expenses for the land, as discussed in chapter 5, you must treat part of the gain as ordinary income and treat the balance as section 1231 gain. Www taxact com 2011 Exceptions. Www taxact com 2011   Do not treat gain on the following transactions as gain on section 1252 property. Www taxact com 2011 Disposition of farmland by gift. Www taxact com 2011 Transfer of farm property at death (except for income in respect of a decedent). Www taxact com 2011 For more information, see Regulations section 1. Www taxact com 2011 1252-2. Www taxact com 2011 Amount to report as ordinary income. Www taxact com 2011   You report as ordinary income the lesser of the following amounts. Www taxact com 2011 Your gain (determined by subtracting the adjusted basis from the amount realized from a sale, exchange, or involuntary conversion, or the FMV for all other dispositions). Www taxact com 2011 The total deductions allowed for soil and water conservation expenses multiplied by the applicable percentage, discussed next. Www taxact com 2011 Applicable percentage. Www taxact com 2011   The applicable percentage is based on the length of time you held the land. Www taxact com 2011 If you dispose of your farmland within 5 years after the date you acquired it, the percentage is 100%. Www taxact com 2011 If you dispose of the land within the 6th through 9th year after you acquired it, the applicable percentage is reduced by 20% a year for each year or part of a year you hold the land after the 5th year. Www taxact com 2011 If you dispose of the land 10 or more years after you acquired it, the percentage is 0%, and the entire gain is a section 1231 gain. Www taxact com 2011 Example. Www taxact com 2011 You acquired farmland on January 19, 2005. Www taxact com 2011 On October 3, 2013, you sold the land at a $30,000 gain. Www taxact com 2011 Between January 1 and October 3, 2013, you incur soil and water conservation expenditures of $15,000 for the land that are fully deductible in 2013. Www taxact com 2011 The applicable percentage is 40% since you sold the land within the 8th year after you acquired it. Www taxact com 2011 You treat $6,000 (40% of $15,000) of the $30,000 gain as ordinary income and the $24,000 balance as a section 1231 gain. Www taxact com 2011 Section 1255 property. Www taxact com 2011   If you receive certain cost-sharing payments on property and you exclude those payments from income (as discussed in chapter 3), you may have to treat part of any gain as ordinary income and treat the balance as a section 1231 gain. Www taxact com 2011 If you chose not to exclude these payments, you will not have to recognize ordinary income under this provision. Www taxact com 2011 Amount to report as ordinary income. Www taxact com 2011   You report as ordinary income the lesser of the following amounts. Www taxact com 2011 The applicable percentage of the total excluded cost-sharing payments. Www taxact com 2011 The gain on the disposition of the property. Www taxact com 2011 You do not report ordinary income under this rule to the extent the gain is recognized as ordinary income under sections 1231 through 1254, 1256, and 1257. Www taxact com 2011 However, if applicable, gain reported under this rule must be reported regardless of any contrary provisions (including nonrecognition provisions) under any other section. Www taxact com 2011 Applicable percentage. Www taxact com 2011   The applicable percentage of the excluded cost-sharing payments to be reported as ordinary income is based on the length of time you hold the property after receiving the payments. Www taxact com 2011 If the property is held less than 10 years after you receive the payments, the percentage is 100%. Www taxact com 2011 After 10 years, the percentage is reduced by 10% a year, or part of a year, until the rate is 0%. Www taxact com 2011 Form 4797, Part III. Www taxact com 2011   Use Form 4797, Part III, to figure the ordinary income part of a gain from the sale, exchange, or involuntary conversion of section 1252 property and section 1255 property. Www taxact com 2011 Prev  Up  Next   Home   More Online Publications
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The Www Taxact Com 2011

Www taxact com 2011 Internal Revenue Bulletin:  2013-12  March 18, 2013  Rev. Www taxact com 2011 Proc. Www taxact com 2011 2013-21 Table of Contents SECTION 1. Www taxact com 2011 PURPOSE SECTION 2. Www taxact com 2011 BACKGROUND SECTION 3. Www taxact com 2011 SCOPE SECTION 4. Www taxact com 2011 APPLICATION. Www taxact com 2011 01 Limitations on Depreciation Deductions for Certain Automobiles. Www taxact com 2011 . Www taxact com 2011 02 Inclusions in Income of Lessees of Passenger Automobiles. Www taxact com 2011 SECTION 5. Www taxact com 2011 EFFECTIVE DATE SECTION 6. Www taxact com 2011 DRAFTING INFORMATION SECTION 1. Www taxact com 2011 PURPOSE This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2013, including separate tables of limitations on depreciation deductions for trucks and vans; and (2) the amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2013, including a separate table of inclusion amounts for lessees of trucks and vans. Www taxact com 2011 The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. Www taxact com 2011 SECTION 2. Www taxact com 2011 BACKGROUND . Www taxact com 2011 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. Www taxact com 2011 For passenger automobiles placed in service after 1988, § 280F(d)(7) requires the Internal Revenue Service to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount. Www taxact com 2011 The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. Www taxact com 2011 This change reflects the higher rate of price inflation for trucks and vans since 1988. Www taxact com 2011 . Www taxact com 2011 02 Section 331(a) of the American Taxpayer Relief Act of 2012, Pub. Www taxact com 2011 L. Www taxact com 2011 No. Www taxact com 2011 112-240, 126 Stat. Www taxact com 2011 2313 (Jan. Www taxact com 2011 2, 2013) (the “Act”) extended the 50 percent additional first year depreciation deduction under § 168(k) to qualified property acquired by the taxpayer after December 31, 2007, and before January 1, 2014, if no written binding contract for the acquisition of the property existed before January 1, 2008, and if the taxpayer places the property in service generally before January 1, 2014. Www taxact com 2011 Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A)(i) by $8,000 for passenger automobiles to which the additional first year depreciation deduction under § 168(k) (hereinafter, referred to as “§ 168(k) additional first year depreciation deduction”) applies. Www taxact com 2011 . Www taxact com 2011 03 Section 168(k)(2)(D)(i) provides that the § 168(k) additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). Www taxact com 2011 Section 168(k)(2)(D)(iii) permits a taxpayer to elect out of the § 168(k) additional first year depreciation deduction for any class of property. Www taxact com 2011 Section 168(k)(4), as amended by the Act, permits a corporation to elect to increase the alternative minimum tax (“AMT”) credit limitation under § 53(c), instead of claiming the § 168(k) additional first year depreciation deduction for all eligible qualified property placed in service after December 31, 2012, that is round 3 extension property (as defined in § 168(k)(4)(J)(iv)). Www taxact com 2011 Accordingly, this revenue procedure provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction applies. Www taxact com 2011 This revenue procedure also provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction does not apply, either because taxpayer: (1) purchased the passenger automobile used; (2) did not use the passenger automobile during 2013 more than 50 percent for business purposes; (3) elected out of the § 168(k) additional first year depreciation deduction pursuant to § 168(k)(2)(D)(iii); or (4) elected to increase the § 53 AMT credit limitation in lieu of claiming § 168(k) additional first year depreciation. Www taxact com 2011 . Www taxact com 2011 04 Section 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile. Www taxact com 2011 The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Www taxact com 2011 Under § 1. Www taxact com 2011 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. Www taxact com 2011 One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. Www taxact com 2011 Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. Www taxact com 2011 SECTION 3. Www taxact com 2011 SCOPE . Www taxact com 2011 01 The limitations on depreciation deductions in section 4. Www taxact com 2011 01(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2013, and continue to apply for each taxable year that the passenger automobile remains in service. Www taxact com 2011 . Www taxact com 2011 02 The tables in section 4. Www taxact com 2011 02 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2013. Www taxact com 2011 Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. Www taxact com 2011 See Rev. Www taxact com 2011 Proc. Www taxact com 2011 2008-22, 2008-1 C. Www taxact com 2011 B. Www taxact com 2011 658, for passenger automobiles first leased during calendar year 2008; Rev. Www taxact com 2011 Proc. Www taxact com 2011 2009-24, 2009-17 I. Www taxact com 2011 R. Www taxact com 2011 B. Www taxact com 2011 885, for passenger automobiles first leased during calendar year 2009; Rev. Www taxact com 2011 Proc. Www taxact com 2011 2010-18, 2010-09 I. Www taxact com 2011 R. Www taxact com 2011 B. Www taxact com 2011 427, as amplified and modified by section 4. Www taxact com 2011 03 of Rev. Www taxact com 2011 Proc. Www taxact com 2011 2011-21, 2011-12 I. Www taxact com 2011 R. Www taxact com 2011 B. Www taxact com 2011 560, for passenger automobiles first leased during calendar year 2010; Rev. Www taxact com 2011 Proc. Www taxact com 2011 2011-21, for passenger automobiles first leased during calendar year 2011; and Rev. Www taxact com 2011 Proc. Www taxact com 2011 2012-23, 2012-14 I. Www taxact com 2011 R. Www taxact com 2011 B. Www taxact com 2011 712, for passenger automobiles first leased during calendar year 2012. Www taxact com 2011 SECTION 4. Www taxact com 2011 APPLICATION . Www taxact com 2011 01 Limitations on Depreciation Deductions for Certain Automobiles. Www taxact com 2011 (1) Amount of the inflation adjustment. Www taxact com 2011 (a) Passenger automobiles (other than trucks or vans). Www taxact com 2011 Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. Www taxact com 2011 Section 280F(d)(7)(B)(ii) defines the term “CPI automobile component” as the automobile component of the Consumer Price Index for all Urban Consumers published by the Department of Labor. Www taxact com 2011 The new car component of the CPI was 115. Www taxact com 2011 2 for October 1987 and 143. Www taxact com 2011 787 for October 2012. Www taxact com 2011 The October 2012 index exceeded the October 1987 index by 28. Www taxact com 2011 587. Www taxact com 2011 Therefore, the automobile price inflation adjustment for 2013 for passenger automobiles (other than trucks and vans) is 24. Www taxact com 2011 8 percent (28. Www taxact com 2011 587/115. Www taxact com 2011 2 x 100%). Www taxact com 2011 The dollar limitations in § 280F(a) are multiplied by a factor of 0. Www taxact com 2011 248, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2013. Www taxact com 2011 This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2013. Www taxact com 2011 (b) Trucks and vans. Www taxact com 2011 To determine the dollar limitations for trucks and vans first placed in service during calendar year 2013, the Service uses the new truck component of the CPI instead of the new car component. Www taxact com 2011 The new truck component of the CPI was 112. Www taxact com 2011 4 for October 1987 and 149. Www taxact com 2011 386 for October 2012. Www taxact com 2011 The October 2012 index exceeded the October 1987 index by 36. Www taxact com 2011 986. Www taxact com 2011 Therefore, the automobile price inflation adjustment for 2013 for trucks and vans is 32. Www taxact com 2011 9 percent (36. Www taxact com 2011 986/112. Www taxact com 2011 4 x 100%). Www taxact com 2011 The dollar limitations in § 280F(a) are multiplied by a factor of 0. Www taxact com 2011 329, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for trucks and vans. Www taxact com 2011 This adjustment applies to all trucks and vans that are first placed in service in calendar year 2013. Www taxact com 2011 (2) Amount of the limitation. Www taxact com 2011 Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year for passenger automobiles a taxpayer places in service in calendar year 2013. Www taxact com 2011 Use Table 1 for a passenger automobile (other than a truck or van), and Table 2 for a truck or van, placed in service in calendar year 2013 for which the § 168(k) additional first year depreciation deduction applies. Www taxact com 2011 Use Table 3 for a passenger automobile (other than a truck or van), and Table 4 for a truck or van, placed in service in calendar year 2013 for which the § 168(k) additional first year depreciation deduction does not apply. Www taxact com 2011 REV. Www taxact com 2011 PROC. Www taxact com 2011 2013-21 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2013 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. Www taxact com 2011 PROC. Www taxact com 2011 2013-21 TABLE 2 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2013 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,360 2nd Tax Year $5,400 3rd Tax Year $3,250 Each Succeeding Year $1,975 REV. Www taxact com 2011 PROC. Www taxact com 2011 2013-21 TABLE 3 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2013 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. Www taxact com 2011 PROC. Www taxact com 2011 2013-21 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2013 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,360 2nd Tax Year $5,400 3rd Tax Year $3,250 Each Succeeding Year $1,975 . Www taxact com 2011 02 Inclusions in Income of Lessees of Passenger Automobiles. Www taxact com 2011 A taxpayer must follow the procedures in § 1. Www taxact com 2011 280F-7(a) for determining the inclusion amounts for passenger automobiles first leased in calendar year 2013. Www taxact com 2011 In applying these procedures, lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure, while lessees of trucks and vans should use Table 6 of this revenue procedure. Www taxact com 2011 REV. Www taxact com 2011 PROC. Www taxact com 2011 2013-21 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2013 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & later $19,000 $19,500 2 4 6 7 8 19,500 20,000 2 5 6 9 9 20,000 20,500 2 5 8 9 11 20,500 21,000 3 6 8 10 12 21,000 21,500 3 6 10 11 13 21,500 22,000 3 7 10 13 14 22,000 23,000 4 8 11 14 16 23,000 24,000 4 9 14 16 18 24,000 25,000 5 10 15 18 21 25,000 26,000 5 12 16 21 23 26,000 27,000 6 12 19 23 25 27,000 28,000 6 14 20 25 28 28,000 29,000 7 15 22 27 30 29,000 30,000 7 16 24 29 33 30,000 31,000 8 17 26 31 35 31,000 32,000 8 19 27 33 38 32,000 33,000 9 20 29 35 40 33,000 34,000 10 21 31 37 43 34,000 35,000 10 22 33 39 45 35,000 36,000 11 23 35 41 48 36,000 37,000 11 25 36 43 50 37,000 38,000 12 26 38 45 53 38,000 39,000 12 27 40 47 55 39,000 40,000 13 28 42 49 58 40,000 41,000 13 29 44 52 59 41,000 42,000 14 30 45 54 63 42,000 43,000 14 32 47 56 64 43,000 44,000 15 33 48 59 67 44,000 45,000 15 34 51 60 69 45,000 46,000 16 35 52 63 72 46,000 47,000 17 36 54 65 74 47,000 48,000 17 38 55 67 77 48,000 49,000 18 39 57 69 79 49,000 50,000 18 40 59 71 82 50,000 51,000 19 41 61 73 84 51,000 52,000 19 42 63 75 87 52,000 53,000 20 43 65 77 89 53,000 54,000 20 45 66 79 92 54,000 55,000 21 46 68 81 94 55,000 56,000 21 47 70 84 96 56,000 57,000 22 48 72 85 99 57,000 58,000 22 50 73 88 101 58,000 59,000 23 51 75 90 103 59,000 60,000 24 52 76 92 106 60,000 62,000 24 54 79 95 110 62,000 64,000 25 56 83 99 115 64,000 66,000 27 58 87 103 120 66,000 68,000 28 60 90 108 125 68,000 70,000 29 63 93 112 130 70,000 72,000 30 65 97 117 134 72,000 74,000 31 68 100 121 139 74,000 76,000 32 70 104 125 144 76,000 78,000 33 73 107 129 149 78,000 80,000 34 75 111 133 154 80,000 85,000 36 79 117 141 162 85,000 90,000 39 85 126 151 174 90,000 95,000 41 91 135 162 186 95,000 100,000 44 97 144 172 199 100,000 110,000 48 106 157 188 217 110,000 120,000 53 118 174 210 241 120,000 130,000 59 129 193 230 266 130,000 140,000 64 141 210 252 290 140,000 150,000 70 153 227 273 315 150,000 160,000 75 165 245 294 339 160,000 170,000 80 177 263 315 363 170,000 180,000 86 189 280 336 388 180,000 190,000 91 201 298 357 412 190,000 200,000 97 212 316 378 436 200,000 210,000 102 224 333 400 461 210,000 220,000 107 236 351 420 486 220,000 230,000 113 248 368 442 509 230,000 240,000 118 260 386 463 534 240,000 And up 124 272 403 484 558 REV. Www taxact com 2011 PROC. Www taxact com 2011 2013-21 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2013 Fair Market Value of Truck or Van Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & later $19,000 $19,500 1 3 4 5 6 19,500 20,000 2 3 5 6 7 20,000 20,500 2 4 6 7 8 20,500 21,000 2 5 7 8 9 21,000 21,500 2 5 8 9 11 21,500 22,000 3 6 8 10 12 22,000 23,000 3 7 10 11 14 23,000 24,000 4 8 11 14 16 24,000 25,000 4 9 14 16 18 25,000 26,000 5 10 15 18 21 26,000 27,000 5 12 17 20 23 27,000 28,000 6 13 18 23 25 28,000 29,000 6 14 20 25 28 29,000 30,000 7 15 22 27 30 30,000 31,000 7 16 24 29 33 31,000 32,000 8 17 26 31 35 32,000 33,000 8 19 27 33 38 33,000 34,000 9 20 29 35 41 34,000 35,000 10 21 31 37 43 35,000 36,000 10 22 33 39 46 36,000 37,000 11 23 35 41 48 37,000 38,000 11 25 36 43 51 38,000 39,000 12 26 38 45 53 39,000 40,000 12 27 40 48 55 40,000 41,000 13 28 42 49 58 41,000 42,000 13 29 44 52 60 42,000 43,000 14 30 46 54 62 43,000 44,000 14 32 47 56 65 44,000 45,000 15 33 48 59 67 45,000 46,000 15 34 51 60 70 46,000 47,000 16 35 52 63 72 47,000 48,000 17 36 54 65 74 48,000 49,000 17 38 55 67 77 49,000 50,000 18 39 57 69 79 50,000 51,000 18 40 59 71 82 51,000 52,000 19 41 61 73 84 52,000 53,000 19 42 63 75 87 53,000 54,000 20 43 65 77 89 54,000 55,000 20 45 66 80 91 55,000 56,000 21 46 68 81 94 56,000 57,000 21 47 70 84 96 57,000 58,000 22 48 72 86 98 58,000 59,000 22 50 73 88 101 59,000 60,000 23 51 75 90 103 60,000 62,000 24 52 78 93 108 62,000 64,000 25 55 81 97 113 64,000 66,000 26 57 85 101 118 66,000 68,000 27 60 88 106 122 68,000 70,000 28 62 92 110 127 70,000 72,000 29 64 96 114 132 72,000 74,000 30 67 99 118 137 74,000 76,000 31 69 103 122 142 76,000 78,000 32 72 105 127 147 78,000 80,000 34 73 110 131 151 80,000 85,000 35 78 116 138 160 85,000 90,000 38 84 124 149 172 90,000 95,000 41 90 133 160 184 95,000 100,000 44 95 142 171 196 100,000 110,000 48 104 156 186 214 110,000 120,000 53 116 173 207 240 120,000 130,000 58 128 191 228 264 130,000 140,000 64 140 208 249 288 140,000 150,000 69 152 226 270 313 150,000 160,000 75 164 243 292 336 160,000 170,000 80 176 261 312 361 170,000 180,000 85 188 278 334 386 180,000 190,000 91 199 296 355 410 190,000 200,000 96 211 314 376 434 200,000 210,000 101 223 332 397 459 210,000 220,000 107 235 349 418 483 220,000 230,000 112 247 367 439 507 230,000 240,000 118 259 384 460 532 240,000 And up 123 271 401 482 556 SECTION 5. Www taxact com 2011 EFFECTIVE DATE This revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2013. Www taxact com 2011 SECTION 6. Www taxact com 2011 DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. Www taxact com 2011 Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). Www taxact com 2011 For further information regarding this revenue procedure, contact Mr. Www taxact com 2011 Harvey at (202) 622-4930 (not a toll-free call). Www taxact com 2011 Prev  Up  Next   Home   More Internal Revenue Bulletins