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1040ez Tax Form 2014

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1040ez Tax Form 2014

1040ez tax form 2014 1. 1040ez tax form 2014   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. 1040ez tax form 2014 Amount realized on a recourse debt. 1040ez tax form 2014 Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. 1040ez tax form 2014 S. 1040ez tax form 2014 Individual Income Tax Return 1040X Amended U. 1040ez tax form 2014 S. 1040ez tax form 2014 Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. 1040ez tax form 2014 However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. 1040ez tax form 2014 See chapter 5 for information about getting publications and forms. 1040ez tax form 2014 Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. 1040ez tax form 2014 An exchange is a transfer of property for other property or services. 1040ez tax form 2014 The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. 1040ez tax form 2014 Sale or lease. 1040ez tax form 2014    Some agreements that seem to be leases may really be conditional sales contracts. 1040ez tax form 2014 The intention of the parties to the agreement can help you distinguish between a sale and a lease. 1040ez tax form 2014   There is no test or group of tests to prove what the parties intended when they made the agreement. 1040ez tax form 2014 You should consider each agreement based on its own facts and circumstances. 1040ez tax form 2014 For more information, see chapter 3 in Publication 535, Business Expenses. 1040ez tax form 2014 Cancellation of a lease. 1040ez tax form 2014    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. 1040ez tax form 2014 Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. 1040ez tax form 2014 Copyright. 1040ez tax form 2014    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. 1040ez tax form 2014 It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. 1040ez tax form 2014 Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. 1040ez tax form 2014   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. 1040ez tax form 2014 For more information, see Section 1231 Gains and Losses in chapter 3. 1040ez tax form 2014 Easement. 1040ez tax form 2014   The amount received for granting an easement is subtracted from the basis of the property. 1040ez tax form 2014 If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. 1040ez tax form 2014 If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. 1040ez tax form 2014   Any amount received that is more than the basis to be reduced is a taxable gain. 1040ez tax form 2014 The transaction is reported as a sale of property. 1040ez tax form 2014   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. 1040ez tax form 2014 However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. 1040ez tax form 2014   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. 1040ez tax form 2014 Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. 1040ez tax form 2014 See Gain or Loss From Condemnations, later. 1040ez tax form 2014 Property transferred to satisfy debt. 1040ez tax form 2014   A transfer of property to satisfy a debt is an exchange. 1040ez tax form 2014 Note's maturity date extended. 1040ez tax form 2014   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. 1040ez tax form 2014 Also, it is not considered a closed and completed transaction that would result in a gain or loss. 1040ez tax form 2014 However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. 1040ez tax form 2014 Each case must be determined by its own facts. 1040ez tax form 2014 For more information, see Regulations section 1. 1040ez tax form 2014 1001-3. 1040ez tax form 2014 Transfer on death. 1040ez tax form 2014   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. 1040ez tax form 2014 No taxable gain or deductible loss results from the transfer. 1040ez tax form 2014 Bankruptcy. 1040ez tax form 2014   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. 1040ez tax form 2014 Consequently, the transfer generally does not result in gain or loss. 1040ez tax form 2014 For more information, see Publication 908, Bankruptcy Tax Guide. 1040ez tax form 2014 Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. 1040ez tax form 2014 A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. 1040ez tax form 2014 A loss is the adjusted basis of the property that is more than the amount you realize. 1040ez tax form 2014   Table 1-1. 1040ez tax form 2014 How To Figure Whether You Have a Gain or Loss IF your. 1040ez tax form 2014 . 1040ez tax form 2014 . 1040ez tax form 2014 THEN you have a. 1040ez tax form 2014 . 1040ez tax form 2014 . 1040ez tax form 2014 Adjusted basis is more than the amount realized, Loss. 1040ez tax form 2014 Amount realized is more than the adjusted basis, Gain. 1040ez tax form 2014 Basis. 1040ez tax form 2014   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. 1040ez tax form 2014 The basis of property you buy is usually its cost. 1040ez tax form 2014 However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. 1040ez tax form 2014 See Basis Other Than Cost in Publication 551, Basis of Assets. 1040ez tax form 2014 Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. 1040ez tax form 2014 See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. 1040ez tax form 2014 Adjusted basis. 1040ez tax form 2014   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. 1040ez tax form 2014 Increases include costs of any improvements having a useful life of more than 1 year. 1040ez tax form 2014 Decreases include depreciation and casualty losses. 1040ez tax form 2014 For more details and additional examples, see Adjusted Basis in Publication 551. 1040ez tax form 2014 Amount realized. 1040ez tax form 2014   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. 1040ez tax form 2014 The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. 1040ez tax form 2014 Fair market value. 1040ez tax form 2014   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. 1040ez tax form 2014 If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. 1040ez tax form 2014 If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. 1040ez tax form 2014 Example. 1040ez tax form 2014 You used a building in your business that cost you $70,000. 1040ez tax form 2014 You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. 1040ez tax form 2014 You sold the building for $100,000 plus property having an FMV of $20,000. 1040ez tax form 2014 The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. 1040ez tax form 2014 The selling expenses were $4,000. 1040ez tax form 2014 Your gain on the sale is figured as follows. 1040ez tax form 2014 Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. 1040ez tax form 2014   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. 1040ez tax form 2014 Recognized gains must be included in gross income. 1040ez tax form 2014 Recognized losses are deductible from gross income. 1040ez tax form 2014 However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. 1040ez tax form 2014 See Nontaxable Exchanges, later. 1040ez tax form 2014 Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. 1040ez tax form 2014 Interest in property. 1040ez tax form 2014   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. 1040ez tax form 2014 If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. 1040ez tax form 2014 Your basis in the property is disregarded. 1040ez tax form 2014 This rule does not apply if all interests in the property are disposed of at the same time. 1040ez tax form 2014 Example 1. 1040ez tax form 2014 Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. 1040ez tax form 2014 You decide to sell your life interest in the farm. 1040ez tax form 2014 The entire amount you receive is a recognized gain. 1040ez tax form 2014 Your basis in the farm is disregarded. 1040ez tax form 2014 Example 2. 1040ez tax form 2014 The facts are the same as in Example 1, except that your brother joins you in selling the farm. 1040ez tax form 2014 The entire interest in the property is sold, so your basis in the farm is not disregarded. 1040ez tax form 2014 Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. 1040ez tax form 2014 Canceling a sale of real property. 1040ez tax form 2014   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. 1040ez tax form 2014 If the buyer returns the property in the year of sale, no gain or loss is recognized. 1040ez tax form 2014 This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. 1040ez tax form 2014 If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. 1040ez tax form 2014 When the property is returned in a later year, you acquire a new basis in the property. 1040ez tax form 2014 That basis is equal to the amount you pay to the buyer. 1040ez tax form 2014 Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. 1040ez tax form 2014 You have a gain if the amount realized is more than your adjusted basis in the property. 1040ez tax form 2014 However, you do not have a loss if the amount realized is less than the adjusted basis of the property. 1040ez tax form 2014 Bargain sales to charity. 1040ez tax form 2014   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. 1040ez tax form 2014 If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. 1040ez tax form 2014 The adjusted basis of the part sold is figured as follows. 1040ez tax form 2014 Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. 1040ez tax form 2014 This allocation rule does not apply if a charitable contribution deduction is not allowable. 1040ez tax form 2014   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. 1040ez tax form 2014 Example. 1040ez tax form 2014 You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. 1040ez tax form 2014 Your adjusted basis in the property is $4,000. 1040ez tax form 2014 Your gain on the sale is $1,200, figured as follows. 1040ez tax form 2014 Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. 1040ez tax form 2014 You must subtract depreciation you took or could have taken from the basis of the business or rental part. 1040ez tax form 2014 However, see the special rule below for a home used partly for business or rental. 1040ez tax form 2014 You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. 1040ez tax form 2014 Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. 1040ez tax form 2014 Any gain on the personal part of the property is a capital gain. 1040ez tax form 2014 You cannot deduct a loss on the personal part. 1040ez tax form 2014 Home used partly for business or rental. 1040ez tax form 2014    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. 1040ez tax form 2014 See Property Used Partly for Business or Rental, in Publication 523. 1040ez tax form 2014 Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. 1040ez tax form 2014 You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. 1040ez tax form 2014 However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. 1040ez tax form 2014 Figure the loss you can deduct as follows. 1040ez tax form 2014 Use the lesser of the property's adjusted basis or fair market value at the time of the change. 1040ez tax form 2014 Add to (1) the cost of any improvements and other increases to basis since the change. 1040ez tax form 2014 Subtract from (2) depreciation and any other decreases to basis since the change. 1040ez tax form 2014 Subtract the amount you realized on the sale from the result in (3). 1040ez tax form 2014 If the amount you realized is more than the result in (3), treat this result as zero. 1040ez tax form 2014 The result in (4) is the loss you can deduct. 1040ez tax form 2014 Example. 1040ez tax form 2014 You changed your main home to rental property 5 years ago. 1040ez tax form 2014 At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. 1040ez tax form 2014 This year, you sold the property for $55,000. 1040ez tax form 2014 You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. 1040ez tax form 2014 Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. 1040ez tax form 2014 Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. 1040ez tax form 2014   If you have a gain on the sale, you generally must recognize the full amount of the gain. 1040ez tax form 2014 You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. 1040ez tax form 2014   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. 1040ez tax form 2014 However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. 1040ez tax form 2014   For more information, see Business Use or Rental of Home in Publication 523. 1040ez tax form 2014 In addition, special rules apply if the home sold was acquired in a like-kind exchange. 1040ez tax form 2014 See Special Situations in Publication 523. 1040ez tax form 2014 Also see Like-Kind Exchanges, later. 1040ez tax form 2014 Abandonments The abandonment of property is a disposition of property. 1040ez tax form 2014 You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. 1040ez tax form 2014 Generally, abandonment is not treated as a sale or exchange of the property. 1040ez tax form 2014 If the amount you realize (if any) is more than your adjusted basis, then you have a gain. 1040ez tax form 2014 If your adjusted basis is more than the amount you realize (if any), then you have a loss. 1040ez tax form 2014 Loss from abandonment of business or investment property is deductible as a loss. 1040ez tax form 2014 A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. 1040ez tax form 2014 This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. 1040ez tax form 2014 If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. 1040ez tax form 2014 The abandonment loss is deducted in the tax year in which the loss is sustained. 1040ez tax form 2014 If the abandoned property is secured by debt, special rules apply. 1040ez tax form 2014 The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). 1040ez tax form 2014 For more information, including examples, see chapter 3 of Publication 4681. 1040ez tax form 2014 You cannot deduct any loss from abandonment of your home or other property held for personal use only. 1040ez tax form 2014 Cancellation of debt. 1040ez tax form 2014   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. 1040ez tax form 2014 This income is separate from any loss realized from abandonment of the property. 1040ez tax form 2014   You must report this income on your tax return unless one of the following applies. 1040ez tax form 2014 The cancellation is intended as a gift. 1040ez tax form 2014 The debt is qualified farm debt. 1040ez tax form 2014 The debt is qualified real property business debt. 1040ez tax form 2014 You are insolvent or bankrupt. 1040ez tax form 2014 The debt is qualified principal residence indebtedness. 1040ez tax form 2014 File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. 1040ez tax form 2014 For more information, including other exceptions and exclusion, see Publication 4681. 1040ez tax form 2014 Forms 1099-A and 1099-C. 1040ez tax form 2014   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. 1040ez tax form 2014 However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. 1040ez tax form 2014 The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 1040ez tax form 2014 For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. 1040ez tax form 2014 Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. 1040ez tax form 2014 The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. 1040ez tax form 2014 This is true even if you voluntarily return the property to the lender. 1040ez tax form 2014 You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. 1040ez tax form 2014 Buyer's (borrower's) gain or loss. 1040ez tax form 2014   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. 1040ez tax form 2014 The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. 1040ez tax form 2014 See Gain or Loss From Sales and Exchanges, earlier. 1040ez tax form 2014 You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. 1040ez tax form 2014 Amount realized on a nonrecourse debt. 1040ez tax form 2014   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. 1040ez tax form 2014 The full canceled debt is included even if the fair market value of the property is less than the canceled debt. 1040ez tax form 2014 Example 1. 1040ez tax form 2014 Chris bought a new car for $15,000. 1040ez tax form 2014 He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. 1040ez tax form 2014 Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. 1040ez tax form 2014 The credit company repossessed the car because he stopped making loan payments. 1040ez tax form 2014 The balance due after taking into account the payments Chris made was $10,000. 1040ez tax form 2014 The fair market value of the car when repossessed was $9,000. 1040ez tax form 2014 The amount Chris realized on the repossession is $10,000. 1040ez tax form 2014 That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. 1040ez tax form 2014 Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). 1040ez tax form 2014 He has a $5,000 nondeductible loss. 1040ez tax form 2014 Example 2. 1040ez tax form 2014 Abena paid $200,000 for her home. 1040ez tax form 2014 She paid $15,000 down and borrowed the remaining $185,000 from a bank. 1040ez tax form 2014 Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. 1040ez tax form 2014 The bank foreclosed on the loan because Abena stopped making payments. 1040ez tax form 2014 When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. 1040ez tax form 2014 The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. 1040ez tax form 2014 She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). 1040ez tax form 2014 She has a $5,000 realized gain. 1040ez tax form 2014 Amount realized on a recourse debt. 1040ez tax form 2014   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. 1040ez tax form 2014 You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. 1040ez tax form 2014 The amount realized does not include the canceled debt that is your income from cancellation of debt. 1040ez tax form 2014 See Cancellation of debt, below. 1040ez tax form 2014 Seller's (lender's) gain or loss on repossession. 1040ez tax form 2014   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. 1040ez tax form 2014 For more information, see Repossession in Publication 537. 1040ez tax form 2014    Table 1-2. 1040ez tax form 2014 Worksheet for Foreclosures and Repossessions Part 1. 1040ez tax form 2014 Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. 1040ez tax form 2014 Complete this part only  if you were personally liable for the debt. 1040ez tax form 2014 Otherwise,  go to Part 2. 1040ez tax form 2014   1. 1040ez tax form 2014 Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. 1040ez tax form 2014 Enter the fair market value of the transferred property   3. 1040ez tax form 2014 Ordinary income from cancellation of debt upon foreclosure or    repossession. 1040ez tax form 2014 * Subtract line 2 from line 1. 1040ez tax form 2014   If less than zero, enter zero   Part 2. 1040ez tax form 2014 Figure your gain or loss from foreclosure or repossession. 1040ez tax form 2014   4. 1040ez tax form 2014 If you completed Part 1, enter the smaller of line 1 or line 2. 1040ez tax form 2014   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. 1040ez tax form 2014 Enter any proceeds you received from the foreclosure sale   6. 1040ez tax form 2014 Add lines 4 and 5   7. 1040ez tax form 2014 Enter the adjusted basis of the transferred property   8. 1040ez tax form 2014 Gain or loss from foreclosure or repossession. 1040ez tax form 2014 Subtract line 7  from line 6   * The income may not be taxable. 1040ez tax form 2014 See Cancellation of debt. 1040ez tax form 2014 Cancellation of debt. 1040ez tax form 2014   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. 1040ez tax form 2014 This income is separate from any gain or loss realized from the foreclosure or repossession. 1040ez tax form 2014 Report the income from cancellation of a debt related to a business or rental activity as business or rental income. 1040ez tax form 2014    You can use Table 1-2 to figure your income from cancellation of debt. 1040ez tax form 2014   You must report this income on your tax return unless one of the following applies. 1040ez tax form 2014 The cancellation is intended as a gift. 1040ez tax form 2014 The debt is qualified farm debt. 1040ez tax form 2014 The debt is qualified real property business debt. 1040ez tax form 2014 You are insolvent or bankrupt. 1040ez tax form 2014 The debt is qualified principal residence indebtedness. 1040ez tax form 2014 File Form 982 to report the income exclusion. 1040ez tax form 2014 Example 1. 1040ez tax form 2014 Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). 1040ez tax form 2014 In this case, the amount he realizes is $9,000. 1040ez tax form 2014 This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). 1040ez tax form 2014 Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). 1040ez tax form 2014 He has a $6,000 nondeductible loss. 1040ez tax form 2014 He also is treated as receiving ordinary income from cancellation of debt. 1040ez tax form 2014 That income is $1,000 ($10,000 − $9,000). 1040ez tax form 2014 This is the part of the canceled debt not included in the amount realized. 1040ez tax form 2014 Example 2. 1040ez tax form 2014 Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). 1040ez tax form 2014 In this case, the amount she realizes is $170,000. 1040ez tax form 2014 This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). 1040ez tax form 2014 Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). 1040ez tax form 2014 She has a $5,000 nondeductible loss. 1040ez tax form 2014 She also is treated as receiving ordinary income from cancellation of debt. 1040ez tax form 2014 (The debt is not exempt from tax as discussed under Cancellation of debt, above. 1040ez tax form 2014 ) That income is $10,000 ($180,000 − $170,000). 1040ez tax form 2014 This is the part of the canceled debt not included in the amount realized. 1040ez tax form 2014 Forms 1099-A and 1099-C. 1040ez tax form 2014   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. 1040ez tax form 2014 However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. 1040ez tax form 2014 The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 1040ez tax form 2014 For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. 1040ez tax form 2014 Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. 1040ez tax form 2014 Involuntary conversions are also called involuntary exchanges. 1040ez tax form 2014 Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. 1040ez tax form 2014 You report the gain or deduct the loss on your tax return for the year you realize it. 1040ez tax form 2014 You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. 1040ez tax form 2014 However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. 1040ez tax form 2014 Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. 1040ez tax form 2014 Your basis for the new property is the same as your basis for the converted property. 1040ez tax form 2014 This means that the gain is deferred until a taxable sale or exchange occurs. 1040ez tax form 2014 If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. 1040ez tax form 2014 This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. 1040ez tax form 2014 If you have a gain or loss from the destruction or theft of property, see Publication 547. 1040ez tax form 2014 Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. 1040ez tax form 2014 The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. 1040ez tax form 2014 The owner receives a condemnation award (money or property) in exchange for the property taken. 1040ez tax form 2014 A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. 1040ez tax form 2014 Example. 1040ez tax form 2014 A local government authorized to acquire land for public parks informed you that it wished to acquire your property. 1040ez tax form 2014 After the local government took action to condemn your property, you went to court to keep it. 1040ez tax form 2014 But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. 1040ez tax form 2014 This is a condemnation of private property for public use. 1040ez tax form 2014 Threat of condemnation. 1040ez tax form 2014   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. 1040ez tax form 2014 You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. 1040ez tax form 2014   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. 1040ez tax form 2014 If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. 1040ez tax form 2014 Reports of condemnation. 1040ez tax form 2014   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. 1040ez tax form 2014 You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. 1040ez tax form 2014 If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. 1040ez tax form 2014 Example. 1040ez tax form 2014 Your property lies along public utility lines. 1040ez tax form 2014 The utility company has the authority to condemn your property. 1040ez tax form 2014 The company informs you that it intends to acquire your property by negotiation or condemnation. 1040ez tax form 2014 A threat of condemnation exists when you receive the notice. 1040ez tax form 2014 Related property voluntarily sold. 1040ez tax form 2014   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. 1040ez tax form 2014 A substantial economic relationship exists if together the properties were one economic unit. 1040ez tax form 2014 You also must show that the condemned property could not reasonably or adequately be replaced. 1040ez tax form 2014 You can elect to postpone reporting the gain by buying replacement property. 1040ez tax form 2014 See Postponement of Gain, later. 1040ez tax form 2014 Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. 1040ez tax form 2014 If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. 1040ez tax form 2014 You can postpone reporting gain from a condemnation if you buy replacement property. 1040ez tax form 2014 If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. 1040ez tax form 2014 See Postponement of Gain, later. 1040ez tax form 2014 If your net condemnation award is less than your adjusted basis, you have a loss. 1040ez tax form 2014 If your loss is from property you held for personal use, you cannot deduct it. 1040ez tax form 2014 You must report any deductible loss in the tax year it happened. 1040ez tax form 2014 You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. 1040ez tax form 2014 Main home condemned. 1040ez tax form 2014   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. 1040ez tax form 2014 You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). 1040ez tax form 2014 For information on this exclusion, see Publication 523. 1040ez tax form 2014 If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. 1040ez tax form 2014 See Postponement of Gain, later. 1040ez tax form 2014 Table 1-3. 1040ez tax form 2014 Worksheet for Condemnations Part 1. 1040ez tax form 2014 Gain from severance damages. 1040ez tax form 2014  If you did not receive severance damages, skip Part 1 and go to Part 2. 1040ez tax form 2014   1. 1040ez tax form 2014 Enter gross severance damages received   2. 1040ez tax form 2014 Enter your expenses in getting severance damages   3. 1040ez tax form 2014 Subtract line 2 from line 1. 1040ez tax form 2014 If less than zero, enter -0-   4. 1040ez tax form 2014 Enter any special assessment on remaining property taken out of your award   5. 1040ez tax form 2014 Net severance damages. 1040ez tax form 2014 Subtract line 4 from line 3. 1040ez tax form 2014 If less than zero, enter -0-   6. 1040ez tax form 2014 Enter the adjusted basis of the remaining property   7. 1040ez tax form 2014 Gain from severance damages. 1040ez tax form 2014 Subtract line 6 from line 5. 1040ez tax form 2014 If less than zero, enter -0-   8. 1040ez tax form 2014 Refigured adjusted basis of the remaining property. 1040ez tax form 2014 Subtract line 5 from line 6. 1040ez tax form 2014 If less than zero, enter -0-   Part 2. 1040ez tax form 2014 Gain or loss from condemnation award. 1040ez tax form 2014   9. 1040ez tax form 2014 Enter the gross condemnation award received   10. 1040ez tax form 2014 Enter your expenses in getting the condemnation award   11. 1040ez tax form 2014 If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. 1040ez tax form 2014 If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. 1040ez tax form 2014 Otherwise, enter -0-   12. 1040ez tax form 2014 Add lines 10 and 11   13. 1040ez tax form 2014 Net condemnation award. 1040ez tax form 2014 Subtract line 12 from line 9   14. 1040ez tax form 2014 Enter the adjusted basis of the condemned property   15. 1040ez tax form 2014 Gain from condemnation award. 1040ez tax form 2014 If line 14 is more than line 13, enter -0-. 1040ez tax form 2014 Otherwise, subtract line 14 from  line 13 and skip line 16   16. 1040ez tax form 2014 Loss from condemnation award. 1040ez tax form 2014 Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. 1040ez tax form 2014 )   Part 3. 1040ez tax form 2014 Postponed gain from condemnation. 1040ez tax form 2014  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. 1040ez tax form 2014 )   17. 1040ez tax form 2014 If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. 1040ez tax form 2014 Otherwise, enter -0-   18. 1040ez tax form 2014 If line 15 is more than zero, enter the amount from line 13. 1040ez tax form 2014 Otherwise, enter -0-   19. 1040ez tax form 2014 Add lines 17 and 18. 1040ez tax form 2014 If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. 1040ez tax form 2014 Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. 1040ez tax form 2014 Subtract line 20 from line 19. 1040ez tax form 2014 If less than zero, enter -0-   22. 1040ez tax form 2014 If you completed Part 1, add lines 7 and 15. 1040ez tax form 2014 Otherwise, enter the amount from line 15. 1040ez tax form 2014 If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. 1040ez tax form 2014 Recognized gain. 1040ez tax form 2014 Enter the smaller of line 21 or line 22. 1040ez tax form 2014   24. 1040ez tax form 2014 Postponed gain. 1040ez tax form 2014 Subtract line 23 from line 22. 1040ez tax form 2014 If less than zero, enter -0-   Condemnation award. 1040ez tax form 2014   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. 1040ez tax form 2014 The award is also the amount you are paid for the sale of your property under threat of condemnation. 1040ez tax form 2014 Payment of your debts. 1040ez tax form 2014   Amounts taken out of the award to pay your debts are considered paid to you. 1040ez tax form 2014 Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. 1040ez tax form 2014 Example. 1040ez tax form 2014 The state condemned your property for public use. 1040ez tax form 2014 The award was set at $200,000. 1040ez tax form 2014 The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. 1040ez tax form 2014 You are considered to have received the entire $200,000 as a condemnation award. 1040ez tax form 2014 Interest on award. 1040ez tax form 2014   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. 1040ez tax form 2014 You must report the interest separately as ordinary income. 1040ez tax form 2014 Payments to relocate. 1040ez tax form 2014   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. 1040ez tax form 2014 Do not include them in your income. 1040ez tax form 2014 Replacement housing payments used to buy new property are included in the property's basis as part of your cost. 1040ez tax form 2014 Net condemnation award. 1040ez tax form 2014   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. 1040ez tax form 2014 If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. 1040ez tax form 2014 This is discussed later under Special assessment taken out of award. 1040ez tax form 2014 Severance damages. 1040ez tax form 2014    Severance damages are not part of the award paid for the property condemned. 1040ez tax form 2014 They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. 1040ez tax form 2014   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. 1040ez tax form 2014 Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. 1040ez tax form 2014   The contracting parties should agree on the specific amount of severance damages in writing. 1040ez tax form 2014 If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. 1040ez tax form 2014   You cannot make a completely new allocation of the total award after the transaction is completed. 1040ez tax form 2014 However, you can show how much of the award both parties intended for severance damages. 1040ez tax form 2014 The severance damages part of the award is determined from all the facts and circumstances. 1040ez tax form 2014 Example. 1040ez tax form 2014 You sold part of your property to the state under threat of condemnation. 1040ez tax form 2014 The contract you and the condemning authority signed showed only the total purchase price. 1040ez tax form 2014 It did not specify a fixed sum for severance damages. 1040ez tax form 2014 However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. 1040ez tax form 2014 You may treat this part as severance damages. 1040ez tax form 2014 Treatment of severance damages. 1040ez tax form 2014   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. 1040ez tax form 2014 Use them to reduce the basis of the remaining property. 1040ez tax form 2014 If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. 1040ez tax form 2014   If your net severance damages are more than the basis of your retained property, you have a gain. 1040ez tax form 2014 You may be able to postpone reporting the gain. 1040ez tax form 2014 See Postponement of Gain, later. 1040ez tax form 2014    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. 1040ez tax form 2014 Net severance damages. 1040ez tax form 2014   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. 1040ez tax form 2014 You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. 1040ez tax form 2014 The balance is your net severance damages. 1040ez tax form 2014 Expenses of obtaining a condemnation award and severance damages. 1040ez tax form 2014   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. 1040ez tax form 2014 Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. 1040ez tax form 2014 If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. 1040ez tax form 2014 Example. 1040ez tax form 2014 You receive a condemnation award and severance damages. 1040ez tax form 2014 One-fourth of the total was designated as severance damages in your agreement with the condemning authority. 1040ez tax form 2014 You had legal expenses for the entire condemnation proceeding. 1040ez tax form 2014 You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. 1040ez tax form 2014 You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. 1040ez tax form 2014 Special assessment retained out of award. 1040ez tax form 2014   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. 1040ez tax form 2014 An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. 1040ez tax form 2014 Examples of improvements that may cause a special assessment are widening a street and installing a sewer. 1040ez tax form 2014   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. 1040ez tax form 2014 Example. 1040ez tax form 2014 To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. 1040ez tax form 2014 You were awarded $5,000 for this and spent $300 to get the award. 1040ez tax form 2014 Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. 1040ez tax form 2014 The city then paid you only $4,300. 1040ez tax form 2014 Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). 1040ez tax form 2014 If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). 1040ez tax form 2014 The net award would not change, even if you later paid the assessment from the amount you received. 1040ez tax form 2014 Severance damages received. 1040ez tax form 2014   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. 1040ez tax form 2014 Any balance of the special assessment is used to reduce the condemnation award. 1040ez tax form 2014 Example. 1040ez tax form 2014 You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. 1040ez tax form 2014 You spent $300 to obtain the severance damages. 1040ez tax form 2014 A special assessment of $800 was retained out of the award. 1040ez tax form 2014 The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. 1040ez tax form 2014 Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. 1040ez tax form 2014 Part business or rental. 1040ez tax form 2014   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. 1040ez tax form 2014 Figure your gain or loss separately because gain or loss on each part may be treated differently. 1040ez tax form 2014   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. 1040ez tax form 2014 Example. 1040ez tax form 2014 You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. 1040ez tax form 2014 You rented half the building and lived in the other half. 1040ez tax form 2014 You paid $25,000 for the building and spent an additional $1,000 for a new roof. 1040ez tax form 2014 You claimed allowable depreciation of $4,600 on the rental half. 1040ez tax form 2014 You spent $200 in legal expenses to obtain the condemnation award. 1040ez tax form 2014 Figure your gain or loss as follows. 1040ez tax form 2014     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. 1040ez tax form 2014 Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. 1040ez tax form 2014 Your basis for the new property is the same as your basis for the old. 1040ez tax form 2014 Money or unlike property received. 1040ez tax form 2014   You ordinarily must report the gain if you receive money or unlike property. 1040ez tax form 2014 You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. 1040ez tax form 2014 You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. 1040ez tax form 2014 See Controlling interest in a corporation, later. 1040ez tax form 2014   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. 1040ez tax form 2014 If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. 1040ez tax form 2014   The basis of the replacement property is its cost, reduced by the postponed gain. 1040ez tax form 2014 Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. 1040ez tax form 2014 See Controlling interest in a corporation, later. 1040ez tax form 2014 You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. 1040ez tax form 2014 Postponing gain on severance damages. 1040ez tax form 2014   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. 1040ez tax form 2014 See Treatment of severance damages, earlier. 1040ez tax form 2014 You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). 1040ez tax form 2014   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. 1040ez tax form 2014 If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. 1040ez tax form 2014   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. 1040ez tax form 2014 Postponing gain on the sale of related property. 1040ez tax form 2014   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. 1040ez tax form 2014 You must meet the requirements explained earlier under Related property voluntarily sold. 1040ez tax form 2014 You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). 1040ez tax form 2014 Buying replacement property from a related person. 1040ez tax form 2014   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. 1040ez tax form 2014 For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. 1040ez tax form 2014   This rule applies to the following taxpayers. 1040ez tax form 2014 C corporations. 1040ez tax form 2014 Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. 1040ez tax form 2014 All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. 1040ez tax form 2014   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. 1040ez tax form 2014 If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. 1040ez tax form 2014 If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. 1040ez tax form 2014 Exception. 1040ez tax form 2014   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. 1040ez tax form 2014 Advance payment. 1040ez tax form 2014   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). 1040ez tax form 2014 Replacement property. 1040ez tax form 2014   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. 1040ez tax form 2014 You do not have to use the actual funds from the condemnation award to acquire the replacement property. 1040ez tax form 2014 Property you acquire by gift or inheritance does not qualify as replacement property. 1040ez tax form 2014 Similar or related in service or use. 1040ez tax form 2014   Your replacement property must be similar or related in service or use to the property it replaces. 1040ez tax form 2014   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. 1040ez tax form 2014 For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. 1040ez tax form 2014 Owner-user. 1040ez tax form 2014   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. 1040ez tax form 2014 Example. 1040ez tax form 2014 Your home was condemned and you invested the proceeds from the condemnation in a grocery store. 1040ez tax form 2014 Your replacement property is not similar or related in service or use to the condemned property. 1040ez tax form 2014 To be similar or related in service or use, your replacement property must also be used by you as your home. 1040ez tax form 2014 Owner-investor. 1040ez tax form 2014   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. 1040ez tax form 2014 You decide this by determining all the following information. 1040ez tax form 2014 Whether the properties are of similar service to you. 1040ez tax form 2014 The nature of the business risks connected with the properties. 1040ez tax form 2014 What the properties demand of you in the way of management, service, and relations to your tenants. 1040ez tax form 2014 Example. 1040ez tax form 2014 You owned land and a building you rented to a manufacturing company. 1040ez tax form 2014 The building was condemned. 1040ez tax form 2014 During the replacement period, you had a new building built on other land you already owned. 1040ez tax form 2014 You rented out the new building for use as a wholesale grocery warehouse. 1040ez tax form 2014 The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. 1040ez tax form 2014 Your management activities. 1040ez tax form 2014 The amount and kind of services you provide to your tenants. 1040ez tax form 2014 The nature of your business risks connected with the properties. 1040ez tax form 2014 Leasehold replaced with fee simple property. 1040ez tax form 2014   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. 1040ez tax form 2014   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. 1040ez tax form 2014 A leasehold is property held under a lease, usually for a term of years. 1040ez tax form 2014 Outdoor advertising display replaced with real property. 1040ez tax form 2014   You can elect to treat an outdoor advertising display as real property. 1040ez tax form 2014 If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. 1040ez tax form 2014 For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. 1040ez tax form 2014   You can make this election only if you did not claim a section 179 deduction for the display. 1040ez tax form 2014 You cannot cancel this election unless you get the consent of the IRS. 1040ez tax form 2014   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. 1040ez tax form 2014 Substituting replacement property. 1040ez tax form 2014   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. 1040ez tax form 2014 But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. 1040ez tax form 2014 Controlling interest in a corporation. 1040ez tax form 2014   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. 1040ez tax form 2014 You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. 1040ez tax form 2014 Basis adjustment to corporation's property. 1040ez tax form 2014   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. 1040ez tax form 2014 You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). 1040ez tax form 2014   Allocate this reduction to the following classes of property in the order shown below. 1040ez tax form 2014 Property that is similar or related in service or use to the condemned property. 1040ez tax form 2014 Depreciable property not reduced in (1). 1040ez tax form 2014 All other property. 1040ez tax form 2014 If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. 1040ez tax form 2014 The reduced basis of any single property cannot be less than zero. 1040ez tax form 2014 Main home replaced. 1040ez tax form 2014   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. 1040ez tax form 2014 The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. 1040ez tax form 2014   You must reduce the basis of your replacement property by the postponed gain. 1040ez tax form 2014 Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. 1040ez tax form 2014 Example. 1040ez tax form 2014 City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. 1040ez tax form 2014 The city paid you a condemnation award of $400,000. 1040ez tax form 2014 Your adjusted basis in the property was $80,000. 1040ez tax form 2014 You realize a gain of $320,000 ($400,000 − $80,000). 1040ez tax form 2014 You purchased a new home for $100,000. 1040ez tax form 2014 You can exclude $250,000 of the realized gain from your gross income. 1040ez tax form 2014 The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). 1040ez tax form 2014 You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). 1040ez tax form 2014 The remaining $20,000 of realized gain is postponed. 1040ez tax form 2014 Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). 1040ez tax form 2014 Replacement period. 1040ez tax form 2014   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. 1040ez tax form 2014 This is the replacement period. 1040ez tax form 2014   The replacement period for a condemnation begins on the earlier of the following dates. 1040ez tax form 2014 The date on which you disposed of the condemned property. 1040ez tax form 2014 The date on which the threat of condemnation began. 1040ez tax form 2014   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. 1040ez tax form 2014 However, see the exceptions below. 1040ez tax form 2014 Three-year replacement period for certain property. 1040ez tax form 2014   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. 1040ez tax form 2014 However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. 1040ez tax form 2014 Five-year replacement period for certain property. 1040ez tax form 2014   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. 1040ez tax form 2014 Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. 1040ez tax form 2014 Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. 1040ez tax form 2014 Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. 1040ez tax form 2014 Extended replacement period for taxpayers affected by other federally declared disasters. 1040ez tax form 2014    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. 1040ez tax form 2014 For more information visit www. 1040ez tax form 2014 irs. 1040ez tax form 2014 gov/uac/Tax-Relief-in-Disaster-Situations. 1040ez tax form 2014 Weather-related sales of livestock in an area eligible for federal assistance. 1040ez tax form 2014   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. 1040ez tax form 2014    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. 1040ez tax form 2014 See Notice 2006-82. 1040ez tax form 2014 You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. 1040ez tax form 2014 irs. 1040ez tax form 2014 gov/irb/2006-39_IRB/ar13. 1040ez tax form 2014 html. 1040ez tax form 2014    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. 1040ez tax form 2014 If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. 1040ez tax form 2014 You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. 1040ez tax form 2014 irs. 1040ez tax form 2014 gov/irb/2013-45_IRB/ar04. 1040ez tax form 2014 html. 1040ez tax form 2014 The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. 1040ez tax form 2014 Determining when gain is realized. 1040ez tax form 2014   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. 1040ez tax form 2014 If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. 1040ez tax form 2014   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. 1040ez tax form 2014 A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. 1040ez tax form 2014   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. 1040ez tax form 2014 All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. 1040ez tax form 2014 All or part of the award is actually or constructively received. 1040ez tax form 2014 For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. 1040ez tax form 2014 Replacement property bought before the condemnation. 1040ez tax form 2014   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. 1040ez tax form 2014 Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. 1040ez tax form 2014 Example. 1040ez tax form 2014 On April 3, 2012, city authorities notified you that your property would be condemned. 1040ez tax form 2014 On June 5, 2012, you acquired property to replace the property to be condemned. 1040ez tax form 2014 You still had the new property when the city took possession of your old property on September 4, 2013. 1040ez tax form 2014 You have made a replacement within the replacement period. 1040ez tax form 2014 Extension. 1040ez tax form 2014   You can request an extension of the replacement period from the IRS director for your area. 1040ez tax form 2014 You should apply before the end of the replacement period. 1040ez tax form 2014 Your request should explain in detail why you need an extension. 1040ez tax form 2014 The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. 1040ez tax form 2014 An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. 1040ez tax form 2014   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. 1040ez tax form 2014 Extensions are usually limited to a period of 1 year or less. 1040ez tax form 2014 The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. 1040ez tax form 2014 If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri
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Page Last Reviewed or Updated: 18-Feb-2014

The 1040ez Tax Form 2014

1040ez tax form 2014 4. 1040ez tax form 2014   Transportation Table of Contents Parking fees. 1040ez tax form 2014 Advertising display on car. 1040ez tax form 2014 Car pools. 1040ez tax form 2014 Hauling tools or instruments. 1040ez tax form 2014 Union members' trips from a union hall. 1040ez tax form 2014 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. 1040ez tax form 2014 These expenses include the cost of transportation by air, rail, bus, taxi, etc. 1040ez tax form 2014 , and the cost of driving and maintaining your car. 1040ez tax form 2014 Transportation expenses include the ordinary and necessary costs of all of the following. 1040ez tax form 2014 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. 1040ez tax form 2014 Tax home is defined in chapter 1. 1040ez tax form 2014 Visiting clients or customers. 1040ez tax form 2014 Going to a business meeting away from your regular workplace. 1040ez tax form 2014 Getting from your home to a temporary workplace when you have one or more regular places of work. 1040ez tax form 2014 These temporary workplaces can be either within the area of your tax home or outside that area. 1040ez tax form 2014 Transportation expenses do not include expenses you have while traveling away from home overnight. 1040ez tax form 2014 Those expenses are travel expenses discussed in chapter 1 . 1040ez tax form 2014 However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. 1040ez tax form 2014 See Car Expenses , later. 1040ez tax form 2014 Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. 1040ez tax form 2014 However, there may be exceptions to this general rule. 1040ez tax form 2014 You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. 1040ez tax form 2014 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. 1040ez tax form 2014 Illustration of transportation expenses. 1040ez tax form 2014    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. 1040ez tax form 2014 You may want to refer to it when deciding whether you can deduct your transportation expenses. 1040ez tax form 2014 Temporary work location. 1040ez tax form 2014   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. 1040ez tax form 2014   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. 1040ez tax form 2014   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. 1040ez tax form 2014   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. 1040ez tax form 2014 It will not be treated as temporary after the date you determine it will last more than 1 year. 1040ez tax form 2014   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. 1040ez tax form 2014 You may have deductible travel expenses as discussed in chapter 1 . 1040ez tax form 2014 No regular place of work. 1040ez tax form 2014   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. 1040ez tax form 2014   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. 1040ez tax form 2014   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. 1040ez tax form 2014 These are nondeductible commuting expenses. 1040ez tax form 2014 Two places of work. 1040ez tax form 2014   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. 1040ez tax form 2014 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. 1040ez tax form 2014   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. 1040ez tax form 2014 You cannot deduct them. 1040ez tax form 2014 Armed Forces reservists. 1040ez tax form 2014   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. 1040ez tax form 2014 You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . 1040ez tax form 2014   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. 1040ez tax form 2014 In this case, your transportation generally is a nondeductible commuting expense. 1040ez tax form 2014 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. 1040ez tax form 2014   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. 1040ez tax form 2014   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. 1040ez tax form 2014 These expenses are discussed in chapter 1 . 1040ez tax form 2014   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. 1040ez tax form 2014 For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. 1040ez tax form 2014 Commuting expenses. 1040ez tax form 2014   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. 1040ez tax form 2014 These costs are personal commuting expenses. 1040ez tax form 2014 You cannot deduct commuting expenses no matter how far your home is from your regular place of work. 1040ez tax form 2014 You cannot deduct commuting expenses even if you work during the commuting trip. 1040ez tax form 2014 Example. 1040ez tax form 2014 You sometimes use your cell phone to make business calls while commuting to and from work. 1040ez tax form 2014 Sometimes business associates ride with you to and from work, and you have a business discussion in the car. 1040ez tax form 2014 These activities do not change the trip from personal to business. 1040ez tax form 2014 You cannot deduct your commuting expenses. 1040ez tax form 2014 Parking fees. 1040ez tax form 2014    Fees you pay to park your car at your place of business are nondeductible commuting expenses. 1040ez tax form 2014 You can, however, deduct business-related parking fees when visiting a customer or client. 1040ez tax form 2014 Advertising display on car. 1040ez tax form 2014   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. 1040ez tax form 2014 If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. 1040ez tax form 2014 Car pools. 1040ez tax form 2014   You cannot deduct the cost of using your car in a nonprofit car pool. 1040ez tax form 2014 Do not include payments you receive from the passengers in your income. 1040ez tax form 2014 These payments are considered reimbursements of your expenses. 1040ez tax form 2014 However, if you operate a car pool for a profit, you must include payments from passengers in your income. 1040ez tax form 2014 You can then deduct your car expenses (using the rules in this publication). 1040ez tax form 2014 Hauling tools or instruments. 1040ez tax form 2014   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. 1040ez tax form 2014 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). 1040ez tax form 2014 Union members' trips from a union hall. 1040ez tax form 2014   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. 1040ez tax form 2014 Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. 1040ez tax form 2014 Office in the home. 1040ez tax form 2014   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. 1040ez tax form 2014 (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. 1040ez tax form 2014 ) Examples of deductible transportation. 1040ez tax form 2014   The following examples show when you can deduct transportation expenses based on the location of your work and your home. 1040ez tax form 2014 Example 1. 1040ez tax form 2014 You regularly work in an office in the city where you live. 1040ez tax form 2014 Your employer sends you to a 1-week training session at a different office in the same city. 1040ez tax form 2014 You travel directly from your home to the training location and return each day. 1040ez tax form 2014 You can deduct the cost of your daily round-trip transportation between your home and the training location. 1040ez tax form 2014 Example 2. 1040ez tax form 2014 Your principal place of business is in your home. 1040ez tax form 2014 You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. 1040ez tax form 2014 Example 3. 1040ez tax form 2014 You have no regular office, and you do not have an office in your home. 1040ez tax form 2014 In this case, the location of your first business contact inside the metropolitan area is considered your office. 1040ez tax form 2014 Transportation expenses between your home and this first contact are nondeductible commuting expenses. 1040ez tax form 2014 Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. 1040ez tax form 2014 While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. 1040ez tax form 2014 Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. 1040ez tax form 2014 You generally can use one of the two following methods to figure your deductible expenses. 1040ez tax form 2014 Standard mileage rate. 1040ez tax form 2014 Actual car expenses. 1040ez tax form 2014 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. 1040ez tax form 2014 See Leasing a Car , later. 1040ez tax form 2014 In this publication, “car” includes a van, pickup, or panel truck. 1040ez tax form 2014 For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. 1040ez tax form 2014 Rural mail carriers. 1040ez tax form 2014   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. 1040ez tax form 2014 Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. 1040ez tax form 2014   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). 1040ez tax form 2014 You must complete Form 2106 and attach it to your Form 1040, U. 1040ez tax form 2014 S. 1040ez tax form 2014 Individual Income Tax Return. 1040ez tax form 2014   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. 1040ez tax form 2014 It is given as an equipment maintenance allowance (EMA) to employees of the U. 1040ez tax form 2014 S. 1040ez tax form 2014 Postal Service. 1040ez tax form 2014 It is at the rate contained in the 1991 collective bargaining agreement. 1040ez tax form 2014 Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. 1040ez tax form 2014 See your employer for information on your reimbursement. 1040ez tax form 2014    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. 1040ez tax form 2014 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. 1040ez tax form 2014 For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. 1040ez tax form 2014 If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. 1040ez tax form 2014 You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. 1040ez tax form 2014 See Choosing the standard mileage rate and Standard mileage rate not allowed, later. 1040ez tax form 2014 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. 1040ez tax form 2014 See chapter 6 for more information on reimbursements . 1040ez tax form 2014 Choosing the standard mileage rate. 1040ez tax form 2014   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. 1040ez tax form 2014 Then, in later years, you can choose to use either the standard mileage rate or actual expenses. 1040ez tax form 2014   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. 1040ez tax form 2014 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. 1040ez tax form 2014   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. 1040ez tax form 2014 You cannot revoke the choice. 1040ez tax form 2014 However, in later years, you can switch from the standard mileage rate to the actual expenses method. 1040ez tax form 2014 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. 1040ez tax form 2014 Example. 1040ez tax form 2014 Larry is an employee who occasionally uses his own car for business purposes. 1040ez tax form 2014 He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. 1040ez tax form 2014 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. 1040ez tax form 2014   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. 1040ez tax form 2014 Standard mileage rate not allowed. 1040ez tax form 2014   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. 1040ez tax form 2014 (See Rural mail carriers , earlier. 1040ez tax form 2014 ) Note. 1040ez tax form 2014 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. 1040ez tax form 2014 Five or more cars. 1040ez tax form 2014   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. 1040ez tax form 2014 However, you may be able to deduct your actual expenses for operating each of the cars in your business. 1040ez tax form 2014 See Actual Car Expenses , later, for information on how to figure your deduction. 1040ez tax form 2014   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. 1040ez tax form 2014   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. 1040ez tax form 2014 Example 1. 1040ez tax form 2014 Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. 1040ez tax form 2014 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. 1040ez tax form 2014 Example 2. 1040ez tax form 2014 Tony and his employees use his four pickup trucks in his landscaping business. 1040ez tax form 2014 During the year, he traded in two of his old trucks for two newer ones. 1040ez tax form 2014 Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. 1040ez tax form 2014 Example 3. 1040ez tax form 2014 Chris owns a repair shop and an insurance business. 1040ez tax form 2014 He and his employees use his two pickup trucks and van for the repair shop. 1040ez tax form 2014 Chris alternates using his two cars for the insurance business. 1040ez tax form 2014 No one else uses the cars for business purposes. 1040ez tax form 2014 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. 1040ez tax form 2014 Example 4. 1040ez tax form 2014 Maureen owns a car and four vans that are used in her housecleaning business. 1040ez tax form 2014 Her employees use the vans, and she uses the car to travel to various customers. 1040ez tax form 2014 Maureen cannot use the standard mileage rate for the car or the vans. 1040ez tax form 2014 This is because all five vehicles are used in Maureen's business at the same time. 1040ez tax form 2014 She must use actual expenses for all vehicles. 1040ez tax form 2014 Interest. 1040ez tax form 2014   If you are an employee, you cannot deduct any interest paid on a car loan. 1040ez tax form 2014 This applies even if you use the car 100% for business as an employee. 1040ez tax form 2014   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. 1040ez tax form 2014 For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). 1040ez tax form 2014 You cannot deduct the part of the interest expense that represents your personal use of the car. 1040ez tax form 2014    If you use a home equity loan to purchase your car, you may be able to deduct the interest. 1040ez tax form 2014 See Publication 936, Home Mortgage Interest Deduction, for more information. 1040ez tax form 2014 Personal property taxes. 1040ez tax form 2014   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. 1040ez tax form 2014 You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. 1040ez tax form 2014   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). 1040ez tax form 2014 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). 1040ez tax form 2014 Parking fees and tolls. 1040ez tax form 2014   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. 1040ez tax form 2014 (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. 1040ez tax form 2014 ) Sale, trade-in, or other disposition. 1040ez tax form 2014   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. 1040ez tax form 2014 See Disposition of a Car , later. 1040ez tax form 2014 Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. 1040ez tax form 2014 If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. 1040ez tax form 2014 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. 1040ez tax form 2014 Continue to keep records, as explained later in chapter 5 . 1040ez tax form 2014 Business and personal use. 1040ez tax form 2014   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. 1040ez tax form 2014 You can divide your expense based on the miles driven for each purpose. 1040ez tax form 2014 Example. 1040ez tax form 2014 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. 1040ez tax form 2014 You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. 1040ez tax form 2014 Employer-provided vehicle. 1040ez tax form 2014   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. 1040ez tax form 2014 You cannot use the standard mileage rate. 1040ez tax form 2014 See Vehicle Provided by Your Employer in chapter 6. 1040ez tax form 2014 Interest on car loans. 1040ez tax form 2014   If you are an employee, you cannot deduct any interest paid on a car loan. 1040ez tax form 2014 This interest is treated as personal interest and is not deductible. 1040ez tax form 2014 If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. 1040ez tax form 2014 Taxes paid on your car. 1040ez tax form 2014   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. 1040ez tax form 2014 Enter the amount paid on line 7 of Schedule A (Form 1040). 1040ez tax form 2014 Sales taxes. 1040ez tax form 2014   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. 1040ez tax form 2014 Fines and collateral. 1040ez tax form 2014   You cannot deduct fines you pay or collateral you forfeit for traffic violations. 1040ez tax form 2014 Casualty and theft losses. 1040ez tax form 2014   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. 1040ez tax form 2014 See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. 1040ez tax form 2014 Depreciation and section 179 deductions. 1040ez tax form 2014   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. 1040ez tax form 2014 Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. 1040ez tax form 2014 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. 1040ez tax form 2014 Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. 1040ez tax form 2014 The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. 1040ez tax form 2014   Generally, there are limits on these deductions. 1040ez tax form 2014 Special rules apply if you use your car 50% or less in your work or business. 1040ez tax form 2014   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. 1040ez tax form 2014   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. 1040ez tax form 2014 Car defined. 1040ez tax form 2014   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. 1040ez tax form 2014 Its unloaded gross vehicle weight must not be more than 6,000 pounds. 1040ez tax form 2014 A car includes any part, component, or other item physically attached to it or usually included in the purchase price. 1040ez tax form 2014   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. 1040ez tax form 2014 Qualified nonpersonal use vehicles. 1040ez tax form 2014   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. 1040ez tax form 2014 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. 1040ez tax form 2014 Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. 1040ez tax form 2014 More information. 1040ez tax form 2014   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. 1040ez tax form 2014 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. 1040ez tax form 2014 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. 1040ez tax form 2014 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. 1040ez tax form 2014 See Depreciation Limits, later. 1040ez tax form 2014 You can claim the section 179 deduction only in the year you place the car in service. 1040ez tax form 2014 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. 1040ez tax form 2014 Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. 1040ez tax form 2014 A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. 1040ez tax form 2014 Example. 1040ez tax form 2014 In 2012, you bought a new car and used it for personal purposes. 1040ez tax form 2014 In 2013, you began to use it for business. 1040ez tax form 2014 Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. 1040ez tax form 2014 However, you can claim a depreciation deduction for the business use of the car starting in 2013. 1040ez tax form 2014 See Depreciation Deduction , later. 1040ez tax form 2014 More than 50% business use requirement. 1040ez tax form 2014   You must use the property more than 50% for business to claim any section 179 deduction. 1040ez tax form 2014 If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. 1040ez tax form 2014 The result is the cost of the property that can qualify for the section 179 deduction. 1040ez tax form 2014 Example. 1040ez tax form 2014 Peter purchased a car in April 2013 for $24,500 and used it 60% for business. 1040ez tax form 2014 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). 1040ez tax form 2014 But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. 1040ez tax form 2014 Limits. 1040ez tax form 2014   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. 1040ez tax form 2014 Limit on the amount of the section 179 deduction. 1040ez tax form 2014   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. 1040ez tax form 2014   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. 1040ez tax form 2014 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. 1040ez tax form 2014   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. 1040ez tax form 2014   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. 1040ez tax form 2014   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. 1040ez tax form 2014 You must allocate the dollar limit (after any reduction) between you. 1040ez tax form 2014   For more information on the above section 179 deduction limits, see Publication 946. 1040ez tax form 2014 Limit for sport utility and certain other vehicles. 1040ez tax form 2014   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. 1040ez tax form 2014 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. 1040ez tax form 2014 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. 1040ez tax form 2014    Limit on total section 179, special depreciation allowance, and depreciation deduction. 1040ez tax form 2014   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. 1040ez tax form 2014 The limit is reduced if your business use of the car is less than 100%. 1040ez tax form 2014 See Depreciation Limits , later, for more information. 1040ez tax form 2014 Example. 1040ez tax form 2014 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. 1040ez tax form 2014 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). 1040ez tax form 2014 Cost of car. 1040ez tax form 2014   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. 1040ez tax form 2014 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. 1040ez tax form 2014 Your cost includes only the cash you paid. 1040ez tax form 2014 Basis of car for depreciation. 1040ez tax form 2014   The amount of the section 179 deduction reduces your basis in your car. 1040ez tax form 2014 If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. 1040ez tax form 2014 The resulting amount is the basis in your car you use to figure your depreciation deduction. 1040ez tax form 2014 When to choose. 1040ez tax form 2014   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. 1040ez tax form 2014 How to choose. 1040ez tax form 2014    Employees use Form 2106 to make this choice and report the section 179 deduction. 1040ez tax form 2014 All others use Form 4562. 1040ez tax form 2014   File the appropriate form with either of the following. 1040ez tax form 2014 Your original tax return filed for the year the property was placed in service (whether or not you file it timely). 1040ez tax form 2014 An amended return filed within the time prescribed by law. 1040ez tax form 2014 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. 1040ez tax form 2014 The amended return must also include any resulting adjustments to taxable income. 1040ez tax form 2014    You must keep records that show the specific identification of each piece of qualifying section 179 property. 1040ez tax form 2014 These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. 1040ez tax form 2014 Revoking an election. 1040ez tax form 2014   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. 1040ez tax form 2014 Recapture of section 179 deduction. 1040ez tax form 2014   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. 1040ez tax form 2014 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. 1040ez tax form 2014 Any section 179 deduction claimed on the car is included in calculating the excess depreciation. 1040ez tax form 2014 For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. 1040ez tax form 2014 Dispositions. 1040ez tax form 2014   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. 1040ez tax form 2014 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). 1040ez tax form 2014 For information on the disposition of a car, see Disposition of a Car , later. 1040ez tax form 2014 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. 1040ez tax form 2014 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). 1040ez tax form 2014 The special depreciation allowance applies only for the first year the car is placed in service. 1040ez tax form 2014 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). 1040ez tax form 2014 Combined depreciation. 1040ez tax form 2014   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). 1040ez tax form 2014 For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). 1040ez tax form 2014 See Depreciation Limits , later in this chapter. 1040ez tax form 2014 Qualified car. 1040ez tax form 2014   To be a qualified car (including trucks and vans), the car must meet all of the following tests. 1040ez tax form 2014 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. 1040ez tax form 2014 Election not to claim the special depreciation allowance. 1040ez tax form 2014   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. 1040ez tax form 2014 If you make this election, it applies to all 5-year property placed in service during the year. 1040ez tax form 2014   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. 1040ez tax form 2014    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. 1040ez tax form 2014 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. 1040ez tax form 2014 This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. 1040ez tax form 2014 You generally need to know the following things about the car you intend to depreciate. 1040ez tax form 2014 Your basis in the car. 1040ez tax form 2014 The date you place the car in service. 1040ez tax form 2014 The method of depreciation and recovery period you will use. 1040ez tax form 2014 Basis. 1040ez tax form 2014   Your basis in a car for figuring depreciation is generally its cost. 1040ez tax form 2014 This includes any amount you borrow or pay in cash, other property, or services. 1040ez tax form 2014   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). 1040ez tax form 2014 However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). 1040ez tax form 2014 For one of these situations see Exception under Methods of depreciation, later. 1040ez tax form 2014   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. 1040ez tax form 2014 Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . 1040ez tax form 2014 Placed in service. 1040ez tax form 2014   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. 1040ez tax form 2014 Depreciation begins when the car is placed in service for use in your work or business or for the production of income. 1040ez tax form 2014   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. 1040ez tax form 2014 Car placed in service and disposed of in the same year. 1040ez tax form 2014   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. 1040ez tax form 2014 Methods of depreciation. 1040ez tax form 2014   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). 1040ez tax form 2014 MACRS is discussed later in this chapter. 1040ez tax form 2014 Exception. 1040ez tax form 2014   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. 1040ez tax form 2014 You must use straight line depreciation over the estimated remaining useful life of the car. 1040ez tax form 2014   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. 1040ez tax form 2014 The rate per mile varies depending on the year(s) you used the standard mileage rate. 1040ez tax form 2014 For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. 1040ez tax form 2014   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . 1040ez tax form 2014 You must use your adjusted basis in your car to figure your depreciation deduction. 1040ez tax form 2014 For additional information on the straight line method of depreciation, see Publication 946. 1040ez tax form 2014 More-than-50%-use test. 1040ez tax form 2014   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. 1040ez tax form 2014 You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. 1040ez tax form 2014   If your business use is 50% or less, you must use the straight line method to depreciate your car. 1040ez tax form 2014 This is explained later under Car Used 50% or Less for Business . 1040ez tax form 2014 Qualified business use. 1040ez tax form 2014   A qualified business use is any use in your trade or business. 1040ez tax form 2014 It does not include use for the production of income (investment use). 1040ez tax form 2014 However, you do combine your business and investment use to compute your depreciation deduction for the tax year. 1040ez tax form 2014 Use of your car by another person. 1040ez tax form 2014   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. 1040ez tax form 2014 It is directly connected with your business. 1040ez tax form 2014 It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). 1040ez tax form 2014 It results in a payment of fair market rent. 1040ez tax form 2014 This includes any payment to you for the use of your car. 1040ez tax form 2014 Business use changes. 1040ez tax form 2014   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. 1040ez tax form 2014 See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. 1040ez tax form 2014    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. 1040ez tax form 2014 Use for more than one purpose. 1040ez tax form 2014   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. 1040ez tax form 2014 You do this on the basis of mileage. 1040ez tax form 2014 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. 1040ez tax form 2014 Change from personal to business use. 1040ez tax form 2014   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. 1040ez tax form 2014 In this case, you figure the percentage of business use for the year as follows. 1040ez tax form 2014 Determine the percentage of business use for the period following the change. 1040ez tax form 2014 Do this by dividing business miles by total miles driven during that period. 1040ez tax form 2014 Multiply the percentage in (1) by a fraction. 1040ez tax form 2014 The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. 1040ez tax form 2014 Example. 1040ez tax form 2014 You use a car only for personal purposes during the first 6 months of the year. 1040ez tax form 2014 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. 1040ez tax form 2014 This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. 1040ez tax form 2014 Your business use for the year is 40% (80% × 6/12). 1040ez tax form 2014 Limits. 1040ez tax form 2014   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. 1040ez tax form 2014 The maximum amount you can claim depends on the year in which you placed your car in service. 1040ez tax form 2014 You have to reduce the maximum amount if you did not use the car exclusively for business. 1040ez tax form 2014 See Depreciation Limits , later. 1040ez tax form 2014 Unadjusted basis. 1040ez tax form 2014   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) . 1040ez tax form 2014 Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. 1040ez tax form 2014   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. 1040ez tax form 2014 Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. 1040ez tax form 2014 Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. 1040ez tax form 2014 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. 1040ez tax form 2014 1, 2006), and alternative motor vehicle credit. 1040ez tax form 2014   See Form 8910 for information on the alternative motor vehicle credit. 1040ez tax form 2014 If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. 1040ez tax form 2014 See Car Used 50% or Less for Business, later, for more information. 1040ez tax form 2014 If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. 1040ez tax form 2014 Improvements. 1040ez tax form 2014   A major improvement to a car is treated as a new item of 5-year recovery property. 1040ez tax form 2014 It is treated as placed in service in the year the improvement is made. 1040ez tax form 2014 It does not matter how old the car is when the improvement is added. 1040ez tax form 2014 Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. 1040ez tax form 2014 However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. 1040ez tax form 2014 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. 1040ez tax form 2014 See Depreciation Limits , later. 1040ez tax form 2014 Car trade-in. 1040ez tax form 2014   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. 1040ez tax form 2014 You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. 1040ez tax form 2014 If you make this election, you treat the old car as disposed of at the time of the trade-in. 1040ez tax form 2014 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. 1040ez tax form 2014 You then figure your depreciation deduction for the new car beginning with the date you placed it in service. 1040ez tax form 2014 You make this election by completing Form 2106, Part II, Section D. 1040ez tax form 2014 This method is explained later, beginning at Effect of trade-in on basis . 1040ez tax form 2014 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. 1040ez tax form 2014 You must apply two depreciation limits (see Depreciation Limits , later). 1040ez tax form 2014 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. 1040ez tax form 2014 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. 1040ez tax form 2014 You must use Form 4562 to compute your depreciation deduction. 1040ez tax form 2014 You cannot use Form 2106, Part II, Section D. 1040ez tax form 2014 This method is explained in Publication 946. 1040ez tax form 2014   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). 1040ez tax form 2014 Otherwise, you must use the method described in (2). 1040ez tax form 2014 Effect of trade-in on basis. 1040ez tax form 2014   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. 1040ez tax form 2014 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. 1040ez tax form 2014 168(i)-6(d)(3). 1040ez tax form 2014 Traded car used only for business. 1040ez tax form 2014   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. 1040ez tax form 2014 Example. 1040ez tax form 2014 Paul trades in a car that has an adjusted basis of $5,000 for a new car. 1040ez tax form 2014 In addition, he pays cash of $20,000 for the new car. 1040ez tax form 2014 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). 1040ez tax form 2014 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. 1040ez tax form 2014 Traded car used partly in business. 1040ez tax form 2014   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. 1040ez tax form 2014 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. 1040ez tax form 2014 (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. 1040ez tax form 2014 See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. 1040ez tax form 2014 )   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. 1040ez tax form 2014 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. 1040ez tax form 2014 For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. 1040ez tax form 2014 Modified Accelerated Cost Recovery System (MACRS). 1040ez tax form 2014   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. 1040ez tax form 2014   The maximum amount you can deduct is limited, depending on the year you placed your car in service. 1040ez tax form 2014 See Depreciation Limits , later. 1040ez tax form 2014 Recovery period. 1040ez tax form 2014   Under MACRS, cars are classified as 5-year property. 1040ez tax form 2014 You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. 1040ez tax form 2014 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. 1040ez tax form 2014 Depreciation deduction for certain Indian reservation property. 1040ez tax form 2014   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. 1040ez tax form 2014 The recovery that applies for a business-use car is 3 years instead of 5 years. 1040ez tax form 2014 However, the depreciation limits, discussed later, will still apply. 1040ez tax form 2014   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. 1040ez tax form 2014 Depreciation methods. 1040ez tax form 2014   You can use one of the following methods to depreciate your car. 1040ez tax form 2014 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. 1040ez tax form 2014 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. 1040ez tax form 2014 The straight line method (SL) over a 5-year recovery period. 1040ez tax form 2014    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. 1040ez tax form 2014 This is because the chart has the switch to the straight line method built into its rates. 1040ez tax form 2014   Before choosing a method, you may wish to consider the following facts. 1040ez tax form 2014 Using the straight line method provides equal yearly deductions throughout the recovery period. 1040ez tax form 2014 Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. 1040ez tax form 2014 MACRS depreciation chart. 1040ez tax form 2014   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . 1040ez tax form 2014 Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. 1040ez tax form 2014 A similar chart appears in the Instructions for Form 2106. 1040ez tax form 2014    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. 1040ez tax form 2014   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. 1040ez tax form 2014 You file your return on a fiscal year basis. 1040ez tax form 2014 You file your return for a short tax year (less than 12 months). 1040ez tax form 2014 During the year, all of the following conditions apply. 1040ez tax form 2014 You placed some property in service from January through September. 1040ez tax form 2014 You placed some property in service from October through December. 1040ez tax form 2014 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. 1040ez tax form 2014   You placed qualified property in service on an Indian reservation. 1040ez tax form 2014 Depreciation in future years. 1040ez tax form 2014   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. 1040ez tax form 2014 However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. 1040ez tax form 2014 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. 1040ez tax form 2014 See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. 1040ez tax form 2014    In future years, do not use the chart in this edition of the publication. 1040ez tax form 2014 Instead, use the chart in the publication or the form instructions for those future years. 1040ez tax form 2014 Disposition of car during recovery period. 1040ez tax form 2014   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. 1040ez tax form 2014 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. 1040ez tax form 2014 How to use the 2013 chart. 1040ez tax form 2014   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. 1040ez tax form 2014 Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. 1040ez tax form 2014 If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. 1040ez tax form 2014    Your deduction cannot be more than the maximum depreciation limit for cars. 1040ez tax form 2014 See Depreciation Limits, later. 1040ez tax form 2014 Example. 1040ez tax form 2014 Phil bought a used truck in February 2012 to use exclusively in his landscape business. 1040ez tax form 2014 He paid $9,200 for the truck with no trade-in. 1040ez tax form 2014 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. 1040ez tax form 2014 Phil used the MACRS depreciation chart in 2012 to find his percentage. 1040ez tax form 2014 The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. 1040ez tax form 2014 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. 1040ez tax form 2014 In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. 1040ez tax form 2014 His records show that the business use of his truck was 90% in 2013. 1040ez tax form 2014 Phil used Table 4-1 to find his percentage. 1040ez tax form 2014 Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. 1040ez tax form 2014 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. 1040ez tax form 2014 Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. 1040ez tax form 2014 The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. 1040ez tax form 2014 The maximum amount you can deduct each year depends on the year you place the car in service. 1040ez tax form 2014 These limits are shown in the following tables. 1040ez tax form 2014   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. 1040ez tax form 2014 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. 1040ez tax form 2014 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. 1040ez tax form 2014 4$7,660 if you acquired the car before 5/6/2003. 1040ez tax form 2014 $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. 1040ez tax form 2014 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. 1040ez tax form 2014 Trucks and vans. 1040ez tax form 2014   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. 1040ez tax form 2014 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. 1040ez tax form 2014 For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. 1040ez tax form 2014 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. 1040ez tax form 2014 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. 1040ez tax form 2014 Car used less than full year. 1040ez tax form 2014   The depreciation limits are not reduced if you use a car for less than a full year. 1040ez tax form 2014 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. 1040ez tax form 2014 However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. 1040ez tax form 2014 See Reduction for personal use , next. 1040ez tax form 2014 Reduction for personal use. 1040ez tax form 2014   The depreciation limits are reduced based on your percentage of personal use. 1040ez tax form 2014 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. 1040ez tax form 2014 Section 179 deduction. 1040ez tax form 2014   The section 179 deduction is treated as a depreciation deduction. 1040ez tax form 2014 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. 1040ez tax form 2014 Example. 1040ez tax form 2014 On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. 1040ez tax form 2014 He used it 80% for his business, and he chooses to take a section 179 deduction for the car. 1040ez tax form 2014 The car is not qualified property for purposes of the special depreciation allowance. 1040ez tax form 2014 Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. 1040ez tax form 2014 This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). 1040ez tax form 2014 Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). 1040ez tax form 2014 He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. 1040ez tax form 2014 Jack has reached his maximum depreciation deduction for 2013. 1040ez tax form 2014 For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. 1040ez tax form 2014 Deductions in years after the recovery period. 1040ez tax form 2014   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. 1040ez tax form 2014 If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. 1040ez tax form 2014 Unrecovered basis. 1040ez tax form 2014   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. 1040ez tax form 2014 The recovery period. 1040ez tax form 2014   For 5-year property, your recovery period is 6 calendar years. 1040ez tax form 2014 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. 1040ez tax form 2014   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. 1040ez tax form 2014 You determine your unrecovered basis in the 7th year after you placed the car in service. 1040ez tax form 2014 How to treat unrecovered basis. 1040ez tax form 2014   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. 1040ez tax form 2014 The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. 1040ez tax form 2014 For example, no deduction is allowed for a year you use your car 100% for personal purposes. 1040ez tax form 2014 Example. 1040ez tax form 2014 In April 2007, Bob bought and placed in service a car he used exclusively in his business. 1040ez tax form 2014 The car cost $31,500. 1040ez tax form 2014 Bob did not claim a section 179 deduction or the special depreciation allowance for the car. 1040ez tax form 2014 He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). 1040ez tax form 2014 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. 1040ez tax form 2014 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. 1040ez tax form 2014      MACRS     Deprec. 1040ez tax form 2014 Year % Amount Limit Allowed 2007 20. 1040ez tax form 2014 00 $6,300 $3,060 $ 3,060 2008 32. 1040ez tax form 2014 00 10,080 4,900 4,900 2009 19. 1040ez tax form 2014 20 6,048 2,850 2,850 2010 11. 1040ez tax form 2014 52 3,629 1,775 1,775 2011 11. 1040ez tax form 2014 52 3,629 1,775 1,775 2012 5. 1040ez tax form 2014 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. 1040ez tax form 2014   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). 1040ez tax form 2014 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. 1040ez tax form 2014   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. 1040ez tax form 2014 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%. 1040ez tax form 2014 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. 1040ez tax form 2014 Table 4-1. 1040ez tax form 2014 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. 1040ez tax form 2014 ) 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. 1040ez tax form 2014   First, using the left column, find the date you first placed the car in service in 2013. 1040ez tax form 2014 Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. 1040ez tax form 2014 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. 1040ez tax form 2014 Refer back to the MACRS Depreciation Chart for the year you placed the car in service. 1040ez tax form 2014 (See Car Used 50% or Less for Business . 1040ez tax form 2014 )  Multiply the unadjusted basis of your car by your business use percentage. 1040ez tax form 2014 Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. 1040ez tax form 2014 (Also see Depreciation Limits . 1040ez tax form 2014 )   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. 1040ez tax form 2014 1—Sept. 1040ez tax form 2014 30 percentage instead of the Oct. 1040ez tax form 2014 1—Dec. 1040ez tax form 2014 31 percentage for your car. 1040ez tax form 2014               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. 1040ez tax form 2014 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. 1040ez tax form 2014 1—Sept. 1040ez tax form 2014 30 for figuring depreciation for your car. 1040ez tax form 2014 See Which Convention Applies? in chapter 4 of Publication 946 for more details. 1040ez tax form 2014               Example. 1040ez tax form 2014 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. 1040ez tax form 2014 You