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2010 Turbo Tax

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2010 Turbo Tax

2010 turbo tax 1. 2010 turbo tax   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. 2010 turbo tax It is an allowance for the wear and tear, deterioration, or obsolescence of the property. 2010 turbo tax This chapter discusses the general rules for depreciating property and answers the following questions. 2010 turbo tax What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. 2010 turbo tax What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. 2010 turbo tax You also can depreciate certain intangible property, such as patents, copyrights, and computer software. 2010 turbo tax To be depreciable, the property must meet all the following requirements. 2010 turbo tax It must be property you own. 2010 turbo tax It must be used in your business or income-producing activity. 2010 turbo tax It must have a determinable useful life. 2010 turbo tax It must be expected to last more than one year. 2010 turbo tax The following discussions provide information about these requirements. 2010 turbo tax Property You Own To claim depreciation, you usually must be the owner of the property. 2010 turbo tax You are considered as owning property even if it is subject to a debt. 2010 turbo tax Example 1. 2010 turbo tax You made a down payment to purchase rental property and assumed the previous owner's mortgage. 2010 turbo tax You own the property and you can depreciate it. 2010 turbo tax Example 2. 2010 turbo tax You bought a new van that you will use only for your courier business. 2010 turbo tax You will be making payments on the van over the next 5 years. 2010 turbo tax You own the van and you can depreciate it. 2010 turbo tax Leased property. 2010 turbo tax   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). 2010 turbo tax This means you bear the burden of exhaustion of the capital investment in the property. 2010 turbo tax Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. 2010 turbo tax You can, however, depreciate any capital improvements you make to the property. 2010 turbo tax See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. 2010 turbo tax   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. 2010 turbo tax However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. 2010 turbo tax Incidents of ownership. 2010 turbo tax   Incidents of ownership in property include the following. 2010 turbo tax The legal title to the property. 2010 turbo tax The legal obligation to pay for the property. 2010 turbo tax The responsibility to pay maintenance and operating expenses. 2010 turbo tax The duty to pay any taxes on the property. 2010 turbo tax The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. 2010 turbo tax Life tenant. 2010 turbo tax   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. 2010 turbo tax However, see Certain term interests in property under Excepted Property, later. 2010 turbo tax Cooperative apartments. 2010 turbo tax   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. 2010 turbo tax   Figure your depreciation deduction as follows. 2010 turbo tax Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. 2010 turbo tax If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. 2010 turbo tax Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. 2010 turbo tax Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. 2010 turbo tax Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. 2010 turbo tax Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. 2010 turbo tax Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. 2010 turbo tax Multiply the result of (2) by the percentage you figured in (3). 2010 turbo tax This is your depreciation on the stock. 2010 turbo tax   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. 2010 turbo tax You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. 2010 turbo tax Example. 2010 turbo tax You figure your share of the cooperative housing corporation's depreciation to be $30,000. 2010 turbo tax Your adjusted basis in the stock of the corporation is $50,000. 2010 turbo tax You use one half of your apartment solely for business purposes. 2010 turbo tax Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). 2010 turbo tax Change to business use. 2010 turbo tax   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. 2010 turbo tax The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. 2010 turbo tax The fair market value of the property on the date you change your apartment to business use. 2010 turbo tax This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. 2010 turbo tax The corporation's adjusted basis in the property on that date. 2010 turbo tax Do not subtract depreciation when figuring the corporation's adjusted basis. 2010 turbo tax   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. 2010 turbo tax The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. 2010 turbo tax   For a discussion of fair market value and adjusted basis, see Publication 551. 2010 turbo tax Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. 2010 turbo tax If you use property to produce income (investment use), the income must be taxable. 2010 turbo tax You cannot depreciate property that you use solely for personal activities. 2010 turbo tax Partial business or investment use. 2010 turbo tax   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. 2010 turbo tax For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. 2010 turbo tax    You must keep records showing the business, investment, and personal use of your property. 2010 turbo tax For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. 2010 turbo tax    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. 2010 turbo tax For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. 2010 turbo tax Office in the home. 2010 turbo tax   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. 2010 turbo tax For information about depreciating your home office, see Publication 587. 2010 turbo tax Inventory. 2010 turbo tax   You cannot depreciate inventory because it is not held for use in your business. 2010 turbo tax Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. 2010 turbo tax   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. 2010 turbo tax See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. 2010 turbo tax   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. 2010 turbo tax If it is unclear, examine carefully all the facts in the operation of the particular business. 2010 turbo tax The following example shows how a careful examination of the facts in two similar situations results in different conclusions. 2010 turbo tax Example. 2010 turbo tax Maple Corporation is in the business of leasing cars. 2010 turbo tax At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. 2010 turbo tax Maple does not have a showroom, used car lot, or individuals to sell the cars. 2010 turbo tax Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. 2010 turbo tax Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. 2010 turbo tax If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. 2010 turbo tax In this situation, the cars are held primarily for sale to customers in the ordinary course of business. 2010 turbo tax Containers. 2010 turbo tax   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. 2010 turbo tax However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. 2010 turbo tax They qualify as property used in your business. 2010 turbo tax Title to the containers does not pass to the buyer. 2010 turbo tax   To determine if these requirements are met, consider the following questions. 2010 turbo tax Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. 2010 turbo tax This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 2010 turbo tax Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. 2010 turbo tax Example. 2010 turbo tax You maintain a library for use in your profession. 2010 turbo tax You can depreciate it. 2010 turbo tax However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. 2010 turbo tax Instead, you deduct their cost as a business expense. 2010 turbo tax What Property Cannot Be Depreciated? Certain property cannot be depreciated. 2010 turbo tax This includes land and certain excepted property. 2010 turbo tax Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. 2010 turbo tax The cost of land generally includes the cost of clearing, grading, planting, and landscaping. 2010 turbo tax Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. 2010 turbo tax These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. 2010 turbo tax Example. 2010 turbo tax You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. 2010 turbo tax Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. 2010 turbo tax If you replace the building, you would have to destroy the bushes and trees right next to it. 2010 turbo tax These bushes and trees are closely associated with the building, so they have a determinable useful life. 2010 turbo tax Therefore, you can depreciate them. 2010 turbo tax Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. 2010 turbo tax Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. 2010 turbo tax Property placed in service and disposed of in the same year. 2010 turbo tax Determining when property is placed in service is explained later. 2010 turbo tax Equipment used to build capital improvements. 2010 turbo tax You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. 2010 turbo tax See Uniform Capitalization Rules in Publication 551. 2010 turbo tax Section 197 intangibles. 2010 turbo tax You must amortize these costs. 2010 turbo tax Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. 2010 turbo tax Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. 2010 turbo tax See Intangible Property , later. 2010 turbo tax Certain term interests. 2010 turbo tax Certain term interests in property. 2010 turbo tax   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. 2010 turbo tax A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. 2010 turbo tax Related persons. 2010 turbo tax   For a description of related persons, see Related Persons, later. 2010 turbo tax For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. 2010 turbo tax Basis adjustments. 2010 turbo tax   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. 2010 turbo tax   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. 2010 turbo tax However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. 2010 turbo tax The term interest is held by an organization exempt from tax. 2010 turbo tax The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. 2010 turbo tax Exceptions. 2010 turbo tax   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. 2010 turbo tax They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. 2010 turbo tax When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. 2010 turbo tax You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. 2010 turbo tax Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. 2010 turbo tax Even if you are not using the property, it is in service when it is ready and available for its specific use. 2010 turbo tax Example 1. 2010 turbo tax Donald Steep bought a machine for his business. 2010 turbo tax The machine was delivered last year. 2010 turbo tax However, it was not installed and operational until this year. 2010 turbo tax It is considered placed in service this year. 2010 turbo tax If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. 2010 turbo tax Example 2. 2010 turbo tax On April 6, Sue Thorn bought a house to use as residential rental property. 2010 turbo tax She made several repairs and had it ready for rent on July 5. 2010 turbo tax At that time, she began to advertise it for rent in the local newspaper. 2010 turbo tax The house is considered placed in service in July when it was ready and available for rent. 2010 turbo tax She can begin to depreciate it in July. 2010 turbo tax Example 3. 2010 turbo tax James Elm is a building contractor who specializes in constructing office buildings. 2010 turbo tax He bought a truck last year that had to be modified to lift materials to second-story levels. 2010 turbo tax The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. 2010 turbo tax The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. 2010 turbo tax Conversion to business use. 2010 turbo tax   If you place property in service in a personal activity, you cannot claim depreciation. 2010 turbo tax However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. 2010 turbo tax You place the property in service in the business or income-producing activity on the date of the change. 2010 turbo tax Example. 2010 turbo tax You bought a home and used it as your personal home several years before you converted it to rental property. 2010 turbo tax Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. 2010 turbo tax You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. 2010 turbo tax Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). 2010 turbo tax For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. 2010 turbo tax Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. 2010 turbo tax You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. 2010 turbo tax See What Is the Basis of Your Depreciable Property , later. 2010 turbo tax Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. 2010 turbo tax You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. 2010 turbo tax You sell or exchange the property. 2010 turbo tax You convert the property to personal use. 2010 turbo tax You abandon the property. 2010 turbo tax You transfer the property to a supplies or scrap account. 2010 turbo tax The property is destroyed. 2010 turbo tax If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. 2010 turbo tax What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. 2010 turbo tax MACRS is discussed in chapter 4. 2010 turbo tax You cannot use MACRS to depreciate the following property. 2010 turbo tax Property you placed in service before 1987. 2010 turbo tax Certain property owned or used in 1986. 2010 turbo tax Intangible property. 2010 turbo tax Films, video tapes, and recordings. 2010 turbo tax Certain corporate or partnership property acquired in a nontaxable transfer. 2010 turbo tax Property you elected to exclude from MACRS. 2010 turbo tax The following discussions describe the property listed above and explain what depreciation method should be used. 2010 turbo tax Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). 2010 turbo tax Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. 2010 turbo tax For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. 2010 turbo tax Use of real property changed. 2010 turbo tax   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. 2010 turbo tax Improvements made after 1986. 2010 turbo tax   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. 2010 turbo tax Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. 2010 turbo tax For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. 2010 turbo tax Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. 2010 turbo tax If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. 2010 turbo tax For the following discussions, do not treat property as owned before you placed it in service. 2010 turbo tax If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. 2010 turbo tax Personal property. 2010 turbo tax   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. 2010 turbo tax You or someone related to you owned or used the property in 1986. 2010 turbo tax You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. 2010 turbo tax You lease the property to a person (or someone related to this person) who owned or used the property in 1986. 2010 turbo tax You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. 2010 turbo tax Real property. 2010 turbo tax   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. 2010 turbo tax You or someone related to you owned the property in 1986. 2010 turbo tax You lease the property to a person who owned the property in 1986 (or someone related to that person). 2010 turbo tax You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. 2010 turbo tax MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. 2010 turbo tax It does not apply to the carried-over part of the basis. 2010 turbo tax Exceptions. 2010 turbo tax   The rules above do not apply to the following. 2010 turbo tax Residential rental property or nonresidential real property. 2010 turbo tax Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. 2010 turbo tax For information on how to figure depreciation under ACRS, see Publication 534. 2010 turbo tax Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. 2010 turbo tax Related persons. 2010 turbo tax   For this purpose, the following are related persons. 2010 turbo tax An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. 2010 turbo tax A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. 2010 turbo tax Two corporations that are members of the same controlled group. 2010 turbo tax A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. 2010 turbo tax The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. 2010 turbo tax The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. 2010 turbo tax A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. 2010 turbo tax Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. 2010 turbo tax A corporation and a partnership if the same persons own both of the following. 2010 turbo tax More than 10% of the value of the outstanding stock of the corporation. 2010 turbo tax More than 10% of the capital or profits interest in the partnership. 2010 turbo tax The executor and beneficiary of any estate. 2010 turbo tax A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. 2010 turbo tax Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. 2010 turbo tax The related person and a person who is engaged in trades or businesses under common control. 2010 turbo tax See section 52(a) and 52(b) of the Internal Revenue Code. 2010 turbo tax When to determine relationship. 2010 turbo tax   You must determine whether you are related to another person at the time you acquire the property. 2010 turbo tax   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. 2010 turbo tax For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. 2010 turbo tax Constructive ownership of stock or partnership interest. 2010 turbo tax   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. 2010 turbo tax Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. 2010 turbo tax However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. 2010 turbo tax An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. 2010 turbo tax An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. 2010 turbo tax For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. 2010 turbo tax However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. 2010 turbo tax Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. 2010 turbo tax However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). 2010 turbo tax You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. 2010 turbo tax Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. 2010 turbo tax To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. 2010 turbo tax Subtract the salvage value, if any, from the adjusted basis. 2010 turbo tax The balance is the total depreciation you can take over the useful life of the property. 2010 turbo tax Divide the balance by the number of years in the useful life. 2010 turbo tax This gives you your yearly depreciation deduction. 2010 turbo tax Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. 2010 turbo tax If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. 2010 turbo tax Example. 2010 turbo tax In April, Frank bought a patent for $5,100 that is not a section 197 intangible. 2010 turbo tax He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. 2010 turbo tax He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. 2010 turbo tax He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. 2010 turbo tax Next year, Frank can deduct $300 for the full year. 2010 turbo tax Patents and copyrights. 2010 turbo tax   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. 2010 turbo tax The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. 2010 turbo tax However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. 2010 turbo tax Computer software. 2010 turbo tax   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. 2010 turbo tax   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. 2010 turbo tax It is readily available for purchase by the general public. 2010 turbo tax It is subject to a nonexclusive license. 2010 turbo tax It has not been substantially modified. 2010 turbo tax   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. 2010 turbo tax If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. 2010 turbo tax    Tax-exempt use property subject to a lease. 2010 turbo tax   The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. 2010 turbo tax Certain created intangibles. 2010 turbo tax   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. 2010 turbo tax For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. 2010 turbo tax   The following are not eligible. 2010 turbo tax Any intangible asset acquired from another person. 2010 turbo tax Created financial interests. 2010 turbo tax Any intangible asset that has a useful life that can be estimated with reasonable accuracy. 2010 turbo tax Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. 2010 turbo tax Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. 2010 turbo tax   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. 2010 turbo tax For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. 2010 turbo tax Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. 2010 turbo tax Motion picture films or video tapes. 2010 turbo tax Sound recordings. 2010 turbo tax Copyrights. 2010 turbo tax Books. 2010 turbo tax Patents. 2010 turbo tax Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. 2010 turbo tax The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. 2010 turbo tax For more information, see section 167(g) of the Internal Revenue Code. 2010 turbo tax Films, video tapes, and recordings. 2010 turbo tax   You cannot use MACRS for motion picture films, video tapes, and sound recordings. 2010 turbo tax For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. 2010 turbo tax You can depreciate this property using either the straight line method or the income forecast method. 2010 turbo tax Participations and residuals. 2010 turbo tax   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. 2010 turbo tax The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. 2010 turbo tax For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. 2010 turbo tax   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. 2010 turbo tax Videocassettes. 2010 turbo tax   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. 2010 turbo tax If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. 2010 turbo tax Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. 2010 turbo tax You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. 2010 turbo tax However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. 2010 turbo tax The nontaxable transfers covered by this rule include the following. 2010 turbo tax A distribution in complete liquidation of a subsidiary. 2010 turbo tax A transfer to a corporation controlled by the transferor. 2010 turbo tax An exchange of property solely for corporate stock or securities in a reorganization. 2010 turbo tax A contribution of property to a partnership in exchange for a partnership interest. 2010 turbo tax A partnership distribution of property to a partner. 2010 turbo tax Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. 2010 turbo tax You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. 2010 turbo tax You must make this election by the return due date (including extensions) for the tax year you place your property in service. 2010 turbo tax However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). 2010 turbo tax Attach the election to the amended return and write “Filed pursuant to section 301. 2010 turbo tax 9100-2” on the election statement. 2010 turbo tax File the amended return at the same address you filed the original return. 2010 turbo tax Use of standard mileage rate. 2010 turbo tax   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. 2010 turbo tax See Publication 463 for a discussion of the standard mileage rate. 2010 turbo tax What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. 2010 turbo tax To determine basis, you need to know the cost or other basis of your property. 2010 turbo tax Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. 2010 turbo tax The cost includes the amount you pay in cash, debt obligations, other property, or services. 2010 turbo tax Exception. 2010 turbo tax   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). 2010 turbo tax If you make that choice, you cannot include those sales taxes as part of your cost basis. 2010 turbo tax Assumed debt. 2010 turbo tax   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. 2010 turbo tax Example. 2010 turbo tax You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. 2010 turbo tax Your total cost is $140,000, the cash you paid plus the mortgage you assumed. 2010 turbo tax Settlement costs. 2010 turbo tax   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. 2010 turbo tax These generally are shown on your settlement statement and include the following. 2010 turbo tax Legal and recording fees. 2010 turbo tax Abstract fees. 2010 turbo tax Survey charges. 2010 turbo tax Owner's title insurance. 2010 turbo tax Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. 2010 turbo tax   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. 2010 turbo tax Property you construct or build. 2010 turbo tax   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. 2010 turbo tax For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. 2010 turbo tax Other Basis Other basis usually refers to basis that is determined by the way you received the property. 2010 turbo tax For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. 2010 turbo tax If you acquired property in this or some other way, see Publication 551 to determine your basis. 2010 turbo tax Property changed from personal use. 2010 turbo tax   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. 2010 turbo tax The fair market value (FMV) of the property on the date of the change in use. 2010 turbo tax Your original cost or other basis adjusted as follows. 2010 turbo tax Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. 2010 turbo tax Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. 2010 turbo tax Example. 2010 turbo tax Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. 2010 turbo tax Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. 2010 turbo tax Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. 2010 turbo tax Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). 2010 turbo tax On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. 2010 turbo tax The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). 2010 turbo tax Property acquired in a nontaxable transaction. 2010 turbo tax   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. 2010 turbo tax Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. 2010 turbo tax See Like-kind exchanges and involuntary conversions. 2010 turbo tax under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. 2010 turbo tax   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. 2010 turbo tax See How Do You Use General Asset Accounts in chapter 4. 2010 turbo tax Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. 2010 turbo tax These events could include the following. 2010 turbo tax Installing utility lines. 2010 turbo tax Paying legal fees for perfecting the title. 2010 turbo tax Settling zoning issues. 2010 turbo tax Receiving rebates. 2010 turbo tax Incurring a casualty or theft loss. 2010 turbo tax For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. 2010 turbo tax If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. 2010 turbo tax For more information, see What Is the Basis for Depreciation in chapter 4. 2010 turbo tax . 2010 turbo tax Basis adjustment for depreciation allowed or allowable. 2010 turbo tax   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. 2010 turbo tax Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). 2010 turbo tax Depreciation allowable is depreciation you are entitled to deduct. 2010 turbo tax   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. 2010 turbo tax   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). 2010 turbo tax How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. 2010 turbo tax Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. 2010 turbo tax You generally deduct the cost of repairing business property in the same way as any other business expense. 2010 turbo tax However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. 2010 turbo tax Example. 2010 turbo tax You repair a small section on one corner of the roof of a rental house. 2010 turbo tax You deduct the cost of the repair as a rental expense. 2010 turbo tax However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. 2010 turbo tax You depreciate the cost of the new roof. 2010 turbo tax Improvements to rented property. 2010 turbo tax   You can depreciate permanent improvements you make to business property you rent from someone else. 2010 turbo tax Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. 2010 turbo tax Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. 2010 turbo tax A section 179 deduction for the current year or a section 179 carryover from a prior year. 2010 turbo tax See chapter 2 for information on the section 179 deduction. 2010 turbo tax Depreciation for property placed in service during the current year. 2010 turbo tax Depreciation on any vehicle or other listed property, regardless of when it was placed in service. 2010 turbo tax See chapter 5 for information on listed property. 2010 turbo tax A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). 2010 turbo tax Amortization of costs if the current year is the first year of the amortization period. 2010 turbo tax Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. 2010 turbo tax S. 2010 turbo tax Income Tax Return for an S Corporation) regardless of when it was placed in service. 2010 turbo tax You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. 2010 turbo tax Table 1-1 presents an overview of the purpose of the various parts of Form 4562. 2010 turbo tax Employee. 2010 turbo tax   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. 2010 turbo tax Instead, use either Form 2106 or Form 2106-EZ. 2010 turbo tax Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. 2010 turbo tax How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. 2010 turbo tax See Filing an Amended Return , next. 2010 turbo tax If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. 2010 turbo tax See Changing Your Accounting Method , later. 2010 turbo tax Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. 2010 turbo tax You claimed the incorrect amount because of a mathematical error made in any year. 2010 turbo tax You claimed the incorrect amount because of a posting error made in any year. 2010 turbo tax You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. 2010 turbo tax You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. 2010 turbo tax Adoption of accounting method defined. 2010 turbo tax   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. 2010 turbo tax   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. 2010 turbo tax irs. 2010 turbo tax gov/pub/irs-irbs/irb11-04. 2010 turbo tax pdf. 2010 turbo tax (Note. 2010 turbo tax Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. 2010 turbo tax For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. 2010 turbo tax irs. 2010 turbo tax gov/pub/irs-irbs/irb12-14. 2010 turbo tax pdf. 2010 turbo tax )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. 2010 turbo tax irs. 2010 turbo tax gov/pub/irs-irbs/irb07-29. 2010 turbo tax pdf. 2010 turbo tax When to file. 2010 turbo tax   If an amended return is allowed, you must file it by the later of the following. 2010 turbo tax 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. 2010 turbo tax A return filed before an unextended due date is considered filed on that due date. 2010 turbo tax 2 years from the time you paid your tax for that year. 2010 turbo tax Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. 2010 turbo tax You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. 2010 turbo tax The following are examples of a change in method of accounting for depreciation. 2010 turbo tax A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. 2010 turbo tax A change in the treatment of an asset from nondepreciable to depreciable or vice versa. 2010 turbo tax A change in the depreciation method, period of recovery, or convention of a depreciable asset. 2010 turbo tax A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. 2010 turbo tax A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). 2010 turbo tax Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. 2010 turbo tax An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. 2010 turbo tax A change in use of an asset in the hands of the same taxpayer. 2010 turbo tax Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). 2010 turbo tax If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. 2010 turbo tax Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. 2010 turbo tax You must submit a request for a letter ruling to make a late election or revoke an election. 2010 turbo tax Any change in the placed in service date of a depreciable asset. 2010 turbo tax See section 1. 2010 turbo tax 446-1(e)(2)(ii)(d) of the regulations for more information and examples. 2010 turbo tax IRS approval. 2010 turbo tax   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. 2010 turbo tax If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. 2010 turbo tax B. 2010 turbo tax 680. 2010 turbo tax Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. 2010 turbo tax Additional guidance. 2010 turbo tax    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. 2010 turbo tax irs. 2010 turbo tax gov/pub/irs-irbs/irb11-04. 2010 turbo tax pdf. 2010 turbo tax (Note. 2010 turbo tax Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. 2010 turbo tax For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. 2010 turbo tax irs. 2010 turbo tax gov/pub/irs-irbs/irb12-14. 2010 turbo tax pdf. 2010 turbo tax )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. 2010 turbo tax irs. 2010 turbo tax gov/pub/irs-irbs/irb07-29. 2010 turbo tax pdf. 2010 turbo tax Table 1-1. 2010 turbo tax Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. 2010 turbo tax For more information, see Form 4562 and its instructions. 2010 turbo tax Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. 2010 turbo tax   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. 2010 turbo tax The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. 2010 turbo tax If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. 2010 turbo tax A negative section 481(a) adjustment results in a decrease in taxable income. 2010 turbo tax It is taken into account in the year of change and is reported on your business tax returns as “other expenses. 2010 turbo tax ” A positive section 481(a) adjustment results in an increase in taxable income. 2010 turbo tax It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. 2010 turbo tax ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. 2010 turbo tax Make the election by completing the appropriate line on Form 3115. 2010 turbo tax   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. 2010 turbo tax Prev  Up  Next   Home   More Online Publications
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Understanding your CP130 Notice

Your tax return filing requirements may have changed: You may no longer need to pay the Alternative Minimum Tax.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully. It may also suggest additional steps for you to take depending on whether you qualify for the exemption for the Alternative Minimum Tax.

You may want to...


Answers to Common Questions

I completed an amended tax return (Form 1120-X). Do I need to mail it to a specific address?
Write "AMT-EXEMPT" on the top of your Form 1120-X and send it to the same IRS address where you mailed your original tax return.

We are an estate/trust, but the notice only mentions corporations. Are we eligible for the exemption for the Alternative Minimum Tax?
No. Estates/trusts are not corporations and as such are not exempt from the AMT.

How does the Recovery and Reinvestment Tax Act of 2009 affect the Alternative Minimum Tax rules for corporations/trusts/estates?
The Act did not have any affect on the AMT rules for corporations/trust/estates.

I don’t handle tax issues for my corporation. How can I request that you send all future tax notices directly to our accountant?
Complete a Form 8822, Change of Address, and send it to the address shown on the form.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 26-Mar-2014

The 2010 Turbo Tax

2010 turbo tax Part Five -   Standard Deduction and Itemized Deductions After you have figured your adjusted gross income, you are ready to subtract the deductions used to figure taxable income. 2010 turbo tax You can subtract either the standard deduction or itemized deductions. 2010 turbo tax Itemized deductions are deductions for certain expenses that are listed on Schedule A (Form 1040). 2010 turbo tax The ten chapters in this part discuss the standard deduction, each itemized deduction, and a limit on some of your itemized deductions if your adjusted gross income is more than certain amounts. 2010 turbo tax See chapter 20 for the factors to consider when deciding whether to subtract the standard deduction or itemized deductions. 2010 turbo tax Table of Contents 20. 2010 turbo tax   Standard DeductionWhat's New Introduction Standard Deduction Amount Standard Deduction for Dependents Who Should ItemizeWhen to itemize. 2010 turbo tax Married persons who filed separate returns. 2010 turbo tax 21. 2010 turbo tax   Medical and Dental ExpensesWhat's New Introduction Useful Items - You may want to see: What Are Medical Expenses? What Expenses Can You Include This Year?Community property states. 2010 turbo tax How Much of the Expenses Can You Deduct? Whose Medical Expenses Can You Include?Yourself Spouse Dependent Decedent What Medical Expenses Are Includible?Insurance Premiums Meals and Lodging Transportation Disabled Dependent Care Expenses How Do You Treat Reimbursements?Insurance Reimbursement Damages for Personal Injuries How Do You Figure and Report the Deduction on Your Tax Return?What Tax Form Do You Use? Impairment-Related Work Expenses Health Insurance Costs for Self-Employed Persons 22. 2010 turbo tax   TaxesIntroductionIndian tribal government. 2010 turbo tax Useful Items - You may want to see: Tests To Deduct Any Tax Income TaxesState and Local Income Taxes Foreign Income Taxes General Sales TaxesMotor vehicles. 2010 turbo tax Real Estate TaxesReal estate taxes for prior years. 2010 turbo tax Examples. 2010 turbo tax Form 1099-S. 2010 turbo tax Real Estate-Related Items You Cannot Deduct Personal Property Taxes Taxes and Fees You Cannot Deduct Where To Deduct 23. 2010 turbo tax   Interest ExpenseIntroduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. 2010 turbo tax Mortgage proceeds used for business or investment. 2010 turbo tax 24. 2010 turbo tax   ContributionsIntroduction Useful Items - You may want to see: Organizations That Qualify To Receive Deductible ContributionsTypes of Qualified Organizations Contributions You Can DeductContributions From Which You Benefit Expenses Paid for Student Living With You Out-of-Pocket Expenses in Giving Services Contributions You Cannot DeductContributions to Individuals Contributions to Nonqualified Organizations Contributions From Which You Benefit Value of Time or Services Personal Expenses Appraisal Fees Contributions of PropertyException. 2010 turbo tax Household items. 2010 turbo tax Deduction more than $500. 2010 turbo tax Form 1098-C. 2010 turbo tax Filing deadline approaching and still no Form 1098-C. 2010 turbo tax Exception 1—vehicle used or improved by organization. 2010 turbo tax Exception 2—vehicle given or sold to needy individual. 2010 turbo tax Deduction $500 or less. 2010 turbo tax Right to use property. 2010 turbo tax Tangible personal property. 2010 turbo tax Future interest. 2010 turbo tax Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value When To DeductChecks. 2010 turbo tax Text message. 2010 turbo tax Credit card. 2010 turbo tax Pay-by-phone account. 2010 turbo tax Stock certificate. 2010 turbo tax Promissory note. 2010 turbo tax Option. 2010 turbo tax Borrowed funds. 2010 turbo tax Limits on DeductionsCarryovers Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To Report 25. 2010 turbo tax   Nonbusiness Casualty and Theft LossesWhat's New Introduction Useful Items - You may want to see: CasualtyFamily pet. 2010 turbo tax Progressive deterioration. 2010 turbo tax Damage from corrosive drywall. 2010 turbo tax Theft Loss on Deposits Proof of Loss Figuring a LossDecrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Single Casualty on Multiple Properties Deduction Limits$100 Rule 10% Rule When To Report Gains and LossesDisaster Area Loss How To Report Gains and Losses 26. 2010 turbo tax   Car Expenses and Other Employee Business ExpensesWhat's New Introduction Useful Items - You may want to see: Travel ExpensesTraveling Away From Home Tax Home Temporary Assignment or Job What Travel Expenses Are Deductible? Travel in the United States Travel Outside the United States Conventions Entertainment Expenses50% Limit What Entertainment Expenses Are Deductible? What Entertainment Expenses Are Not Deductible? Gift Expenses Transportation ExpensesArmed Forces reservists. 2010 turbo tax Parking fees. 2010 turbo tax Advertising display on car. 2010 turbo tax Car pools. 2010 turbo tax Hauling tools or instruments. 2010 turbo tax Union members' trips from a union hall. 2010 turbo tax Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. 2010 turbo tax Statutory employees. 2010 turbo tax Reimbursements Completing Forms 2106 and 2106-EZ Special Rules 27. 2010 turbo tax   Tax Benefits for Work-Related EducationWhat's New Introduction Useful Items - You may want to see: Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. 2010 turbo tax Transportation Expenses Travel Expenses No Double Benefit Allowed Reimbursements Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping 28. 2010 turbo tax   Miscellaneous DeductionsWhat's New Introduction Useful Items - You may want to see: Deductions Subject to the 2% LimitUnreimbursed Employee Expenses (Line 21) Tax Preparation Fees (Line 22) Other Expenses (Line 23) Deductions Not Subject to the 2% LimitList of Deductions Nondeductible ExpensesList of Nondeductible Expenses 29. 2010 turbo tax   Limit on Itemized DeductionsIntroduction Useful Items - You may want to see: Are You Subject to the Limit? Which Itemized Deductions Are Limited? Which Itemized Deductions Are Not Limited? How Do You Figure the Limit?Example. 2010 turbo tax Prev  Up  Next   Home   More Online Publications