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2012 940 Tax Form

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2012 940 Tax Form

2012 940 tax form 2. 2012 940 tax form   Electing the Section 179 Deduction Table of Contents Introduction Useful Items - You may want to see: What Property Qualifies?Eligible Property Property Acquired for Business Use Property Acquired by Purchase What Property Does Not Qualify?Land and Improvements Excepted Property How Much Can You Deduct?Dollar Limits Business Income Limit Partnerships and Partners S Corporations Other Corporations How Do You Elect the Deduction? When Must You Recapture the Deduction? Introduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. 2012 940 tax form This is the section 179 deduction. 2012 940 tax form You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions. 2012 940 tax form Estates and trusts cannot elect the section 179 deduction. 2012 940 tax form This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. 2012 940 tax form It also explains when and how to recapture the deduction. 2012 940 tax form Useful Items - You may want to see: Publication 537 Installment Sales 544 Sales and Other Dispositions of Assets 954 Tax Incentives for Distressed Communities Form (and Instructions) 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. 2012 940 tax form What Property Qualifies? To qualify for the section 179 deduction, your property must meet all the following requirements. 2012 940 tax form It must be eligible property. 2012 940 tax form It must be acquired for business use. 2012 940 tax form It must have been acquired by purchase. 2012 940 tax form It must not be property described later under What Property Does Not Qualify . 2012 940 tax form The following discussions provide information about these requirements and exceptions. 2012 940 tax form Eligible Property To qualify for the section 179 deduction, your property must be one of the following types of depreciable property. 2012 940 tax form Tangible personal property. 2012 940 tax form Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services, A research facility used in connection with any of the activities in (a) above, or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. 2012 940 tax form Single purpose agricultural (livestock) or horticultural structures. 2012 940 tax form See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures. 2012 940 tax form Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. 2012 940 tax form Off-the-shelf computer software. 2012 940 tax form Qualified real property (described below). 2012 940 tax form Tangible personal property. 2012 940 tax form   Tangible personal property is any tangible property that is not real property. 2012 940 tax form It includes the following property. 2012 940 tax form Machinery and equipment. 2012 940 tax form Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. 2012 940 tax form Gasoline storage tanks and pumps at retail service stations. 2012 940 tax form Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals. 2012 940 tax form   The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. 2012 940 tax form For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law. 2012 940 tax form Off-the-shelf computer software. 2012 940 tax form   Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. 2012 940 tax form This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. 2012 940 tax form It includes any program designed to cause a computer to perform a desired function. 2012 940 tax form However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software. 2012 940 tax form Qualified real property. 2012 940 tax form   You can elect to treat certain qualified real property you placed in service as section 179 property for tax years beginning in 2013. 2012 940 tax form If this election is made, the term “section 179 property” will include any qualified real property that is: Qualified leasehold improvement property, Qualified restaurant property, or Qualified retail improvement property. 2012 940 tax form The maximum section 179 expense deduction that can be elected for qualified section 179 real property is $250,000 of the maximum section 179 deduction of $500,000 in 2013. 2012 940 tax form For more information, see Special rules for qualified section 179 real property, later. 2012 940 tax form Also, see Election for certain qualified section 179 real property, later, for information on how to make this election. 2012 940 tax form Qualified leasehold improvement property. 2012 940 tax form   Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. 2012 940 tax form   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. 2012 940 tax form A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. 2012 940 tax form Examples include the following. 2012 940 tax form A complete liquidation of a subsidiary. 2012 940 tax form A transfer to a corporation controlled by the transferor. 2012 940 tax form An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. 2012 940 tax form Qualified restaurant property. 2012 940 tax form   Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service after December 31, 2008, and before January 1, 2014. 2012 940 tax form Also, more than 50% of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals. 2012 940 tax form Qualified retail improvement property. 2012 940 tax form   Generally, this is any improvement (placed in service after December 31, 2008, and before January 1, 2014) to an interior portion of nonresidential real property if it meets the following requirements. 2012 940 tax form The portion is open to the general public and is used in the retail trade or business of selling tangible property to the general public. 2012 940 tax form The improvement is placed in service more than 3 years after the date the building was first placed in service. 2012 940 tax form The expenses are not for the enlargement of the building, any elevator or escalator, any structural components benefiting a common area, or the internal structural framework of the building. 2012 940 tax form In addition, an improvement made by the lessor does not qualify as qualified retail improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. 2012 940 tax form A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. 2012 940 tax form Examples include the following. 2012 940 tax form A complete liquidation of a subsidiary. 2012 940 tax form A transfer to a corporation controlled by the transferor. 2012 940 tax form An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. 2012 940 tax form Property Acquired for Business Use To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. 2012 940 tax form Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify. 2012 940 tax form Partial business use. 2012 940 tax form   When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. 2012 940 tax form If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. 2012 940 tax form Use the resulting business cost to figure your section 179 deduction. 2012 940 tax form Example. 2012 940 tax form May Oak bought and placed in service an item of section 179 property costing $11,000. 2012 940 tax form She used the property 80% for her business and 20% for personal purposes. 2012 940 tax form The business part of the cost of the property is $8,800 (80% × $11,000). 2012 940 tax form Property Acquired by Purchase To qualify for the section 179 deduction, your property must have been acquired by purchase. 2012 940 tax form For example, property acquired by gift or inheritance does not qualify. 2012 940 tax form Property is not considered acquired by purchase in the following situations. 2012 940 tax form It is acquired by one component member of a controlled group from another component member of the same group. 2012 940 tax form Its basis is determined either— In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or Under the stepped-up basis rules for property acquired from a decedent. 2012 940 tax form It is acquired from a related person. 2012 940 tax form Related persons. 2012 940 tax form   Related persons are described under Related persons earlier. 2012 940 tax form However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only his or her spouse, ancestors, and lineal descendants and substitute "50%" for "10%" each place it appears. 2012 940 tax form Example. 2012 940 tax form Ken Larch is a tailor. 2012 940 tax form He bought two industrial sewing machines from his father. 2012 940 tax form He placed both machines in service in the same year he bought them. 2012 940 tax form They do not qualify as section 179 property because Ken and his father are related persons. 2012 940 tax form He cannot claim a section 179 deduction for the cost of these machines. 2012 940 tax form What Property Does Not Qualify? Certain property does not qualify for the section 179 deduction. 2012 940 tax form This includes the following. 2012 940 tax form Land and Improvements Land and land improvements do not qualify as section 179 property. 2012 940 tax form Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences. 2012 940 tax form Excepted Property Even if the requirements explained earlier under What Property Qualifies are met, you cannot elect the section 179 deduction for the following property. 2012 940 tax form Certain property you lease to others (if you are a noncorporate lessor). 2012 940 tax form Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. 2012 940 tax form Air conditioning or heating units. 2012 940 tax form Property used predominantly outside the United States, except property described in section 168(g)(4) of the Internal Revenue Code. 2012 940 tax form Property used by certain tax-exempt organizations, except property used in connection with the production of income subject to the tax on unrelated trade or business income. 2012 940 tax form Property used by governmental units or foreign persons or entities, except property used under a lease with a term of less than 6 months. 2012 940 tax form Leased property. 2012 940 tax form   Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. 2012 940 tax form This rule does not apply to corporations. 2012 940 tax form However, you can claim a section 179 deduction for the cost of the following property. 2012 940 tax form Property you manufacture or produce and lease to others. 2012 940 tax form Property you purchase and lease to others if both the following tests are met. 2012 940 tax form The term of the lease (including options to renew) is less than 50% of the property's class life. 2012 940 tax form For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property. 2012 940 tax form Property used for lodging. 2012 940 tax form   Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. 2012 940 tax form However, this does not apply to the following types of property. 2012 940 tax form Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities. 2012 940 tax form Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients. 2012 940 tax form Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures. 2012 940 tax form Any energy property. 2012 940 tax form Energy property. 2012 940 tax form   Energy property is property that meets the following requirements. 2012 940 tax form It is one of the following types of property. 2012 940 tax form Equipment that uses solar energy to generate electricity, to heat or cool a structure, to provide hot water for use in a structure, or to provide solar process heat, except for equipment used to generate energy to heat a swimming pool. 2012 940 tax form Equipment placed in service after December 31, 2005, and before January 1, 2017, that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. 2012 940 tax form Equipment used to produce, distribute, or use energy derived from a geothermal deposit. 2012 940 tax form For electricity generated by geothermal power, this includes equipment up to (but not including) the electrical transmission stage. 2012 940 tax form Qualified fuel cell property or qualified microturbine property placed in service after December 31, 2005, and before January 1, 2017. 2012 940 tax form The construction, reconstruction, or erection of the property must be completed by you. 2012 940 tax form For property you acquire, the original use of the property must begin with you. 2012 940 tax form The property must meet the performance and quality standards, if any, prescribed by Income Tax Regulations in effect at the time you get the property. 2012 940 tax form   For periods before February 14, 2008, energy property does not include any property that is public utility property as defined by section 46(f)(5) of the Internal Revenue Code (as in effect on November 4, 1990). 2012 940 tax form How Much Can You Deduct? Your section 179 deduction is generally the cost of the qualifying property. 2012 940 tax form However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. 2012 940 tax form These limits apply to each taxpayer, not to each business. 2012 940 tax form However, see Married Individuals under Dollar Limits , later. 2012 940 tax form For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. 2012 940 tax form See Do the Passenger Automobile Limits Apply in chapter 5 . 2012 940 tax form If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct. 2012 940 tax form Trade-in of other property. 2012 940 tax form   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 deduction includes only the cash you paid. 2012 940 tax form Example. 2012 940 tax form Silver Leaf, a retail bakery, traded two ovens having a total adjusted basis of $680 for a new oven costing $1,320. 2012 940 tax form They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. 2012 940 tax form The bakery also traded a used van with an adjusted basis of $4,500 for a new van costing $9,000. 2012 940 tax form They received a $4,800 trade-in allowance on the used van and paid $4,200 in cash for the new van. 2012 940 tax form Only the portion of the new property's basis paid by cash qualifies for the section 179 deduction. 2012 940 tax form Therefore, Silver Leaf's qualifying costs for the section 179 deduction are $4,720 ($520 + $4,200). 2012 940 tax form Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 generally cannot be more than $500,000. 2012 940 tax form If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. 2012 940 tax form You do not have to claim the full $500,000. 2012 940 tax form Qualified real property (described earlier) that you elected to treat as section 179 real property is limited to $250,000 of the maximum deduction of $500,000 for 2013. 2012 940 tax form The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year. 2012 940 tax form After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction. 2012 940 tax form Example. 2012 940 tax form In 2013, you bought and placed in service $500,000 in machinery and a $25,000 circular saw for your business. 2012 940 tax form You elect to deduct $475,000 for the machinery and the entire $25,000 for the saw, a total of $500,000. 2012 940 tax form This is the maximum amount you can deduct. 2012 940 tax form Your $25,000 deduction for the saw completely recovered its cost. 2012 940 tax form Your basis for depreciation is zero. 2012 940 tax form The basis for depreciation of your machinery is $25,000. 2012 940 tax form You figure this by subtracting your $475,000 section 179 deduction for the machinery from the $500,000 cost of the machinery. 2012 940 tax form Situations affecting dollar limit. 2012 940 tax form   Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. 2012 940 tax form The general dollar limit is affected by any of the following situations. 2012 940 tax form The cost of your section 179 property placed in service exceeds $2,000,000. 2012 940 tax form Your business is an enterprise zone business. 2012 940 tax form You placed in service a sport utility or certain other vehicles. 2012 940 tax form You are married filing a joint or separate return. 2012 940 tax form Costs exceeding $2,000,000 If the cost of your qualifying section 179 property placed in service in a year is more than $2,000,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,000,000. 2012 940 tax form 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. 2012 940 tax form Example. 2012 940 tax form In 2013, Jane Ash placed in service machinery costing $2,100,000. 2012 940 tax form This cost is $100,000 more than $2,000,000, so she must reduce her dollar limit to $400,000 ($500,000 − $100,000). 2012 940 tax form Enterprise Zone Businesses An increased section 179 deduction is available to enterprise zone businesses for qualified zone property placed in service during the tax year, in an empowerment zone. 2012 940 tax form For more information including the definitions of “enterprise zone business” and “qualified zone property,” see sections 1397A, 1397C, and 1397D of the Internal Revenue Code. 2012 940 tax form The dollar limit on the section 179 deduction is increased by the smaller of: $35,000, or The cost of section 179 property that is also qualified zone property placed in service before January 1, 2014 (including such property placed in service by your spouse, even if you are filing a separate return). 2012 940 tax form Note. 2012 940 tax form   You take into account only 50% (instead of 100%) of the cost of qualified zone property placed in service in a year when figuring the reduced dollar limit for costs exceeding $2,000,000 (explained earlier). 2012 940 tax form Sport Utility and Certain Other Vehicles You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. 2012 940 tax form This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. 2012 940 tax form However, the $25,000 limit does not apply to any vehicle: Designed to seat more than nine passengers behind the driver's seat, Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible 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. 2012 940 tax form Married Individuals If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. 2012 940 tax form If you 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. 2012 940 tax form If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2,000,000. 2012 940 tax form You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. 2012 940 tax form If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. 2012 940 tax form Example. 2012 940 tax form Jack Elm is married. 2012 940 tax form He and his wife file separate returns. 2012 940 tax form Jack bought and placed in service $2,000,000 of qualified farm machinery in 2013. 2012 940 tax form His wife has her own business, and she bought and placed in service $30,000 of qualified business equipment. 2012 940 tax form Their combined dollar limit is $470,000. 2012 940 tax form This is because they must figure the limit as if they were one taxpayer. 2012 940 tax form They reduce the $500,000 dollar limit by the $30,000 excess of their costs over $2,000,000. 2012 940 tax form They elect to allocate the $470,000 dollar limit as follows. 2012 940 tax form $446,500 ($470,000 x 95%) to Mr. 2012 940 tax form Elm's machinery. 2012 940 tax form $23,500 ($470,000 x 5%) to Mrs. 2012 940 tax form Elm's equipment. 2012 940 tax form If they did not make an election to allocate their costs in this way, they would have to allocate $235,000 ($470,000 × 50%) to each of them. 2012 940 tax form Joint return after filing separate returns. 2012 940 tax form   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. 2012 940 tax form The dollar limit (after reduction for any cost of section 179 property over $2,000,000). 2012 940 tax form The total cost of section 179 property you and your spouse elected to expense on your separate returns. 2012 940 tax form Example. 2012 940 tax form The facts are the same as in the previous example except that Jack elected to deduct $30,000 of the cost of section 179 property on his separate return and his wife elected to deduct $2,000. 2012 940 tax form After the due date of their returns, they file a joint return. 2012 940 tax form Their dollar limit for the section 179 deduction is $32,000. 2012 940 tax form This is the lesser of the following amounts. 2012 940 tax form $470,000—The dollar limit less the cost of section 179 property over $2,000,000. 2012 940 tax form $32,000—The total they elected to expense on their separate returns. 2012 940 tax form Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. 2012 940 tax form Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. 2012 940 tax form Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. 2012 940 tax form Special rules apply to a 2013 deduction of qualified section 179 real property that is disallowed because of the business income limit. 2012 940 tax form See Special rules for qualified section 179 property under Carryover of disallowed deduction, later. 2012 940 tax form Taxable income. 2012 940 tax form   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. 2012 940 tax form Net income or loss from a trade or business includes the following items. 2012 940 tax form Section 1231 gains (or losses). 2012 940 tax form Interest from working capital of your trade or business. 2012 940 tax form Wages, salaries, tips, or other pay earned as an employee. 2012 940 tax form For information about section 1231 gains and losses, see chapter 3 in Publication 544. 2012 940 tax form   In addition, figure taxable income without regard to any of the following. 2012 940 tax form The section 179 deduction. 2012 940 tax form The self-employment tax deduction. 2012 940 tax form Any net operating loss carryback or carryforward. 2012 940 tax form Any unreimbursed employee business expenses. 2012 940 tax form Two different taxable income limits. 2012 940 tax form   In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. 2012 940 tax form You may have to figure the limit for this other deduction taking into account the section 179 deduction. 2012 940 tax form If so, complete the following steps. 2012 940 tax form Step Action 1 Figure taxable income without the section 179 deduction or the other deduction. 2012 940 tax form 2 Figure a hypothetical section 179 deduction using the taxable income figured in Step 1. 2012 940 tax form 3 Subtract the hypothetical section 179 deduction figured in Step 2 from the taxable income figured in Step 1. 2012 940 tax form 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. 2012 940 tax form 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1. 2012 940 tax form 6 Figure your actual section 179 deduction using the taxable income figured in Step 5. 2012 940 tax form 7 Subtract your actual section 179 deduction figured in Step 6 from the taxable income figured in Step 1. 2012 940 tax form 8 Figure your actual other deduction using the taxable income figured in Step 7. 2012 940 tax form Example. 2012 940 tax form On February 1, 2013, the XYZ corporation purchased and placed in service qualifying section 179 property that cost $500,000. 2012 940 tax form It elects to expense the entire $500,000 cost under section 179. 2012 940 tax form In June, the corporation gave a charitable contribution of $10,000. 2012 940 tax form A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. 2012 940 tax form The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. 2012 940 tax form XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $520,000. 2012 940 tax form XYZ figures its section 179 deduction and its deduction for charitable contributions as follows. 2012 940 tax form Step 1– Taxable income figured without either deduction is $520,000. 2012 940 tax form Step 2– Using $520,000 as taxable income, XYZ's hypothetical section 179 deduction is $500,000. 2012 940 tax form Step 3– $20,000 ($520,000 − $500,000). 2012 940 tax form Step 4– Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. 2012 940 tax form Step 5– $518,000 ($520,000 − $2,000). 2012 940 tax form Step 6– Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. 2012 940 tax form Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 deduction. 2012 940 tax form Step 7– $20,000 ($520,000 − $500,000). 2012 940 tax form Step 8– Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. 2012 940 tax form Carryover of disallowed deduction. 2012 940 tax form   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. 2012 940 tax form This disallowed deduction amount is shown on line 13 of Form 4562. 2012 940 tax form You use the amount you carry over to determine your section 179 deduction in the next year. 2012 940 tax form Enter that amount on line 10 of your Form 4562 for the next year. 2012 940 tax form   If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. 2012 940 tax form Your selections must be shown in your books and records. 2012 940 tax form For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. 2012 940 tax form If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year. 2012 940 tax form   If costs from more than one year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first. 2012 940 tax form Special rules for qualified section 179 real property. 2012 940 tax form   You can carry over to 2013 a 2012 deduction attributable to qualified section 179 real property that you elected to expense but were unable to take because of the business income limitation. 2012 940 tax form Any such 2012 carryover amounts that are not deducted in 2013, plus any 2013 disallowed section 179 expense deductions attributable to qualified real property, are not carried over to 2014. 2012 940 tax form Instead these amounts are treated as property placed in service on the first day of 2013 for purposes of computing depreciation (including the special depreciation allowance, if applicable). 2012 940 tax form See section 179(f) of the Internal Revenue Code and Notice 2013-59 for more information. 2012 940 tax form If there is a sale or other disposition of your property (including a transfer at death) before you can use the full amount of any outstanding carryover of your disallowed section 179 deduction, neither you nor the new owner can deduct any of the unused amount. 2012 940 tax form Instead, you must add it back to the property's basis. 2012 940 tax form Partnerships and Partners The section 179 deduction limits apply both to the partnership and to each partner. 2012 940 tax form The partnership determines its section 179 deduction subject to the limits. 2012 940 tax form It then allocates the deduction among its partners. 2012 940 tax form Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. 2012 940 tax form ) to his or her nonpartnership section 179 costs and then applies the dollar limit to this total. 2012 940 tax form To determine any reduction in the dollar limit for costs over $2,000,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. 2012 940 tax form After the dollar limit (reduced for any nonpartnership section 179 costs over $2,000,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit. 2012 940 tax form Partnership's taxable income. 2012 940 tax form   For purposes of the business income limit, figure the partnership's taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. 2012 940 tax form See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). 2012 940 tax form However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code. 2012 940 tax form Partner's share of partnership's taxable income. 2012 940 tax form   For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership's trades or businesses includes his or her allocable share of taxable income derived from the partnership's active conduct of any trade or business. 2012 940 tax form Example. 2012 940 tax form In 2013, Beech Partnership placed in service section 179 property with a total cost of $2,025,000. 2012 940 tax form The partnership must reduce its dollar limit by $25,000 ($2,025,000 − $2,000,000). 2012 940 tax form Its maximum section 179 deduction is $475,000 ($500,000 − $25,000), and it elects to expense that amount. 2012 940 tax form The partnership's taxable income from the active conduct of all its trades or businesses for the year was $600,000, so it can deduct the full $475,000. 2012 940 tax form It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners. 2012 940 tax form In addition to being a partner in Beech Partnership, Dean is also a partner in the Cedar Partnership, which allocated to him a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. 2012 940 tax form He also conducts a business as a sole proprietor and, in 2013, placed in service in that business qualifying section 179 property costing $55,000. 2012 940 tax form He had a net loss of $5,000 from that business for the year. 2012 940 tax form Dean does not have to include section 179 partnership costs to figure any reduction in his dollar limit, so his total section 179 costs for the year are not more than $2,000,000 and his dollar limit is not reduced. 2012 940 tax form His maximum section 179 deduction is $500,000. 2012 940 tax form He elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of his sole proprietorship's section 179 costs, and notes that information in his books and records. 2012 940 tax form However, his deduction is limited to his business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership minus $5,000 loss from his sole proprietorship). 2012 940 tax form He carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2014. 2012 940 tax form He allocates the carryover amount to the cost of section 179 property placed in service in his sole proprietorship, and notes that allocation in his books and records. 2012 940 tax form Different tax years. 2012 940 tax form   For purposes of the business income limit, if the partner's tax year and that of the partnership differ, the partner's share of the partnership's taxable income for a tax year is generally the partner's distributive share for the partnership tax year that ends with or within the partner's tax year. 2012 940 tax form Example. 2012 940 tax form John and James Oak are equal partners in Oak Partnership. 2012 940 tax form Oak Partnership uses a tax year ending January 31. 2012 940 tax form John and James both use a tax year ending December 31. 2012 940 tax form For its tax year ending January 31, 2013, Oak Partnership's taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2012. 2012 940 tax form John and James each include $40,000 (each partner's entire share) of partnership taxable income in computing their business income limit for the 2013 tax year. 2012 940 tax form Adjustment of partner's basis in partnership. 2012 940 tax form   A partner must reduce the basis of his or her partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. 2012 940 tax form If the partner disposes of his or her partnership interest, the partner's basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership. 2012 940 tax form Adjustment of partnership's basis in section 179 property. 2012 940 tax form   The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. 2012 940 tax form This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits. 2012 940 tax form S Corporations Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. 2012 940 tax form The deduction limits apply to an S corporation and to each shareholder. 2012 940 tax form The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits. 2012 940 tax form Figuring taxable income for an S corporation. 2012 940 tax form   To figure taxable income (or loss) from the active conduct by an S corporation of any trade or business, you total the net income and losses from all trades or businesses actively conducted by the S corporation during the year. 2012 940 tax form   To figure the net income (or loss) from a trade or business actively conducted by an S corporation, you take into account the items from that trade or business that are passed through to the shareholders and used in determining each shareholder's tax liability. 2012 940 tax form However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. 2012 940 tax form For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. 2012 940 tax form In figuring the taxable income of an S corporation, disregard any limits on the amount of an S corporation item that must be taken into account when figuring a shareholder's taxable income. 2012 940 tax form Other Corporations A corporation's taxable income from its active conduct of any trade or business is its taxable income figured with the following changes. 2012 940 tax form It is figured before deducting the section 179 deduction, any net operating loss deduction, and special deductions (as reported on the corporation's income tax return). 2012 940 tax form It is adjusted for items of income or deduction included in the amount figured in 1, above, not derived from a trade or business actively conducted by the corporation during the tax year. 2012 940 tax form How Do You Elect the Deduction? You elect to take the section 179 deduction by completing Part I of Form 4562. 2012 940 tax form If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I. 2012 940 tax form For property placed in service in 2013, file Form 4562 with either of the following. 2012 940 tax form Your original 2013 tax return, whether or not you file it timely. 2012 940 tax form An amended return for 2013 filed within the time prescribed by law. 2012 940 tax form 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. 2012 940 tax form The amended return must also include any resulting adjustments to taxable income. 2012 940 tax form You must keep records that show the specific identification of each piece of qualifying section 179 property. 2012 940 tax form These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. 2012 940 tax form Election for certain qualified section 179 real property. 2012 940 tax form   You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2013. 2012 940 tax form If you elect to treat this property as section 179 property, you must elect the application of the special rules for qualified real property described in section 179(f) of the Internal Revenue Code. 2012 940 tax form   To make the election, attach a statement indicating you are “electing the application of section 179(f) of the Internal Revenue Code” with either of the following. 2012 940 tax form Your original 2013 tax return, whether or not you file it timely. 2012 940 tax form An amended return for 2013 filed within the time prescribed by law. 2012 940 tax form The amended return must also include any adjustments to taxable income. 2012 940 tax form   The statement should indicate your election to expense certain qualified real property under section 179(f) on your return. 2012 940 tax form It must specify one or more of the three types of qualified property (described under Qualified real property ) to which the election applies, the cost of each such type, and the portion of the cost of each such property to be taken into account. 2012 940 tax form Also, report this on line 6 of Form 4562. 2012 940 tax form    The maximum section 179 expense deduction that can be taken for qualified section 179 real property is limited to $250,000. 2012 940 tax form Revoking an election. 2012 940 tax form   An election (or any specification made in the election) to take a section 179 deduction for 2013 can be revoked without IRS approval by filing an amended return. 2012 940 tax form The amended return must be filed within the time prescribed by law. 2012 940 tax form The amended return must also include any resulting adjustments to taxable income. 2012 940 tax form Once made, the revocation is irrevocable. 2012 940 tax form When Must You Recapture the Deduction? You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. 2012 940 tax form In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV of Form 4797. 2012 940 tax form You also increase the basis of the property by the recapture amount. 2012 940 tax form Recovery periods for property are discussed under Which Recovery Period Applies in chapter 4 . 2012 940 tax form If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. 2012 940 tax form Instead, use the rules for recapturing depreciation explained in chapter 3 of Publication 544 under Section 1245 Property. 2012 940 tax form For qualified real property (described earlier), see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. 2012 940 tax form If the property is listed property (described in chapter 5 ), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. 2012 940 tax form Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement. 2012 940 tax form Figuring the recapture amount. 2012 940 tax form   To figure the amount to recapture, take the following steps. 2012 940 tax form Figure the depreciation that would have been allowable on the section 179 deduction you claimed. 2012 940 tax form Begin with the year you placed the property in service and include the year of recapture. 2012 940 tax form Subtract the depreciation figured in (1) from the section 179 deduction you claimed. 2012 940 tax form The result is the amount you must recapture. 2012 940 tax form Example. 2012 940 tax form In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. 2012 940 tax form The property is not listed property. 2012 940 tax form The property is 3-year property. 2012 940 tax form He elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. 2012 940 tax form He used the property only for business in 2011 and 2012. 2012 940 tax form In 2013, he used the property 40% for business and 60% for personal use. 2012 940 tax form He figures his recapture amount as follows. 2012 940 tax form Section 179 deduction claimed (2011) $5,000. 2012 940 tax form 00 Minus: Allowable depreciation using Table A-1 (instead of section 179 deduction):   2011 $1,666. 2012 940 tax form 50   2012 2,222. 2012 940 tax form 50   2013 ($740. 2012 940 tax form 50 × 40% (business)) 296. 2012 940 tax form 20 4,185. 2012 940 tax form 20 2013 — Recapture amount $ 814. 2012 940 tax form 80 Paul must include $814. 2012 940 tax form 80 in income for 2013. 2012 940 tax form If any qualified zone property placed in service during the year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return. 2012 940 tax form Prev  Up  Next   Home   More Online Publications
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The 2012 940 Tax Form

2012 940 tax form 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. 2012 940 tax form You can subtract either the standard deduction or itemized deductions. 2012 940 tax form Itemized deductions are deductions for certain expenses that are listed on Schedule A (Form 1040). 2012 940 tax form 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. 2012 940 tax form See chapter 20 for the factors to consider when deciding whether to subtract the standard deduction or itemized deductions. 2012 940 tax form Table of Contents 20. 2012 940 tax form   Standard DeductionWhat's New Introduction Standard Deduction Amount Standard Deduction for Dependents Who Should ItemizeWhen to itemize. 2012 940 tax form Married persons who filed separate returns. 2012 940 tax form 21. 2012 940 tax form   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. 2012 940 tax form 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. 2012 940 tax form   TaxesIntroductionIndian tribal government. 2012 940 tax form 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. 2012 940 tax form Real Estate TaxesReal estate taxes for prior years. 2012 940 tax form Examples. 2012 940 tax form Form 1099-S. 2012 940 tax form Real Estate-Related Items You Cannot Deduct Personal Property Taxes Taxes and Fees You Cannot Deduct Where To Deduct 23. 2012 940 tax form   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. 2012 940 tax form Mortgage proceeds used for business or investment. 2012 940 tax form 24. 2012 940 tax form   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. 2012 940 tax form Household items. 2012 940 tax form Deduction more than $500. 2012 940 tax form Form 1098-C. 2012 940 tax form Filing deadline approaching and still no Form 1098-C. 2012 940 tax form Exception 1—vehicle used or improved by organization. 2012 940 tax form Exception 2—vehicle given or sold to needy individual. 2012 940 tax form Deduction $500 or less. 2012 940 tax form Right to use property. 2012 940 tax form Tangible personal property. 2012 940 tax form Future interest. 2012 940 tax form Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value When To DeductChecks. 2012 940 tax form Text message. 2012 940 tax form Credit card. 2012 940 tax form Pay-by-phone account. 2012 940 tax form Stock certificate. 2012 940 tax form Promissory note. 2012 940 tax form Option. 2012 940 tax form Borrowed funds. 2012 940 tax form Limits on DeductionsCarryovers Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To Report 25. 2012 940 tax form   Nonbusiness Casualty and Theft LossesWhat's New Introduction Useful Items - You may want to see: CasualtyFamily pet. 2012 940 tax form Progressive deterioration. 2012 940 tax form Damage from corrosive drywall. 2012 940 tax form 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. 2012 940 tax form   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. 2012 940 tax form Parking fees. 2012 940 tax form Advertising display on car. 2012 940 tax form Car pools. 2012 940 tax form Hauling tools or instruments. 2012 940 tax form Union members' trips from a union hall. 2012 940 tax form Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. 2012 940 tax form Statutory employees. 2012 940 tax form Reimbursements Completing Forms 2106 and 2106-EZ Special Rules 27. 2012 940 tax form   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. 2012 940 tax form 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. 2012 940 tax form   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. 2012 940 tax form   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. 2012 940 tax form Prev  Up  Next   Home   More Online Publications