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Cheap tax software Publication 503 - Main Content Table of Contents Tests To Claim the CreditQualifying Person Test Earned Income Test Work-Related Expense Test Joint Return Test Provider Identification Test How To Figure the CreditFiguring Total Work-Related Expenses Earned Income Limit Dollar Limit Amount of Credit How To Claim the CreditTax credit not refundable. Cheap tax software Employment Taxes for Household Employers How To Get Tax HelpLow Income Taxpayer Clinics Tests To Claim the Credit To be able to claim the credit for child and dependent care expenses, you must file Form 1040, Form 1040A, or Form 1040NR, not Form 1040EZ or Form 1040NR-EZ, and meet all the following tests. Cheap tax software The care must be for one or more qualifying persons who are identified on Form 2441. Cheap tax software (See Qualifying Person Test. Cheap tax software ) You (and your spouse if filing jointly) must have earned income during the year. Cheap tax software (However, see Rule for student-spouse or spouse not able to care for self under Earned Income Test, later. Cheap tax software ) You must pay child and dependent care expenses so you (and your spouse if filing jointly) can work or look for work. Cheap tax software (See Work-Related Expense Test, later. Cheap tax software ) You must make payments for child and dependent care to someone you (and your spouse) cannot claim as a dependent. Cheap tax software If you make payments to your child, he or she cannot be your dependent and must be age 19 or older by the end of the year. Cheap tax software You cannot make payments to: Your spouse, or The parent of your qualifying person if your qualifying person is your child and under age 13. Cheap tax software See Payments to Relatives or Dependents under Work-Related Expense Test, later. Cheap tax software Your filing status may be single, head of household, or qualifying widow(er) with dependent child. Cheap tax software If you are married, you must file a joint return, unless an exception applies to you. Cheap tax software See Joint Return Test, later. Cheap tax software You must identify the care provider on your tax return. Cheap tax software (See Provider Identification Test, later. Cheap tax software ) If you exclude or deduct dependent care benefits provided by a dependent care benefit plan, the total amount you exclude or deduct must be less than the dollar limit for qualifying expenses (generally, $3,000 if one qualifying person was cared for or $6,000 if two or more qualifying persons were cared for). Cheap tax software (If two or more qualifying persons were cared for, the amount you exclude or deduct will always be less than the dollar limit, since the total amount you can exclude or deduct is limited to $5,000. Cheap tax software See Reduced Dollar Limit under How To Figure the Credit, later. Cheap tax software ) These tests are presented in Figure A and are also explained in detail in this publication. Cheap tax software Qualifying Person Test Your child and dependent care expenses must be for the care of one or more qualifying persons. Cheap tax software A qualifying person is: Your qualifying child who is your dependent and who was under age 13 when the care was provided (but see Child of divorced or separated parents or parents living apart , later), Your spouse who was not physically or mentally able to care for himself or herself and lived with you for more than half the year, or A person who was not physically or mentally able to care for himself or herself, lived with you for more than half the year, and either: Was your dependent, or Would have been your dependent except that: He or she received gross income of $3,900 or more, He or she filed a joint return, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Cheap tax software Dependent defined. Cheap tax software   A dependent is a person, other than you or your spouse, for whom you can claim an exemption. Cheap tax software To be your dependent, a person must be your qualifying child (or your qualifying relative). Cheap tax software Qualifying child. Cheap tax software   To be your qualifying child, a child must live with you for more than half the year and meet other requirements. Cheap tax software More information. Cheap tax software   For more information about who is a dependent or a qualifying child, see Publication 501. Cheap tax software Physically or mentally not able to care for oneself. Cheap tax software   Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Cheap tax software Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves. Cheap tax software Person qualifying for part of year. Cheap tax software   You determine a person's qualifying status each day. Cheap tax software For example, if the person for whom you pay child and dependent care expenses no longer qualifies on September 16, count only those expenses through September 15. Cheap tax software Also see Yearly limit under Dollar Limit, later. Cheap tax software Birth or death of otherwise qualifying person. Cheap tax software   In determining whether a person is a qualifying person, a person who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the person's home more than half the time he or she was alive in 2013. Cheap tax software Taxpayer identification number. Cheap tax software   You must include on your return the name and taxpayer identification number (generally the social security number) of the qualifying person(s). Cheap tax software If the correct information is not shown, the credit may be reduced or disallowed. Cheap tax software Individual taxpayer identification number (ITIN) for aliens. Cheap tax software   If your qualifying person is a nonresident or resident alien who does not have and cannot get a social security number (SSN), use that person's ITIN. Cheap tax software The ITIN is entered wherever an SSN is requested on a tax return. Cheap tax software If the alien does not have an ITIN, he or she must apply for one. Cheap tax software See Form W-7, Application for IRS Individual Taxpayer Identification Number, for details. Cheap tax software   An ITIN is for tax use only. Cheap tax software It does not entitle the holder to social security benefits or change the holder's employment or immigration status under U. Cheap tax software S. Cheap tax software law. Cheap tax software Adoption taxpayer identification number (ATIN). Cheap tax software   If your qualifying person is a child who was placed in your home for adoption and for whom you do not have an SSN, you must get an ATIN for the child. Cheap tax software File Form W-7A, Application for Taxpayer Identification Number for Pending U. Cheap tax software S. Cheap tax software Adoptions. Cheap tax software Child of divorced or separated parents or parents living apart. Cheap tax software   Even if you cannot claim your child as a dependent, he or she is treated as your qualifying person if: The child was under age 13 or was not physically or mentally able to care for himself or herself, The child received over half of his or her support during the calendar year from one or both parents who are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year, The child was in the custody of one or both parents for more than half the year, and You were the child's custodial parent. Cheap tax software   The custodial parent is the parent with whom the child lived for the greater number of nights in 2013. Cheap tax software If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. Cheap tax software For details and an exception for a parent who works at night, see Publication 501. Cheap tax software   The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents. Cheap tax software Please click here for the text description of the image. Cheap tax software Figure a. Cheap tax software Can you claim the credit Earned Income Test To claim the credit, you (and your spouse if filing jointly) must have earned income during the year. Cheap tax software Earned income. Cheap tax software   Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. Cheap tax software A net loss from self-employment reduces earned income. Cheap tax software Earned income also includes strike benefits and any disability pay you report as wages. Cheap tax software   Generally, only taxable compensation is included. Cheap tax software However, you can elect to include nontaxable combat pay in earned income. Cheap tax software If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. Cheap tax software (In other words, if one of you makes the election, the other one can also make it but does not have to. Cheap tax software ) Including this income will give you a larger credit only if your (or your spouse's) other earned income is less than the amount entered on line 3 of Form 2441. Cheap tax software You should figure your credit both ways and make the election if it gives you a greater tax benefit. Cheap tax software    You can choose to include your nontaxable combat pay in earned income when figuring your credit for child and dependent care expenses, even if you choose not to include it in earned income for the earned income credit or the exclusion or deduction for dependent care benefits. Cheap tax software Members of certain religious faiths opposed to social security. Cheap tax software   This section is for persons who are members of certain religious faiths that are opposed to participation in Social Security Act programs and have an IRS-approved form that exempts certain income from social security and Medicare taxes. Cheap tax software These forms are: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, and Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits, for use by members of recognized religious groups. Cheap tax software   Each form is discussed here in terms of what is or is not earned income for purposes of the child and dependent care credit. Cheap tax software For information on the use of these forms, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Cheap tax software Form 4361. Cheap tax software   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee are earned income. Cheap tax software This includes wages, salaries, tips, and other taxable employee compensation. Cheap tax software   However, amounts you received for ministerial duties, but not as an employee, do not count as earned income. Cheap tax software Examples include fees for performing marriages and honoraria for delivering speeches. Cheap tax software   Any amount you received for work that is not related to your ministerial duties is earned income. Cheap tax software Form 4029. Cheap tax software   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation are earned income. Cheap tax software   However, amounts you received as a self-employed individual do not count as earned income. Cheap tax software What is not earned income?   Earned income does not include: Pensions and annuities, Social security and railroad retirement benefits, Workers' compensation, Interest and dividends, Unemployment compensation, Scholarships or fellowship grants, except for those reported on Form W-2 and paid to you for teaching or other services, Nontaxable workfare payments, Child support payments received, Income of a nonresident alien that is not effectively connected with a U. Cheap tax software S. Cheap tax software trade or business, or Any amount received for work while an inmate in a penal institution. Cheap tax software Rule for student-spouse or spouse not able to care for self. Cheap tax software   Your spouse is treated as having earned income for any month that he or she is: A full-time student, or Physically or mentally not able to care for himself or herself. Cheap tax software (Your spouse also must live with you for more than half the year. Cheap tax software )   If you are filing a joint return, this rule also applies to you. Cheap tax software You can be treated as having earned income for any month you are a full-time student or not able to care for yourself. Cheap tax software   Figure the earned income of the nonworking spouse, described under (1) or (2) above, as shown under Earned Income Limit under How To Figure the Credit, later. Cheap tax software   This rule applies to only one spouse for any one month. Cheap tax software If, in the same month, both you and your spouse do not work and are either full-time students or not physically or mentally able to care for yourselves, only one of you can be treated as having earned income in that month. Cheap tax software Full-time student. Cheap tax software    You are a full-time student if you are enrolled at a school for the number of hours or classes that the school considers full time. Cheap tax software You must have been a full-time student for some part of each of 5 calendar months during the year. Cheap tax software (The months need not be consecutive. Cheap tax software ) School. Cheap tax software   The term “school” includes high schools, colleges, universities, and technical, trade, and mechanical schools. Cheap tax software A school does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Cheap tax software Work-Related Expense Test Child and dependent care expenses must be work-related to qualify for the credit. Cheap tax software Expenses are considered work-related only if both of the following are true. Cheap tax software They allow you (and your spouse if filing jointly) to work or look for work. Cheap tax software They are for a qualifying person's care. Cheap tax software Working or Looking for Work To be work-related, your expenses must allow you to work or look for work. Cheap tax software If you are married, generally both you and your spouse must work or look for work. Cheap tax software One spouse is treated as working during any month he or she is a full-time student or is not physically or mentally able to care for himself or herself. Cheap tax software Your work can be for others or in your own business or partnership. Cheap tax software It can be either full time or part time. Cheap tax software Work also includes actively looking for work. Cheap tax software However, if you do not find a job and have no earned income for the year, you cannot take this credit. Cheap tax software See Earned Income Test, earlier. Cheap tax software An expense is not considered work-related merely because you had it while you were working. Cheap tax software The purpose of the expense must be to allow you to work. Cheap tax software Whether your expenses allow you to work or look for work depends on the facts. Cheap tax software Example 1. Cheap tax software The cost of a babysitter while you and your spouse go out to eat is not normally a work-related expense. Cheap tax software Example 2. Cheap tax software You work during the day. Cheap tax software Your spouse works at night and sleeps during the day. Cheap tax software You pay for care of your 5-year-old child during the hours when you are working and your spouse is sleeping. Cheap tax software Your expenses are considered work-related. Cheap tax software Volunteer work. Cheap tax software   For this purpose, you are not considered to be working if you do unpaid volunteer work or volunteer work for a nominal salary. Cheap tax software Work for part of year. Cheap tax software   If you work or actively look for work during only part of the period covered by the expenses, then you must figure your expenses for each day. Cheap tax software For example, if you work all year and pay care expenses of $250 a month ($3,000 for the year), all the expenses are work related. Cheap tax software However, if you work or look for work for only 2 months and 15 days during the year and pay expenses of $250 a month, your work-related expenses are limited to $625 (2½ months × $250). Cheap tax software Temporary absence from work. Cheap tax software   You do not have to figure your expenses for each day during a short, temporary absence from work, such as for vacation or a minor illness, if you have to pay for care anyway. Cheap tax software Instead, you can figure your credit including the expenses you paid for the period of absence. Cheap tax software   An absence of 2 weeks or less is a short, temporary absence. Cheap tax software An absence of more than 2 weeks may be considered a short, temporary absence, depending on the circumstances. Cheap tax software Example. Cheap tax software You pay a nanny to care for your 2-year-old son and 4-year-old daughter so you can work. Cheap tax software You become ill and miss 4 months of work but receive sick pay. Cheap tax software You continue to pay the nanny to care for the children while you are ill. Cheap tax software Your absence is not a short, temporary absence, and your expenses are not considered work-related. Cheap tax software Part-time work. Cheap tax software   If you work part-time, you generally must figure your expenses for each day. Cheap tax software However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you did not work. Cheap tax software Any day when you work at least 1 hour is a day of work. Cheap tax software Example 1. Cheap tax software You work 3 days a week. Cheap tax software While you work, your 6-year-old child attends a dependent care center, which complies with all state and local regulations. Cheap tax software You can pay the center $150 for any 3 days a week or $250 for 5 days a week. Cheap tax software Your child attends the center 5 days a week. Cheap tax software Your work-related expenses are limited to $150 a week. Cheap tax software Example 2. Cheap tax software The facts are the same as in Example 1 except the center does not offer a 3-day option. Cheap tax software The entire $250 weekly fee may be a work-related expense. Cheap tax software Care of a Qualifying Person To be work-related, your expenses must be to provide care for a qualifying person. Cheap tax software You do not have to choose the least expensive way of providing the care. Cheap tax software The cost of a paid care provider may be an expense for the care of a qualifying person even if another care provider is available at no cost. Cheap tax software Expenses are for the care of a qualifying person only if their main purpose is the person's well-being and protection. Cheap tax software Expenses for household services qualify if part of the services is for the care of qualifying persons. Cheap tax software See Household Services, later. Cheap tax software Expenses not for care. Cheap tax software   Expenses for care do not include amounts you pay for food, lodging, clothing, education, and entertainment. Cheap tax software However, you can include small amounts paid for these items if they are incidental to and cannot be separated from the cost of caring for the qualifying person. Cheap tax software Otherwise, see the discussion of Expenses partly work-related, later. Cheap tax software   Child support payments are not for care and do not qualify for the credit. Cheap tax software Education. Cheap tax software   Expenses for a child in nursery school, preschool, or similar programs for children below the level of kindergarten are expenses for care. Cheap tax software   Expenses to attend kindergarten or a higher grade are not expenses for care. Cheap tax software Do not use these expenses to figure your credit. Cheap tax software   However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be expenses for care. Cheap tax software   Summer school and tutoring programs are not for care. Cheap tax software Example 1. Cheap tax software You take your 3-year-old child to a nursery school that provides lunch and a few educational activities as part of its preschool childcare service. Cheap tax software The lunch and educational activities are incidental to the childcare, and their cost cannot be separated from the cost of care. Cheap tax software You can count the total cost when you figure the credit. Cheap tax software Example 2. Cheap tax software You place your 10-year-old child in a boarding school so you can work full time. Cheap tax software Only the part of the boarding school expense that is for the care of your child is a work-related expense. Cheap tax software You can count that part of the expense in figuring your credit if it can be separated from the cost of education. Cheap tax software You cannot count any part of the amount you pay the school for your child's education. Cheap tax software Care outside your home. Cheap tax software   You can count the cost of care provided outside your home if the care is for your dependent under age 13 or any other qualifying person who regularly spends at least 8 hours each day in your home. Cheap tax software Dependent care center. Cheap tax software   You can count care provided outside your home by a dependent care center only if the center complies with all state and local regulations that apply to these centers. Cheap tax software   A dependent care center is a place that provides care for more than six persons (other than persons who live there) and receives a fee, payment, or grant for providing services for any of those persons, even if the center is not run for profit. Cheap tax software Camp. Cheap tax software   The cost of sending your child to an overnight camp is not considered a work-related expense. Cheap tax software    The cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers or soccer. Cheap tax software Transportation. Cheap tax software   If a care provider takes a qualifying person to or from a place where care is provided, that transportation is for the care of the qualifying person. Cheap tax software This includes transportation by bus, subway, taxi, or private car. Cheap tax software However, transportation not provided by a care provider is not for the care of a qualifying person. Cheap tax software Also, if you pay the transportation cost for the care provider to come to your home, that expense is not for care of a qualifying person. Cheap tax software Fees and deposits. Cheap tax software   Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or preschool, application fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they are not directly for care. Cheap tax software However, a forfeited deposit is not for the care of a qualifying person if care is not provided. Cheap tax software Example 1. Cheap tax software You paid a fee to an agency to get the services of the nanny who cares for your 2-year-old daughter while you work. Cheap tax software The fee you paid is a work-related expense. Cheap tax software Example 2. Cheap tax software You placed a deposit with a preschool to reserve a place for your 3-year-old child. Cheap tax software You later sent your child to a different preschool and forfeited the deposit. Cheap tax software The forfeited deposit is not for care and so is not a work-related expense. Cheap tax software Household Services Expenses you pay for household services meet the work-related expense test if they are at least partly for the well-being and protection of a qualifying person. Cheap tax software Definition. Cheap tax software   Household services are ordinary and usual services done in and around your home that are necessary to run your home. Cheap tax software They include the services of a housekeeper, maid, or cook. Cheap tax software However, they do not include the services of a chauffeur, bartender, or gardener. Cheap tax software Housekeeper. Cheap tax software   In this publication, the term housekeeper refers to any household employee whose services include the care of a qualifying person. Cheap tax software Expenses partly work-related. Cheap tax software   If part of an expense is work-related (for either household services or the care of a qualifying person) and part is for other purposes, you have to divide the expense. Cheap tax software To figure your credit, count only the part that is work-related. Cheap tax software However, you do not have to divide the expense if only a small part is for other purposes. Cheap tax software Example. Cheap tax software You pay a housekeeper to care for your 9-year-old and 15-year-old children so you can work. Cheap tax software The housekeeper spends most of the time doing normal household work and spends 30 minutes a day driving you to and from work. Cheap tax software You do not have to divide the expenses. Cheap tax software You can treat the entire expense of the housekeeper as work-related because the time spent driving is minimal. Cheap tax software Nor do you have to divide the expenses between the two children, even though the expenses are partly for the 15-year-old child who is not a qualifying person, because the expense is also partly for the care of your 9-year-old child, who is a qualifying person. Cheap tax software However, the dollar limit (discussed later) is based on one qualifying person, not two. Cheap tax software Meals and lodging provided for housekeeper. Cheap tax software   If you have expenses for meals that your housekeeper eats in your home because of his or her employment, count these as work-related expenses. Cheap tax software If you have extra expenses for providing lodging in your home to the housekeeper, count these as work-related expenses also. Cheap tax software Example. Cheap tax software To provide lodging to the housekeeper, you move to an apartment with an extra bedroom. Cheap tax software You can count the extra rent and utility expenses for the housekeeper's bedroom as work-related. Cheap tax software However, if your housekeeper moves into an existing bedroom in your home, you can count only the extra utility expenses as work-related. Cheap tax software Taxes paid on wages. Cheap tax software   The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. Cheap tax software For more information on a household employer's tax responsibilities, see Employment Taxes for Household Employers, later. Cheap tax software Payments to Relatives or Dependents You can count work-related payments you make to relatives who are not your dependents, even if they live in your home. Cheap tax software However, do not count any amounts you pay to: A dependent for whom you (or your spouse if filing jointly) can claim an exemption, Your child who was under age 19 at the end of the year, even if he or she is not your dependent, A person who was your spouse any time during the year, or The parent of your qualifying person if your qualifying person is your child and under age 13. Cheap tax software Joint Return Test Generally, married couples must file a joint return to take the credit. Cheap tax software However, if you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. Cheap tax software Legally separated. Cheap tax software   You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance. Cheap tax software You may be eligible to take the credit on your return using head of household filing status. Cheap tax software Married and living apart. Cheap tax software   You are not considered married and are eligible to take the credit if all the following apply. Cheap tax software You file a return apart from your spouse. Cheap tax software Your home is the home of a qualifying person for more than half the year. Cheap tax software You pay more than half the cost of keeping up your home for the year. Cheap tax software Your spouse does not live in your home for the last 6 months of the year. Cheap tax software Costs of keeping up a home. Cheap tax software   The costs of keeping up a home normally include property taxes, mortgage interest, rent, utility charges, home repairs, insurance on the home, and food eaten at home. Cheap tax software   The costs of keeping up a home do not include payments for clothing, education, medical treatment, vacations, life insurance, transportation, or mortgage principal. Cheap tax software   They also do not include the purchase, permanent improvement, or replacement of property. Cheap tax software For example, you cannot include the cost of replacing a water heater. Cheap tax software However, you can include the cost of repairing a water heater. Cheap tax software Death of spouse. Cheap tax software   If your spouse died during the year and you do not remarry before the end of the year, you generally must file a joint return to take the credit. Cheap tax software If you do remarry before the end of the year, the credit can be claimed on your deceased spouse's own return. Cheap tax software Provider Identification Test You must identify all persons or organizations that provide care for your child or dependent. Cheap tax software Use Form 2441, Part I, to show the information. Cheap tax software If you do not have any care providers and you are filing Form 2441 only to report taxable income in Part III, enter “none” in line 1, column (a). Cheap tax software Information needed. Cheap tax software   To identify the care provider, you must give the provider's: Name, Address, and Taxpayer identification number. Cheap tax software    If the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. Cheap tax software If the care provider is an organization, then it is the employer identification number (EIN). Cheap tax software   You do not have to show the taxpayer identification number if the care provider is a tax-exempt organization (such as a church or school). Cheap tax software In this case, enter “Tax-Exempt” in the space where Form 2441 asks for the number. Cheap tax software   If you cannot provide all of the information or the information is incorrect, you must be able to show that you used due diligence (discussed later) in trying to furnish the necessary information. Cheap tax software Getting the information. Cheap tax software    You can use Form W-10, Dependent Care Provider's Identification and Certification, to request the required information from the care provider. Cheap tax software If you do not use Form W-10, you can get the information from one of the other sources listed in the instructions for Form W-10, including: A copy of the provider's social security card, A copy of the provider's completed Form W-4, Employee's Withholding Allowance Certificate, if he or she is your household employee, A copy of the statement furnished by your employer if the provider is your employer's dependent care plan, or A letter or invoice from the provider if it shows the necessary information. Cheap tax software    You should keep this information with your tax records. Cheap tax software Do not send Form W-10 (or other document containing this information) to the Internal Revenue Service. Cheap tax software Due diligence. Cheap tax software   If the care provider information you give is incorrect or incomplete, your credit may not be allowed. Cheap tax software However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit. Cheap tax software   You can show due diligence by getting and keeping the provider's completed Form W-10 or one of the other sources of information just listed. Cheap tax software Care providers can be penalized if they do not provide this information to you or if they provide incorrect information. Cheap tax software Provider refusal. Cheap tax software    If the provider refuses to give you the identifying information, you should report on Form 2441 whatever information you have (such as the name and address). Cheap tax software Enter “See Attached Statement” in the columns calling for the information you do not have. Cheap tax software Then attach a statement explaining that you requested the information from the care provider, but the provider did not give you the information. Cheap tax software Be sure to write your name and social security number on this statement. Cheap tax software The statement will show that you used due diligence in trying to furnish the necessary information. Cheap tax software U. Cheap tax software S. Cheap tax software citizens and resident aliens living abroad. Cheap tax software   If you are living abroad, your care provider may not have, and may not be required to get, a U. Cheap tax software S. Cheap tax software taxpayer identification number (for example, an SSN or an EIN). Cheap tax software If so, enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider's taxpayer identification number. Cheap tax software How To Figure the Credit Your credit is a percentage of your work-related expenses. Cheap tax software Your expenses are subject to the earned income limit and the dollar limit. Cheap tax software The percentage is based on your adjusted gross income. Cheap tax software Figuring Total Work-Related Expenses To figure the credit for 2013 work-related expenses, count only those you paid by December 31, 2013. Cheap tax software Expenses prepaid in an earlier year. Cheap tax software   If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. Cheap tax software Claim the expenses for the later year as if they were actually paid in that later year. Cheap tax software Expenses not paid until the following year. Cheap tax software   Do not count 2012 expenses that you paid in 2013 as work-related expenses for 2013. Cheap tax software You may be able to claim an additional credit for them on your 2013 return, but you must figure it separately. Cheap tax software See Payments for prior year's expenses under Amount of Credit, later. Cheap tax software If you had expenses in 2013 that you did not pay until 2014, you cannot count them when figuring your 2013 credit. Cheap tax software You may be able to claim a credit for them on your 2014 return. Cheap tax software Expenses reimbursed. Cheap tax software   If a state social services agency pays you a nontaxable amount to reimburse you for some of your child and dependent care expenses, you cannot count the expenses that are reimbursed as work-related expenses. Cheap tax software Example. Cheap tax software You paid work-related expenses of $3,000. Cheap tax software You are reimbursed $2,000 by a state social services agency. Cheap tax software You can use only $1,000 to figure your credit. Cheap tax software Medical expenses. Cheap tax software   Some expenses for the care of qualifying persons who are not able to care for themselves may qualify as work-related expenses and also as medical expenses. Cheap tax software You can use them either way, but you cannot use the same expenses to claim both a credit and a medical expense deduction. Cheap tax software   If you use these expenses to figure the credit and they are more than the earned income limit or the dollar limit, discussed later, you can add the excess to your medical expenses. Cheap tax software However, if you use your total expenses to figure your medical expense deduction, you cannot use any part of them to figure your credit. Cheap tax software For information on medical expenses, see Publication 502, Medical and Dental Expenses. Cheap tax software    Amounts excluded from your income under your employer's dependent care benefits plan cannot be used to claim a medical expense deduction. Cheap tax software Dependent Care Benefits If you receive dependent care benefits, your dollar limit for purposes of the credit may be reduced. Cheap tax software See Reduced Dollar Limit, later. Cheap tax software But, even if you cannot take the credit, you may be able to take an exclusion or deduction for the dependent care benefits. Cheap tax software Dependent care benefits. Cheap tax software    Dependent care benefits include: Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work, The fair market value of care in a daycare facility provided or sponsored by your employer, and Pre-tax contributions you made under a dependent care flexible spending arrangement. Cheap tax software Your salary may have been reduced to pay for these benefits. Cheap tax software If you received benefits as an employee, they should be shown in box 10 of your Form W-2, Wage and Tax Statement. Cheap tax software See Statement for employee, later. Cheap tax software Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code O. Cheap tax software   Enter the amount of these benefits on Form 2441, Part III, line 12. Cheap tax software Exclusion or deduction. Cheap tax software   If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Cheap tax software Your employer can tell you whether your benefit plan qualifies. Cheap tax software To claim the exclusion, you must complete Part III of Form 2441. Cheap tax software You cannot use Form 1040EZ. Cheap tax software   If you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both employer and employee. Cheap tax software Therefore, you would not get an exclusion from wages. Cheap tax software Instead, you would get a deduction on Form 1040, Schedule C, line 14; Schedule E, line 19 or 28; or Schedule F, line 15. Cheap tax software To claim the deduction, you must use Form 2441. Cheap tax software   The amount you can exclude or deduct is limited to the smallest of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Cheap tax software   The definition of earned income for the exclusion or deduction is the same as the definition used when figuring the credit except that earned income for the exclusion or deduction does not include any dependent care benefits you receive. Cheap tax software    You can choose to include your nontaxable combat pay in earned income when figuring your exclusion or deduction, even if you choose not to include it in earned income for the earned income credit or the credit for child and dependent care expenses. Cheap tax software Statement for employee. Cheap tax software   Your employer must give you a Form W-2 (or similar statement), showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. Cheap tax software Your employer will also include any dependent care benefits over $5,000 in your wages shown on your Form W-2 in box 1. Cheap tax software Effect of exclusion on credit. Cheap tax software   If you exclude dependent care benefits from your income, the amount of the excluded benefits: Is not included in your work-related expenses, and Reduces the dollar limit, discussed later. Cheap tax software Earned Income Limit The amount of work-related expenses you use to figure your credit cannot be more than: Your earned income for the year, if you are single at the end of the year, or The smaller of your or your spouse's earned income for the year if you are married at the end of the year. Cheap tax software Earned income for the purpose of figuring the credit is defined under Earned Income Test, earlier. Cheap tax software For purposes of item (2), use your spouse's earned income for the entire year, even if you were married for only part of the year. Cheap tax software Example. Cheap tax software You remarried on December 3. Cheap tax software Your earned income for the year was $18,000. Cheap tax software Your new spouse's earned income for the year was $2,000. Cheap tax software You paid work-related expenses of $3,000 for the care of your 5-year-old child and qualified to claim the credit. Cheap tax software The amount of expenses you use to figure your credit cannot be more than $2,000 (the smaller of your earned income or that of your spouse). Cheap tax software Separated spouse. Cheap tax software   If you are legally separated or married and living apart from your spouse (as described under Joint Return Test, earlier), you are not considered married for purposes of the earned income limit. Cheap tax software Use only your income in figuring the earned income limit. Cheap tax software Surviving spouse. Cheap tax software   If your spouse died during the year and you file a joint return as a surviving spouse, you may, but are not required to, take into account the earned income of your spouse who died during the year. Cheap tax software Community property laws. Cheap tax software   Disregard community property laws when you figure earned income for this credit. Cheap tax software Self-employment earnings. Cheap tax software   If you are self-employed, include your net earnings in earned income. Cheap tax software For purposes of the child and dependent care credit, net earnings from self-employment generally means the amount from Schedule SE (either Section A or Section B), line 3, minus any deduction for self-employment tax on Form 1040 or Form 1040NR, line 27. Cheap tax software Include your self-employment earnings in earned income, even if they are less than $400 and you did not file Schedule SE. Cheap tax software Clergy or church employee. Cheap tax software   If you are a member of the clergy or a church employee, see the Instructions for Form 2441 for details. Cheap tax software Statutory employee. Cheap tax software   If you filed Schedule C (Form 1040) or C-EZ (Form 1040) to report income as a statutory employee, also include as earned income the amount from line 1 of that Schedule C (Form 1040) or C-EZ (Form 1040). Cheap tax software Net loss. Cheap tax software   You must reduce your earned income by any net loss from self-employment. Cheap tax software Optional method if earnings are low or a net loss. Cheap tax software   If your net earnings from self-employment are low or you have a net loss, you may be able to figure your net earnings by using an optional method instead of the regular method. Cheap tax software Get Publication 334, Tax Guide for Small Business, for details. Cheap tax software If you use an optional method to figure net earnings for self-employment tax purposes, include those net earnings in your earned income for this credit. Cheap tax software In this case, subtract any deduction you claimed on Form 1040 or Form 1040NR, line 27, from the total of the amounts on Schedule SE, Section B, lines 3 and 4b, to figure your net earnings. Cheap tax software You or your spouse is a student or not able to care for self. Cheap tax software   Your spouse who is either a full-time student or not able to care for himself or herself is treated as having earned income. Cheap tax software His or her earned income for each month is considered to be at least $250 if there is one qualifying person in your home, or at least $500 if there are two or more. Cheap tax software Spouse works. Cheap tax software   If your spouse works during that month, use the higher of $250 (or $500) or his or her actual earned income for that month. Cheap tax software Spouse qualifies for part of month. Cheap tax software   If your spouse is a full-time student or not able to care for himself or herself for only part of a month, the full $250 (or $500) still applies for that month. Cheap tax software You are a student or not able to care for self. Cheap tax software   These rules also apply if you are a student or not able to care for yourself and are filing a joint return. Cheap tax software For each month or part of a month you are a student or not able to care for yourself, your earned income is considered to be at least $250 (or $500). Cheap tax software If you also work during that month, use the higher of $250 (or $500) or your actual earned income for that month. Cheap tax software Both spouses qualify. Cheap tax software   If, in the same month, both you and your spouse are either full-time students or not able to care for yourselves, only one spouse can be considered to have this earned income of $250 (or $500) for that month. Cheap tax software Example. Cheap tax software Jim works and keeps up a home for himself and his wife Sharon. Cheap tax software Because of an accident, Sharon is not able to care for herself for 11 months during the tax year. Cheap tax software During the 11 months, Jim pays $3,300 of work-related expenses for Sharon's care. Cheap tax software These expenses also qualify as medical expenses. Cheap tax software Their adjusted gross income is $29,000 and the entire amount is Jim's earned income. Cheap tax software Jim and Sharon's earned income limit is the smallest of the following amounts. Cheap tax software   Jim and Sharon's Earned Income Limit   1) Work-related expenses Jim paid $   3,300   2) Jim's earned income $   29,000   3) Income considered earned by Sharon (11 × $250) $    2,750   Jim and Sharon can use $2,750 to figure the credit and treat the balance of $550 ($3,300 − $2,750) as a medical expense. Cheap tax software However, if they use the $3,300 first as a medical expense, they cannot use any part of that amount to figure the credit. Cheap tax software Dollar Limit There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. Cheap tax software This limit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons. Cheap tax software If you paid work-related expenses for the care of two or more qualifying persons, the applicable dollar limit is $6,000. Cheap tax software This limit does not need to be divided equally among them. Cheap tax software For example, if your work-related expenses for the care of one qualifying person are $3,200 and your work-related expenses for another qualifying person are $2,800, you can use the total, $6,000, when figuring the credit. Cheap tax software Yearly limit. Cheap tax software   The dollar limit is a yearly limit. Cheap tax software The amount of the dollar limit remains the same no matter how long, during the year, you have a qualifying person in your household. Cheap tax software Use the $3,000 limit if you paid work-related expenses for the care of one qualifying person at any time during the year. Cheap tax software Use $6,000 if you paid work-related expenses for the care of more than one qualifying person at any time during the year. Cheap tax software Example 1. Cheap tax software You pay $500 a month for after-school care for your son. Cheap tax software He turned 13 on May 1 and is no longer a qualifying person. Cheap tax software You can use the $2,000 of expenses for his care January through April to figure your credit because it is not more than the $3,000 yearly limit. Cheap tax software Example 2. Cheap tax software In July of this year, to permit your spouse to begin a new job, you enrolled your 3-year-old daughter in a nursery school that provides preschool childcare. Cheap tax software You paid $300 per month for the childcare. Cheap tax software You can use the full $1,800 you paid ($300 × 6 months) as qualified expenses because it is not more than the $3,000 yearly limit. Cheap tax software Reduced Dollar Limit If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. Cheap tax software Your reduced dollar limit is figured on Form 2441, Part III. Cheap tax software See Dependent Care Benefits, earlier, for information on excluding or deducting these benefits. Cheap tax software Example 1. Cheap tax software George is a widower with one child and earns $24,000 a year. Cheap tax software He pays work-related expenses of $2,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. Cheap tax software His employer pays an additional $1,000 under a qualified dependent care benefit plan. Cheap tax software This $1,000 is excluded from George's income. Cheap tax software Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900 work-related expenses he paid. Cheap tax software This is because his dollar limit is reduced as shown next. Cheap tax software   George's Reduced Dollar Limit 1) Maximum allowable expenses for one qualifying person $3,000 2) Minus: Dependent care benefits George excludes from income −1,000 3) Reduced dollar limit on expenses George can use for the credit $2,000 Example 2. Cheap tax software Randall is married and both he and his wife are employed. Cheap tax software Each has earned income in excess of $6,000. Cheap tax software They have two children, Anne and Andy, ages 2 and 4, who attend a daycare facility licensed and regulated by the state. Cheap tax software Randall's work-related expenses are $6,000 for the year. Cheap tax software Randall's employer has a dependent care assistance program as part of its cafeteria plan, which allows employees to make pre-tax contributions to a dependent care flexible spending arrangement. Cheap tax software Randall has elected to take the maximum $5,000 exclusion from his salary to cover dependent care expenses through this program. Cheap tax software Although the dollar limit for his work-related expenses is $6,000 (two or more qualifying persons), Randall figures his credit on only $1,000 of the $6,000 work-related expense paid. Cheap tax software This is because his dollar limit is reduced as shown next. Cheap tax software   Randall's Reduced Dollar Limit 1) Maximum allowable expenses for two qualifying persons $6,000 2) Minus: Dependent care benefits selected from employer's cafeteria plan and  excluded from Randall's income −5,000 3) Reduced dollar limit on work-related expenses Randall can use for the credit $1,000 Amount of Credit To determine the amount of your credit, multiply your work-related expenses (after applying the earned income and dollar limits) by a percentage. Cheap tax software This percentage depends on your adjusted gross income shown on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37. Cheap tax software The following table shows the percentage to use based on adjusted gross income. Cheap tax software   IF your adjusted gross income is: THEN the       Over:       But not over:   percentage is:       $0   —   $15,000   35%       15,000   —   17,000   34%       17,000   —   19,000   33%       19,000   —   21,000   32%       21,000   —   23,000   31%       23,000   —   25,000   30%       25,000   —   27,000   29%       27,000   —   29,000   28%       29,000   —   31,000   27%       31,000   —   33,000   26%       33,000   —   35,000   25%       35,000   —   37,000   24%       37,000   —   39,000   23%       39,000   —   41,000   22%       41,000   —   43,000   21%       43,000   —   No limit   20%   To qualify for the credit, you must have one or more qualifying persons. Cheap tax software You should show the expenses for each person on Form 2441, line 2, column (c). Cheap tax software However, it is possible a qualifying person could have no expenses and a second qualifying person could have expenses exceeding $3,000. Cheap tax software You should list -0- for the one person and the actual amount for the second person. Cheap tax software The $6,000 limit that applies to two or more qualifying persons would still be used to compute your credit unless you already excluded or deducted, in Part III of Form 2441, certain dependent care benefits paid to you (or on your behalf) by your employer. Cheap tax software Example. Cheap tax software Roger and Megan Paris have two qualifying children. Cheap tax software They received $1,000 of dependent care benefits from Megan's employer during 2013, but they incurred a total of $19,500 of child and dependent care expenses. Cheap tax software They complete Part III of Form 2441 to exclude the $1,000 from their taxable income (offsetting $1,000 of their expenses). Cheap tax software Roger and Megan continue to line 27 to figure their credit using the remaining $18,500 of expenses. Cheap tax software Line 30 tells them to complete line 2 without including any dependent care benefits. Cheap tax software They complete line 2 of Form 2441, listing both Susan and James, as shown in the Line 2 example above. Cheap tax software Line 2 Example (a) Qualifying person's name (b) Qualifying person's social security number (c) Qualified expenses you incurred and paid in 2013 for the person listed in column (a) First Last Susan Paris 123-00-6789 -0- James Paris 987-00-4321 18,500. Cheap tax software 00 All of Susan's expenses were covered by the $1,000 of employer-provided dependent care benefits. Cheap tax software However, their son James has special needs and they paid $18,500 for his care. Cheap tax software Line 3 imposes a $5,000 limit for two or more children ($6,000 limit, minus $1,000 already excluded from income = $5,000) and Roger and Megan continue to complete the form. Cheap tax software Even though line 2 indicates one of the Paris children did not have any dependent care expenses, it does not change the fact that they had two qualifying children for the purposes of Form 2441. Cheap tax software Payments for prior year's expenses. Cheap tax software   If you had work-related expenses in 2012 that you paid in 2013, you may be able to increase the credit on your 2013 return. Cheap tax software Attach a statement to your form showing how you figured the additional amount from 2012. Cheap tax software Then enter “CPYE” (Credit for Prior Year Expenses) and the amount of the credit on the dotted line next to line 9 on Form 2441. Cheap tax software Also enter the name and taxpayer identification number of the person for whom you paid the prior year's expenses. Cheap tax software Then add this credit to the amount on line 9, and replace the amount on line 9 with the total. Cheap tax software See Worksheet A. Cheap tax software Example. Cheap tax software In 2012, Sam and Kate had childcare expenses of $2,600 for their 12-year-old child. Cheap tax software Of the $2,600, they paid $2,000 in 2012 and $600 in 2013. Cheap tax software Their adjusted gross income for 2012 was $30,000. Cheap tax software Sam's earned income of $14,000 was less than Kate's earned income. Cheap tax software A credit for their 2012 expenses paid in 2013 is not allowed in 2012. Cheap tax software It is allowed for the 2013 tax year, but they must use their adjusted gross income for 2012 to compute the amount. Cheap tax software The filled-in Worksheet A they used to figure this credit is shown later. Cheap tax software Sam and Kate add the $162 from line 13 of this worksheet to their 2013 credit and enter the total on their Form 2441, line 9. Cheap tax software They enter “CPYE $162” and their child's name and SSN in the space to the left of line 9. Cheap tax software Worksheet A. Cheap tax software Worksheet for 2012 Expenses Paid in 2013 Use this worksheet to figure the credit you may claim for 2012 expenses paid in 2013. Cheap tax software 1. Cheap tax software   Enter your 2012 qualified expenses paid in 2012 1. Cheap tax software     2. Cheap tax software   Enter your 2012 qualified expenses paid in 2013 2. Cheap tax software     3. Cheap tax software   Add the amounts on lines 1 and 2 3. Cheap tax software     4. Cheap tax software   Enter $3,000 if care was for one qualifying person ($6,000 if for two or more) 4. Cheap tax software     5. Cheap tax software   Enter any dependent care benefits received for 2012 and excluded from your income (from your 2012 Form 2441, line 25) 5. Cheap tax software     6. Cheap tax software   Subtract the amount on line 5 from the amount on line 4 and enter the result 6. Cheap tax software     7. Cheap tax software   Compare your earned income for 2012 and your spouse's earned income for 2012 and enter the smaller amount 7. Cheap tax software     8. Cheap tax software   Compare the amounts on lines 3, 6, and 7 and enter the smallest amount 8. Cheap tax software     9. Cheap tax software   Enter the amount on which you figured the credit for 2012 (from your 2012 Form 2441, line 6) 9. Cheap tax software     10. Cheap tax software   Subtract the amount on line 9 from the amount on line 8 and enter the result. Cheap tax software If zero or less, stop here. Cheap tax software You cannot increase your 2013 credit by any previous year's expenses 10. Cheap tax software     11. Cheap tax software   Enter your 2012 adjusted gross income (from your 2012 Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37) 11. Cheap tax software     12. Cheap tax software   Find your 2012 adjusted gross income in the table below and enter the corresponding decimal amount here 12. Cheap tax software             IF your 2012 adjusted gross income is:   THEN the decimal                 Over:   But not over:     amount is:                 $0 — $15,000     . Cheap tax software 35                 15,000 — 17,000     . Cheap tax software 34                 17,000 — 19,000     . Cheap tax software 33                 19,000 — 21,000     . Cheap tax software 32                 21,000 — 23,000     . Cheap tax software 31                 23,000 — 25,000     . Cheap tax software 30                 25,000 — 27,000     . Cheap tax software 29                 27,000 — 29,000     . Cheap tax software 28                 29,000 — 31,000     . Cheap tax software 27                 31,000 — 33,000     . Cheap tax software 26                 33,000 — 35,000     . Cheap tax software 25                 35,000 — 37,000     . Cheap tax software 24                 37,000 — 39,000     . Cheap tax software 23                 39,000 — 41,000     . Cheap tax software 22                 41,000 — 43,000     . Cheap tax software 21                 43,000 — No limit     . Cheap tax software 20           13. Cheap tax software   Multiply line 10 by line 12. Cheap tax software Add this amount to your 2013 credit and enter the total on your 2013 Form 2441, line 9. Cheap tax software Enter the following on the dotted line next to line 9 of Form 2441: “CPYE” The amount of this credit for a prior year's expenses           Also, attach a statement to your tax return showing the name and taxpayer identification number of the person for whom you paid the prior year's expenses and how you figured the credit 13. Cheap tax software       Worksheet A. Cheap tax software Filled-in Worksheet for 2012 Expenses Paid in 2013 Use this worksheet to figure the credit you may claim for 2012 expenses paid in 2013. Cheap tax software 1. Cheap tax software   Enter your 2012 qualified expenses paid in 2012 1. Cheap tax software   $2,000 2. Cheap tax software   Enter your 2012 qualified expenses paid in 2013 2. Cheap tax software   600 3. Cheap tax software   Add the amounts on lines 1 and 2 3. Cheap tax software   2,600 4. Cheap tax software   Enter $3,000 if care was for one qualifying person ($6,000 if for two or more) 4. Cheap tax software   3,000 5. Cheap tax software   Enter any dependent care benefits received for 2012 and excluded from your income (from your 2012 Form 2441, line 25) 5. Cheap tax software   0 6. Cheap tax software   Subtract the amount on line 5 from the amount on line 4 and enter the result 6. Cheap tax software   3,000 7. Cheap tax software   Compare your earned income for 2012 and your spouse's earned income for 2012 and enter the smaller amount 7. Cheap tax software   14,000 8. Cheap tax software   Compare the amounts on lines 3, 6, and 7 and enter the smallest amount 8. Cheap tax software   2,600 9. Cheap tax software   Enter the amount on which you figured the credit for 2012 (from your 2012 Form 2441, line 6) 9. Cheap tax software   2,000 10. Cheap tax software   Subtract the amount on line 9 from the amount on line 8 and enter the result. Cheap tax software If zero or less, stop here. Cheap tax software You cannot increase your 2013 credit by any previous year's expenses 10. Cheap tax software   600 11. Cheap tax software   Enter your 2012 adjusted gross income (from your 2012 Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37) 11. Cheap tax software   30,000 12. Cheap tax software   Find your 2012 adjusted gross income in the table below and enter the corresponding decimal amount here 12. Cheap tax software   . Cheap tax software 27         IF your 2012 adjusted gross income is:   THEN the decimal                 Over   But not over     amount is:                 $0 — $15,000     . Cheap tax software 35                 15,000 — 17,000     . Cheap tax software 34                 17,000 — 19,000     . Cheap tax software 33                 19,000 — 21,000     . Cheap tax software 32                 21,000 — 23,000     . Cheap tax software 31                 23,000 — 25,000     . Cheap tax software 30                 25,000 — 27,000     . Cheap tax software 29                 27,000 — 29,000     . Cheap tax software 28                 29,000 — 31,000     . Cheap tax software 27                 31,000 — 33,000     . Cheap tax software 26                 33,000 — 35,000     . Cheap tax software 25                 35,000 — 37,000     . Cheap tax software 24                 37,000 — 39,000     . Cheap tax software 23                 39,000 — 41,000     . Cheap tax software 22                 41,000 — 43,000     . Cheap tax software 21                 43,000 — No limit     . Cheap tax software 20           13. Cheap tax software   Multiply line 10 by line 12. Cheap tax software Add this amount to your 2013 credit and enter the total on your 2013 Form 2441, line 9. Cheap tax software Enter the following on the dotted line next to line 9 of Form 2441: “CPYE” The amount of this credit for a prior year's expenses             Also, attach a statement to your tax return showing the name and taxpayer identification number of the person for whom you paid the prior year's expenses and how you figured the credit 13. Cheap tax software   $162   How To Claim the Credit To claim the credit, you can file Form 1040, Form 1040A, or Form 1040NR. Cheap tax software You cannot claim the credit on Form 1040EZ or Form 1040NR-EZ. Cheap tax software Form 1040, Form 1040A, or Form 1040NR. Cheap tax software    You must complete Form 2441 and attach it to your Form 1040, Form 1040A, or Form 1040NR. Cheap tax software Enter the credit on your Form 1040, line 48; Form 1040A, line 29; or Form 1040NR, line 46. Cheap tax software Limit on credit. Cheap tax software    The amount of credit you can claim is limited to your tax. Cheap tax software For more information, see the Instructions for Form 2441. Cheap tax software Tax credit not refundable. Cheap tax software   You cannot get a refund for any part of the credit that is more than this limit. Cheap tax software Recordkeeping. Cheap tax software You should keep records of your work-related expenses. Cheap tax software Also, if your dependent or spouse is not able to care for himself or herself, your records should show both the nature and length of the disability. Cheap tax software Other records you should keep to support your claim for the credit are described under Provider Identification Test, earlier. Cheap tax software Employment Taxes for Household Employers If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. Cheap tax software If you are a household employer, you will need an employer identification number (EIN) and you may have to pay employment taxes. Cheap tax software If the individuals who work in your home are self-employed, you are not liable for any of the taxes discussed in this section. Cheap tax software Self-employed persons who are in business for themselves are not household employees. Cheap tax software Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. Cheap tax software If you use a placement agency that exercises control over what work is done and how it will be done by a babysitter or companion who works in your home, the worker is not your employee. Cheap tax software This control could include providing rules of conduct and appearance and requiring regular reports. Cheap tax software In this case, you do not have to pay employment taxes. Cheap tax software But, if an agency merely gives you a list of sitters and you hire one from that list, and pay the sitter directly, the sitter may be your employee. Cheap tax software If you have a household employee, you may be subject to: Social security and Medicare taxes, Federal unemployment tax, and Federal income tax withholding. Cheap tax software Social security and Medicare taxes are generally withheld from the employee's pay and matched by the employer. Cheap tax software Federal unemployment (FUTA) tax is paid by the employer only and provides for payments of unemployment compensation to workers who have lost their jobs. Cheap tax software Federal income tax is withheld from the employee's total pay if the employee asks you to do so and you agree. Cheap tax software For more information on a household employer's tax responsibilities, see Publication 926 and Schedule H (Form 1040) and its instructions. Cheap tax software State employment tax. Cheap tax software   You may also have to pay state unemployment tax. Cheap tax software Contact your state unemployment tax office for information. Cheap tax software You should also find out whether you need to pay or collect other state employment taxes or carry worker's compensation insurance. Cheap tax software For a list of state unemployment tax agencies, visit the U. Cheap tax software S. Cheap tax software Department of Labor's website. Cheap tax software To find that website, use the link in Publication 926 or search online. Cheap tax software How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Cheap tax software Free help with your tax return. Cheap tax software   You can get free help preparing your return nationwide from IRS-certified volunteers. Cheap tax software The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Cheap tax software The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Cheap tax software Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Cheap tax software In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Cheap tax software To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Cheap tax software gov, download the IRS2Go app, or call 1-800-906-9887. Cheap tax software   As part of the TCE program, AARP offers the Tax-Aide counseling program. Cheap tax software To find the nearest AARP Tax-Aide site, visit AARP's website at www. Cheap tax software aarp. Cheap tax software org/money/taxaide or call 1-888-227-7669. Cheap tax software For more information on these programs, go to IRS. Cheap tax software gov and enter “VITA” in the search box. Cheap tax software Internet. Cheap tax software    IRS. Cheap tax software gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Cheap tax software Download the free IRS2Go app from the iTunes app store or from Google Play. Cheap tax software Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Cheap tax software Check the status of your 2013 refund with the Where's My Refund? application on IRS. Cheap tax software gov or download the IRS2Go app and select the Refund Status option. Cheap tax software The IRS issues more than 9 out of 10 refunds in less than 21 days. Cheap tax software Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Cheap tax software You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Cheap tax software The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Cheap tax software Use the Interactive Tax Assistant (ITA) to research your tax questions. Cheap tax software No need to wait on the phone or stand in line. Cheap tax software The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Cheap tax software When you reach the response screen, you can print the entire interview and the final response for your records. Cheap tax software New subject areas are added on a regular basis. Cheap tax software  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Cheap tax software gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Cheap tax software You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Cheap tax software The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Cheap tax software When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Cheap tax software Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Cheap tax software You can also ask the IRS to mail a return or an account transcript to you. Cheap tax software Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Cheap tax software gov or by calling 1-800-908-9946. Cheap tax software Tax return and tax account transcripts are generally available for the current year and the past three years. Cheap tax software Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Cheap tax software Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Cheap tax software If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Cheap tax software Check the status of your amended return using Where's My Amended Return? Go to IRS. Cheap tax software gov and enter Where's My Amended Return? in the search box. Cheap tax software You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Cheap tax software It can take up to 3 weeks from the date you mailed it to show up in our system. Cheap tax software Make a payment using one of several safe and convenient electronic payment options available on IRS. Cheap tax software gov. Cheap tax software Select the Payment tab on the front page of IRS. Cheap tax software gov for more information. Cheap tax software Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Cheap tax software Figure your income tax withholding with the IRS Withholding Calculator on IRS. Cheap tax software gov. Cheap tax software Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Cheap tax software Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Cheap tax software gov. Cheap tax software Request an Electronic Filing PIN by going to IRS. Cheap tax software gov and entering Electronic Filing PIN in the search box. Cheap tax software Download forms, instructions and publications, including accessible versions for people with disabilities. Cheap tax software Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Cheap tax software gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Cheap tax software An employee can answer questions about your tax account or help you set up a payment plan. Cheap tax software Before you visit, check the Office Locator on IRS. Cheap tax software gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Cheap tax software If you have a special need, such as a disability, you can request an appointment. Cheap tax software Call the local number listed in the Office Locator, or look in the phone book under Unit
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CP 91 - Final Notice Before Levy on Social Security Benefits

Details About This Notice:
Sample Content: Page 1, Page 2
Purpose:   We send CP 91 to inform the recipient of our intent to levy on their Social Security Benefits.
Reason for Issuance:   The recipient has a balance due on their account that we've previously sent a notice about. That balance due is still unpaid. We send a CP 91 to inform the recipient that the amount is still due, that we intend to take up to 15% of their their Social Security Benefits to pay it, and what steps they need to take within 30 days to prevent us from taking this action.
Account Balance:   Balance Due
     

Frequently Asked Questions About This Notice

Page Last Reviewed or Updated: 25-Feb-2014

The Cheap Tax Software

Cheap tax software 4. Cheap tax software   Figuring Depreciation Under MACRS Table of Contents Introduction Useful Items - You may want to see: Which Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS?Rent-to-own dealer. Cheap tax software Rent-to-own contract. Cheap tax software What Is the Placed in Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies?Recovery Periods Under GDS Recovery Periods Under ADS Additions and Improvements Which Convention Applies? Which Depreciation Method Applies?Depreciation Methods for Farm Property Electing a Different Method How Is the Depreciation Deduction Figured?Using the MACRS Percentage Tables Figuring the Deduction Without Using the Tables Figuring the Deduction for Property Acquired in a Nontaxable Exchange Figuring the Deduction for a Short Tax Year How Do You Use General Asset Accounts?Grouping Property Figuring Depreciation for a GAA Disposing of GAA Property Terminating GAA Treatment Electing To Use a GAA When Do You Recapture MACRS Depreciation? Introduction The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. Cheap tax software MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Cheap tax software Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Cheap tax software To be sure you can use MACRS to figure depreciation for your property, see What Method Can You Use To Depreciate Your Property in chapter 1. Cheap tax software This chapter explains how to determine which MACRS depreciation system applies to your property. Cheap tax software It also discusses other information you need to know before you can figure depreciation under MACRS. Cheap tax software This information includes the property's recovery class, placed in service date, and basis, as well as the applicable recovery period, convention, and depreciation method. Cheap tax software It explains how to use this information to figure your depreciation deduction and how to use a general asset account to depreciate a group of properties. Cheap tax software Finally, it explains when and how to recapture MACRS depreciation. Cheap tax software Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 463 Travel, Entertainment, Gift, and Car  Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. Cheap tax software Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. Cheap tax software You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Cheap tax software If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. Cheap tax software Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. Cheap tax software If you placed your property in service before 2013 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III. Cheap tax software Required use of ADS. Cheap tax software   You must use ADS for the following property. Cheap tax software Listed property used 50% or less in a qualified business use. Cheap tax software See chapter 5 for information on listed property. Cheap tax software Any tangible property used predominantly outside the United States during the year. Cheap tax software Any tax-exempt use property. Cheap tax software Any tax-exempt bond-financed property. Cheap tax software All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. Cheap tax software Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. Cheap tax software If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3) for the property. Cheap tax software Electing ADS. Cheap tax software   Although your property may qualify for GDS, you can elect to use ADS. Cheap tax software The election generally must cover all property in the same property class that you placed in service during the year. Cheap tax software However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Cheap tax software Once you make this election, you can never revoke it. Cheap tax software   You make the election by completing line 20 in Part III of Form 4562. Cheap tax software Which Property Class Applies Under GDS? The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. Cheap tax software These property classes are also listed under column (a) in section B, Part III, of Form 4562. Cheap tax software For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. Cheap tax software 3-year property. Cheap tax software Tractor units for over-the-road use. Cheap tax software Any race horse over 2 years old when placed in service. Cheap tax software (All race horses placed in service after December 31, 2008, and before January 1, 2014, are deemed to be 3-year property, regardless of age. Cheap tax software ) Any other horse (other than a race horse) over 12 years old when placed in service. Cheap tax software Qualified rent-to-own property (defined later). Cheap tax software 5-year property. Cheap tax software Automobiles, taxis, buses, and trucks. Cheap tax software Computers and peripheral equipment. Cheap tax software Office machinery (such as typewriters, calculators, and copiers). Cheap tax software Any property used in research and experimentation. Cheap tax software Breeding cattle and dairy cattle. Cheap tax software Appliances, carpets, furniture, etc. Cheap tax software , used in a residential rental real estate activity. Cheap tax software Certain geothermal, solar, and wind energy property. Cheap tax software 7-year property. Cheap tax software Office furniture and fixtures (such as desks, files, and safes). Cheap tax software Agricultural machinery and equipment. Cheap tax software Any property that does not have a class life and has not been designated by law as being in any other class. Cheap tax software Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. Cheap tax software Any natural gas gathering line placed in service after April 11, 2005. Cheap tax software See Natural gas gathering line and electric transmission property , later. Cheap tax software 10-year property. Cheap tax software Vessels, barges, tugs, and similar water transportation equipment. Cheap tax software Any single purpose agricultural or horticultural structure. Cheap tax software Any tree or vine bearing fruits or nuts. Cheap tax software Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. Cheap tax software 15-year property. Cheap tax software Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). Cheap tax software Any retail motor fuels outlet (defined later), such as a convenience store. Cheap tax software Any municipal wastewater treatment plant. Cheap tax software Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. Cheap tax software Any qualified restaurant property (defined later) placed in service before January 1, 2014. Cheap tax software Initial clearing and grading land improvements for gas utility property. Cheap tax software Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005. Cheap tax software See Natural gas gathering line and electric transmission property , later. Cheap tax software Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. Cheap tax software Any qualified retail improvement property placed in service before January 1, 2014. Cheap tax software 20-year property. Cheap tax software Farm buildings (other than single purpose agricultural or horticultural structures). Cheap tax software Municipal sewers not classified as 25-year property. Cheap tax software Initial clearing and grading land improvements for electric utility transmission and distribution plants. Cheap tax software 25-year property. Cheap tax software This class is water utility property, which is either of the following. Cheap tax software Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property. Cheap tax software Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. Cheap tax software Residential rental property. Cheap tax software This is any building or structure, such as a rental home (including a mobile home), if 80% or more of its gross rental income for the tax year is from dwelling units. Cheap tax software A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. Cheap tax software It does not include a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis. Cheap tax software If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy. Cheap tax software Nonresidential real property. Cheap tax software This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27. Cheap tax software 5 years. Cheap tax software Qualified rent-to-own property. Cheap tax software   Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. Cheap tax software It is tangible personal property generally used in the home for personal use. Cheap tax software It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. Cheap tax software Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. Cheap tax software   If some of the property you rent to others under a rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you still can treat this property as qualified property as long as it does not represent a significant portion of your leasing property. Cheap tax software However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property. Cheap tax software Rent-to-own dealer. Cheap tax software   You are a rent-to-own dealer if you meet all the following requirements. Cheap tax software You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. Cheap tax software A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. Cheap tax software The property is tangible personal property of a type generally used within the home for personal use. Cheap tax software Rent-to-own contract. Cheap tax software   This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which— Is titled “Rent-to-Own Agreement,” “Lease Agreement with Ownership Option,” or other similar language. Cheap tax software Provides a beginning date and a maximum period of time, not to exceed 156 weeks or 36 months from the beginning date, for which the contract can be in effect (including renewals or options to extend). Cheap tax software Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. Cheap tax software If the payments are decreasing, no payment can be less than 40% of the largest payment. Cheap tax software Provides for total payments that generally exceed the normal retail price of the property plus interest. Cheap tax software Provides for total payments that do not exceed $10,000 for each item of property. Cheap tax software Provides that the customer has no legal obligation to make all payments outlined in the contract and that, at the end of each weekly or monthly payment period, the customer can either continue to use the property by making the next payment or return the property in good working order with no further obligations and no entitlement to a return of any prior payments. Cheap tax software Provides that legal title to the property remains with the rent-to-own dealer until the customer makes either all the required payments or the early purchase payments required under the contract to acquire legal title. Cheap tax software Provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, or otherwise dispose of the property until all contract payments have been made. Cheap tax software Motorsports entertainment complex. Cheap tax software   This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. Cheap tax software The events must be open to the public for the price of admission. Cheap tax software Qualified smart electric grid system. Cheap tax software   A qualified smart electric grid system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. Cheap tax software Smart grid property includes electronics and related equipment that is capable of: Sensing, collecting, and monitoring data of or from all portions of a utility's electric distribution grid, Providing real-time, two-way communications to monitor or to manage the grid, and Providing real-time analysis of an event prediction based on collected data that can be used to provide electric distribution system reliability, quality, and performance. Cheap tax software Retail motor fuels outlet. Cheap tax software   Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests. Cheap tax software It is not larger than 1,400 square feet. Cheap tax software 50% or more of the gross revenues generated from the property are derived from petroleum sales. Cheap tax software 50% or more of the floor space in the property is devoted to petroleum marketing sales. Cheap tax software A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. Cheap tax software Qualified leasehold improvement property. Cheap tax software    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. Cheap tax software   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. Cheap tax software 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 reacquisition 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. Cheap tax software Examples include the following. Cheap tax software A complete liquidation of a subsidiary. Cheap tax software A transfer to a corporation controlled by the transferor. Cheap tax software An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Cheap tax software Qualified restaurant property. Cheap tax software   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. Cheap tax software Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premises consumption of prepared meals. Cheap tax software Qualified smart electric meter. Cheap tax software   A qualified smart electric meter is any time-based meter and related communication equipment which is placed in service by a supplier of electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that: Measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day; Provides for the exchange of information between the supplier or provider and the customer's smart electric meter in support of time-based rates or other forms of demand response; Provides data to the supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and Provides all commercial and residential customers of such supplier or provider with net metering. Cheap tax software Net metering means allowing a customer a credit, if any, as complies with applicable federal and state laws and regulations for providing electricity to the supplier or provider. Cheap tax software Natural gas gathering line and electric transmission property. Cheap tax software   Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met. Cheap tax software The original use of the property must have begun with you after April 11, 2005. Cheap tax software Original use means the first use to which the property is put, whether or not by you. Cheap tax software Therefore, property used by any person before April 12, 2005, is not original use. Cheap tax software Original use includes additional capital expenditures you incurred to recondition or rebuild your property. Cheap tax software However, original use does not include the cost of reconditioned or rebuilt property you acquired. Cheap tax software Property containing used parts will not be treated as reconditioned or rebuilt if the cost of the used parts is not more than 20% of the total cost of the property. Cheap tax software The property must not be placed in service under a binding contract in effect before April 12, 2005. Cheap tax software The property must not be self-constructed property (property you manufacture, construct, or produce for your own use), if you began the manufacture, construction, or production of the property before April 12, 2005. Cheap tax software Property that is manufactured, constructed, or produced for your use by another person under a written binding contract entered into by you or a related party before the manufacture, construction, or production of the property is considered to be manufactured, constructed, or produced by you. Cheap tax software What Is the Placed in Service Date? You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. Cheap tax software The placed in service date for your property is the date the property is ready and available for a specific use. Cheap tax software It is therefore not necessarily the date it is first used. Cheap tax software If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. Cheap tax software See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. Cheap tax software What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. Cheap tax software For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . Cheap tax software Reduce that amount by any credits and deductions allocable to the property. Cheap tax software The following are examples of some credits and deductions that reduce basis. Cheap tax software Any deduction for section 179 property. Cheap tax software Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. Cheap tax software Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005, and before January 1, 2014. Cheap tax software Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005, and before January 1, 2014. Cheap tax software Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006, and before January 1, 2014 . Cheap tax software Any deduction for removal of barriers to the disabled and the elderly. Cheap tax software Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Cheap tax software Any special depreciation allowance. Cheap tax software Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Cheap tax software For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Cheap tax software Enter the basis for depreciation under column (c) in Part III of Form 4562. Cheap tax software For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . Cheap tax software Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Cheap tax software It is determined based on the depreciation system (GDS or ADS) used. Cheap tax software Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. Cheap tax software Property Class Recovery Period 3-year property   3 years 1   5-year property   5 years     7-year property   7 years     10-year property   10 years     15-year property   15 years 2   20-year property   20 years     25-year property   25 years 3   Residential rental property   27. Cheap tax software 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. Cheap tax software 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. Cheap tax software 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. Cheap tax software 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. Cheap tax software 431. Cheap tax software 5 years for property placed in service before May 13, 1993 (or before January 1, 1994, if the purchase or construction of the property is under a binding contract in effect before May 13, 1993, or if construction began before May 13, 1993). Cheap tax software The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. Cheap tax software Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. Cheap tax software Enter the appropriate recovery period on Form 4562 under column (d) in section B of Part III, unless already shown (for 25-year property, residential rental property, and nonresidential real property). Cheap tax software Office in the home. Cheap tax software   If your home is a personal-use single family residence and you begin to use part of your home as an office, depreciate that part of your home as nonresidential real property over 39 years (31. Cheap tax software 5 years if you began using it for business before May 13, 1993). Cheap tax software However, if your home is an apartment in an apartment building that you own and the building is residential rental property as defined earlier under Which Depreciation System (GDS or ADS) Applies , depreciate the part used as an office as residential rental property over 27. Cheap tax software 5 years. Cheap tax software See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. Cheap tax software Home changed to rental use. Cheap tax software   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. Cheap tax software 5 years. Cheap tax software Indian Reservation Property The recovery periods for qualified property you placed in service on an Indian reservation after 1993 and before 2014 are shorter than those listed earlier. Cheap tax software The following table shows these shorter recovery periods. Cheap tax software Property Class Recovery  Period 3-year property 2 years 5-year property 3 years 7-year property 4 years 10-year property 6 years 15-year property 9 years 20-year property 12 years Nonresidential real property 22 years Nonresidential real property is defined earlier under Which Property Class Applies Under GDS . Cheap tax software Use this chart to find the correct percentage table to use for qualified Indian reservation property. Cheap tax software IF your recovery period is: THEN use the following table in Appendix A: 2 years A-21 3 years A-1, A-2, A-3, A-4, or A-5 4 years A-22 6 years A-23 9 years A-14, A-15, A-16, A-17, or A-18 12 years A-14, A-15, A-16, A-17, or A-18 22 years A-24 Qualified property. Cheap tax software   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. Cheap tax software You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. Cheap tax software The rental of real property that is located on an Indian reservation is treated as the active conduct of a trade or business within an Indian reservation. Cheap tax software   The following property is not qualified property. Cheap tax software Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. Cheap tax software Property acquired directly or indirectly from a related person. Cheap tax software Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. Cheap tax software These activities are defined in section 4 of the Indian Regulatory Act (25 U. Cheap tax software S. Cheap tax software C. Cheap tax software 2703). Cheap tax software Any property you must depreciate under ADS. Cheap tax software Determine whether property is qualified without regard to the election to use ADS and after applying the special rules for listed property not used predominantly for qualified business use (discussed in chapter 5). Cheap tax software Qualified infrastructure property. Cheap tax software   Item (1) above does not apply to qualified infrastructure property located outside the reservation that is used to connect with qualified infrastructure property within the reservation. Cheap tax software Qualified infrastructure property is property that meets all the following rules. Cheap tax software It is qualified property, as defined earlier, except that it is outside the reservation. Cheap tax software It benefits the tribal infrastructure. Cheap tax software It is available to the general public. Cheap tax software It is placed in service in connection with the active conduct of a trade or business within a reservation. Cheap tax software Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. Cheap tax software Related person. Cheap tax software   For purposes of item (2) above, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 for a description of related persons. Cheap tax software Indian reservation. Cheap tax software   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. Cheap tax software S. Cheap tax software C. Cheap tax software 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. Cheap tax software S. Cheap tax software C. Cheap tax software 1903(10)). Cheap tax software Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. Cheap tax software For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. Cheap tax software Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. Cheap tax software The following table shows some of the ADS recovery periods. Cheap tax software Property Recovery  Period Rent-to-own property 4 years Automobiles and light duty trucks 5 years Computers and peripheral equipment 5 years High technology telephone station equipment installed on customer premises 5 years High technology medical equipment 5 years Personal property with no class life 12 years Natural gas gathering lines 14 years Single purpose agricultural and horticultural structures 15 years Any tree or vine bearing fruit or nuts 20 years Initial clearing and grading land  improvements for gas utility property 20 years Initial clearing and grading land  improvements for electric utility  transmission and distribution plants 25 years Electric transmission property used in the transmission at 69 or more kilovolts of electricity 30 years Natural gas distribution lines 35 years Any qualified leasehold improvement property 39 years Any qualified restaurant property 39 years Nonresidential real property 40 years Residential rental property 40 years Section 1245 real property not listed in Appendix B 40 years Railroad grading and tunnel bore 50 years The ADS recovery periods for property not listed above can be found in the tables in Appendix B. Cheap tax software Rent-to-own property, qualified leasehold improvement property, qualified restaurant property, residential rental property, and nonresidential real property are defined earlier under Which Property Class Applies Under GDS . Cheap tax software Tax-exempt use property subject to a lease. Cheap tax software   The ADS recovery period for any property leased under a lease agreement 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. Cheap tax software Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. Cheap tax software See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. Cheap tax software Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. Cheap tax software The recovery period begins on the later of the following dates. Cheap tax software The date you place the addition or improvement in service. Cheap tax software The date you place in service the property to which you made the addition or improvement. Cheap tax software If the improvement you make is qualified leasehold improvement property, qualified restaurant property, or qualified retail improvement property, the GDS recovery period is 15 years (39 years under ADS). Cheap tax software Example. Cheap tax software You own a rental home that you have been renting out since 1981. Cheap tax software If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. Cheap tax software Under GDS, the property class for the addition is residential rental property and its recovery period is 27. Cheap tax software 5 years because the home to which the addition is made would be residential rental property if you had placed it in service this year. Cheap tax software Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Cheap tax software The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. Cheap tax software The mid-month convention. Cheap tax software   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. Cheap tax software   Under this convention, you treat all property placed in service or disposed of during a month as placed in service or disposed of at the midpoint of the month. Cheap tax software This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. Cheap tax software   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. Cheap tax software The mid-quarter convention. Cheap tax software   Use this convention if the mid-month convention does not apply and the total depreciable bases of MACRS property you placed in service during the last 3 months of the tax year (excluding nonresidential real property, residential rental property, any railroad grading or tunnel bore, property placed in service and disposed of in the same year, and property that is being depreciated under a method other than MACRS) are more than 40% of the total depreciable bases of all MACRS property you placed in service during the entire year. Cheap tax software   Under this convention, you treat all property placed in service or disposed of during any quarter of the tax year as placed in service or disposed of at the midpoint of that quarter. Cheap tax software This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. Cheap tax software   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. Cheap tax software    For purposes of determining whether the mid-quarter convention applies, the depreciable basis of property you placed in service during the tax year reflects the reduction in basis for amounts expensed under section 179 and the part of the basis of property attributable to personal use. Cheap tax software However, it does not reflect any reduction in basis for any special depreciation allowance. Cheap tax software The half-year convention. Cheap tax software   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. Cheap tax software   Under this convention, you treat all property placed in service or disposed of during a tax year as placed in service or disposed of at the midpoint of the year. Cheap tax software This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. Cheap tax software   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. Cheap tax software Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Cheap tax software The 200% declining balance method over a GDS recovery period. Cheap tax software The 150% declining balance method over a GDS recovery period. Cheap tax software The straight line method over a GDS recovery period. Cheap tax software The straight line method over an ADS recovery period. Cheap tax software For property placed in service before 1999, you could have elected the 150% declining balance method using the ADS recovery periods for certain property classes. Cheap tax software If you made this election, continue to use the same method and recovery period for that property. Cheap tax software Table 4–1 lists the types of property you can depreciate under each method. Cheap tax software It also gives a brief explanation of the method, including any benefits that may apply. Cheap tax software Depreciation Methods for Farm Property If you place personal property in service in a farming business after 1988, you generally must depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under GDS or ADS using the straight line method. Cheap tax software You can depreciate real property using the straight line method under either GDS or ADS. Cheap tax software Fruit or nut trees and vines. Cheap tax software   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. Cheap tax software ADS required for some farmers. Cheap tax software   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. Cheap tax software You must use ADS for all property you place in service in any year the election is in effect. Cheap tax software See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. Cheap tax software Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. Cheap tax software You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Cheap tax software However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Cheap tax software Attach the election to the amended return and write “Filed pursuant to section 301. Cheap tax software 9100-2” on the election statement. Cheap tax software File the amended return at the same address you filed the original return. Cheap tax software Once you make the election, you cannot change it. Cheap tax software If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. Cheap tax software However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. Cheap tax software 150% election. Cheap tax software   Instead of using the 200% declining balance method over the GDS recovery period for nonfarm property in the 3-, 5-, 7-, and 10-year property classes, you can elect to use the 150% declining balance method. Cheap tax software Make the election by entering “150 DB” under column (f) in Part III of Form 4562. Cheap tax software Straight line election. Cheap tax software   Instead of using either the 200% or 150% declining balance methods over the GDS recovery period, you can elect to use the straight line method over the GDS recovery period. Cheap tax software Make the election by entering  “S/L” under column (f) in Part III of Form 4562. Cheap tax software Election of ADS. Cheap tax software   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. Cheap tax software ADS uses the straight line method of depreciation over fixed ADS recovery periods. Cheap tax software Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. Cheap tax software   Make the election by completing line 20 in Part III of Form 4562. Cheap tax software Farm property. Cheap tax software   Instead of using the 150% declining balance method over a GDS recovery period for property you use in a farming business (other than real property), you can elect to depreciate it using either of the following methods. Cheap tax software The straight line method over a GDS recovery period. Cheap tax software The straight line method over an ADS recovery period. Cheap tax software Table 4-1. Cheap tax software Depreciation Methods Note. Cheap tax software The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Cheap tax software Method Type of Property Benefit GDS using 200% DB • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction GDS using 150% DB • All farm property (except real property) • All 15- and 20-year property (except qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service before January 1, 2014) • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction1 GDS using SL • Nonresidential real property • Qualified leasehold improvement property placed in service before January 1, 2014 • Qualified restaurant property placed in service before January 1, 2014 • Qualified retail improvement property placed in service before January 1, 2014 • Residential rental property • Trees or vines bearing fruit or nuts • Water utility property • All 3-, 5-, 7-, 10-, 15-, and 20-year property2 • Property for which you elected section 168(k)(4) • Provides for equal yearly deductions (except for the first and last years) ADS using SL • Listed property used 50% or less for business • Property used predominantly outside the U. Cheap tax software S. Cheap tax software  • Tax-exempt property • Tax-exempt bond-financed property • Farm property used when an election not to apply the uniform capitalization rules is in effect • Imported property3 • Any property for which you elect to use this method4 • Provides for equal yearly deductions (except for the first and last years) 1The MACRS percentage tables in Appendix A have the switch to the straight line method built into their rates 2See section 168(b)(5) of the Internal Revenue Code. Cheap tax software 3See section 168(g)(6) of the Internal Revenue Code 4See section 168(g)(7) of the Internal Revenue Code How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that applies to your property. Cheap tax software Then, you are ready to figure your depreciation deduction. Cheap tax software You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. Cheap tax software Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. Cheap tax software These percentage tables are in Appendix A near the end of this publication. Cheap tax software Which table to use. Cheap tax software    Appendix A contains the MACRS Percentage Table Guide, which is designed to help you locate the correct percentage table to use for depreciating your property. Cheap tax software The percentage tables immediately follow the guide. Cheap tax software Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. Cheap tax software You must apply the rates in the percentage tables to your property's unadjusted basis. Cheap tax software You cannot use the percentage tables for a short tax year. Cheap tax software See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. Cheap tax software Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the property. Cheap tax software You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to that property that is depreciated as a separate item of property. Cheap tax software Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss. Cheap tax software Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. Cheap tax software   If you increase the basis of your property because of the recapture of part or all of a deduction for clean-fuel vehicles or the credit for clean-fuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. Cheap tax software For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. Cheap tax software See Figuring the Deduction Without Using the Tables, later. Cheap tax software Basis adjustment due to casualty loss. Cheap tax software   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Cheap tax software For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. Cheap tax software See Figuring the Deduction Without Using the Tables, later. Cheap tax software Example. Cheap tax software On October 26, 2012, Sandra Elm, a calendar year taxpayer, bought and placed in service in her business a new item of 7-year property. Cheap tax software It cost $39,000 and she elected a section 179 deduction of $24,000. Cheap tax software She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. Cheap tax software Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). Cheap tax software She figured her MACRS depreciation deduction using the percentage tables. Cheap tax software For 2012, her MACRS depreciation deduction was $268. Cheap tax software In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. Cheap tax software She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. Cheap tax software Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. Cheap tax software She figures that amount by subtracting the 2012 MACRS depreciation of $268 and the casualty loss of $3,000 from the unadjusted basis of $7,500. Cheap tax software She must now figure her depreciation for 2013 without using the percentage tables. Cheap tax software Figuring the Unadjusted Basis of Your Property You must apply the table rates to your property's unadjusted basis each year of the recovery period. Cheap tax software Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. Cheap tax software However, you do reduce your original basis by other amounts, including the following. Cheap tax software Any amortization taken on the property. Cheap tax software Any section 179 deduction claimed. Cheap tax software Any special depreciation allowance taken on the property. Cheap tax software For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. Cheap tax software If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments. Cheap tax software MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Cheap tax software Use a separate worksheet for each item of property. Cheap tax software Then, use the information from this worksheet to prepare Form 4562. Cheap tax software Do not use this worksheet for automobiles. Cheap tax software Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. Cheap tax software MACRS Worksheet Part I   1. Cheap tax software MACRS system (GDS or ADS)   2. Cheap tax software Property class   3. Cheap tax software Date placed in service   4. Cheap tax software Recovery period   5. Cheap tax software Method and convention   6. Cheap tax software Depreciation rate (from tables)   Part II   7. Cheap tax software Cost or other basis* $     8. Cheap tax software Business/investment use   %   9. Cheap tax software Multiply line 7 by line 8   $ 10. Cheap tax software Total claimed for section 179 deduction and other items   $ 11. Cheap tax software Subtract line 10 from line 9. Cheap tax software This is your tentative basis for depreciation   $ 12. Cheap tax software Multiply line 11 by . Cheap tax software 50 if the 50% special depreciation allowance applies. Cheap tax software This is your special depreciation allowance. Cheap tax software Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   $ 13. Cheap tax software Subtract line 12 from line 11. Cheap tax software This is your basis for depreciation     14. Cheap tax software Depreciation rate (from line 6)     15. Cheap tax software Multiply line 13 by line 14. Cheap tax software This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. Cheap tax software The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. Cheap tax software Example. Cheap tax software You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. Cheap tax software You use the furniture only for business. Cheap tax software This is the only property you placed in service this year. Cheap tax software You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance so your property's unadjusted basis is its cost, $10,000. Cheap tax software You use GDS and the half-year convention to figure your depreciation. Cheap tax software You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. Cheap tax software Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. Cheap tax software You figure your depreciation deduction using the MACRS worksheet as follows. Cheap tax software MACRS Worksheet Part I 1. Cheap tax software MACRS system (GDS or ADS) GDS 2. Cheap tax software Property class 7-year 3. Cheap tax software Date placed in service 8/11/13 4. Cheap tax software Recovery period 7-Year 5. Cheap tax software Method and convention 200%DB/Half-Year 6. Cheap tax software Depreciation rate (from tables) . Cheap tax software 1429 Part II 7. Cheap tax software Cost or other basis* $10,000     8. Cheap tax software Business/investment use 100 %   9. Cheap tax software Multiply line 7 by line 8   $10,000 10. Cheap tax software Total claimed for section 179 deduction and other items   -0- 11. Cheap tax software Subtract line 10 from line 9. Cheap tax software This is your tentative basis for depreciation   $10,000 12. Cheap tax software Multiply line 11 by . Cheap tax software 50 if the 50% special depreciation allowance applies. Cheap tax software This is your special depreciation allowance. Cheap tax software Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   -0- 13. Cheap tax software Subtract line 12 from line 11. Cheap tax software This is your basis for depreciation   $10,000 14. Cheap tax software Depreciation rate (from line 6)   . Cheap tax software 1429 15. Cheap tax software Multiply line 13 by line 14. Cheap tax software This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. Cheap tax software If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows. Cheap tax software Year   Basis Percentage Deduction 2014 $ 10,000 24. Cheap tax software 49%   $2,449   2015   10,000 17. Cheap tax software 49   1,749   2016   10,000 12. Cheap tax software 49   1,249   2017   10,000 8. Cheap tax software 93   893   2018   10,000 8. Cheap tax software 92   892   2019   10,000 8. Cheap tax software 93   893   2020   10,000 4. Cheap tax software 46   446   Examples The following examples are provided to show you how to use the percentage tables. Cheap tax software In both examples, assume the following. Cheap tax software You use the property only for business. Cheap tax software You use the calendar year as your tax year. Cheap tax software You use GDS for all the properties. Cheap tax software Example 1. Cheap tax software You bought a building and land for $120,000 and placed it in service on March 8. Cheap tax software The sales contract showed that the building cost $100,000 and the land cost $20,000. Cheap tax software It is nonresidential real property. Cheap tax software The building's unadjusted basis is its original cost, $100,000. Cheap tax software You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. Cheap tax software March is the third month of your tax year, so multiply the building's unadjusted basis, $100,000, by the percentages for the third month in Table A-7a. Cheap tax software Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. Cheap tax software 033%   $2,033   2nd   100,000 2. Cheap tax software 564   2,564   3rd   100,000 2. Cheap tax software 564   2,564   Example 2. Cheap tax software During the year, you bought a machine (7-year property) for $4,000, office furniture (7-year property) for $1,000, and a computer (5-year property) for $5,000. Cheap tax software You placed the machine in service in January, the furniture in September, and the computer in October. Cheap tax software You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. Cheap tax software You placed property in service during the last 3 months of the year, so you must first determine if you have to use the mid-quarter convention. Cheap tax software The total bases of all property you placed in service during the year is $10,000. Cheap tax software The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. Cheap tax software Therefore, you must use the mid-quarter convention for all three items. Cheap tax software You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. Cheap tax software The machine is 7-year property placed in service in the first quarter, so you use Table A-2. Cheap tax software The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. Cheap tax software Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. Cheap tax software Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. Cheap tax software Year Property Basis Percentage Deduction 1st Machine $4,000 25. Cheap tax software 00 $1,000   2nd Machine 4,000 21. Cheap tax software 43 857   1st Furniture 1,000 10. Cheap tax software 71 107   2nd Furniture 1,000 25. Cheap tax software 51 255   1st Computer 5,000 5. Cheap tax software 00 250   2nd Computer 5,000 38. Cheap tax software 00 1,900   Sale or Other Disposition Before the Recovery Period Ends If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. Cheap tax software You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. Cheap tax software After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. Cheap tax software Half-year convention used. Cheap tax software   For property for which you used a half-year convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year. Cheap tax software Mid-quarter convention used. Cheap tax software   For property for which you used the mid-quarter convention, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter in which you disposed of the property. Cheap tax software Quarter Percentage First 12. Cheap tax software 5% Second 37. Cheap tax software 5 Third 62. Cheap tax software 5 Fourth 87. Cheap tax software 5 Example. Cheap tax software On December 2, 2010, you placed in service an item of 5-year property costing $10,000. Cheap tax software You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Cheap tax software Your unadjusted basis for the property was $10,000. Cheap tax software You used the mid-quarter convention because this was the only item of business property you placed in service in 2010 and it was placed in service during the last 3 months of your tax year. Cheap tax software Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. Cheap tax software Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. Cheap tax software 80% of $10,000). Cheap tax software You disposed of the property on April 6, 2013. Cheap tax software To determine your depreciation deduction for 2013, first figure the deduction for the full year. Cheap tax software This is $1,368 (13. Cheap tax software 68% of $10,000). Cheap tax software April is in the second quarter of the year, so you multiply $1,368 by 37. Cheap tax software 5% to get your depreciation deduction of $513 for 2013. Cheap tax software Mid-month convention used. Cheap tax software   If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. Cheap tax software The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. Cheap tax software The denominator is 12. Cheap tax software Example. Cheap tax software On July 2, 2011, you purchased and placed in service residential rental property. Cheap tax software The property cost $100,000, not including the cost of land. Cheap tax software You used Table A-6 to figure your MACRS depreciation for this property. Cheap tax software You sold the property on March 2, 2013. Cheap tax software You file your tax return based on the calendar year. Cheap tax software A full year of depreciation for 2013 is $3,636. Cheap tax software This is $100,000 multiplied by . Cheap tax software 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . Cheap tax software You then apply the mid-month convention for the 2½ months of use in 2013. Cheap tax software Treat the month of disposition as one-half month of use. Cheap tax software Multiply $3,636 by the fraction, 2. Cheap tax software 5 over 12, to get your 2013 depreciation deduction of $757. Cheap tax software 50. Cheap tax software Figuring the Deduction Without Using the Tables Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. Cheap tax software Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. Cheap tax software Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. Cheap tax software Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. Cheap tax software You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. Cheap tax software The straight line method is explained later. Cheap tax software You figure depreciation for the year you place property in service as follows. Cheap tax software Multiply your adjusted basis in the property by the declining balance rate. Cheap tax software Apply the applicable convention. Cheap tax software You figure depreciation for all other years (before the year you switch to the straight line method) as follows. Cheap tax software Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. Cheap tax software Multiply this new adjusted basis by the same declining balance rate used in earlier years. Cheap tax software If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it. Cheap tax software Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. Cheap tax software Declining balance rate. Cheap tax software   You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. Cheap tax software For example, for 3-year property depreciated using the 200% declining balance method, divide 2. Cheap tax software 00 (200%) by 3 to get 0. Cheap tax software 6667, or a 66. Cheap tax software 67% declining balance rate. Cheap tax software For 15-year property depreciated using the 150% declining balance method, divide 1. Cheap tax software 50 (150%) by 15 to get 0. Cheap tax software 10, or a 10% declining balance rate. Cheap tax software   The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction. Cheap tax software Property Class Method Declining Balance Rate Year 3-year 200% DB 66. Cheap tax software 667% 3rd 5-year 200% DB 40. Cheap tax software 0 4th 7-year 200% DB 28. Cheap tax software 571 5th 10-year 200% DB 20. Cheap tax software 0 7th 15-year 150% DB 10. Cheap tax software 0 7th 20-year 150% DB 7. Cheap tax software 5 9th Straight Line Method When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. Cheap tax software You must use the applicable convention in the year you place the property in service and the year you dispose of the property. Cheap tax software You figure depreciation for the year you place property in service as follows. Cheap tax software Multiply your adjusted basis in the property by the straight line rate. Cheap tax software Apply the applicable convention. Cheap tax software You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. Cheap tax software Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). Cheap tax software Determine the depreciation rate for the year. Cheap tax software Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). Cheap tax software If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it. Cheap tax software Straight line rate. Cheap tax software   You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. Cheap tax software When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. Cheap tax software If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. Cheap tax software 0 (100%). Cheap tax software Using the Applicable Convention The applicable convention (discussed earlier under Which Convention Applies ) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. Cheap tax software It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. Cheap tax software See Straight line rate in the previous discussion. Cheap tax software Use the applicable convention as explained in the following discussions. Cheap tax software Half-year convention. Cheap tax software   If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. Cheap tax software You deduct a full year of depreciation for any other year during the recovery period. Cheap tax software   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. Cheap tax software If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. Cheap tax software If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property. Cheap tax software Mid-quarter convention. Cheap tax software   If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service. Cheap tax software   A quarter of a full 12-month tax year is a period of 3 months. Cheap tax software The first quarter in a year begins on the first day of the tax year. Cheap tax software The second quarter begins on the first day of the fourth month of the tax year. Cheap tax software The third quarter begins on the first day of the seventh month of the tax year. Cheap tax software The fourth quarter begins on the first day of the tenth month of the tax year. Cheap tax software A calendar year is divided into the following quarters. Cheap tax software Quarter Months First January, February, March Second April, May, June Third July, August, September Fourth October, November, December   Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service. Cheap tax software Quarter Percentage First 87. Cheap tax software 5% Second 62. Cheap tax software 5 Third 37. Cheap tax software 5 Fourth 12. Cheap tax software 5   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property. Cheap tax software Quarter Percentage First 12. Cheap tax software 5% Second 37. Cheap tax software 5 Third 62. Cheap tax software 5 Fourth 87. Cheap tax software 5   If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property. Cheap tax software Mid-month convention. Cheap tax software   If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. Cheap tax software Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. Cheap tax software The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. Cheap tax software 5). Cheap tax software The denominator is 12. Cheap tax software   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. Cheap tax software If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property. Cheap tax software Example. Cheap tax software You use the calendar year and place nonresidential real property in service in August. Cheap tax software The property is in service 4 full months (September, October, November, and December). Cheap tax software Your numerator is 4. Cheap tax software 5 (4 full months plus 0. Cheap tax software 5). Cheap tax software You multiply the depreciation for a full year by 4. Cheap tax software 5/12, or 0. Cheap tax software 375. Cheap tax software Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. Cheap tax software Figures are rounded for purposes of the examples. Cheap tax software Assume for all the examples that you use a calendar year as your tax year. Cheap tax software Example 1—200% DB method and half-year convention. Cheap tax software In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. Cheap tax software You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. Cheap tax software You use GDS and the 200% declining balance (DB) method to figure your depreciation. Cheap tax software When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. Cheap tax software You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. Cheap tax software First year. Cheap tax software You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). Cheap tax software The result is 40%. Cheap tax software You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. Cheap tax software You apply the half-year convention by dividing the result ($400) by 2. Cheap tax software Depreciation for the first year under the 200% DB method is $200. Cheap tax software You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. Cheap tax software The result is 20%. Cheap tax software You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. Cheap tax software You apply the half-year convention by dividing the result ($200) by 2. Cheap tax software Depreciation for the first year under the SL method is $100. Cheap tax software The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. Cheap tax software Second year. Cheap tax software You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). Cheap tax software You multiply the result ($800) by the DB rate (40%). Cheap tax software Depreciation for the second year under the 200% DB method is $320. Cheap tax software You figure the SL depreciation rate by dividing 1 by 4. Cheap tax software 5, the number of years remaining in the recovery period. Cheap tax software (Based on the half-year convention, you used only half a year of the recovery period in the first year. Cheap tax software ) You multiply the reduced adjusted basis ($800) by the result (22. Cheap tax software 22%). Cheap tax software Depreciation under the SL method for the second year is $178. Cheap tax software The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. Cheap tax software Third year. Cheap tax software You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). Cheap tax software You multiply the result ($480) by the DB rate (40%). Cheap tax software Depreciation for the third year under the 200% DB method is $192. Cheap tax software You figure the SL depreciation rate by dividing 1 by 3. Cheap tax software 5. Cheap tax software You multiply the reduced adjusted basis ($480) by the result (28. Cheap tax software 57%). Cheap tax software Depreciation under the SL method for the third year is $137. Cheap tax software The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. Cheap tax software Fourth year. Cheap tax software You reduce the adjusted basis ($480) by the de