Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Dfas Mil

Amended Income Tax ReturnH&r Block 1040x1040ez Form Instructions1040x Form 2013My Free TaxH R Block TaxWhere To File 2011 Tax ReturnFiling 2012 Taxes In 2014Student Income TaxHow To Make A Tax Amendment1040ez Forms Download FreeHow To File Amended TaxesMississippi State Tax Return Forms 2012Www Irs Gov Amended ReturnFree Tax Return CalculatorHow Do You Amend Your Tax ReturnWhere Can I File My 2011 Taxes For FreeFiling 2010 Taxes Late1040ez BookletState Income TaxHow To File Tax AmendmentWww.irs.gov Form 1040xHow Do I File A 2010 Tax Return2013 Ez Tax FormH R Block 1040xFree E File State TaxesFile An Amended Tax ReturnFreetaxusa ComFile Federal Taxes Online Free 2012Irs 1040 Ez OnlineEfile 1040x OnlineIrs Ez FileIrs Forms 1040Income Tax Return PreparationAmend 2011 Tax Return OnlineEfile Tax ReturnHr Block Online2012 Amended Tax Form10ezStudent Tax Form 1098 T

Dfas Mil

Dfas mil 10. Dfas mil   Self-Employment (SE) Tax Table of Contents Who Must Pay SE Tax?Special Rules and Exceptions Figuring Earnings Subject to SE Tax Farm Optional Method Using Both Optional Methods Reporting Self-Employment Tax The SE tax rules apply no matter how old you are and even if you are already receiving social security and Medicare benefits. Dfas mil Who Must Pay SE Tax? Generally, you must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. Dfas mil Use Schedule SE to figure net earnings from self-employment. Dfas mil Sole proprietor or independent contractor. Dfas mil   If you are self-employed as a sole proprietor or independent contractor, you generally use Schedule C or C-EZ (Form 1040) to figure your earnings subject to SE tax. Dfas mil SE tax rate. Dfas mil    For 2013, the SE tax rate on net earnings is 15. Dfas mil 3% (12. Dfas mil 4% social security tax plus 2. Dfas mil 9% Medicare tax). Dfas mil Maximum earnings subject to self-employment tax. Dfas mil    Only the first $113,700 of your combined wages, tips, and net earnings in 2013 is subject to any combination of the 12. Dfas mil 4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax. Dfas mil   All of your combined wages, tips, and net earnings in 2013 are subject to any combination of the 2. Dfas mil 9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax. Dfas mil   If your wages and tips are subject to either social security or railroad retirement (tier 1) tax, or both, and total at least $113,700, do not pay the 12. Dfas mil 4% social security part of the SE tax on any of your net earnings. Dfas mil However, you must pay the 2. Dfas mil 9% Medicare part of the SE tax on all your net earnings. Dfas mil Special Rules and Exceptions Aliens. Dfas mil   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. Dfas mil S. Dfas mil citizens. Dfas mil Nonresident aliens are not subject to SE tax unless an international social security agreement in effect determines that they are covered under the U. Dfas mil S. Dfas mil social security system. Dfas mil However, residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to self-employment tax, as they are considered U. Dfas mil S. Dfas mil residents for self-employment tax purposes. Dfas mil For more information on aliens, see Publication 519, U. Dfas mil S. Dfas mil Tax Guide for Aliens. Dfas mil Child employed by parent. Dfas mil   You are not subject to SE tax if you are under age 18 and you are working for your father or mother. Dfas mil Church employee. Dfas mil    If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108. Dfas mil 28 or more in wages from the church or organization. Dfas mil For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Dfas mil Fishing crew member. Dfas mil   If you are a member of the crew on a boat that catches fish or other water life, your earnings are subject to SE tax if all the following conditions apply. Dfas mil You do not get any pay for the work except your share of the catch or a share of the proceeds from the sale of the catch, unless the pay meets all the following conditions. Dfas mil The pay is not more than $100 per trip. Dfas mil The pay is received only if there is a minimum catch. Dfas mil The pay is solely for additional duties (such as mate, engineer, or cook) for which additional cash pay is traditional in the fishing industry. Dfas mil You get a share of the catch or a share of the proceeds from the sale of the catch. Dfas mil Your share depends on the amount of the catch. Dfas mil The boat's operating crew normally numbers fewer than 10 individuals. Dfas mil (An operating crew is considered as normally made up of fewer than 10 if the average size of the crew on trips made during the last four calendar quarters is fewer than 10. Dfas mil ) Notary public. Dfas mil   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ but are not subject to self-employment tax (see the Instructions for Schedule SE (Form 1040)). Dfas mil State or local government employee. Dfas mil   You are subject to SE tax if you are an employee of a state or local government, are paid solely on a fee basis, and your services are not covered under a federal-state social security agreement. Dfas mil Foreign government or international organization employee. Dfas mil   You are subject to SE tax if both the following conditions are true. Dfas mil You are a U. Dfas mil S. Dfas mil citizen employed in the United States, Puerto Rico, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, or the Virgin Islands by: A foreign government, A wholly-owned agency of a foreign government, or An international organization. Dfas mil Your employer is not required to withhold social security and Medicare taxes from your wages. Dfas mil U. Dfas mil S. Dfas mil citizen or resident alien residing abroad. Dfas mil    If you are a self-employed U. Dfas mil S. Dfas mil citizen or resident alien living outside the United States, in most cases you must pay SE tax. Dfas mil Do not reduce your foreign earnings from self-employment by your foreign earned income exclusion. Dfas mil Exception. Dfas mil    The United States has social security agreements with many countries to eliminate double taxation under two social security systems. Dfas mil Under these agreements, you generally must only pay social security and Medicare taxes to the country in which you live. Dfas mil The country to which you must pay the tax will issue a certificate which serves as proof of exemption from social security tax in the other country. Dfas mil   For more information, see the Instructions for Schedule SE (Form 1040). Dfas mil More Than One Business If you have earnings subject to SE tax from more than one trade, business, or profession, you must combine the net profit (or loss) from each to determine your total earnings subject to SE tax. Dfas mil A loss from one business reduces your profit from another business. Dfas mil Community Property Income If any of the income from a trade or business, other than a partnership, is community property income under state law, it is included in the earnings subject to SE tax of the spouse carrying on the trade or business. Dfas mil Gain or Loss Do not include in earnings subject to SE tax a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Dfas mil It does not matter whether the disposition is a sale, exchange, or an involuntary conversion. Dfas mil Lost Income Payments If you are self-employed and reduce or stop your business activities, any payment you receive from insurance or other sources for the lost business income is included in earnings subject to SE tax. Dfas mil If you are not working when you receive the payment, it still relates to your business and is included in earnings subject to SE tax, even though your business is temporarily inactive. Dfas mil Figuring Earnings Subject to SE Tax Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. Dfas mil The regular method. Dfas mil The nonfarm optional method. Dfas mil The farm optional method. Dfas mil You must use the regular method unless you are eligible to use one or both of the optional methods. Dfas mil Why use an optional method?    You may want to use the optional methods (discussed later) when you have a loss or a small net profit and any one of the following applies. Dfas mil You want to receive credit for social security benefit coverage. Dfas mil You incurred child or dependent care expenses for which you could claim a credit. Dfas mil (An optional method may increase your earned income, which could increase your credit. Dfas mil ) You are entitled to the earned income credit. Dfas mil (An optional method may increase your earned income, which could increase your credit. Dfas mil ) You are entitled to the additional child tax credit. Dfas mil (An optional method may increase your earned income, which could increase your credit. Dfas mil ) Effects of using an optional method. Dfas mil   Using an optional method could increase your SE tax. Dfas mil Paying more SE tax could result in your getting higher benefits when you retire. Dfas mil   If you use either or both optional methods, you must figure and pay the SE tax due under these methods even if you would have had a smaller tax or no tax using the regular method. Dfas mil   The optional methods may be used only to figure your SE tax. Dfas mil To figure your income tax, include your actual earnings in gross income, regardless of which method you use to determine SE tax. Dfas mil Regular Method Multiply your total earnings subject to SE tax by 92. Dfas mil 35% (. Dfas mil 9235) to get your net earnings under the regular method. Dfas mil See Short Schedule SE, line 4, or Long Schedule SE, line 4a. Dfas mil Net earnings figured using the regular method are also called actual net earnings. Dfas mil Nonfarm Optional Method Use the nonfarm optional method only for earnings that do not come from farming. Dfas mil You may use this method if you meet all the following tests. Dfas mil You are self-employed on a regular basis. Dfas mil This means that your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. Dfas mil The net earnings can be from either farm or nonfarm earnings or both. Dfas mil You have used this method less than 5 years. Dfas mil (There is a 5-year lifetime limit. Dfas mil ) The years do not have to be one after another. Dfas mil Your net nonfarm profits were: Less than $5,024, and Less than 72. Dfas mil 189% of your gross nonfarm income. Dfas mil Net nonfarm profits. Dfas mil   Net nonfarm profit generally is the total of the amounts from: Line 31, Schedule C (Form 1040), Line 3, Schedule C-EZ (Form 1040), Box 14, code A, Schedule K-1 (Form 1065) (from nonfarm partnerships), and Box 9, code J1, Schedule K-1 (Form 1065-B). Dfas mil   However, you may need to adjust the amount reported on Schedule K-1 if you are a general partner or if it is a loss. Dfas mil Gross nonfarm income. Dfas mil   Your gross nonfarm income generally is the total of the amounts from: Line 7, Schedule C (Form 1040), Line 1, Schedule C-EZ (Form 1040), Box 14, code C, Schedule K-1 (Form 1065) (from nonfarm partnerships), and Box 9, code J2, Schedule K-1 (Form 1065-B). Dfas mil Figuring Nonfarm Net Earnings If you meet the three tests explained earlier, use the following table to figure your net earnings from self-employment under the nonfarm optional method. Dfas mil Table 10-1. Dfas mil Figuring Nonfarm Net Earnings IF your gross nonfarm income is. Dfas mil . Dfas mil . Dfas mil THEN your net earnings are equal to. Dfas mil . Dfas mil . Dfas mil $6,960 or less Two-thirds of your gross nonfarm income. Dfas mil More than $6,960 $4,640 Actual net earnings. Dfas mil   Your actual net earnings are 92. Dfas mil 35% of your total earnings subject to SE tax (that is, multiply total earnings subject to SE tax by 92. Dfas mil 35% (. Dfas mil 9235) to get actual net earnings). Dfas mil Actual net earnings are equivalent to net earnings figured using the regular method. Dfas mil Optional net earnings less than actual net earnings. Dfas mil   You cannot use this method to report an amount less than your actual net earnings from self-employment. Dfas mil Gross nonfarm income of $6,960 or less. Dfas mil   The following examples illustrate how to figure net earnings when gross nonfarm income is $6,960 or less. Dfas mil Example 1. Dfas mil Net nonfarm profit less than $5,024 and less than 72. Dfas mil 189% of gross nonfarm income. Dfas mil Ann Green runs a craft business. Dfas mil Her actual net earnings from self-employment were $800 in 2011 and $900 in 2012. Dfas mil She meets the test for being self-employed on a regular basis. Dfas mil She has used the nonfarm optional method less than 5 years. Dfas mil Her gross income and net profit in 2013 are as follows: Gross nonfarm income $5,400 Net nonfarm profit $1,200 Ann's actual net earnings for 2013 are $1,108 ($1,200 × . Dfas mil 9235). Dfas mil Because her net profit is less than $5,024 and less than 72. Dfas mil 189% of her gross income, she can use the nonfarm optional method to figure net earnings of $3,600 (2/3 × $5,400). Dfas mil Because these net earnings are higher than her actual net earnings, she can report net earnings of $3,600 for 2013. Dfas mil Example 2. Dfas mil Net nonfarm profit less than $5,024 but not less than 72. Dfas mil 189% of gross nonfarm income. Dfas mil Assume that in Example 1 Ann's gross income is $1,000 and her net profit is $800. Dfas mil She must use the regular method to figure her net earnings. Dfas mil She cannot use the nonfarm optional method because her net profit is not less than 72. Dfas mil 189% of her gross income. Dfas mil Example 3. Dfas mil Net loss from a nonfarm business. Dfas mil Assume that in Example 1 Ann has a net loss of $700. Dfas mil She can use the nonfarm optional method and report $3,600 (2/3 × $5,400) as her net earnings. Dfas mil Example 4. Dfas mil Nonfarm net earnings less than $400. Dfas mil Assume that in Example 1 Ann has gross income of $525 and a net profit of $175. Dfas mil In this situation, she would not pay any SE tax under either the regular method or the nonfarm optional method because her net earnings under both methods are less than $400. Dfas mil Gross nonfarm income of more than $6,960. Dfas mil   The following examples illustrate how to figure net earnings when gross nonfarm income is more than $6,960. Dfas mil Example 1. Dfas mil Net nonfarm profit less than $5,024 and less than 72. Dfas mil 189% of gross nonfarm income. Dfas mil John White runs an appliance repair shop. Dfas mil His actual net earnings from self-employment were $10,500 in 2011 and $9,500 in 2012. Dfas mil He meets the test for being self-employed on a regular basis. Dfas mil He has used the nonfarm optional method less than 5 years. Dfas mil His gross income and net profit in 2013 are as follows: Gross nonfarm income $12,000 Net nonfarm profit $1,200 John's actual net earnings for 2013 are $1,108 ($1,200 × . Dfas mil 9235). Dfas mil Because his net profit is less than $5,024 and less than 72. Dfas mil 189% of his gross income, he can use the nonfarm optional method to figure net earnings of $4,640. Dfas mil Because these net earnings are higher than his actual net earnings, he can report net earnings of $4,640 for 2013. Dfas mil Example 2. Dfas mil Net nonfarm profit not less than $5,024. Dfas mil Assume that in Example 1 John's net profit is $5,400. Dfas mil He must use the regular method. Dfas mil He cannot use the nonfarm optional method because his net nonfarm profit is not less than $5,024. Dfas mil Example 3. Dfas mil Net loss from a nonfarm business. Dfas mil Assume that in Example 1 John has a net loss of $700. Dfas mil He can use the nonfarm optional method and report $4,640 as his net earnings from self-employment. Dfas mil Farm Optional Method Use the farm optional method only for earnings from a farming business. Dfas mil See Publication 225 for information about this method. Dfas mil Using Both Optional Methods If you have both farm and nonfarm earnings, you may be able to use both optional methods to determine your net earnings from self-employment. Dfas mil To figure your net earnings using both optional methods, you must: Figure your farm and nonfarm net earnings separately under each method. Dfas mil Do not combine farm earnings with nonfarm earnings to figure your net earnings under either method. Dfas mil Add the net earnings figured under each method to arrive at your total net earnings from self-employment. Dfas mil You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. Dfas mil If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. Dfas mil Example. Dfas mil You are a self-employed farmer. Dfas mil You also operate a retail grocery store. Dfas mil Your gross income, actual net earnings from self-employment, and optional farm and optional nonfarm net earnings from self-employment are shown in Table 10-2. Dfas mil Table 10-2. Dfas mil Example—Farm and Nonfarm Earnings Income and Earnings Farm Nonfarm Gross income $3,000 $6,000 Actual net earnings $900 $500 Optional net earnings (2/3 of gross income) $2,000 $4,000 Table 10-3 shows four methods or combinations of methods you can use to figure net earnings from self-employment using the farm and nonfarm gross income and actual net earnings shown in Table 10-2. Dfas mil Method 1. Dfas mil Using the regular method for both farm and nonfarm income. Dfas mil Method 2. Dfas mil Using the optional method for farm income and the regular method for nonfarm income. Dfas mil Method 3. Dfas mil Using the regular method for farm income and the optional method for nonfarm income. Dfas mil Method 4. Dfas mil Using the optional method for both farm and nonfarm income. Dfas mil Note. Dfas mil Actual net earnings is the same as net earnings figured using the regular method. Dfas mil Table 10-3. Dfas mil Example—Net Earnings Net Earnings 1 2 3 4 Actual  farm $ 900   $ 900   Optional  farm   $ 2,000   $ 2,000 Actual nonfarm $ 500 $ 500     Optional nonfarm     $4,000 $4,000 Amount you can report: $1,400 $2,500 $4,900 $4,640* *Limited to $4,640 because you used both optional methods. Dfas mil Fiscal Year Filer If you use a tax year other than the calendar year, you must use the tax rate and maximum earnings limit in effect at the beginning of your tax year. Dfas mil Even if the tax rate or maximum earnings limit changes during your tax year, continue to use the same rate and limit throughout your tax year. Dfas mil Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. Dfas mil Then enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. Dfas mil Most taxpayers can use Section A—Short Schedule SE to figure their SE tax. Dfas mil However, certain taxpayers must use Section B—Long Schedule SE. Dfas mil If you have to pay SE tax, you must file Form 1040 (with Schedule SE attached) even if you do not otherwise have to file a federal income tax return. Dfas mil Joint return. Dfas mil   Even if you file a joint return, you cannot file a joint Schedule SE. Dfas mil This is true whether one spouse or both spouses have earnings subject to SE tax. Dfas mil If both of you have earnings subject to SE tax, each of you must complete a separate Schedule SE. Dfas mil However, if one spouse uses the Short Schedule SE and the other spouse has to use the Long Schedule SE, both can use the same form. Dfas mil Attach both schedules to the joint return. Dfas mil More than one business. Dfas mil   If you have more than one trade or business, you must combine the net profit (or loss) from each business to figure your SE tax. Dfas mil A loss from one business will reduce your profit from another business. Dfas mil File one Schedule SE showing the earnings from self-employment, but file a separate Schedule C, C-EZ, or F for each business. Dfas mil Example. Dfas mil You are the sole proprietor of two separate businesses. Dfas mil You operate a restaurant that made a net profit of $25,000. Dfas mil You also have a cabinetmaking business that had a net loss of $500. Dfas mil You must file a Schedule C for the restaurant showing your net profit of $25,000 and another Schedule C for the cabinetmaking business showing your net loss of $500. Dfas mil You file Schedule SE showing total earnings subject to SE tax of $24,500. Dfas mil Prev  Up  Next   Home   More Online Publications
Español

The Dfas Mil

Dfas mil Depreciation Table of Contents Introduction Special Depreciation AllowanceQualified Property Election Not To Claim the Allowance Rules for Returns Filed Before June 1, 2002 Passenger Automobiles New York Liberty Zone BenefitsSpecial Liberty Zone Depreciation Allowance Increased Section 179 Deduction Liberty Zone Leasehold Improvement Property If you depreciate business property that you acquired and placed in service after September 10, 2001, new law contains provisions that may affect your depreciation deduction for that property. Dfas mil Publication 946, How To Depreciate Property, contains information on depreciation. Dfas mil However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. Dfas mil The new provisions are in the Supplement to Publication 946, which is reprinted below. Dfas mil Supplement to Publication 946 How To Depreciate Property   Introduction After Publication 946 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. Dfas mil The new law made several changes in the tax rules explained in the publication. Dfas mil Some of the changes apply to property placed in service during 2001. Dfas mil This supplemental publication describes those changes and explains what you should do if you are affected by them. Dfas mil The situations and examples in Publication 946 do not reflect any of the changes made by the Job Creation and Worker Assistance Act of 2002. Dfas mil The new law contains the following provisions. Dfas mil 30% depreciation deductions (special depreciation allowance and special New York Liberty Zone (Liberty Zone) depreciation allowance) for the year qualified property is placed in service after September 10, 2001. Dfas mil An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. Dfas mil A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. Dfas mil An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. Dfas mil If you believe you qualify for an increased deduction under any of these new rules, you must file the revised 2001 Form 4562 (dated March 2002) for 2001 calendar or fiscal years and 2000 fiscal years ending after September 10, 2001. Dfas mil If you have already filed a tax return, this supplemental publication explains how to claim these benefits and how to elect not to claim the special depreciation allowance or special Liberty Zone depreciation allowance. Dfas mil See Table 2 at the end of the supplement for an overview of the rules that apply if you filed your return before June 1, 2002. Dfas mil Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. Dfas mil The allowance is an additional deduction of 30% of the property's depreciable basis. Dfas mil To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Dfas mil See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Dfas mil The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Dfas mil There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Dfas mil In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Dfas mil Example 1. Dfas mil On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. Dfas mil You did not elect to claim a section 179 deduction. Dfas mil You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. Dfas mil You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. Dfas mil Example 2. Dfas mil The facts are the same as in Example 1, except that you choose to deduct $24,000 of the property's cost as a section 179 deduction. Dfas mil You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). Dfas mil You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. Dfas mil Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. Dfas mil It is new property of one of the following types. Dfas mil Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Dfas mil See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Dfas mil Water utility property. Dfas mil See 25-year property on page 22 in Publication 946. Dfas mil Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Dfas mil (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Dfas mil ) Qualified leasehold improvement property (defined later). Dfas mil It meets the following tests (explained later under Tests To Be Met). Dfas mil Acquisition date test. Dfas mil Placed in service date test. Dfas mil Original use test. Dfas mil It is not excepted property (explained later under Excepted Property). Dfas mil Qualified leasehold improvement property. Dfas mil    Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the following requirements are met. Dfas mil The improvement is made under or pursuant to a lease by the lessee (or any sublessee) or the lessor of that part of the building. Dfas mil That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. Dfas mil The improvement is placed in service more than 3 years after the date the building was first placed in service. Dfas mil   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. Dfas mil The enlargement of the building. Dfas mil Any elevator or escalator. Dfas mil Any structural component benefiting a common area. Dfas mil The internal structural framework of the building. Dfas mil   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. Dfas mil However, a binding commitment between related persons is not treated as a lease. Dfas mil Related persons. Dfas mil   For this purpose, the following are related persons. Dfas mil Members of an affiliated group. Dfas mil The persons listed in items (1) through (9) under Related persons on page 8 of Publication 946 (except that “80% or more” should be substituted for “more than 10%” each place it appears). Dfas mil An executor and a beneficiary of the same estate. Dfas mil Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. Dfas mil Acquisition date test. Dfas mil    Generally, you must have acquired the property either: After September 10, 2001, and before September 11, 2004, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or Pursuant to a written binding contract entered into after September 10, 2001, and before September 11, 2004. Dfas mil   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001, and before September 11, 2004. Dfas mil Placed in service date test. Dfas mil   Generally, the property must be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. Dfas mil   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Dfas mil Original use test. Dfas mil   The original use of the property must have begun with you after September 10, 2001. Dfas mil “Original use” means the first use to which the property is put, whether or not by you. Dfas mil Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. Dfas mil Excepted Property The following property does not qualify for the special depreciation allowance. Dfas mil Property used by any person before September 11, 2001. Dfas mil Property required to be depreciated using ADS. Dfas mil This includes listed property used 50% or less in a qualified business use. Dfas mil Qualified New York Liberty Zone leasehold improvement property (defined next). Dfas mil Qualified New York Liberty Zone leasehold improvement property. Dfas mil   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. Dfas mil The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). Dfas mil The improvement is placed in service after September 10, 2001, and before January 1, 2007. Dfas mil No written binding contract for the improvement was in effect before September 11, 2001. Dfas mil Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. Dfas mil If you make this election for any property, it applies to all property in the same property class placed in service during the year. Dfas mil To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Dfas mil When to make election. Dfas mil   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Dfas mil   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Dfas mil Attach the election statement to the amended return. Dfas mil At the top of the election statement, write “Filed pursuant to section 301. Dfas mil 9100–2. Dfas mil ” Revoking an election. Dfas mil   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Dfas mil A request to revoke the election is subject to a user fee. Dfas mil Rules for Returns Filed Before June 1, 2002 The following rules apply if you placed qualified property in service after September 10, 2001, and filed your return before June 1, 2002. Dfas mil The rules apply to returns for the following years. Dfas mil 2000 fiscal years that end after September 10, 2001. Dfas mil 2001 calendar and fiscal years. Dfas mil Claiming the allowance. Dfas mil   If you did not claim the allowance on your return and did not make the election not to claim the allowance, you can do either of the following to claim the allowance. Dfas mil File an amended return by the due date (not including extensions) of your return for the year following the year the property was placed in service. Dfas mil Write “Filed Pursuant to Rev. Dfas mil Proc. Dfas mil 2002–33” at the top of the amended return. Dfas mil File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. Dfas mil Your return must be filed by the due date (including extensions). Dfas mil Write “Automatic Change Filed Under Rev. Dfas mil Proc. Dfas mil 2002–33” on the appropriate line of Form 3115. Dfas mil You must also file a copy (with signature) of the completed Form 3115 with the IRS National Office no later than when you file the original with your return. Dfas mil For more information about filing Form 3115, including the address to send it to, see Revenue Procedure 2002–9, Revenue Procedure 2002–19, and Revenue Procedure 2002–33. Dfas mil Example 1. Dfas mil You are an individual and you use the calendar year. Dfas mil You placed qualified property in service for your business in December 2001. Dfas mil You filed your 2001 income tax return before April 15, 2002. Dfas mil You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. Dfas mil You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. Dfas mil Proc. Dfas mil 2002–33” at the top of the amended return. Dfas mil You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. Dfas mil Example 2. Dfas mil The facts concerning your 2001 return are the same as in Example 1. Dfas mil In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. Dfas mil You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. Dfas mil Proc. Dfas mil 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. Dfas mil You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. Dfas mil Electing not to claim the allowance. Dfas mil   Generally, you have elected not to claim the special depreciation allowance for a class of property if you: Filed your return timely (including extensions) for the year you placed qualified property in service and indicated on a statement with the return that you are not claiming the allowance, or Filed your return timely and filed an amended return within 6 months of the due date of the original return (not including extensions) and indicated on a statement with the amended return that you are not claiming the allowance. Dfas mil The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. Dfas mil The statement can be either attached to or written on the return. Dfas mil You can, for example, write “not deducting 30%” on Form 4562. Dfas mil Deemed election. Dfas mil   If you have not followed either of the procedures described above to elect not to claim the allowance, you may still be treated as making the election. Dfas mil You will be treated as making the election if you meet both of the following conditions. Dfas mil You filed your return for the year you placed the property in service and claimed depreciation, but not the special allowance, for any class of property. Dfas mil You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. Dfas mil See Claiming the allowance, earlier. Dfas mil Passenger Automobiles The limit on your depreciation deduction (including any section 179 deduction) for any passenger automobile that is qualified property (defined earlier) placed in service after September 10, 2001, and for which you claim the special depreciation allowance is increased. Dfas mil Generally, the limit is increased from $3,060 to $7,660. Dfas mil However, if the automobile is a qualified electric car, the limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002). Dfas mil Table 1 shows the maximum deduction amounts for 2001. Dfas mil Table 1. Dfas mil Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. Dfas mil 11 Placed in Service After Sept. Dfas mil 10 Passenger automobile $3,060 $7,660 Electric car 9,280 23,080 1 1$22,980 if you place an electric car in service in 2002. Dfas mil Election not to claim the allowance. Dfas mil   The increased maximum depreciation deduction does not apply if you elected not to claim the special depreciation allowance as explained earlier under Election Not To Claim the Allowance and Rules for Returns Filed Before June 1, 2002. Dfas mil New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). Dfas mil They include a special depreciation allowance for the year you place the property in service, an increased section 179 deduction, and the classification of certain leasehold improvement property as 5-year property. Dfas mil Area defined. Dfas mil   The New York Liberty Zone is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York. Dfas mil Special Liberty Zone Depreciation Allowance You can take a special depreciation allowance for qualified Liberty Zone property you place in service after September 10, 2001. Dfas mil The allowance is an additional deduction of 30% of the property's depreciable basis. Dfas mil To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Dfas mil See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Dfas mil The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Dfas mil There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Dfas mil In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Dfas mil You cannot claim the special Liberty Zone depreciation allowance for property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Dfas mil Qualified property is eligible for only one special depreciation allowance. Dfas mil Example 1. Dfas mil On November 1, 2001, you bought and placed in service in your business, which is in the Liberty Zone, qualified Liberty Zone property that cost $200,000. Dfas mil You did not elect to claim a section 179 deduction. Dfas mil You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. Dfas mil You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. Dfas mil Example 2. Dfas mil The facts are the same as in Example 1, except that you choose to deduct $59,000 of the property's cost as a section 179 deduction. Dfas mil (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). Dfas mil You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). Dfas mil You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. Dfas mil Qualified Liberty Zone Property For a 2001 calendar or fiscal year and a 2000 fiscal year that ends after September 10, 2001, property qualifies for the special Liberty Zone depreciation allowance if it meets the following requirements. Dfas mil It is one of the following types of property. Dfas mil Used property depreciated under MACRS with a recovery period of 20 years or less. Dfas mil See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Dfas mil Used water utility property. Dfas mil See 25-year property on page 22 in Publication 946. Dfas mil Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Dfas mil (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Dfas mil ) Certain nonresidential real property and residential rental property (defined later). Dfas mil It meets the following tests (explained later under Tests to be met). Dfas mil Acquisition date test. Dfas mil Placed in service date test. Dfas mil Substantial use test. Dfas mil Original use test. Dfas mil It is not excepted property (explained later under Excepted property). Dfas mil Nonresidential real property and residential rental property. Dfas mil   This property is qualifying property only to the extent it rehabilitates real property damaged, or replaces real property destroyed or condemned, as a result of the terrorist attack of September 11, 2001. Dfas mil Property is treated as replacing destroyed or condemned property if, as part of an integrated plan, such property replaces real property included in a continuous area that includes real property destroyed or condemned. Dfas mil   For these purposes, real property is considered destroyed (or condemned) only if an entire building or structure was destroyed (or condemned) as a result of the terrorist attack. Dfas mil Otherwise, the property is considered damaged real property. Dfas mil For example, if certain structural components of a building (such as walls, floors, or plumbing fixtures) are damaged or destroyed as a result of the terrorist attack, but the building is not destroyed (or condemned), then only costs related to replacing the damaged or destroyed structural components qualify for the special Liberty Zone depreciation allowance. Dfas mil Tests to be met. Dfas mil   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. Dfas mil Acquisition date test. Dfas mil   You must have acquired the property by purchase after September 10, 2001, and there must not have been a binding written contract for the acquisition in effect before September 11, 2001. Dfas mil   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. Dfas mil   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001. Dfas mil Placed in service date test. Dfas mil   Generally, the property must be placed in service for use in your trade or business or for the production of income before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property). Dfas mil   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Dfas mil Substantial use test. Dfas mil   Substantially all use of the property must be in the Liberty Zone and in the active conduct of your trade or business in the Liberty Zone. Dfas mil Original use test. Dfas mil   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. Dfas mil   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. Dfas mil Also, additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test if the original use of the property in the Liberty Zone began with you. Dfas mil Excepted property. Dfas mil   The following property does not qualify for the special Liberty Zone depreciation allowance. Dfas mil Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Dfas mil Property required to be depreciated using ADS. Dfas mil This includes listed property used 50% or less in a qualified business use. Dfas mil Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). Dfas mil Example. Dfas mil In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. Dfas mil New office furniture with a MACRS recovery period of 7 years. Dfas mil A used computer with a MACRS recovery period of 5 years. Dfas mil The computer had not previously been used within the Liberty Zone. Dfas mil Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. Dfas mil Because the computer is used property that had not previously been used in the Liberty Zone, it qualifies for the special Liberty Zone depreciation allowance, but not the special depreciation allowance. Dfas mil Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. Dfas mil If you make this election for any property, it applies to all property in the same property class placed in service during the year. Dfas mil To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Dfas mil When to make the election. Dfas mil   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Dfas mil   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Dfas mil Attach the election statement to the amended return. Dfas mil At the top of the election statement, write “Filed pursuant to section 301. Dfas mil 9100–2. Dfas mil ” Revoking an election. Dfas mil   Once you elect not to deduct the special Liberty Zone depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Dfas mil A request to revoke the election is subject to a user fee. Dfas mil Returns filed before June 1, 2002. Dfas mil   The rules that apply to the special depreciation allowance discussed earlier in Rules for Returns Filed Before June 1, 2002 under Special Depreciation Allowance also apply to the special Liberty Zone depreciation allowance. Dfas mil Increased Section 179 Deduction Under section 179 of the Internal Revenue Code, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Dfas mil For tax years beginning in 2000, that limit was $20,000. Dfas mil For tax years beginning in 2001 and 2002, that limit is generally $24,000. Dfas mil If the cost of qualifying section 179 property placed in service in a year is over $200,000, you must reduce the dollar limit (but not below zero) by the amount of the cost over $200,000. Dfas mil Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. Dfas mil The increase is the smaller of the following amounts. Dfas mil $35,000. Dfas mil The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. Dfas mil If you use the revised 2001 Form 4562 (dated March 2002) for a tax year beginning in 2000, you must reduce the section 179 dollar limit to $20,000 before adding the additional amount for qualified property. Dfas mil Qualified property. Dfas mil   To qualify for the increased section 179 deduction, your property must be section 179 property that is either: Qualified Liberty Zone property, or Property that would be qualified Liberty Zone property except that it is eligible for the special depreciation allowance. Dfas mil Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. Dfas mil Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. Dfas mil For information on the requirements that must be met for property to qualify for the section 179 deduction, see What Property Qualifies? on page 14 of Publication 946. Dfas mil Example 1. Dfas mil In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. Dfas mil Because this cost is less than $35,000, the dollar limit on the section 179 deduction is increased by $25,000 to $49,000 ($24,000 + $25,000). Dfas mil Example 2. Dfas mil In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. Dfas mil Because $35,000 is less than the cost of the property you place in service, the dollar limit on the section 179 deduction you can claim is increased by $35,000 to $59,000 ($24,000 + $35,000). Dfas mil Reduced Dollar Limit Generally, you must reduce the dollar limit for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. Dfas mil However, if the cost of your Liberty Zone property exceeds $200,000, you take into account only 50% (instead of 100%) of the cost of qualified property placed in service in a year. Dfas mil Example. Dfas mil In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. Dfas mil Your increased dollar limit is $59,000 ($35,000 + $24,000). Dfas mil Because 50% of the cost of the property you place in service ($230,000) is $30,000 more than $200,000, you must reduce your $59,000 dollar limit to $29,000 ($59,000 - $30,000). Dfas mil Recapture Rules Rules similar to those explained on page 20 of Publication 946 under When Must You Recapture the Deduction? apply with respect to any qualified property you stop using in the Liberty Zone. Dfas mil Returns Filed Before June 1, 2002 If you filed a return before June 1, 2002, and did not deduct the increased section 179 amount for qualified property placed in service after September 10, 2001, you can deduct the increased amount by filing an amended return by the due date (not including extensions) of the return for the year after the year the property was placed in service. Dfas mil This rule applies to returns for the following years. Dfas mil 2000 fiscal years that end after September 10, 2001. Dfas mil 2001 calendar and fiscal years. Dfas mil On the amended return, write “Filed Pursuant to Rev. Dfas mil Proc. Dfas mil 2002–33. Dfas mil ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. Dfas mil This means that it is depreciated over a recovery period of 5 years. Dfas mil For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. Dfas mil The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. Dfas mil Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. Dfas mil Returns Filed Before June 1, 2002 If you filed either of the following returns before June 1, 2002, and did not depreciate qualified Liberty Zone leasehold improvement property placed in service during the tax year as 5-year property using the straight line method, you should file an amended return before you file your return for the year after the year the property was placed in service. Dfas mil Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). Dfas mil Your 2001 calendar or fiscal year return. Dfas mil On the amended return, write “Filed Pursuant to Rev. Dfas mil Proc. Dfas mil 2002–33. Dfas mil ” Table 2. Dfas mil Rules for Returns Filed Before June 1, 2002 Note:This chart highlights the rules for returns affected by the Job Creation and Worker Assistance Act of 2002 that were filed before June 1, 2002, without accounting for any of the new benefits under the law. Dfas mil See the text for definitions and examples. Dfas mil Do not rely on this chart alone. Dfas mil IF you want to. Dfas mil . Dfas mil . Dfas mil THEN you. Dfas mil . Dfas mil . Dfas mil BY. Dfas mil . Dfas mil . Dfas mil claim the special depreciation allowance or special Liberty Zone depreciation allowance • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service, or • must file Form 3115, Application for Change in Accounting Method, with your return for the year after the year the property was placed in service • the due date (including extensions) of your return for the year after the year the property was placed in service, and • must file a copy of your completed Form 3115 with the IRS National Office • the date you file the original Form 3115 with your return for the year after the year the property was placed in service. Dfas mil elect not to claim the special depreciation allowance or the special Liberty Zone depreciation allowance 1 • must have filed your return timely for the year the property was placed in service, and   • must file an amended return stating you are not claiming the allowance • the date that is 6 months after the due date of the original return (not including extensions). Dfas mil deduct the increased section 179 amount • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service. Dfas mil use a 5-year recovery period for depreciating qualified Liberty Zone leasehold improvement property • should file an amended return • the date you file your return for the year after the year the property was placed in service. Dfas mil 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. Dfas mil Prev  Up  Next   Home   More Online Publications