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E file taxes Accelerated Cost Recovery System (ACRS) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: ACRS Defined What Can and Cannot Be Depreciated Under ACRSRecovery Property Nonrecovery Property How To Figure the DeductionUnadjusted Basis Classes of Recovery Property Recovery Periods Alternate ACRS Method (Modified Straight Line Method) ACRS Deduction in Short Tax Year DispositionsEarly dispositions of ACRS property other than 15-, 18-, or 19-year real property. E file taxes Dispositions — mass asset accounts. E file taxes Early dispositions — 15-year real property. E file taxes Early dispositions — 18- and 19-year real property. E file taxes Depreciation Recapture Topics - This chapter discusses: The definition of ACRS What can and cannot be depreciated under ACRS How to figure the deduction Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization The Accelerated Cost Recovery System (ACRS) applies to property first used before 1987. E file taxes It is the name given to tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. E file taxes These rules are mandatory and generally apply to tangible property placed in service after 1980 and before 1987. E file taxes If you placed property in service during this period, you must continue to figure your depreciation under ACRS. E file taxes If you used listed property placed in service after June 18, 1984, less than 50% for business in 1995, see Predominant Use Test in chapter 3. E file taxes Listed property includes cars, other means of transportation, and certain computers. E file taxes Any additions or improvements placed in service after 1986, including any components of a building (such as plumbing, wiring, storm windows, etc. E file taxes ), are depreciated using MACRS, discussed in chapter 3 of Publication 946. E file taxes It does not matter that the underlying property is depreciated under ACRS or one of the other methods. E file taxes ACRS Defined ACRS consists of accelerated depreciation methods and an alternate ACRS method that could have been elected. E file taxes The alternate ACRS method used a recovery percentage based on a modified straight line method. E file taxes The law prescribes fixed percentages to be uses for each class of property. E file taxes Property depreciable under ACRS is called recovery property. E file taxes The recovery class of property determines the recovery period. E file taxes Generally, the class life of property places it in a 3-year, 5-year, 10-year, 15-year, 18-year, or 19-year recovery class. E file taxes Under ACRS, the prescribed percentages are used to recover the unadjusted basis of recovery property. E file taxes To figure a depreciation deduction, you multiply the prescribed percentage for the recovery class by the unadjusted basis of the recovery property. E file taxes You must continue to figure your depreciation under ACRS for property placed in service after 1980 and before 1987. E file taxes For property you placed in service after 1986, you must use MACRS, discussed in chapter 3 of Publication 946. E file taxes What Can and Cannot Be Depreciated Under ACRS ACRS applies to most depreciable tangible property placed in service after 1980 and before 1987. E file taxes It includes new or used and real or personal property. E file taxes The property must be for use in a trade or business or for the production of income. E file taxes Property you acquired before 1981 or after 1986 is not ACRS recovery property. E file taxes For information on depreciating property acquired before 1981, see chapter 2. E file taxes For information on depreciating property acquired after 1986, see chapter 3 of Publication 946. E file taxes Recovery Property Recovery property under ACRS is tangible depreciable property placed in service after 1980 and before 1987. E file taxes It generally includes new or used property that you acquired after 1980 and before 1987 for use in your trade or business or for the production of income. E file taxes Nonrecovery Property You cannot use ACRS for property you placed in service before 1981 or after 1986. E file taxes Nonrecovery property also includes: Intangible property, Property you elected to exclude from ACRS that is properly depreciated under a method of depreciation that is not based on a term of years, Certain public utility property, and Certain property acquired and excluded from ACRS because of the antichurning rules. E file taxes Intangible property. E file taxes   Intangible property is not depreciated under ACRS. E file taxes Property depreciated under methods not expressed in a term of years. E file taxes   Certain property depreciated under a method not expressed in a term of years is not depreciated under ACRS. E file taxes This included any property: If you made an irrevocable election to exclude such property, and In the first year that you could have claimed depreciation, you properly used the unit-of-production method or any method of depreciation not expressed in a term of years (not including the retirement-replacement-betterment method). E file taxes Public utility property. E file taxes   Public utility property for which the taxpayer does not use a normalization method of accounting is excluded from ACRS and is subject to depreciation under a special rule. E file taxes Additions or improvements to ACRS property after 1986. E file taxes   Any additions or improvements placed in service after 1986, including any components of a building (plumbing, wiring, storm windows, etc. E file taxes ) are depreciated using MACRS, discussed in chapter 3 of Publication 946. E file taxes It does not matter that the underlying property is depreciated under ACRS or one of the other methods. E file taxes How To Figure the Deduction After you determine that your property can be depreciated under ACRS, you are ready to figure your deduction. E file taxes Because the conventions are built into the percentage table rates, you only need to know the following: The unadjusted basis of your recovery property, The classes of recovery property, The recovery periods, and Whether to use the prescribed percentages based on accelerated methods or percentages based on using the alternate ACRS method. E file taxes Unadjusted Basis To figure your ACRS deduction, you multiply the unadjusted basis in your recovery property by its applicable percentage for the year. E file taxes Unadjusted basis is the same amount you would use to figure gain on a sale, but it is figured without taking into account any depreciation taken in earlier years. E file taxes However, reduce your original basis by the amount of amortization taken on the property and by any section 179 deduction claimed as discussed in chapter 2 of Publication 946. E file taxes If you buy property, your unadjusted basis is usually its cost minus any amortized amount and minus any section 179 deduction elected. E file taxes If you acquire property in some other way, such as by inheriting it, getting it as a gift, or building it yourself, you figure your unadjusted basis under other rules. E file taxes See Publication 551. E file taxes Classes of Recovery Property All recovery property under ACRS is in one of the following classes. E file taxes The class for your property was determined when you began to depreciate it. E file taxes 3-Year Property 3-year property includes automobiles, light-duty trucks (actual unloaded weight less than 13,000 pounds), and tractor units for use over-the-road. E file taxes Race horses over 2 years old when placed in service are 3-year property. E file taxes Any other horses over 12 years old when you placed them in service are also included in the 3-year property class. E file taxes The ACRS percentages for 3-year recovery property are: Recovery Period Percentage 1st year 25% 2nd year 38% 3rd year 37% If you used the percentages above to depreciate your 3-year recovery property, your property, except for certain passenger automobiles, is fully depreciated. E file taxes You cannot claim depreciation for this property after 1988. E file taxes 5-Year Property 5-year property includes computers, copiers, and equipment, such as office furniture and fixtures. E file taxes It also includes single purpose agricultural or horticultural structures and petroleum storage facilities (other than buildings and their structural components). E file taxes The ACRS percentages for 5-year recovery property are: Recovery period Percentage 1st year 15% 2nd year 22% 3rd through 5th year 21% If you used the percentages above to depreciate your 5-year recovery property, it is fully depreciated. E file taxes You cannot claim depreciation for this property after 1990. E file taxes 10-Year Property 10-year property includes certain real property such as theme-park structures and certain public utility property. E file taxes Manufactured homes (including mobile homes) and railroad tank cars are also 10-year property. E file taxes You do not treat a building, and its structural components, as 10-year property by reason of a change in use after you placed the property in service. E file taxes For example, a building (15-year real property) that was placed in service in 1981 and was converted to a theme-park structure in 1986 remains 15-year real property. E file taxes The ACRS percentages for 10-year recovery property are: Recovery Period Percentage 1st year 8% 2nd year 14% 3rd year 12% 4th through 6th year 10% 7th through 10th year 9% If you used the percentages above, you cannot claim depreciation for this property after 1995. E file taxes Example. E file taxes On April 21, 1986, you bought and placed in service a new mobile home for $26,000 to be used as rental property. E file taxes You paid $10,000 cash and signed a note for $16,000 giving you an unadjusted basis of $26,000. E file taxes On June 8, 1986, you bought and placed in service a used mobile home for use as rental property at a total cost of $11,500. E file taxes The total unadjusted basis of your 10-year recovery property placed in service in 1986 was $37,500 ($26,000 + $11,500). E file taxes Your ACRS deduction was $3,000 (8% × $37,500). E file taxes In 1987, your ACRS deduction was $5,250 (14% × $37,500). E file taxes In 1988, your ACRS deduction was $4,500 (12% × $37,500). E file taxes In 1989, 1990, and 1991, your ACRS deduction was $3,750 (10% × $37,500). E file taxes In 1992, 1993, 1994, and 1995 your deduction for each year is $3,375 (9% × $37,500). E file taxes 15-Year Real Property 15-year real property is real property that is recovery property placed in service before March 16, 1984. E file taxes It includes all real property, such as buildings, other than that designated as 5-year or 10-year property. E file taxes Unlike the 3-, 5-, or 10-year classes of property, the percentages for 15-year real property depend on when you placed the property in service during your tax year. E file taxes You could group 15-year real property by month and year placed in service. E file taxes In Table 1, at the end of this publication in the Appendix, find the month in your tax year that you placed the property in service in your trade or business or for the production of income. E file taxes You use the percentages listed under that month for each year of the recovery period to determine your depreciation deduction each year. E file taxes Example. E file taxes On March 5, 1984, you placed an apartment building in service in your business. E file taxes It is 15-year real property. E file taxes After subtracting the value of the land, your unadjusted basis in the building is $250,000. E file taxes You use the calendar year as your tax year. E file taxes March is the third month of your tax year. E file taxes Your ACRS deduction for 1984 was $25,000 (10% × $250,000). E file taxes For 1985, the percentage for the third month of the second year of the recovery period is 11%. E file taxes Your deduction was $27,500 (11% × $250,000). E file taxes For the third, fourth, and fifth years of the recovery period (1986, 1987, and 1988), the percentages are 9%, 8%, and 7%. E file taxes For 1989 through 1992, the percentage for the third month is 6%. E file taxes Your deduction each year is $15,000 (6% × $250,000). E file taxes For 1993, 1994, and 1995, the percentage for the third month is 5%. E file taxes Your depreciation deduction is $12,500 (5% × $250,000) for 1993, 1994, and 1995. E file taxes Low-Income Housing Low-income housing that was assigned a 15-year recovery period under ACRS includes the following types of property: Federally assisted housing projects where the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. E file taxes Low-income rental housing for which a depreciation deduction for rehabilitation expenditures is allowed. E file taxes Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of state or local laws that authorize similar subsidies for low-income families. E file taxes Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. E file taxes The ACRS percentages for low-income housing real property, like the regular 15-year real property percentages, depend on when you placed the property in service. E file taxes Find the month in your tax year in Table 2 or 3 at the end of this publication in the Appendix that you first placed the property in service as rental housing. E file taxes Use the percentages listed under that month for each year of the recovery period. E file taxes Table 2 shows percentages for low-income housing placed in service before May 9, 1985. E file taxes Table 3 shows percentages for low-income housing placed in service after May 8, 1985, and before 1987. E file taxes Example. E file taxes In May 1986, you acquired and placed in service a house that qualified as low-income rental housing under item 3) of the above listing. E file taxes You use the calendar year as your tax year. E file taxes You use Table C–3 because the property was placed in service after May 8, 1985. E file taxes Your unadjusted basis for the property, not including the land, was $59,000. E file taxes Your deduction for 1986 through 2001 is shown in the following table. E file taxes Year Rate Deduction 1986 8. E file taxes 9% $5,251 1987 12. E file taxes 1% 7,139 1988 10. E file taxes 5% 6,195 1989 9. E file taxes 1% 5,369 1990 7. E file taxes 9% 4,661 1991 6. E file taxes 9% 4,071 1992 5. E file taxes 9% 3,481 1993 5. E file taxes 2% 3,068 1994 4. E file taxes 6% 2,714 1995 4. E file taxes 6% 2,714 1996 4. E file taxes 6% 2,714 1997 4. E file taxes 6% 2,714 1998 4. E file taxes 6% 2,714 1999 4. E file taxes 5% 2,655 2000 4. E file taxes 5% 2,655 2001 1. E file taxes 5% 885 18-Year Real Property 18-year real property is real property that is recovery property placed in service after March 15, 1984, and before May 9, 1985. E file taxes It includes real property, such as buildings, other than that designated as 5-year, 10-year, 15-year real property, or low-income housing. E file taxes The ACRS percentages for 18-year real property depend on when you placed the property in service in your trade or business or for the production of income during your tax year. E file taxes There are also tables for 18-year real property in the Appendix. E file taxes Table 4 shows the percentages for 18-year real property you placed in service after June 22, 1984, and before May 9, 1985. E file taxes Table 5 is for 18-year real property placed in service after March 15, 1984, and before June 23, 1984. E file taxes Find the month in your tax year that you placed the property in service in a trade or business or for the production of income. E file taxes Use the percentages listed under that month for each year of the recovery period. E file taxes Example. E file taxes On April 28, 1985, you bought and placed in service a rental house. E file taxes The house, not including the land, cost $95,000. E file taxes This is your unadjusted basis for the house. E file taxes You use the calendar year as your tax year. E file taxes Because the house was placed in service after June 22, 1984, and before May 9, 1985, it is 18-year real property. E file taxes You use Table 4 to figure your deduction for the house. E file taxes April is the fourth month of your tax year. E file taxes Your deduction for 1985 through 2003 is shown in the following table. E file taxes Year Rate Deduction 1985 7. E file taxes 0% $6,650 1986 9. E file taxes 0% 8,550 1987 8. E file taxes 0% 7,600 1988 7. E file taxes 0% 6,650 1989 7. E file taxes 0% 6,650 1990 6. E file taxes 0% 5,700 1991 5. E file taxes 0% 4,750 1992 5. E file taxes 0% 4,750 1993 5. E file taxes 0% 4,750 1994 5. E file taxes 0% 4,750 1995 5. E file taxes 0% 4,750 1996 5. E file taxes 0% 4,750 1997 5. E file taxes 0% 4,750 1998 4. E file taxes 0% 3,800 1999 4. E file taxes 0% 3,800 2000 4. E file taxes 0% 3,800 2001 4. E file taxes 0% 3,800 2002 4. E file taxes 0% 3,800 2003 1. E file taxes 0% 950 19-Year Real Property 19-year real property is real property that is recovery property placed in service after May 8, 1985, and before 1987. E file taxes It includes all real property, other than that designated as 5-year, 10-year, 15-year, or 18-year real property, or low-income housing. E file taxes The ACRS percentages for 19-year real property depend on when you placed the property in service in a trade or business or for the production of income during your tax year. E file taxes Table 6 shows the percentages for 19-year real property. E file taxes You find the month in your tax year that you placed the property in service. E file taxes You use the percentages listed under that month for each year of the recovery period. E file taxes Recovery Periods Each item of recovery property is assigned to a class of property. E file taxes The classes of recovery property establish the recovery periods over which the unadjusted basis of items in a class is recovered. E file taxes The classes of property are: 3-Year property 5-Year property 10-Year property 15-Year real property Low-income housing 18-Year real property 19-Year real property Alternate ACRS Method (Modified Straight Line Method) ACRS provides an alternate ACRS method that could be elected. E file taxes This alternate ACRS method uses a recovery percentage based on a modified straight line method. E file taxes This alternate ACRS method generally uses percentages other than those from the tables. E file taxes If you elected the alternate ACRS method, you determine the recovery period by using the following schedule. E file taxes This schedule is for other than 18- and 19-year real property and low-income housing: In the case of: You could have elected a recovery period of: 3-year property 3, 5, or 12 years 5-year property 5, 12, or 25 years 15-year real property 15, 35, or 45 years Percentages. E file taxes   The straight-line percentages for the alternate ACRS method are: Recovery Period Percentage 5 years 20. E file taxes 00% 10 years 10. E file taxes 00% 12 years 8. E file taxes 333% 15 years 6. E file taxes 667% 25 years 4. E file taxes 00% 35 years 2. E file taxes 857%   You apply the percentage to the unadjusted basis(defined earlier) of the property to figure your ACRS deduction. E file taxes There are tables for 18- and 19-year real property later in this publication in the Appendix. E file taxes For 15-year real property, see 15-year real property, later. E file taxes 3-, 5-, and 10-year property. E file taxes   If you elected to use an alternate recovery percentage, you have to use the same recovery percentage for all property in that class that you placed in service in that tax year. E file taxes This applies throughout the recovery period you selected. E file taxes Half-year convention. E file taxes   If you elected the alternate method, only a half-year of depreciation was deducted for the year you placed the property in service. E file taxes This applied regardless of when in the tax year you placed the property in service. E file taxes For each of the remaining years in the recovery period, you take a full year's deduction. E file taxes If you hold the property for the entire recovery period, a half-year of depreciation is allowable for the year following the end of the recovery period. E file taxes Example. E file taxes You operate a small upholstery business. E file taxes On March 19, 1986, you bought and placed in service a $13,000 light-duty panel truck to be used in your business and a $500 electric saw. E file taxes You elected to use the alternate ACRS method. E file taxes You did not elect to take a section 179 deduction. E file taxes You decided to recover the cost of the truck, which is 3-year recovery property, over 5 years. E file taxes The saw is 5-year property, but you decided to recover its cost over 12 years. E file taxes For 1986, your ACRS deduction reflected the half-year convention. E file taxes In the first year, you deducted half of the amount determined for a full year. E file taxes Your ACRS deduction for 1986 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. E file taxes 00     Electric saw   12 years straight line = 8. E file taxes 333% 8. E file taxes 333% ÷ $500 = $41. E file taxes 67 Half-year convention -½ of $41. E file taxes 67= 20. E file taxes 84 Total ACRS deduction for 1986 $1,320. E file taxes 84       You take a full year of depreciation for both the truck and the saw for the years 1987 through 1990. E file taxes Your ACRS deduction for each of those years is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600     Electric saw     12 years straight line = 8. E file taxes 333% 8. E file taxes 333% ÷ $500 = $41. E file taxes 67 Total annual ACRS deduction for 1987 through 1990 $2,641. E file taxes 67       In 1991, you take a half-year of depreciation for the truck and a full year of depreciation for the saw. E file taxes Your ACRS deduction for 1991 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. E file taxes 00     Electric saw   12 years straight line = 8. E file taxes 333% 8. E file taxes 333% ÷ $500 = $41. E file taxes 67 Total ACRS deduction for 1991 $1,341. E file taxes 67       The truck is fully depreciated after 1991. E file taxes You take a full year of depreciation for the saw for the years 1992 through 1997. E file taxes Your ACRS deduction for each of those years is as follows: Electric saw     12 years straight line = 8. E file taxes 333% 8. E file taxes 333% ÷ $500 = $41. E file taxes 67 Total annual ACRS deduction for 1992 through 1997 $41. E file taxes 67       You take a half-year of depreciation for the saw for 1998. E file taxes Your ACRS deduction for 1998 is as follows: Electric saw   12 years straight line = 8. E file taxes 333% 8. E file taxes 333% ÷ $500 = $41. E file taxes 67 Half-year convention -½ of $41. E file taxes 67= 20. E file taxes 84 Total ACRS deduction for 1998 $20. E file taxes 84       The saw is fully depreciated after 1998. E file taxes 15-year real property. E file taxes   Under ACRS, you could also elect to use the alternate ACRS method for 15-year real property. E file taxes The alternate ACRS method allows you to depreciate your 15-year real property using the straight line ACRS method over the alternate recovery periods of 15, 35, or 45 years. E file taxes If you selected a 15-year recovery period, you use the percentage (6. E file taxes 667%) from the schedule above. E file taxes You prorate this percentage for the number of months the property was in service in the first year. E file taxes If you selected a 35- or 45-year recovery period, you use either Table 11 or 15. E file taxes Alternate periods for 18-year real property. E file taxes   For 18-year real property, the alternate recovery periods are 18, 35, or 45 years. E file taxes The percentages for 18-year real property under the alternate method are in Tables 7, 8, 10, 11, 14, and 15 in the Appendix. E file taxes There are two tables for each alternate recovery period. E file taxes One table shows the percentage for property placed in service after June 22, 1984. E file taxes The other table has the percentages for property placed in service after March 15, 1984, and before June 23, 1984. E file taxes Alternate periods for 19-year real property. E file taxes   For 19-year real property, the alternate recovery periods are 19, 35, or 45 years. E file taxes If you selected a 19-year recovery period, use Table 9 to determine your deduction. E file taxes If you select a 35- or 45-year recovery period, use either Table 13 or 14. E file taxes Example. E file taxes You placed in service an apartment building on August 3, 1986. E file taxes The building is 19-year real property. E file taxes The sales contract allocated $300,000 to the building and $100,000 to the land. E file taxes You use the calendar year as your tax year. E file taxes You chose the alternate ACRS method over a recovery period of 35 years. E file taxes For 1986, you figure your ACRS deduction usingTable 13. E file taxes August is the eighth month of your tax year. E file taxes The percentage from Table 13 for the eighth month is 1. E file taxes 1%. E file taxes Your deduction was $3,300 ($300,000 ÷ 1. E file taxes 1%). E file taxes The deduction rate from ACRS Table 13 for years 2 through 20 is 2. E file taxes 9% so that your deduction in 1987 through 2005 is $8,700 ($300,000 ÷ 2. E file taxes 9%). E file taxes Alternate periods for low-income housing. E file taxes   For low-income housing, the alternate recovery periods are 15, 35, or 45 years. E file taxes If you selected a 15-year period for this property, use 6. E file taxes 667% as the percentage. E file taxes If you selected a 35- or 45-year period, use either Table 11, 12, or 15. E file taxes Election. E file taxes   You had to make the election to use the alternate ACRS method by the return due date (including extensions) for the tax year you placed the property in service. E file taxes Revocation of election. E file taxes   Your election to use an alternate ACRS method, once made, can be changed only with the consent of the Commissioner. E file taxes The Commissioner grants consent only in extraordinary circumstances. E file taxes Any request for a revocation will be considered a request for a ruling. E file taxes ACRS Deduction in Short Tax Year For a tax year that is less than 12 months, the ACRS deduction is prorated on a 12-month basis. E file taxes Figure the amount of the ACRS deduction for a short tax year as follows: First, you figure the ACRS deduction for a full year. E file taxes You figure this by multiplying the unadjusted basis by the recovery percentage. E file taxes You then multiply the ACRS deduction determined for a full tax year by a fraction. E file taxes The numerator (top number) of the fraction is the number of months in the short tax year and the denominator (bottom number) is 12. E file taxes For example, a corporation placed in service in June 1986 an item of 3-year property with an unadjusted basis of $10,000. E file taxes The corporation files a tax return, because of a change in its accounting period, for the 6-month short tax year ending June 30, 1986. E file taxes The full year's ACRS deduction for this item is $2,500 ($10,000 ÷ 25%), the first year percentage from the 3-year table. E file taxes The ACRS deduction for the short tax year is $1,250 ($2,500 ÷ 6/12). E file taxes You use the full ACRS percentages during the remaining years of the recovery period. E file taxes For the first tax year after the recovery period, the unrecovered basis will be deductible. E file taxes Exception. E file taxes   For the tax year in which you placed 15-, 18-, or 19-year real property in service or in the tax year you dispose of it, you compute the ACRS deduction for the number of months that the property is in service during that tax year. E file taxes You compute the number of months using either a full month or mid-month convention. E file taxes This is true regardless of the number of months in the tax year and the recovery period and method used. E file taxes Dispositions A disposition is the permanent withdrawal of property from use in your trade or business or in the production of income. E file taxes You can make a withdrawal by sale, exchange, retirement, abandonment, or destruction. E file taxes You generally recognize gain or loss on the disposition of an asset by sale. E file taxes However, nonrecognition rules can allow you to postpone some gain. E file taxes See Publication 544. E file taxes If you physically abandon property, you can deduct as a loss the adjusted basis of the asset at the time of its abandonment. E file taxes Your intent must be to discard the asset so that you will not use it again or retrieve it for sale, exchange, or other disposition. E file taxes Early dispositions. E file taxes   The disposal of an asset before the end of its specified recovery period, is referred to as an early disposition. E file taxes When an early disposition occurs, the depreciation deduction in the year of disposition depends on the class of property involved. E file taxes Early dispositions of ACRS property other than 15-, 18-, or 19-year real property. E file taxes   Generally, you get no ACRS deduction for the tax year in which you dispose of or retire recovery property, except for 15-, 18-, and 19-year real property. E file taxes This means there is no depreciation deduction under ACRS in the year you dispose of or retire any of your 3-, 5-, or 10-year recovery property. E file taxes Dispositions — mass asset accounts. E file taxes   The law provides a special rule to avoid the calculation of gain on the disposition of assets from mass asset accounts. E file taxes A mass asset account includes items usually minor in value in relation to the group, numerous in quantity, impractical to separately identify, and not usually accounted for on a separate basis, but on a total dollar value. E file taxes Examples of mass assets include minor items of office, plant, and store furniture and fixtures. E file taxes   Under the special rule, if you elected to use a mass asset account, you recognize gain to the extent of the proceeds from the disposition of the asset. E file taxes You leave the unadjusted basis of the property in the account until recovered in future years. E file taxes If you did this, include the total proceeds realized from the disposition in income on the tax return for the year of disposition. E file taxes Early dispositions — 15-year real property. E file taxes   If you dispose of 15-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. E file taxes You use a full-month convention. E file taxes For a disposition at any time during a particular month before the end of the recovery period, no deduction is allowed for the month of disposition. E file taxes This applies whether you use the regular ACRS method or elected the alternate ACRS method. E file taxes Example. E file taxes You purchased and placed in service a rental house on March 2, 1984, for $98,000 (not including the cost of land). E file taxes You file your return based on a calendar year. E file taxes Your rate from Table 1 for the third month is 10%. E file taxes Your ACRS deduction for 1984 was $9,800 ($98. E file taxes 000 ÷ 10%). E file taxes For 1985 through 1988, you figured your ACRS deductions using 11%, 9%, 8%, and 7% ÷ $98,000. E file taxes For 1989 through 1992, you figured your ACRS deductions using 6% for each year. E file taxes The deduction each year was $98,000 ÷ 6%. E file taxes For 1993 and 1994, the ACRS deduction is ($98,000 ÷ 5%) $4,900 for each year. E file taxes You sell the house on June 1, 1995. E file taxes You figure your ACRS deduction for 1995 for the full year and then prorate that amount for the months of use. E file taxes The full ACRS deduction for 1995 is $4,900 ($98,000 ÷ 5%). E file taxes You then prorate this amount to the 5 months in 1995 during which it was rented. E file taxes Your ACRS deduction for 1995 is $2,042 ($4,900 ÷ 5/12). E file taxes Early dispositions — 18- and 19-year real property. E file taxes   If you dispose of 18- or 19-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. E file taxes For 18-year property placed in service before June 23, 1984, use a full-month convention on a disposition. E file taxes For 18-year property placed in service after June 22, 1984, and for 19-year property, determine the number of months in use by using the mid-month convention. E file taxes Under the mid-month convention,treat real property disposed of any time during a month as disposed of in the middle of that month. E file taxes Count the month of disposition as half a month of use. E file taxes Example. E file taxes You purchased and placed in service a rental house on July 2, 1984, for $100,000 (not including the cost of land). E file taxes You file your return based on a calendar year. E file taxes Your rate from Table 4 for the seventh month is 4%. E file taxes You figured your ACRS deduction for 1984 was $4,000 ($100,000 ÷ 4%). E file taxes In 1985 through 1994, your ACRS deductions were 9%, 8%, 8%, 7%, 6%, 6%, 5%, 5%, and 5% ÷ $100,000. E file taxes You sell the house on September 24, 1995. E file taxes Figure your ACRS deduction for 1995 for the months of use. E file taxes The full ACRS deduction for 1995 is $5,000 ($100,000 ÷ 5%). E file taxes Prorate this amount for the 8. E file taxes 5 months in 1995 that you held the property. E file taxes Under the mid-month convention, you count September as half a month. E file taxes Your ACRS deduction for 1995 is $3,542 ($5,000 ÷ 8. E file taxes 5/12). E file taxes Depreciation Recapture If you dispose of property depreciated under ACRS that is section 1245 recovery property, you will generally recognize gain or loss. E file taxes Gain recognized on a disposition is ordinary income to the extent of prior depreciation deductions taken. E file taxes This recapture rule applies to all personal property in the 3-year, 5-year, and 10-year classes. E file taxes You recapture gain on manufactured homes and theme park structures in the 10-year class as section 1245 property. E file taxes Section 1245 property generally includes all personal property. E file taxes See Section 1245 property in chapter 4 of Publication 544 for more information. E file taxes You treat dispositions of section 1250 real property on which you have a gain as section 1245 recovery property. E file taxes You recognize gain on this property as ordinary income to the extent of prior depreciation deductions taken. E file taxes Section 1250 property includes most real property. E file taxes See Section 1250 property in chapter 4 of Publication 544 for more information. E file taxes This rule applies to all section 1250 real property except the following property: Any 15-, 18-, or 19-year real property that is residential rental property. E file taxes Any 15-, 18-, or 19-year real property that you elected to depreciate using the alternate ACRS method. E file taxes Any 15-, 18-, or 19-year real property that is subsidized low-income housing. E file taxes For these recapture rules, you treat the section 179 deduction and 50% of the investment credit that reduced your basis as depreciation. E file taxes See Publication 544 for further discussion of dispositions of section 1245 and 1250 property. E file taxes Prev  Up  Next   Home   More Online Publications

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Tax Fraud Alerts

 

IRS Wants You to Know About Schemes, Scams and Cons
"If it sounds too good to be true, it probably is!" Don't become a victim to any scheme that offers instant wealth or exemption from your obligation as a United States citizen to file tax returns and/or pay taxes. Some of these schemes can literally cost you your life savings. Others can result in your prosecution and imprisonment if you knowingly participate in them.

Abusive Return Preparer
Taxpayers should be very careful when choosing a tax preparer. While most preparers provide excellent service to their clients, a few unscrupulous return preparers file false and fraudulent tax returns and ultimately defraud their clients. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.

 

Abusive Tax Schemes
Abusive tax scheme originally took the structure of fraudulent domestic and foreign trust arrangements. However, these schemes have evolved into sophisticated arrangements to give the appearance that taxpayers are not in control of their money. However, the taxpayers receive their funds through debit/credit cards or fictitious loans. These schemes often involve offshore banking and sometimes establish scam corporations or entities.

 

Nonfiler Enforcement
There have always been individuals who, for a variety of reasons, argue taxes are voluntary or illegal.  The courts have repeatedly rejected their arguments as frivolous and routinely impose financial penalties for raising such frivolous arguments.  Take the time to learn the truth about frivolous tax arguments.

 

All Program and Emphasis Areas for Criminal Investigation
Criminal Investigation has categorized their investigative cases into specific program and emphasis areas of fraud. Examples of case summaries written from public record documents where cases were prosecuted can be viewed on the various program and emphasis area web pages.



Tax Scams - How to Report Them
To help the public recognize and avoid abusive tax schemes, the IRS offers an abundance of educational materials. Participating in an illegal scheme to avoid paying taxes can result in imprisonment and fines, as well as the repayment of taxes owed with penalties and interest. Education is the best way to avoid the pitfalls of these “too good to be true” tax scams.
 



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Report Suspected Tax Fraud Activity!
 

Page Last Reviewed or Updated: 24-Mar-2014

The E File Taxes

E file taxes Publication 529 - Main Content Table of Contents Deductions Subject to the 2% LimitUnreimbursed Employee Expenses Tax Preparation Fees Other Expenses Deductions Not Subject to the 2% LimitList of Deductions Nondeductible ExpensesList of Nondeductible Expenses How To ReportWho can use Form 2106-EZ. E file taxes Computer used in a home office. E file taxes Example How To Get Tax HelpLow Income Taxpayer Clinics Deductions Subject to the 2% Limit You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040 or Form 1040NR). E file taxes You can claim the amount of expenses that is more than 2% of your adjusted gross income. E file taxes You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. E file taxes Your adjusted gross income is the amount on Form 1040, line 38, or Form 1040NR, line 37. E file taxes Generally, you apply the 2% limit after you apply any other deduction limit. E file taxes For example, you apply the 50% (or 80%) limit on business-related meals and entertainment (discussed later under Travel, Transportation, Meals, Entertainment, Gifts, and Local Lodging ) before you apply the 2% limit. E file taxes Deductions subject to the 2% limit are discussed in the following three categories. E file taxes Unreimbursed employee expenses (Schedule A (Form 1040), line 21 or Schedule A (Form 1040NR), line 7). E file taxes Tax preparation fees (Schedule A (Form 1040), line 22 or Schedule A (Form 1040NR), line 8). E file taxes Other expenses (Schedule A (Form 1040), line 23 or Schedule A (Form 1040NR), line 9). E file taxes Unreimbursed Employee Expenses Generally, the following expenses are deducted on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. E file taxes You can deduct only unreimbursed employee expenses that are: Paid or incurred during your tax year, For carrying on your trade or business of being an employee, and Ordinary and necessary. E file taxes An expense is ordinary if it is common and accepted in your trade, business, or profession. E file taxes An expense is necessary if it is appropriate and helpful to your business. E file taxes An expense does not have to be required to be considered necessary. E file taxes You may be able to deduct the following items as unreimbursed employee expenses. E file taxes Business bad debt of an employee. E file taxes Business liability insurance premiums. E file taxes Damages paid to a former employer for breach of an employment contract. E file taxes Depreciation on a computer your employer requires you to use in your work. E file taxes Dues to a chamber of commerce if membership helps you do your job. E file taxes Dues to professional societies. E file taxes Educator expenses. E file taxes Home office or part of your home used regularly and exclusively in your work. E file taxes Job search expenses in your present occupation. E file taxes Laboratory breakage fees. E file taxes Legal fees related to your job. E file taxes Licenses and regulatory fees. E file taxes Malpractice insurance premiums. E file taxes Medical examinations required by an employer. E file taxes Occupational taxes. E file taxes Passport for a business trip. E file taxes Repayment of an income aid payment received under an employer's plan. E file taxes Research expenses of a college professor. E file taxes Rural mail carriers' vehicle expenses. E file taxes Subscriptions to professional journals and trade magazines related to your work. E file taxes Tools and supplies used in your work. E file taxes Travel, transportation, meals, entertainment, gifts, and local lodging related to your work. E file taxes Union dues and expenses. E file taxes Work clothes and uniforms if required and not suitable for everyday use. E file taxes Work-related education. E file taxes Business Bad Debt A business bad debt is a loss from a debt created or acquired in your trade or business. E file taxes Any other worthless debt is a business bad debt only if there is a very close relationship between the debt and your trade or business when the debt becomes worthless. E file taxes A debt has a very close relationship to your trade or business of being an employee if your main motive for incurring the debt is a business reason. E file taxes Example. E file taxes You make a bona fide loan to the corporation you work for. E file taxes It fails to pay you back. E file taxes You had to make the loan in order to keep your job. E file taxes You have a business bad debt as an employee. E file taxes More information. E file taxes   For more information on business bad debts, see chapter 10 in Publication 535. E file taxes For information on nonbusiness bad debts, see chapter 4 in Publication 550, Investment Income and Expenses. E file taxes Business Liability Insurance You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job. E file taxes Damages for Breach of Employment Contract If you break an employment contract, you can deduct damages you pay your former employer if the damages are attributable to the pay you received from that employer. E file taxes Depreciation on Computers You can claim a depreciation deduction for a computer that you use in your work as an employee if its use is: For the convenience of your employer, and Required as a condition of your employment. E file taxes For the convenience of your employer. E file taxes   This means that your use of the computer is for a substantial business reason of your employer. E file taxes You must consider all facts in making this determination. E file taxes Use of your computer during your regular working hours to carry on your employer's business is generally for the convenience of your employer. E file taxes Required as a condition of your employment. E file taxes   This means that you cannot properly perform your duties without the computer. E file taxes Whether you can properly perform your duties without it depends on all the facts and circumstances. E file taxes It is not necessary that your employer explicitly requires you to use your computer. E file taxes But neither is it enough that your employer merely states that your use of the item is a condition of your employment. E file taxes Example. E file taxes You are an engineer with an engineering firm. E file taxes You occasionally take work home at night rather than work late at the office. E file taxes You own and use a computer that is similar to the one you use at the office to complete your work at home. E file taxes Since your use of the computer is not for the convenience of your employer and is not required as a condition of your employment, you cannot claim a depreciation deduction for it. E file taxes Which depreciation method to use. E file taxes   The depreciation method you use depends on whether you meet the more-than-50%-use test. E file taxes More-than-50%-use test met. E file taxes   You meet this test if you use the computer more than 50% in your work. E file taxes If you meet this test, you can claim accelerated depreciation under the General Depreciation System (GDS). E file taxes In addition, you may be able to take the section 179 deduction for the year you place the item in service. E file taxes More-than-50%-use test not met. E file taxes   If you do not meet the more-than-50%-use test, you are limited to the straight line method of depreciation under the Alternative Depreciation System (ADS). E file taxes You also cannot claim the section 179 deduction. E file taxes (But if you use your computer in a home office, see the exception below. E file taxes ) Investment use. E file taxes   Your use of a computer in connection with investments (described later under Other Expenses ) does not count as use in your work. E file taxes However, you can combine your investment use with your work use in figuring your depreciation deduction. E file taxes Exception for computer used in a home office. E file taxes   The more-than-50%-use test does not apply to a computer used only in a part of your home that meets the requirements described later under Home Office . E file taxes You can claim accelerated depreciation using GDS for a computer used in a qualifying home office, even if you do not use it more than 50% in your work. E file taxes You also may be able to take a section 179 deduction for the year you place the computer in service. E file taxes See Computer used in a home office under How To Report, later. E file taxes More information. E file taxes   For more information on depreciation and the section 179 deduction for computers and other items used in a home office, see Business Furniture and Equipment in Publication 587. E file taxes Publication 946 has detailed information about the section 179 deduction and depreciation deductions using GDS and ADS. E file taxes Reporting your depreciation deduction. E file taxes    See How To Report, later, for information about reporting a deduction for depreciation. E file taxes You must keep records to prove your percentage of business and investment use. E file taxes Dues to Chambers of Commerce and Professional Societies You may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job. E file taxes Similar organizations include: Boards of trade, Business leagues, Civic or public service organizations, Real estate boards, and Trade associations. E file taxes Lobbying and political activities. E file taxes    You may not be able to deduct that part of your dues that is for certain lobbying and political activities. E file taxes See Lobbying Expenses under Nondeductible Expenses, later. E file taxes Educator Expenses If you were an eligible educator in 2013, you can deduct up to $250 of qualified expenses you paid in 2013 as an adjustment to gross income on Form 1040, line 23, rather than as a miscellaneous itemized deduction. E file taxes If you file Form 1040A, you can deduct these expenses on line 16. E file taxes If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. E file taxes However, neither spouse can deduct more than $250 of his or her qualified expenses. E file taxes Eligible educator. E file taxes   An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in school for at least 900 hours during a school year. E file taxes Qualified expenses. E file taxes   Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment (including computer equipment, software, and services), and other materials used in the classroom. E file taxes An ordinary expense is one that is common and accepted in your educational field. E file taxes A necessary expense is one that is helpful and appropriate for your profession as an educator. E file taxes An expense does not have to be required to be considered necessary. E file taxes   Qualified expenses do not include expenses for home schooling or for nonathletic supplies for courses in health or physical education. E file taxes You must reduce your qualified expenses by the following amounts. E file taxes Excludable U. E file taxes S. E file taxes series EE and I savings bond interest from Form 8815. E file taxes Nontaxable qualified state tuition program earnings. E file taxes Nontaxable earnings from Coverdell education savings accounts. E file taxes Any reimbursements you received for those expenses that were not reported to you on your Form W-2, box 1. E file taxes Educator expenses over limit. E file taxes   If you were an educator in 2013 and you had qualified expenses that you cannot take as an adjustment to gross income, you can deduct the rest as an itemized deduction subject to the 2% limit. E file taxes Home Office If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home. E file taxes You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively: As your principal place of business for any trade or business, As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or In the case of a separate structure not attached to your home, in connection with your trade or business. E file taxes The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job. E file taxes Principal place of business. E file taxes   If you have more than one place of business, the business part of your home is your principal place of business if: You use it regularly and exclusively for administrative or management activities of your trade or business, and You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. E file taxes   Otherwise, the location of your principal place of business generally depends on the relative importance of the activities performed at each location and the time spent at each location. E file taxes You should keep records that will give the information needed to figure the deduction according to these rules. E file taxes Also keep canceled checks, substitute checks, or account statements and receipts of the expenses paid to prove the deductions you claim. E file taxes More information. E file taxes   See Publication 587 for more detailed information and a worksheet for figuring the deduction. E file taxes Job Search Expenses You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. E file taxes You cannot deduct these expenses if: You are looking for a job in a new occupation, There was a substantial break between the ending of your last job and your looking for a new one, or You are looking for a job for the first time. E file taxes Employment and outplacement agency fees. E file taxes    You can deduct employment and outplacement agency fees you pay in looking for a new job in your present occupation. E file taxes Employer pays you back. E file taxes   If, in a later year, your employer pays you back for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. E file taxes See Recoveries in Publication 525. E file taxes Employer pays the employment agency. E file taxes   If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income. E file taxes Résumé. E file taxes   You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers if you are looking for a new job in your present occupation. E file taxes Travel and transportation expenses. E file taxes   If you travel to an area and, while there, you look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. E file taxes You can deduct the travel expenses if the trip is primarily to look for a new job. E file taxes The amount of time you spend on personal activity compared to the amount of time you spend in looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job. E file taxes   Even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job in your present occupation while in the area. E file taxes    You can choose to use the standard mileage rate to figure your car expenses. E file taxes The 2013 rate for business use of a vehicle is 56½ cents per mile. E file taxes See Publication 463 for more information on travel and car expenses. E file taxes Legal Fees You can deduct legal fees related to doing or keeping your job. E file taxes Licenses and Regulatory Fees You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession. E file taxes Occupational Taxes You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. E file taxes If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you cannot claim them as a deduction for taxes elsewhere on your return. E file taxes Repayment of Income Aid Payment An “income aid payment” is one that is received under an employer's plan to aid employees who lose their jobs because of lack of work. E file taxes If you repay a lump-sum income aid payment that you received and included in income in an earlier year, you can deduct the repayment. E file taxes Research Expenses of a College Professor If you are a college professor, you can deduct your research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to your teaching duties. E file taxes You must have undertaken the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. E file taxes However, you cannot deduct the cost of travel as a form of education. E file taxes Rural Mail Carriers' Vehicle Expenses If your expenses to use a vehicle in performing services as a rural mail carrier are more than the amount of your reimbursements, you can deduct the unreimbursed expenses. E file taxes See chapter 4 of Publication 463 for more information. E file taxes Tools Used in Your Work Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. E file taxes You can depreciate the cost of tools that have a useful life substantially beyond the tax year. E file taxes For more information about depreciation, see Publication 946. E file taxes Travel, Transportation, Meals, Entertainment, Gifts, and Local Lodging If you are an employee and have ordinary and necessary business-related expenses for travel away from home, local transportation, entertainment, and gifts, you may be able to deduct these expenses. E file taxes Generally, you must file Form 2106 or Form 2106-EZ to claim these expenses. E file taxes Travel expenses. E file taxes   Travel expenses are those incurred while traveling away from home for your employer. E file taxes You can deduct travel expenses paid or incurred in connection with a temporary work assignment. E file taxes Generally, you cannot deduct travel expenses paid or incurred in connection with an indefinite work assignment. E file taxes   Travel expenses may include: The cost of getting to and from your business destination (air, rail, bus, car, etc. E file taxes ), Meals and lodging while away from home, Taxi fares, Baggage charges, and Cleaning and laundry expenses. E file taxes   Travel expenses are discussed more fully in chapter 1 of Publication 463. E file taxes Temporary work assignment. E file taxes    If your assignment or job away from home in a single location is realistically expected to last (and does in fact last) for 1 year or less, it is temporary, unless there are facts and circumstances that indicate it is not. E file taxes Indefinite work assignment. E file taxes   If your assignment or job away from home in a single location is realistically expected to last for more than 1 year, it is indefinite, whether or not it actually lasts for more than 1 year. E file taxes If your assignment or job away from home in a single location is realistically expected to last for 1 year or less, but at some later date it is realistically expected to exceed 1 year, it will be treated as temporary (in the absence of facts and circumstances indicating otherwise) until the date that your realistic expectation changes, and it will be treated as indefinite after that date. E file taxes Federal crime investigation and prosecution. E file taxes   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule for deducting temporary travel expenses. E file taxes This means that you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year. E file taxes   To qualify, the Attorney General must certify that you are traveling: For the Federal Government, In a temporary duty status, and To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime. E file taxes Armed Forces reservists traveling more than 100 miles from home. E file taxes   If you are a member of a reserve component of the Armed Forces of the United States and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct some of your travel expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. E file taxes The amount of expenses you can deduct as an adjustment to gross income is limited to the regular federal per diem rate (for lodging, meals, and incidental expenses) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. E file taxes The balance, if any, is reported on Schedule A. E file taxes   You are a member of a reserve component of the Armed Forces of the United States if you are in the Army, Naval, Marine Corps, Air Force, Coast Guard Reserve, the Army National Guard of the United States, the Air National Guard of the United States, or the Reserve Corps of the Public Health Service. E file taxes   For more information on travel expenses, see Publication 463. E file taxes Local transportation expenses. E file taxes   Local transportation expenses are the expenses of getting from one workplace to another when you are not traveling away from home. E file taxes They include the cost of transportation by air, rail, bus, taxi, and the cost of using your car. E file taxes   You can choose to use the standard mileage rate to figure your car expenses. E file taxes The 2013 rate for business use of a vehicle is 56½ cents per mile. E file taxes    In general, the costs of commuting between your residence and your place of business are nondeductible. E file taxes Work at two places in a day. E file taxes   If you work at two places in a day, whether or not for the same employer, you can generally deduct the expenses of getting from one workplace to the other. E file taxes Temporary work location. E file taxes   You can deduct expenses incurred in going between your home and a temporary work location if at least one of the following applies. E file taxes The work location is outside the metropolitan area where you live and normally work. E file taxes You have at least one regular work location (other than your home) for the same trade or business. E file taxes (If this applies, the distance between your home and the temporary work location does not matter. E file taxes )   For this purpose, a work location is generally considered temporary if your work there is realistically expected to last (and does in fact last) for 1 year or less. E file taxes It is not temporary if your work there is realistically expected to last for more than 1 year, even if it actually lasts for 1 year or less. E file taxes If your work there initially is realistically expected to last for 1 year or less, but later is realistically expected to last for more than 1 year, the work location is generally considered temporary until the date your realistic expectation changes and not temporary after that date. E file taxes For more information, see chapter 1 of Publication 463. E file taxes Home office. E file taxes   You can deduct expenses incurred in going between your home and a workplace if your home is your principal place of business for the same trade or business. E file taxes (In this situation, whether the other workplace is temporary or regular and its distance from your home do not matter. E file taxes ) See Home Office , earlier, for a discussion on the use of your home as your principal place of business. E file taxes Meals and entertainment. E file taxes   Generally, you can deduct entertainment expenses (including entertainment-related meals) only if they are directly related to the active conduct of your trade or business. E file taxes However, the expense only needs to be associated with the active conduct of your trade or business if it directly precedes or follows a substantial and bona fide business-related discussion. E file taxes   You can deduct only 50% of your business-related meal and entertainment expenses unless the expenses meet certain exceptions. E file taxes You apply this 50% limit before you apply the 2%-of-adjusted-gross-income limit. E file taxes Meals when subject to “hours of service” limits. E file taxes   You can deduct 80% of your business-related meal expenses if you consume the meals during or incident to any period subject to the Department of Transportation's “hours of service” limits. E file taxes You apply this 80% limit before you apply the 2%-of-adjusted-gross-income limit. E file taxes Gift expenses. E file taxes   You can generally deduct up to $25 of business gifts you give to any one individual during the year. E file taxes The following items do not count toward the $25 limit. E file taxes Identical, widely distributed items costing $4 or less that have your name clearly and permanently imprinted. E file taxes Signs, racks, and promotional materials to be displayed on the business premises of the recipient. E file taxes Local lodging. E file taxes   If your employer provides or requires you to obtain lodging while you are not traveling away from home, you can deduct the cost of the lodging if it is: on a temporary basis, necessary for you to participate in or be available for a business meeting or employer function, and the costs are ordinary and necessary, but not lavish or extravagant. E file taxes   If your employer provides the lodging or reimburses you for the cost of the lodging, you can deduct the cost only if the value or the reimbursement is included in your gross income because it is reported as wages on your Form W-2. E file taxes Additional information. E file taxes    See Publication 463 for more information on travel, transportation, meal, entertainment, and gift expenses, and reimbursements for these expenses. E file taxes Union Dues and Expenses You can deduct dues and initiation fees you pay for union membership. E file taxes You can also deduct assessments for benefit payments to unemployed union members. E file taxes However, you cannot deduct the part of the assessments or contributions that provides funds for the payment of sick, accident, or death benefits. E file taxes Also, you cannot deduct contributions to a pension fund even if the union requires you to make the contributions. E file taxes You may not be able to deduct amounts you pay to the union that are related to certain lobbying and political activities. E file taxes See Lobbying Expenses under Nondeductible Expenses, later. E file taxes Work Clothes and Uniforms You can deduct the cost and upkeep of work clothes if the following two requirements are met. E file taxes You must wear them as a condition of your employment. E file taxes The clothes are not suitable for everyday wear. E file taxes It is not enough that you wear distinctive clothing. E file taxes The clothing must be specifically required by your employer. E file taxes Nor is it enough that you do not, in fact, wear your work clothes away from work. E file taxes The clothing must not be suitable for taking the place of your regular clothing. E file taxes Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc. E file taxes ). E file taxes Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear. E file taxes However, work clothing consisting of white cap, white shirt or white jacket, white bib overalls, and standard work shoes, which a painter is required by his union to wear on the job, is not distinctive in character or in the nature of a uniform. E file taxes Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman are not deductible. E file taxes Protective clothing. E file taxes   You can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves. E file taxes   Examples of workers who may be required to wear safety items are: carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters, and truck drivers. E file taxes Military uniforms. E file taxes   You generally cannot deduct the cost of your uniforms if you are on full-time active duty in the armed forces. E file taxes However, if you are an armed forces reservist, you can deduct the unreimbursed cost of your uniform if military regulations restrict you from wearing it except while on duty as a reservist. E file taxes In figuring the deduction, you must reduce the cost by any nontaxable allowance you receive for these expenses. E file taxes   If local military rules do not allow you to wear fatigue uniforms when you are off duty, you can deduct the amount by which the cost of buying and keeping up these uniforms is more than the uniform allowance you receive. E file taxes   If you are a student at an armed forces academy, you cannot deduct the cost of your uniforms if they replace regular clothing. E file taxes However, you can deduct the cost of insignia, shoulder boards, and related items. E file taxes    You can deduct the cost of your uniforms if you are a civilian faculty or staff member of a military school. E file taxes Work-Related Education You can deduct expenses you have for education, even if the education may lead to a degree, if the education meets at least one of the following two tests. E file taxes It maintains or improves skills required in your present work. E file taxes It is required by your employer or the law to keep your salary, status, or job, and the requirement serves a business purpose of your employer. E file taxes You cannot deduct expenses you have for education, even though one or both of the preceding tests are met, if the education: Is needed to meet the minimum educational requirements to qualify you in your trade or business, or Is part of a program of study that will lead to qualifying you in a new trade or business. E file taxes If your education qualifies, you can deduct expenses for tuition, books, supplies, laboratory fees, and similar items, and certain transportation costs. E file taxes If the education qualifies you for a new trade or business, you cannot deduct the educational expenses even if you do not intend to enter that trade or business. E file taxes Travel as education. E file taxes   You cannot deduct the cost of travel that in itself constitutes a form of education. E file taxes For example, a French teacher who travels to France to maintain general familiarity with the French language and culture cannot deduct the cost of the trip as an educational expense. E file taxes More information. E file taxes    See Publication 970, Tax Benefits for Education, for a complete discussion of the deduction for work-related education expenses. E file taxes Education Expenses During Unemployment If you stop working for a year or less in order to get education in order to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. E file taxes Education that you get during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your present work. E file taxes Tax Preparation Fees You can usually deduct tax preparation fees on the return for the year in which you pay them. E file taxes Thus, on your 2013 return, you can deduct fees paid in 2013 for preparing your 2012 return. E file taxes These fees include the cost of tax preparation software programs and tax publications. E file taxes They also include any fee you paid for electronic filing of your return. E file taxes See Tax preparation fees under How To Report, later. E file taxes Other Expenses You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2%-of-adjusted-gross-income limit. E file taxes On Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9, you can deduct the ordinary and necessary expenses that you pay: To produce or collect income that must be included in your gross income, To manage, conserve, or maintain property held for producing such income, or To determine, contest, pay, or claim a refund of any tax. E file taxes You can deduct expenses you pay for the purposes in (1) and (2) above only if they are reasonable and closely related to these purposes. E file taxes These other expenses include the following items. E file taxes Appraisal fees for a casualty loss or charitable contribution. E file taxes Casualty and theft losses from property used in performing services as an employee. E file taxes Clerical help and office rent in caring for investments. E file taxes Depreciation on home computers used for investments. E file taxes Excess deductions (including administrative expenses) allowed a beneficiary on termination of an estate or trust. E file taxes Fees to collect interest and dividends. E file taxes Hobby expenses, but generally not more than hobby income. E file taxes Indirect miscellaneous deductions from pass-through entities. E file taxes Investment fees and expenses. E file taxes Legal fees related to producing or collecting taxable income or getting tax advice. E file taxes Loss on deposits in an insolvent or bankrupt financial institution. E file taxes Loss on traditional IRAs or Roth IRAs, when all amounts have been distributed to you. E file taxes Repayments of income. E file taxes Repayments of social security benefits. E file taxes Safe deposit box rental, except for storing jewelry and other personal effects. E file taxes Service charges on dividend reinvestment plans. E file taxes Tax advice fees. E file taxes Trustee's fees for your IRA, if separately billed and paid. E file taxes If the expenses you pay produce income that is only partially taxable, see Tax-Exempt Income Expenses, later, under Nondeductible Expenses. E file taxes Appraisal Fees You can deduct appraisal fees if you pay them to figure a casualty loss or the fair market value of donated property. E file taxes Casualty and Theft Losses You can deduct a casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit if you used the damaged or stolen property in performing services as an employee. E file taxes First report the loss in Section B of Form 4684, Casualties and Thefts. E file taxes You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. E file taxes To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. E file taxes For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. E file taxes Clerical Help and Office Rent You can deduct office expenses, such as rent and clerical help, that you have in connection with your investments and collecting the taxable income on them. E file taxes Credit or Debit Card Convenience Fees You can deduct the convenience fee charged by the card processor for paying your income tax (including estimated tax payments) by credit or debit card. E file taxes The fees are deductible on the return for the year in which you paid them. E file taxes For example, fees charged to payments made in 2013 can be claimed on the 2013 tax return. E file taxes Depreciation on Home Computer You can deduct depreciation on your home computer if you use it to produce income (for example, to manage your investments that produce taxable income). E file taxes You generally must depreciate the computer using the straight line method over the Alternative Depreciation System (ADS) recovery period. E file taxes But if you work as an employee and also use the computer in that work, see Depreciation on Computers under Unreimbursed Employee Expenses, earlier. E file taxes For more information on depreciation, see Publication 946. E file taxes Excess Deductions of an Estate If an estate's total deductions in its last tax year are more than its gross income for that year, the beneficiaries succeeding to the estate's property can deduct the excess. E file taxes Do not include deductions for the estate's personal exemption and charitable contributions when figuring the estate's total deductions. E file taxes The beneficiaries can claim the deduction only for the tax year in which, or with which, the estate terminates, whether the year of termination is a normal year or a short tax year. E file taxes For more information, see Termination of Estate in Publication 559, Survivors, Executors, and Administrators. E file taxes Fees To Collect Interest and Dividends You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect your taxable bond interest or dividends on shares of stock. E file taxes But you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds. E file taxes You must add the fee to the cost of the property. E file taxes You cannot deduct the fee you pay to a broker to sell securities. E file taxes You can use the fee only to figure gain or loss from the sale. E file taxes See the instructions for Schedule D (Form 1040) for information on how to report the fee. E file taxes Hobby Expenses You can generally deduct hobby expenses, but only up to the amount of hobby income. E file taxes A hobby is not a business because it is not carried on to make a profit. E file taxes See Not-for-Profit Activities in chapter 1 of Publication 535. E file taxes Indirect Deductions of Pass-Through Entities Pass-through entities include partnerships, S corporations, and mutual funds that are not publicly offered. E file taxes Deductions of pass-through entities are passed through to the partners or shareholders. E file taxes The partners or shareholders can deduct their share of passed-through deductions for investment expenses as miscellaneous itemized deductions subject to the 2% limit. E file taxes Example. E file taxes You are a member of an investment club that is formed solely to invest in securities. E file taxes The club is treated as a partnership. E file taxes The partnership's income is solely from taxable dividends, interest, and gains from sales of securities. E file taxes In this case, you can deduct your share of the partnership's operating expenses as miscellaneous itemized deductions subject to the 2% limit. E file taxes However, if the investment club partnership has investments that also produce nontaxable income, you cannot deduct your share of the partnership's expenses that produce the nontaxable income. E file taxes Publicly offered mutual funds. E file taxes   Publicly offered mutual funds do not pass deductions for investment expenses through to shareholders. E file taxes A mutual fund is “publicly offered” if it is: Continuously offered pursuant to a public offering, Regularly traded on an established securities market, or Held by or for at least 500 persons at all times during the tax year. E file taxes   A publicly offered mutual fund will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing the net amount of dividend income (gross dividends minus investment expenses). E file taxes This net figure is the amount you report on your return as income. E file taxes You cannot further deduct investment expenses related to publicly offered mutual funds because they are already included as part of the net income amount. E file taxes Information returns. E file taxes   You should receive information returns from pass-through entities. E file taxes Partnerships and S corporations. E file taxes   These entities issue Schedule K-1, which lists the items and amounts you must report, and identifies the tax return schedules and lines to use. E file taxes Nonpublicly offered mutual funds. E file taxes   These funds will send you a Form 1099-DIV, or a substitute form, showing your share of gross income and investment expenses. E file taxes You can claim the expenses only as a miscellaneous itemized deduction subject to the 2% limit. E file taxes Investment Fees and Expenses You can deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income. E file taxes Legal Expenses You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax. E file taxes You can also deduct legal expenses that are: Related to either doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business, For tax advice related to a divorce if the bill specifies how much is for tax advice and it is determined in a reasonable way, or To collect taxable alimony. E file taxes You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F) on the appropriate schedule. E file taxes You deduct expenses of resolving nonbusiness tax issues on Schedule A (Form 1040 or Form 1040NR). E file taxes See Tax Preparation Fees, earlier. E file taxes Unlawful discrimination claims. E file taxes   You may be able to deduct, as an adjustment to income on Form 1040, line 36, or Form 1040NR, line 35, rather than as a miscellaneous itemized deduction, attorney fees and court costs for actions settled or decided after October 22, 2004, involving a claim of unlawful discrimination, a claim against the U. E file taxes S. E file taxes Government, or a claim made under section 1862(b)(3)(A) of the Social Security Act. E file taxes However, the amount you can deduct on Form 1040, line 36, or Form 1040NR, line 35, is limited to the amount of the judgment or settlement you are including in income for the tax year. E file taxes See Publication 525 for more information. E file taxes Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. E file taxes If you can reasonably estimate the amount of your loss on money you have on deposit in a financial institution that becomes insolvent or bankrupt, you can generally choose to deduct it in the current year even though its exact amount has not been finally determined. E file taxes If elected, the casualty loss is subject to certain deduction limitations. E file taxes The election is made on Form 4684. E file taxes Once you make this choice, you cannot change it without IRS approval. E file taxes If none of the deposit is federally insured, you can deduct the loss in either of the following ways. E file taxes As an ordinary loss (as a miscellaneous itemized deduction subject to the 2% limit). E file taxes Write the name of the financial institution and “Insolvent Financial Institution” beside the amount on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. E file taxes This deduction is limited to $20,000 ($10,000 if you are married filing separately) for each financial institution, reduced by any expected state insurance proceeds. E file taxes As a casualty loss. E file taxes Report it on Form 4684 first and then on Schedule A (Form 1040). E file taxes See Publication 547 for details. E file taxes As a nonbusiness bad debt. E file taxes Report it on Schedule D (Form 1040). E file taxes If any part of the deposit is federally insured, you can deduct the loss only as a casualty loss. E file taxes Exception. E file taxes   You cannot make this choice if you are a 1%-or-more-owner or an officer of the financial institution, or are related to such owner or officer. E file taxes For a definition of “related,” see Deposit in Insolvent or Bankrupt Financial Institution in chapter 4 of Publication 550. E file taxes Actual loss different from estimated loss. E file taxes   If you make this choice and your actual loss is less than your estimated loss, you must include the excess in income. E file taxes See Recoveries in Publication 525. E file taxes If your actual loss is more than your estimated loss, treat the excess loss as explained under Choice not made, next. E file taxes Choice not made. E file taxes   If you do not make this choice (or if you have an excess actual loss after choosing to deduct your estimated loss), treat your loss (or excess loss) as a nonbusiness bad debt (deductible as a short-term capital loss) in the year its amount is finally determined. E file taxes See Nonbusiness Bad Debts in chapter 4 of Publication 550. E file taxes Loss on IRA If you have a loss on your traditional IRA (or Roth IRA) investment, you can deduct the loss as a miscellaneous itemized deduction subject to the 2% limit, but only when all the amounts in all your traditional IRA (or Roth IRA) accounts have been distributed to you and the total distributions are less than your unrecovered basis. E file taxes For more information, see Publication 590, Individual Retirement Arrangements (IRAs). E file taxes Repayments of Income If you had to repay an amount that you included in income in an earlier year, you may be able to deduct the amount you repaid. E file taxes If the amount you had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2% limit. E file taxes If it was more than $3,000, see Repayments Under Claim of Right under Deductions Not Subject to the 2% Limit, later. E file taxes Repayments of Social Security Benefits If the total of the amounts in box 5 (net benefits for 2013) of all your Forms SSA-1099, Social Security Benefit Statement, and Forms RRB-1099, Payments By the Railroad Retirement Board, is a negative figure (a figure in parentheses), you may be able to take a miscellaneous itemized deduction subject to the 2% limit. E file taxes The amount you can deduct is the part of the negative figure that represents an amount you included in gross income in an earlier year. E file taxes The amount in box 5 of Form SSA-1099 or RRB-1099 is the net amount of your benefits for the year. E file taxes It will be a negative figure if the amount of benefits you repaid in 2013 (box 4) is more than the gross amount of benefits paid to you in 2013 (box 3). E file taxes If the deduction is more than $3,000, you will have to use a special computation to figure your tax. E file taxes See Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for additional information. E file taxes Safe Deposit Box Rent You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. E file taxes You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities. E file taxes Service Charges on Dividend Reinvestment Plans You can deduct service charges you pay as a subscriber in a dividend reinvestment plan. E file taxes These service charges include payments for: Holding shares acquired through a plan, Collecting and reinvesting cash dividends, and Keeping individual records and providing detailed statements of accounts. E file taxes Trustee's Administrative Fees for IRA Trustee's administrative fees that are billed separately and paid by you in connection with your IRA are deductible (if they are ordinary and necessary) as a miscellaneous itemized deduction subject to the 2% limit. E file taxes Deductions Not Subject to the 2% Limit You can deduct the items listed below as miscellaneous itemized deductions. E file taxes They are not subject to the 2% limit. E file taxes Report these items on Schedule A (Form 1040), line 28, or Schedule A (Form 1040NR), line 14. E file taxes List of Deductions Amortizable premium on taxable bonds. E file taxes Casualty and theft losses from income-producing property. E file taxes Federal estate tax on income in respect of a decedent. E file taxes Gambling losses up to the amount of gambling winnings. E file taxes Impairment-related work expenses of persons with disabilities. E file taxes Loss from other activities from Schedule K-1 (Form 1065-B), box 2. E file taxes Losses from Ponzi-type investment schemes. E file taxes Repayments of more than $3,000 under a claim of right. E file taxes Unrecovered investment in an annuity. E file taxes Amortizable Premium on Taxable Bonds In general, if the amount you pay for a bond is greater than its stated principal amount, the excess is bond premium. E file taxes You can elect to amortize the premium on taxable bonds. E file taxes The amortization of the premium is generally an offset to interest income on the bond rather than a separate deduction item. E file taxes Pre-1998 election to amortize bond premium. E file taxes   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. E file taxes Bonds acquired after October 22, 1986, and before 1988. E file taxes   The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you chose to treat it as an offset to interest income on the bond. E file taxes Bonds acquired before October 23, 1986. E file taxes   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2% limit. E file taxes Deduction for excess premium. E file taxes   On certain bonds (such as bonds that pay a variable rate of interest or that provide for an interest-free period), the amount of bond premium allocable to a period may exceed the amount of stated interest allocable to the period. E file taxes If this occurs, treat the excess as a miscellaneous itemized deduction that is not subject to the 2% limit. E file taxes However, the amount deductible is limited to the amount by which your total interest inclusions on the bond in prior periods exceed the total amount you treated as a bond premium deduction on the bond in prior periods. E file taxes If any of the excess bond premium cannot be deducted because of the limit, this amount is carried forward to the next period and is treated as bond premium allocable to that period. E file taxes    Pre-1998 choice to amortize bond premium. E file taxes If you made the choice to amortize the premium on taxable bonds before 1998, you can deduct the bond premium amortization that is more than your interest income only for bonds acquired during 1998 and later years. E file taxes More information. E file taxes    For more information on bond premium, see Bond Premium Amortization in chapter 3 of Publication 550. E file taxes Casualty and Theft Losses of Income-Producing Property You can deduct a casualty or theft loss as a miscellaneous itemized deduction not subject to the 2% limit if the damaged or stolen property was income-producing property (property held for investment, such as stocks, notes, bonds, gold, silver, vacant lots, and works of art). E file taxes First report the loss in Section B of Form 4684. E file taxes You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. E file taxes To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. E file taxes For more information on casualty and theft losses, see Publication 547. E file taxes Federal Estate Tax on Income in Respect of a Decedent You can deduct the federal estate tax attributable to income in respect of a decedent that you as a beneficiary include in your gross income. E file taxes Income in respect of the decedent is gross income that the decedent would have received had death not occurred and that was not properly includible in the decedent's final income tax return. E file taxes See Publication 559 for information about figuring the amount of this deduction. E file taxes Gambling Losses Up to the Amount of Gambling Winnings You must report the full amount of your gambling winnings for the year on Form 1040, line 21. E file taxes You deduct your gambling losses for the year on Schedule A (Form 1040), line 28. E file taxes You cannot deduct gambling losses that are more than your winnings. E file taxes Generally, nonresident aliens cannot deduct gambling losses on Schedule A (Form 1040NR). E file taxes You cannot reduce your gambling winnings by your gambling losses and report the difference. E file taxes You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. E file taxes Therefore, your records should show your winnings separately from your losses. E file taxes Diary of winnings and losses. E file taxes You must keep an accurate diary or similar record of your losses and winnings. E file taxes Your diary should contain at least the following information. E file taxes The date and type of your specific wager or wagering activity. E file taxes The name and address or location of the gambling establishment. E file taxes The names of other persons present with you at the gambling establishment. E file taxes The amount(s) you won or lost. E file taxes Proof of winnings and losses. E file taxes   In addition to your diary, you should also have other documentation. E file taxes You can generally prove your winnings and losses through Form W-2G, Certain Gambling Winnings, Form 5754, Statement by Person(s) Receiving Gambling Winnings, wagering tickets, canceled checks, substitute checks, credit records, bank withdrawals, and statements of actual winnings or payment slips provided to you by the gambling establishment. E file taxes   For specific wagering transactions, you can use the following items to support your winnings and losses. E file taxes    These recordkeeping suggestions are intended as general guidelines to help you establish your winnings and losses. E file taxes They are not all-inclusive. E file taxes Your tax liability depends on your particular facts and circumstances. E file taxes Keno. E file taxes   Copies of the keno tickets you purchased that were validated by the gambling establishment, copies of your casino credit records, and copies of your casino check cashing records. E file taxes Slot machines. E file taxes   A record of the machine number and all winnings by date and time the machine was played. E file taxes Table games (twenty-one (blackjack), craps, poker, baccarat, roulette, wheel of fortune, etc. E file taxes ). E file taxes   The number of the table at which you were playing. E file taxes Casino credit card data indicating whether the credit was issued in the pit or at the cashier's cage. E file taxes Bingo. E file taxes   A record of the number of games played, cost of tickets purchased, and amounts collected on winning tickets. E file taxes Supplemental records include any receipts from the casino, parlor, etc. E file taxes Racing (horse, harness, dog, etc. E file taxes ). E file taxes   A record of the races, amounts of wagers, amounts collected on winning tickets, and amounts lost on losing tickets. E file taxes Supplemental records include unredeemed tickets and payment records from the racetrack. E file taxes Lotteries. E file taxes   A record of ticket purchases, dates, winnings, and losses. E file taxes Supplemental records include unredeemed tickets, payment slips, and winnings statements. E file taxes Impairment-Related Work Expenses If you have a physical or mental disability that limits your being employed, or substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, and working, you can deduct your impairment-related work expenses. E file taxes Impairment-related work expenses are ordinary and necessary business expenses for attendant care services at your place of work and other expenses in connection with your place of work that are necessary for you to be able to work. E file taxes Example. E file taxes You are blind. E file taxes You must use a reader to do your work. E file taxes You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. E file taxes The reader's services are only for your work. E file taxes You can deduct your expenses for the reader as impairment-related work expenses. E file taxes Self-employed. E file taxes   If you are self-employed, enter your impairment-related work expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. E file taxes See Impairment-related work expenses. E file taxes , later under How To Report. E file taxes Loss From Other Activities From Schedule K-1 (Form 1065-B), Box 2 If the amount reported in Schedule K-1 (Form 1065-B), box 2, is a loss, report it on Schedule A (Form 1040), line 28, or Schedule A (Form 1040NR), line 14 (only if effectively connected with a U. E file taxes S. E file taxes trade or business). E file taxes It is not subject to the passive activity limitations. E file taxes Officials Paid on a Fee Basis If you are a fee-basis official, you can claim your expenses in performing services in that job as an adjustment to income rather than as a miscellaneous itemized deduction. E file taxes See Publication 463 for more information. E file taxes Performing Artists If you are a qualified performing artist, you can deduct your employee business expenses as an adjustment to income rather than as a miscellaneous itemized deduction. E file taxes If you are an employee, complete Form 2106 or Form 2106-EZ. E file taxes See Publication 463 for more information. E file taxes Losses From Ponzi-type Investment Schemes These losses are deductible as theft losses of income-producing property on your tax return for the year the loss was discovered. E file taxes You figure the deductible loss in Section B of Form 4684. E file taxes However, if you qualify to use Revenue Procedure 2009-20 (as modified by Revenue Procedure 2011-58) and you choose to follow the procedures in the guidance, complete Section C of Form 4684 before completing Section B. E file taxes Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. E file taxes You do not need to complete Appendix A. E file taxes See the Form 4684 instructions and Publication 547, Casualties, Disasters, and Thefts, for more information. E file taxes Repayments Under Claim of Right If you had to repay more than $3,000 that you included in your income in an earlier year because at the time you thought you had an unrestricted right to it, you may be able to deduct the amount you repaid, or take a credit against your tax. E file taxes See Repayments in Publication 525 for more information. E file taxes Unrecovered Investment in Annuity A retiree who contributed to the cost of an annuity can exclude from income a part of each payment received as a tax-free return of the retiree's investment. E file taxes If the retiree dies before the entire investment is recovered tax free, any unrecovered investment can be deducted on the retiree's final income tax return. E file taxes See Publication 575, Pension and Annuity Income, for more information about the tax treatment of pensions and annuities. E file taxes Nondeductible Expenses You cannot deduct the following expenses. E file taxes List of Nondeductible Expenses Adoption expenses. E file taxes Broker's commissions. E file taxes Burial or funeral expenses, including the cost of a cemetery lot. E file taxes Campaign expenses. E file taxes Capital expenses. E file taxes Check-writing fees. E file taxes Club dues. E file taxes Commuting expenses. E file taxes Fees and licenses, such as car licenses, marriage licenses, and dog tags. E file taxes Fines and penalties, such as parking tickets. E file taxes Health spa expenses. E file taxes Hobby losses—but see Hobby Expenses, earlier. E file taxes Home repairs, insurance, and rent. E file taxes Home security system. E file taxes Illegal bribes and kickbacks—see Bribes and kickbacks in chapter 11 of Publication 535. E file taxes Investment-related seminars. E file taxes Life insurance premiums paid by the insured. E file taxes Lobbying expenses. E file taxes Losses from the sale of your home, furniture, personal car, etc. E file taxes Lost or misplaced cash or property. E file taxes Lunches with co-workers. E file taxes Meals while working late. E file taxes Medical expenses as business expenses other than medical examinations required by your employer. E file taxes Personal disability insurance premiums. E file taxes Personal legal expenses. E file taxes Personal, living, or family expenses. E file taxes Political contributions. E file taxes Professional accreditation fees. E file taxes Professional reputation, expenses to improve. E file taxes Relief fund contributions. E file taxes Residential telephone line. E file taxes Stockholders' meeting, expenses of attending. E file taxes Tax-exempt income, expenses of earning or collecting. E file taxes The value of wages never received or lost vacation time. E file taxes Travel expenses for another individual. E file taxes Voluntary unemployment benefit fund contributions. E file taxes Wristwatches. E file taxes Adoption Expenses You cannot deduct the expenses of adopting a child but you may be able to take a credit for those expenses. E file taxes For details, see Form 8839, Qualified Adoption Expenses. E file taxes Commissions Commissions paid on the purchase of securities are not deductible, either as business or nonbusiness expenses. E file taxes Instead, these fees must be added to the taxpayer's cost of the securities. E file taxes Commissions paid on the sale are deductible as business expenses only by dealers. E file taxes Campaign Expenses You cannot deduct campaign expenses of a candidate for any office, even if the candidate is running for reelection to the office. E file taxes These include qualification and registration fees for primary elections. E file taxes Legal fees. E file taxes   You cannot deduct legal fees paid to defend charges that arise from participation in a political campaign. E file taxes Capital Expenses You cannot currently deduct amounts paid to buy property that has a useful life substantially beyond the tax year or amounts paid to increase the value or prolong the life of property. E file taxes If you use such property in your work, you may be able to take a depreciation deduction. E file taxes See Publication 946. E file taxes If the property is a car used in your work, also see Publication 463. E file taxes Check-Writing Fees on Personal Account If you have a personal checking account, you cannot deduct fees charged by the bank for the privilege of writing checks, even if the account pays interest. E file taxes Club Dues Generally, you cannot deduct the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. E file taxes This includes business, social, athletic, luncheon, sporting, airline, hotel, golf, and country clubs. E file taxes You cannot deduct dues paid to an organization if one of its main purposes is to: Conduct entertainment activities for members or their guests, or Provide members or their guests with access to entertainment facilities. E file taxes Dues paid to airline, hotel, and luncheon clubs are not deductible. E file taxes Commuting Expenses You cannot deduct commuting expenses (the cost of transportation between your home and your main or regular place of work). E file taxes If you haul tools, instruments, or other items in your car to and from work, you can deduct only the additional cost of hauling the items, such as the rent on a trailer to carry the items. E file taxes Fines or Penalties You cannot deduct fines or penalties you pay to a governmental unit for violating a law. E file taxes This includes an amount paid in settlement of your actual or potential liability for a fine or penalty (civil or criminal). E file taxes Fines or penalties include parking tickets, tax penalties, and penalties deducted from teachers' paychecks after an illegal strike. E file taxes Health Spa Expenses You cannot deduct health spa expenses, even if there is a job requirement to stay in excellent physical condition, such as might be required of a law enforcement officer. E file taxes Home Security System You cannot deduct the cost of a home security system as a miscellaneous deduction. E file taxes However, you may be able to claim a deduction for a home security system as a business expense if you have a home office. E file taxes See Home Office under Unreimbursed Employee Expenses, earlier, and Publication 587. E file taxes Investment-Related Seminars You cannot deduct any expenses for attending a convention, seminar, or similar meeting for investment purposes. E file taxes Life Insurance Premiums You cannot deduct premiums you pay on your life insurance. E file taxes You may be able to deduct, as alimony, premiums you pay on life insurance policies assigned to your former spouse. E file taxes See Publication 504, Divorced or Separated Individuals, for information on alimony. E file taxes Lobbying Expenses You generally cannot deduct amounts paid or incurred for lobbying expenses. E file taxes These include expenses to: Influence legislation, Participate, or intervene, in any political campaign for, or against, any candidate for public office, Attempt to influence the general public, or segments of the public, about elections, legislative matters, or referendums, or Communicate directly with covered executive branch officials in any attempt to influence the official actions or positions of those officials. E file taxes Lobbying expenses also include any amounts paid or incurred for research, preparation, planning, or coordination of any of these activities. E file taxes Covered executive branch official. E file taxes   A covered executive branch official, for the purpose of (4) above, is any of the following officials. E file taxes The President. E file taxes The Vice President. E file taxes Any officer or employee of the White House Office of the Executive Office of the President, and the two most senior level officers of each of the other agencies in the Executive Office. E file taxes Any individual serving in a position in Level I of the Executive Schedule under section 5312 of Title 5, United States Code, any other individual designated by the President as having Cabinet-level status, and any immediate deputy of one of these individuals. E file taxes Dues used for lobbying. E file taxes   If a tax-exempt organization notifies you that part of the dues or other amounts you pay to the organization are used to pay nondeductible lobbying expenses, you cannot deduct that part. E file taxes Exceptions. E file taxes   You can deduct certain lobbying expenses if they are ordinary and necessary expenses of carrying on your trade or business. E file taxes You can deduct expenses for attempting to influence the legislation of any local council or similar governing body (local legislation). E file taxes An Indian tribal government is considered a local council or similar governing body. E file taxes You can deduct in-house expenses for influencing legislation or communicating directly with a covered executive branch official if the expenses for the tax year are not more than $2,000 (not counting overhead expenses). E file taxes If you are a professional lobbyist, you can deduct the expenses you incur in the trade or business of lobbying on behalf of another person. E file taxes Payments by the other person to you for lobbying activities cannot be deducted. E file taxes Lost or Mislaid Cash or Property You cannot deduct a loss based on the mere disappearance of money or property. E file taxes However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. E file taxes See Publication 547. E file taxes Example. E file taxes A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. E file taxes The diamond falls from the ring and is never found. E file taxes The loss of the diamond is a casualty. E file taxes Lunches With Co-workers You cannot deduct the expenses of lunches with co-workers, except while traveling away from home on business. E file taxes See Publication 463 for information on deductible expenses while traveling away from home. E file taxes Meals While Working Late You cannot deduct the cost of meals while working late. E file taxes However, you may be able to claim a deduction if the cost of the meals is a deductible entertainment expense, or if you are traveling away from home. E file taxes See Publication 463 for information on deductible entertainment expenses and expenses while traveling away from home. E file taxes Personal Legal Expenses You cannot deduct personal legal expenses such as those for the following. E file taxes Custody of children. E file taxes Breach of promise to marry suit. E file taxes Civil or criminal charges resulting from a personal relationship. E file taxes Damages for personal injury (except certain whistleblower claims and unlawful discrimination claims). E file taxes For more information about unlawful discrimination claims, see Deductions Subject to the 2% Limit, earlier. E file taxes Preparation of a title (or defense or perfection of a title). E file taxes Preparation of a will. E file taxes Property claims or property settlement in a divorce. E file taxes You cannot deduct these expenses even if a result of the legal proceeding is the loss of income-producing property. E file taxes Political Contributions You cannot deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. E file taxes Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate are not deductible. E file taxes Professional Accreditation Fees You cannot deduct professional accreditation fees such as the following. E file taxes Accounting certificate fees paid for the initial right to practice accounting. E file taxes Bar exam fees and incidental expenses in securing initial admission to the bar. E file taxes Medical and dental license fees paid to get initial licensing. E file taxes Professional Reputation You cannot deduct expenses of radio and TV appearances to increase your personal prestige or establish your professional reputation. E file taxes Relief Fund Contributions You cannot deduct contributions paid to a private plan that pays benefits to any covered employee who cannot work because of any injury or illness not related to the job. E file taxes Residential Telephone Service You cannot deduct any charge (including taxes) for basic local telephone service for the first telephone line to your residence, even if it is used in a trade or business. E file taxes Stockholders' Meetings You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you own stock but have no other interest. E file taxes You cannot deduct these expenses even if you are attending the meeting to get information that would be useful in making further investments. E file taxes Tax-Exempt Income Expenses You cannot deduct expenses to produce tax-exempt income. E file taxes You cannot deduct interest on a debt incurred or continued to buy or carry tax-exempt securities. E file taxes If you have expenses to p