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Federal And State Income Tax Forms
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Federal and state income tax forms 2. Federal and state income tax forms Electing the Section 179 Deduction Table of Contents Introduction Useful Items - You may want to see: What Property Qualifies?Eligible Property Property Acquired for Business Use Property Acquired by Purchase What Property Does Not Qualify?Land and Improvements Excepted Property How Much Can You Deduct?Dollar Limits Business Income Limit Partnerships and Partners S Corporations Other Corporations How Do You Elect the Deduction? When Must You Recapture the Deduction? Introduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Federal and state income tax forms This is the section 179 deduction. Federal and state income tax forms You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions. Federal and state income tax forms Estates and trusts cannot elect the section 179 deduction. Federal and state income tax forms This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. Federal and state income tax forms It also explains when and how to recapture the deduction. Federal and state income tax forms Useful Items - You may want to see: Publication 537 Installment Sales 544 Sales and Other Dispositions of Assets 954 Tax Incentives for Distressed Communities Form (and Instructions) 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. Federal and state income tax forms What Property Qualifies? To qualify for the section 179 deduction, your property must meet all the following requirements. Federal and state income tax forms It must be eligible property. Federal and state income tax forms It must be acquired for business use. Federal and state income tax forms It must have been acquired by purchase. Federal and state income tax forms It must not be property described later under What Property Does Not Qualify . Federal and state income tax forms The following discussions provide information about these requirements and exceptions. Federal and state income tax forms Eligible Property To qualify for the section 179 deduction, your property must be one of the following types of depreciable property. Federal and state income tax forms Tangible personal property. Federal and state income tax forms Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services, A research facility used in connection with any of the activities in (a) above, or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. Federal and state income tax forms Single purpose agricultural (livestock) or horticultural structures. Federal and state income tax forms See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures. Federal and state income tax forms Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Federal and state income tax forms Off-the-shelf computer software. Federal and state income tax forms Qualified real property (described below). Federal and state income tax forms Tangible personal property. Federal and state income tax forms Tangible personal property is any tangible property that is not real property. Federal and state income tax forms It includes the following property. Federal and state income tax forms Machinery and equipment. Federal and state income tax forms Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. Federal and state income tax forms Gasoline storage tanks and pumps at retail service stations. Federal and state income tax forms Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals. Federal and state income tax forms The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. Federal and state income tax forms For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law. Federal and state income tax forms Off-the-shelf computer software. Federal and state income tax forms Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. Federal and state income tax forms This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Federal and state income tax forms It includes any program designed to cause a computer to perform a desired function. Federal and state income tax forms However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software. Federal and state income tax forms Qualified real property. Federal and state income tax forms You can elect to treat certain qualified real property you placed in service as section 179 property for tax years beginning in 2013. Federal and state income tax forms If this election is made, the term “section 179 property” will include any qualified real property that is: Qualified leasehold improvement property, Qualified restaurant property, or Qualified retail improvement property. Federal and state income tax forms The maximum section 179 expense deduction that can be elected for qualified section 179 real property is $250,000 of the maximum section 179 deduction of $500,000 in 2013. Federal and state income tax forms For more information, see Special rules for qualified section 179 real property, later. Federal and state income tax forms Also, see Election for certain qualified section 179 real property, later, for information on how to make this election. Federal and state income tax forms Qualified leasehold improvement property. Federal and state income tax forms Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. Federal and state income tax forms In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. Federal and state income tax forms A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. Federal and state income tax forms Examples include the following. Federal and state income tax forms A complete liquidation of a subsidiary. Federal and state income tax forms A transfer to a corporation controlled by the transferor. Federal and state income tax forms An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Federal and state income tax forms Qualified restaurant property. Federal and state income tax forms Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service after December 31, 2008, and before January 1, 2014. Federal and state income tax forms Also, more than 50% of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals. Federal and state income tax forms Qualified retail improvement property. Federal and state income tax forms Generally, this is any improvement (placed in service after December 31, 2008, and before January 1, 2014) to an interior portion of nonresidential real property if it meets the following requirements. Federal and state income tax forms The portion is open to the general public and is used in the retail trade or business of selling tangible property to the general public. Federal and state income tax forms The improvement is placed in service more than 3 years after the date the building was first placed in service. Federal and state income tax forms The expenses are not for the enlargement of the building, any elevator or escalator, any structural components benefiting a common area, or the internal structural framework of the building. Federal and state income tax forms In addition, an improvement made by the lessor does not qualify as qualified retail improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. Federal and state income tax forms A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. Federal and state income tax forms Examples include the following. Federal and state income tax forms A complete liquidation of a subsidiary. Federal and state income tax forms A transfer to a corporation controlled by the transferor. Federal and state income tax forms An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Federal and state income tax forms Property Acquired for Business Use To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. Federal and state income tax forms Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify. Federal and state income tax forms Partial business use. Federal and state income tax forms When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. Federal and state income tax forms If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. Federal and state income tax forms Use the resulting business cost to figure your section 179 deduction. Federal and state income tax forms Example. Federal and state income tax forms May Oak bought and placed in service an item of section 179 property costing $11,000. Federal and state income tax forms She used the property 80% for her business and 20% for personal purposes. Federal and state income tax forms The business part of the cost of the property is $8,800 (80% × $11,000). Federal and state income tax forms Property Acquired by Purchase To qualify for the section 179 deduction, your property must have been acquired by purchase. Federal and state income tax forms For example, property acquired by gift or inheritance does not qualify. Federal and state income tax forms Property is not considered acquired by purchase in the following situations. Federal and state income tax forms It is acquired by one component member of a controlled group from another component member of the same group. Federal and state income tax forms Its basis is determined either— In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or Under the stepped-up basis rules for property acquired from a decedent. Federal and state income tax forms It is acquired from a related person. Federal and state income tax forms Related persons. Federal and state income tax forms Related persons are described under Related persons earlier. Federal and state income tax forms However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only his or her spouse, ancestors, and lineal descendants and substitute "50%" for "10%" each place it appears. Federal and state income tax forms Example. Federal and state income tax forms Ken Larch is a tailor. Federal and state income tax forms He bought two industrial sewing machines from his father. Federal and state income tax forms He placed both machines in service in the same year he bought them. Federal and state income tax forms They do not qualify as section 179 property because Ken and his father are related persons. Federal and state income tax forms He cannot claim a section 179 deduction for the cost of these machines. Federal and state income tax forms What Property Does Not Qualify? Certain property does not qualify for the section 179 deduction. Federal and state income tax forms This includes the following. Federal and state income tax forms Land and Improvements Land and land improvements do not qualify as section 179 property. Federal and state income tax forms Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences. Federal and state income tax forms Excepted Property Even if the requirements explained earlier under What Property Qualifies are met, you cannot elect the section 179 deduction for the following property. Federal and state income tax forms Certain property you lease to others (if you are a noncorporate lessor). Federal and state income tax forms Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Federal and state income tax forms Air conditioning or heating units. Federal and state income tax forms Property used predominantly outside the United States, except property described in section 168(g)(4) of the Internal Revenue Code. Federal and state income tax forms Property used by certain tax-exempt organizations, except property used in connection with the production of income subject to the tax on unrelated trade or business income. Federal and state income tax forms Property used by governmental units or foreign persons or entities, except property used under a lease with a term of less than 6 months. Federal and state income tax forms Leased property. Federal and state income tax forms Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. Federal and state income tax forms This rule does not apply to corporations. Federal and state income tax forms However, you can claim a section 179 deduction for the cost of the following property. Federal and state income tax forms Property you manufacture or produce and lease to others. Federal and state income tax forms Property you purchase and lease to others if both the following tests are met. Federal and state income tax forms The term of the lease (including options to renew) is less than 50% of the property's class life. Federal and state income tax forms For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property. Federal and state income tax forms Property used for lodging. Federal and state income tax forms Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. Federal and state income tax forms However, this does not apply to the following types of property. Federal and state income tax forms Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities. Federal and state income tax forms Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients. Federal and state income tax forms Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures. Federal and state income tax forms Any energy property. Federal and state income tax forms Energy property. Federal and state income tax forms Energy property is property that meets the following requirements. Federal and state income tax forms It is one of the following types of property. Federal and state income tax forms Equipment that uses solar energy to generate electricity, to heat or cool a structure, to provide hot water for use in a structure, or to provide solar process heat, except for equipment used to generate energy to heat a swimming pool. Federal and state income tax forms Equipment placed in service after December 31, 2005, and before January 1, 2017, that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Federal and state income tax forms Equipment used to produce, distribute, or use energy derived from a geothermal deposit. Federal and state income tax forms For electricity generated by geothermal power, this includes equipment up to (but not including) the electrical transmission stage. Federal and state income tax forms Qualified fuel cell property or qualified microturbine property placed in service after December 31, 2005, and before January 1, 2017. Federal and state income tax forms The construction, reconstruction, or erection of the property must be completed by you. Federal and state income tax forms For property you acquire, the original use of the property must begin with you. Federal and state income tax forms The property must meet the performance and quality standards, if any, prescribed by Income Tax Regulations in effect at the time you get the property. Federal and state income tax forms For periods before February 14, 2008, energy property does not include any property that is public utility property as defined by section 46(f)(5) of the Internal Revenue Code (as in effect on November 4, 1990). Federal and state income tax forms How Much Can You Deduct? Your section 179 deduction is generally the cost of the qualifying property. Federal and state income tax forms However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. Federal and state income tax forms These limits apply to each taxpayer, not to each business. Federal and state income tax forms However, see Married Individuals under Dollar Limits , later. Federal and state income tax forms For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. Federal and state income tax forms See Do the Passenger Automobile Limits Apply in chapter 5 . Federal and state income tax forms If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct. Federal and state income tax forms Trade-in of other property. Federal and state income tax forms If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 deduction includes only the cash you paid. Federal and state income tax forms Example. Federal and state income tax forms Silver Leaf, a retail bakery, traded two ovens having a total adjusted basis of $680 for a new oven costing $1,320. Federal and state income tax forms They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. Federal and state income tax forms The bakery also traded a used van with an adjusted basis of $4,500 for a new van costing $9,000. Federal and state income tax forms They received a $4,800 trade-in allowance on the used van and paid $4,200 in cash for the new van. Federal and state income tax forms Only the portion of the new property's basis paid by cash qualifies for the section 179 deduction. Federal and state income tax forms Therefore, Silver Leaf's qualifying costs for the section 179 deduction are $4,720 ($520 + $4,200). Federal and state income tax forms Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 generally cannot be more than $500,000. Federal and state income tax forms If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. Federal and state income tax forms You do not have to claim the full $500,000. Federal and state income tax forms Qualified real property (described earlier) that you elected to treat as section 179 real property is limited to $250,000 of the maximum deduction of $500,000 for 2013. Federal and state income tax forms The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year. Federal and state income tax forms After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction. Federal and state income tax forms Example. Federal and state income tax forms In 2013, you bought and placed in service $500,000 in machinery and a $25,000 circular saw for your business. Federal and state income tax forms You elect to deduct $475,000 for the machinery and the entire $25,000 for the saw, a total of $500,000. Federal and state income tax forms This is the maximum amount you can deduct. Federal and state income tax forms Your $25,000 deduction for the saw completely recovered its cost. Federal and state income tax forms Your basis for depreciation is zero. Federal and state income tax forms The basis for depreciation of your machinery is $25,000. Federal and state income tax forms You figure this by subtracting your $475,000 section 179 deduction for the machinery from the $500,000 cost of the machinery. Federal and state income tax forms Situations affecting dollar limit. Federal and state income tax forms Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. Federal and state income tax forms The general dollar limit is affected by any of the following situations. Federal and state income tax forms The cost of your section 179 property placed in service exceeds $2,000,000. Federal and state income tax forms Your business is an enterprise zone business. Federal and state income tax forms You placed in service a sport utility or certain other vehicles. Federal and state income tax forms You are married filing a joint or separate return. Federal and state income tax forms Costs exceeding $2,000,000 If the cost of your qualifying section 179 property placed in service in a year is more than $2,000,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,000,000. Federal and state income tax forms If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. Federal and state income tax forms Example. Federal and state income tax forms In 2013, Jane Ash placed in service machinery costing $2,100,000. Federal and state income tax forms This cost is $100,000 more than $2,000,000, so she must reduce her dollar limit to $400,000 ($500,000 − $100,000). Federal and state income tax forms Enterprise Zone Businesses An increased section 179 deduction is available to enterprise zone businesses for qualified zone property placed in service during the tax year, in an empowerment zone. Federal and state income tax forms For more information including the definitions of “enterprise zone business” and “qualified zone property,” see sections 1397A, 1397C, and 1397D of the Internal Revenue Code. Federal and state income tax forms The dollar limit on the section 179 deduction is increased by the smaller of: $35,000, or The cost of section 179 property that is also qualified zone property placed in service before January 1, 2014 (including such property placed in service by your spouse, even if you are filing a separate return). Federal and state income tax forms Note. Federal and state income tax forms You take into account only 50% (instead of 100%) of the cost of qualified zone property placed in service in a year when figuring the reduced dollar limit for costs exceeding $2,000,000 (explained earlier). Federal and state income tax forms Sport Utility and Certain Other Vehicles You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. Federal and state income tax forms This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. Federal and state income tax forms However, the $25,000 limit does not apply to any vehicle: Designed to seat more than nine passengers behind the driver's seat, Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. Federal and state income tax forms Married Individuals If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. Federal and state income tax forms If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Federal and state income tax forms If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2,000,000. Federal and state income tax forms You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. Federal and state income tax forms If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. Federal and state income tax forms Example. Federal and state income tax forms Jack Elm is married. Federal and state income tax forms He and his wife file separate returns. Federal and state income tax forms Jack bought and placed in service $2,000,000 of qualified farm machinery in 2013. Federal and state income tax forms His wife has her own business, and she bought and placed in service $30,000 of qualified business equipment. Federal and state income tax forms Their combined dollar limit is $470,000. Federal and state income tax forms This is because they must figure the limit as if they were one taxpayer. Federal and state income tax forms They reduce the $500,000 dollar limit by the $30,000 excess of their costs over $2,000,000. Federal and state income tax forms They elect to allocate the $470,000 dollar limit as follows. Federal and state income tax forms $446,500 ($470,000 x 95%) to Mr. Federal and state income tax forms Elm's machinery. Federal and state income tax forms $23,500 ($470,000 x 5%) to Mrs. Federal and state income tax forms Elm's equipment. Federal and state income tax forms If they did not make an election to allocate their costs in this way, they would have to allocate $235,000 ($470,000 × 50%) to each of them. Federal and state income tax forms Joint return after filing separate returns. Federal and state income tax forms If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. Federal and state income tax forms The dollar limit (after reduction for any cost of section 179 property over $2,000,000). Federal and state income tax forms The total cost of section 179 property you and your spouse elected to expense on your separate returns. Federal and state income tax forms Example. Federal and state income tax forms The facts are the same as in the previous example except that Jack elected to deduct $30,000 of the cost of section 179 property on his separate return and his wife elected to deduct $2,000. Federal and state income tax forms After the due date of their returns, they file a joint return. Federal and state income tax forms Their dollar limit for the section 179 deduction is $32,000. Federal and state income tax forms This is the lesser of the following amounts. Federal and state income tax forms $470,000—The dollar limit less the cost of section 179 property over $2,000,000. Federal and state income tax forms $32,000—The total they elected to expense on their separate returns. Federal and state income tax forms Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Federal and state income tax forms Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. Federal and state income tax forms Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Federal and state income tax forms Special rules apply to a 2013 deduction of qualified section 179 real property that is disallowed because of the business income limit. Federal and state income tax forms See Special rules for qualified section 179 property under Carryover of disallowed deduction, later. Federal and state income tax forms Taxable income. Federal and state income tax forms In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Federal and state income tax forms Net income or loss from a trade or business includes the following items. Federal and state income tax forms Section 1231 gains (or losses). Federal and state income tax forms Interest from working capital of your trade or business. Federal and state income tax forms Wages, salaries, tips, or other pay earned as an employee. Federal and state income tax forms For information about section 1231 gains and losses, see chapter 3 in Publication 544. Federal and state income tax forms In addition, figure taxable income without regard to any of the following. Federal and state income tax forms The section 179 deduction. Federal and state income tax forms The self-employment tax deduction. Federal and state income tax forms Any net operating loss carryback or carryforward. Federal and state income tax forms Any unreimbursed employee business expenses. Federal and state income tax forms Two different taxable income limits. Federal and state income tax forms In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. Federal and state income tax forms You may have to figure the limit for this other deduction taking into account the section 179 deduction. Federal and state income tax forms If so, complete the following steps. Federal and state income tax forms Step Action 1 Figure taxable income without the section 179 deduction or the other deduction. Federal and state income tax forms 2 Figure a hypothetical section 179 deduction using the taxable income figured in Step 1. Federal and state income tax forms 3 Subtract the hypothetical section 179 deduction figured in Step 2 from the taxable income figured in Step 1. Federal and state income tax forms 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. Federal and state income tax forms 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1. Federal and state income tax forms 6 Figure your actual section 179 deduction using the taxable income figured in Step 5. Federal and state income tax forms 7 Subtract your actual section 179 deduction figured in Step 6 from the taxable income figured in Step 1. Federal and state income tax forms 8 Figure your actual other deduction using the taxable income figured in Step 7. Federal and state income tax forms Example. Federal and state income tax forms On February 1, 2013, the XYZ corporation purchased and placed in service qualifying section 179 property that cost $500,000. Federal and state income tax forms It elects to expense the entire $500,000 cost under section 179. Federal and state income tax forms In June, the corporation gave a charitable contribution of $10,000. Federal and state income tax forms A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. Federal and state income tax forms The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. Federal and state income tax forms XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $520,000. Federal and state income tax forms XYZ figures its section 179 deduction and its deduction for charitable contributions as follows. Federal and state income tax forms Step 1– Taxable income figured without either deduction is $520,000. Federal and state income tax forms Step 2– Using $520,000 as taxable income, XYZ's hypothetical section 179 deduction is $500,000. Federal and state income tax forms Step 3– $20,000 ($520,000 − $500,000). Federal and state income tax forms Step 4– Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. Federal and state income tax forms Step 5– $518,000 ($520,000 − $2,000). Federal and state income tax forms Step 6– Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. Federal and state income tax forms Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 deduction. Federal and state income tax forms Step 7– $20,000 ($520,000 − $500,000). Federal and state income tax forms Step 8– Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. Federal and state income tax forms Carryover of disallowed deduction. Federal and state income tax forms You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. Federal and state income tax forms This disallowed deduction amount is shown on line 13 of Form 4562. Federal and state income tax forms You use the amount you carry over to determine your section 179 deduction in the next year. Federal and state income tax forms Enter that amount on line 10 of your Form 4562 for the next year. Federal and state income tax forms If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. Federal and state income tax forms Your selections must be shown in your books and records. Federal and state income tax forms For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. Federal and state income tax forms If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year. Federal and state income tax forms If costs from more than one year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first. Federal and state income tax forms Special rules for qualified section 179 real property. Federal and state income tax forms You can carry over to 2013 a 2012 deduction attributable to qualified section 179 real property that you elected to expense but were unable to take because of the business income limitation. Federal and state income tax forms Any such 2012 carryover amounts that are not deducted in 2013, plus any 2013 disallowed section 179 expense deductions attributable to qualified real property, are not carried over to 2014. Federal and state income tax forms Instead these amounts are treated as property placed in service on the first day of 2013 for purposes of computing depreciation (including the special depreciation allowance, if applicable). Federal and state income tax forms See section 179(f) of the Internal Revenue Code and Notice 2013-59 for more information. Federal and state income tax forms If there is a sale or other disposition of your property (including a transfer at death) before you can use the full amount of any outstanding carryover of your disallowed section 179 deduction, neither you nor the new owner can deduct any of the unused amount. Federal and state income tax forms Instead, you must add it back to the property's basis. Federal and state income tax forms Partnerships and Partners The section 179 deduction limits apply both to the partnership and to each partner. Federal and state income tax forms The partnership determines its section 179 deduction subject to the limits. Federal and state income tax forms It then allocates the deduction among its partners. Federal and state income tax forms Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Federal and state income tax forms ) to his or her nonpartnership section 179 costs and then applies the dollar limit to this total. Federal and state income tax forms To determine any reduction in the dollar limit for costs over $2,000,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. Federal and state income tax forms After the dollar limit (reduced for any nonpartnership section 179 costs over $2,000,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit. Federal and state income tax forms Partnership's taxable income. Federal and state income tax forms For purposes of the business income limit, figure the partnership's taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. Federal and state income tax forms See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). Federal and state income tax forms However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code. Federal and state income tax forms Partner's share of partnership's taxable income. Federal and state income tax forms For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership's trades or businesses includes his or her allocable share of taxable income derived from the partnership's active conduct of any trade or business. Federal and state income tax forms Example. Federal and state income tax forms In 2013, Beech Partnership placed in service section 179 property with a total cost of $2,025,000. Federal and state income tax forms The partnership must reduce its dollar limit by $25,000 ($2,025,000 − $2,000,000). Federal and state income tax forms Its maximum section 179 deduction is $475,000 ($500,000 − $25,000), and it elects to expense that amount. Federal and state income tax forms The partnership's taxable income from the active conduct of all its trades or businesses for the year was $600,000, so it can deduct the full $475,000. Federal and state income tax forms It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners. Federal and state income tax forms In addition to being a partner in Beech Partnership, Dean is also a partner in the Cedar Partnership, which allocated to him a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. Federal and state income tax forms He also conducts a business as a sole proprietor and, in 2013, placed in service in that business qualifying section 179 property costing $55,000. Federal and state income tax forms He had a net loss of $5,000 from that business for the year. Federal and state income tax forms Dean does not have to include section 179 partnership costs to figure any reduction in his dollar limit, so his total section 179 costs for the year are not more than $2,000,000 and his dollar limit is not reduced. Federal and state income tax forms His maximum section 179 deduction is $500,000. Federal and state income tax forms He elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of his sole proprietorship's section 179 costs, and notes that information in his books and records. Federal and state income tax forms However, his deduction is limited to his business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership minus $5,000 loss from his sole proprietorship). Federal and state income tax forms He carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2014. Federal and state income tax forms He allocates the carryover amount to the cost of section 179 property placed in service in his sole proprietorship, and notes that allocation in his books and records. Federal and state income tax forms Different tax years. Federal and state income tax forms For purposes of the business income limit, if the partner's tax year and that of the partnership differ, the partner's share of the partnership's taxable income for a tax year is generally the partner's distributive share for the partnership tax year that ends with or within the partner's tax year. Federal and state income tax forms Example. Federal and state income tax forms John and James Oak are equal partners in Oak Partnership. Federal and state income tax forms Oak Partnership uses a tax year ending January 31. Federal and state income tax forms John and James both use a tax year ending December 31. Federal and state income tax forms For its tax year ending January 31, 2013, Oak Partnership's taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2012. Federal and state income tax forms John and James each include $40,000 (each partner's entire share) of partnership taxable income in computing their business income limit for the 2013 tax year. Federal and state income tax forms Adjustment of partner's basis in partnership. Federal and state income tax forms A partner must reduce the basis of his or her partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. Federal and state income tax forms If the partner disposes of his or her partnership interest, the partner's basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership. Federal and state income tax forms Adjustment of partnership's basis in section 179 property. Federal and state income tax forms The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. Federal and state income tax forms This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits. Federal and state income tax forms S Corporations Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. Federal and state income tax forms The deduction limits apply to an S corporation and to each shareholder. Federal and state income tax forms The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits. Federal and state income tax forms Figuring taxable income for an S corporation. Federal and state income tax forms To figure taxable income (or loss) from the active conduct by an S corporation of any trade or business, you total the net income and losses from all trades or businesses actively conducted by the S corporation during the year. Federal and state income tax forms To figure the net income (or loss) from a trade or business actively conducted by an S corporation, you take into account the items from that trade or business that are passed through to the shareholders and used in determining each shareholder's tax liability. Federal and state income tax forms However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. Federal and state income tax forms For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. Federal and state income tax forms In figuring the taxable income of an S corporation, disregard any limits on the amount of an S corporation item that must be taken into account when figuring a shareholder's taxable income. Federal and state income tax forms Other Corporations A corporation's taxable income from its active conduct of any trade or business is its taxable income figured with the following changes. Federal and state income tax forms It is figured before deducting the section 179 deduction, any net operating loss deduction, and special deductions (as reported on the corporation's income tax return). Federal and state income tax forms It is adjusted for items of income or deduction included in the amount figured in 1, above, not derived from a trade or business actively conducted by the corporation during the tax year. Federal and state income tax forms How Do You Elect the Deduction? You elect to take the section 179 deduction by completing Part I of Form 4562. Federal and state income tax forms If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I. Federal and state income tax forms For property placed in service in 2013, file Form 4562 with either of the following. Federal and state income tax forms Your original 2013 tax return, whether or not you file it timely. Federal and state income tax forms An amended return for 2013 filed within the time prescribed by law. Federal and state income tax forms An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Federal and state income tax forms The amended return must also include any resulting adjustments to taxable income. Federal and state income tax forms You must keep records that show the specific identification of each piece of qualifying section 179 property. Federal and state income tax forms These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Federal and state income tax forms Election for certain qualified section 179 real property. Federal and state income tax forms You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2013. Federal and state income tax forms If you elect to treat this property as section 179 property, you must elect the application of the special rules for qualified real property described in section 179(f) of the Internal Revenue Code. Federal and state income tax forms To make the election, attach a statement indicating you are “electing the application of section 179(f) of the Internal Revenue Code” with either of the following. Federal and state income tax forms Your original 2013 tax return, whether or not you file it timely. Federal and state income tax forms An amended return for 2013 filed within the time prescribed by law. Federal and state income tax forms The amended return must also include any adjustments to taxable income. Federal and state income tax forms The statement should indicate your election to expense certain qualified real property under section 179(f) on your return. Federal and state income tax forms It must specify one or more of the three types of qualified property (described under Qualified real property ) to which the election applies, the cost of each such type, and the portion of the cost of each such property to be taken into account. Federal and state income tax forms Also, report this on line 6 of Form 4562. Federal and state income tax forms The maximum section 179 expense deduction that can be taken for qualified section 179 real property is limited to $250,000. Federal and state income tax forms Revoking an election. Federal and state income tax forms An election (or any specification made in the election) to take a section 179 deduction for 2013 can be revoked without IRS approval by filing an amended return. Federal and state income tax forms The amended return must be filed within the time prescribed by law. Federal and state income tax forms The amended return must also include any resulting adjustments to taxable income. Federal and state income tax forms Once made, the revocation is irrevocable. Federal and state income tax forms When Must You Recapture the Deduction? You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. Federal and state income tax forms In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV of Form 4797. Federal and state income tax forms You also increase the basis of the property by the recapture amount. Federal and state income tax forms Recovery periods for property are discussed under Which Recovery Period Applies in chapter 4 . Federal and state income tax forms If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Federal and state income tax forms Instead, use the rules for recapturing depreciation explained in chapter 3 of Publication 544 under Section 1245 Property. Federal and state income tax forms For qualified real property (described earlier), see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. Federal and state income tax forms If the property is listed property (described in chapter 5 ), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Federal and state income tax forms Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement. Federal and state income tax forms Figuring the recapture amount. Federal and state income tax forms To figure the amount to recapture, take the following steps. Federal and state income tax forms Figure the depreciation that would have been allowable on the section 179 deduction you claimed. Federal and state income tax forms Begin with the year you placed the property in service and include the year of recapture. Federal and state income tax forms Subtract the depreciation figured in (1) from the section 179 deduction you claimed. Federal and state income tax forms The result is the amount you must recapture. Federal and state income tax forms Example. Federal and state income tax forms In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. Federal and state income tax forms The property is not listed property. Federal and state income tax forms The property is 3-year property. Federal and state income tax forms He elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. Federal and state income tax forms He used the property only for business in 2011 and 2012. Federal and state income tax forms In 2013, he used the property 40% for business and 60% for personal use. Federal and state income tax forms He figures his recapture amount as follows. Federal and state income tax forms Section 179 deduction claimed (2011) $5,000. Federal and state income tax forms 00 Minus: Allowable depreciation using Table A-1 (instead of section 179 deduction): 2011 $1,666. Federal and state income tax forms 50 2012 2,222. Federal and state income tax forms 50 2013 ($740. Federal and state income tax forms 50 × 40% (business)) 296. Federal and state income tax forms 20 4,185. Federal and state income tax forms 20 2013 — Recapture amount $ 814. Federal and state income tax forms 80 Paul must include $814. Federal and state income tax forms 80 in income for 2013. Federal and state income tax forms If any qualified zone property placed in service during the year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return. Federal and state income tax forms Prev Up Next Home More Online PublicationsOn This Page
Federal Holidays
Find the dates for this year's federal holidays.
Federal law establishes the following public holidays for federal employees. If the holiday falls during the weekend, it may be observed on a different day.
Many government offices are closed on federal holidays and some private businesses may close as well. If you plan to visit a government office on or around a federal holiday, you should contact them to determine when they will be open. Find contact information for government departments and agencies.
New Year's Day
New Year's Day is January 1. The celebration of this holiday begins the night before, when Americans gather to wish each other a happy and prosperous coming year. Many Americans make New Year's resolutions. See the New Year's resolutions that are popular every year.
Birthday of Martin Luther King, Jr.
Martin Luther King, Jr. Day is celebrated on the third Monday in January. The Reverend Martin Luther King, Jr. was an African-American clergyman who is recognized for his tireless efforts to win civil rights for all people through nonviolent means.
Washington's Birthday
Washington's Birthday is observed the third Monday of February in honor George Washington, the first President of the United States. This date is commonly called Presidents' Day and many groups honor the legacy of past presidents on this date.
Memorial Day
Memorial Day is a observed the last Monday of May. It originally honored the people killed in the American Civil War, but has become a day on which the American dead of all wars are remembered.
Independence Day
Independence Day is July 4. This holiday honors the nation's birthday - the adoption of the Declaration of Independence on July 4, 1776. It is a day of picnics and patriotic parades, a night of concerts, and fireworks.
Labor Day
Labor Day is the first Monday of September. This holiday honors the nation's working people, typically with parades. For most Americans it marks the end of the summer vacation season and the start of the school year.
Columbus Day
Columbus Day is a celebrated on the second Monday in October. The day commemorates October 12, 1492, when Italian navigator Christopher Columbus landed in the New World. The holiday was first proclaimed in 1937 by President Franklin D. Roosevelt.
Veterans Day
Veterans Day is celebrated on November 11. This holiday was originally called Armistice Day and established to honor Americans who had served in World War I. It now honors veterans of all wars in which the U.S. has fought. Veterans' organizations hold parades, and the president places a wreath on the Tomb of the Unknowns at Arlington National Cemetery in Virginia.
Thanksgiving Day
Thanksgiving Day is celebrated on the fourth Thursday in November. In the fall of 1621, the Pilgrims held a three-day feast to celebrate a bountiful harvest. Many regard this event as the nation's first Thanksgiving. The Thanksgiving feast became a national tradition and almost always includes some of the foods served at the first feast: roast turkey, cranberry sauce, potatoes, and pumpkin pie.
Christmas Day
Christmas Day is a celebrated on December 25. Christmas is a Christian holiday marking the birth of the Christ Child. Decorating houses and yards with lights, putting up Christmas trees, giving gifts, and sending greeting cards have become holiday traditions even for many non-Christian Americans. Find tips to help celebrate.
Other Celebrations and Observances
There are many commonly observed celebrations in the United States that are not federal holidays. Some of these observances honor groups of people, such as National African American History Month and Women's History Month, or causes, such as National Oceans Month and National Substance Abuse Prevention Month. Many of these holidays and observances are proclaimed by the President ever year. View recent Presidential proclamations.
These are some of the most popular American celebrations and observances that occur every year.
Groundhog Day
Groundhog Day is February 2 and has been celebrated since 1887. On Groundhog Day, crowds gather in Punxsutawney, Pennsylvania, to see if groundhog Punxsutawney Phil sees his shadow after emerging from his burrow, thus predicting six more weeks of winter weather.
Valentine's Day
Valentine's Day is celebrated on February 14. The day was named after an early Christian martyr, and on Valentine's Day, Americans give presents like candy or flowers to the ones they love. The first mass-produced valentine cards were sold in the 1840s.
Earth Day
Earth Day is observed on April 22. First celebrated in 1970 in the United States, it inspired national legislation such as the Clean Air and Clean Water Acts. Earth Day is designed to promote ecology, encourage respect for life on earth, and highlight concern over pollution of the soil, air, and water.
Arbor Day
National Arbor Day was proclaimed as the last Friday in April by President Richard Nixon in 1970. A number of state Arbor Days are observed at other times of the year to coincide with the best tree planting weather. The observance began in 1872, when Nebraska settlers and homesteaders were urged to plant trees on the largely treeless plains.
Mother's Day
Mother's Day is the second Sunday of May. President Woodrow Wilson issued a proclamation in 1914 that started the holiday. He asked Americans to give a public expression of reverence to mothers on this day. Carnations have come to represent Mother's Day, following President William McKinley's habit of always wearing a white carnation, his mother's favorite flower.
Flag Day
Flag Day, celebrated June 14, has been a presidentially proclaimed observance since 1916. Although Flag Day is not a federal holiday, Americans are encouraged to display the flag outside their homes and businesses on this day to honor the history and heritage the American flag represents.
Father's Day
Father's Day celebrates fathers every third Sunday of June. Father's Day began in 1909 in Spokane, Washington, when a daughter requested a special day to honor her father, a Civil War veteran who raised his children after his wife died. The first presidential proclamation honoring fathers was issued in 1966 by President Lyndon Johnson.
Patriot Day
September 11, 2001, was a defining moment in American history. On that day, terrorists hijacked four commercial airliners to strike targets in the United States. Nearly 3,000 people died as a consequence of the attacks. Patriot Day and National Day of Service and Remembrance is observed on September 11 in honor of the victims of these attacks.
Halloween
Halloween is celebrated on October 31. On Halloween, American children dress up in funny or scary costumes and go "trick or treating" by knocking on doors in their neighborhood. The neighbors are expected to respond by giving them small gifts of candy or money.
Pearl Harbor Day
Pearl Harbor Remembrance Day is December 7. In 1994, Congress designated this national observance to honor the more than 2,400 military service personnel who died on this date in 1941, during the surprise attack on Pearl Harbor, Hawaii, by Japanese forces. The attack on Pearl Harbor caused the United States to enter World War II.
Ethnic and Religious Holidays
Various ethnic and religious groups in America celebrate days with special meaning to them even though these are not national holidays. For example, Christians celebrate the resurrection of Jesus Christ on Easter, Jews observe their high holy days in September, Muslims celebrate Ramadan, and African Americans celebrate Kwanzaa. There are many other religious and ethnic celebrations in the United States.