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

File income tax online Index A Active participation, Active participation. File income tax online Activity Appropriate economic unit, Appropriate Economic Units Nonpassive, Activities That Are Not Passive Activities Trade or business, Passive Activities Amounts borrowed, Amounts borrowed. File income tax online Amounts not at risk, Amounts Not At Risk, Other loss limiting arrangements. File income tax online Appropriate economic unit, Appropriate Economic Units Assistance (see Tax help) At-risk activities Aggregation of, Aggregation of Activities Separation of, Separation of Activities At-risk amounts, At-Risk Amounts Government price support programs, Effect of government price support programs. File income tax online Increasing amounts, Effect of increasing amounts at risk in subsequent years. File income tax online Nonrecourse financing, Nonrecourse financing. File income tax online At-risk limits, At-Risk Limits Closely held corporation, Closely held C corporation. File income tax online Loss defined, Loss defined. File income tax online Partners, Loss limits for partners and S corporation shareholders. File income tax online S corporation shareholders, Loss limits for partners and S corporation shareholders. File income tax online Who is affected, Who Is Affected? At-risk rules Activities covered by, Activities Covered by the At-Risk Rules Exceptions to, Exception for holding real property placed in service before 1987. File income tax online Excluded business, Qualifying business. File income tax online Qualified corporation, Qualified corporation. File income tax online Qualifying business, Qualifying business. File income tax online Recapture rule, Recapture Rule B Borrowed amounts, Amounts borrowed. File income tax online C Closely held corporation, Closely held C corporation. File income tax online Commercial revitalization deduction, Commercial revitalization deduction (CRD). File income tax online Corporations Closely held, Corporations. File income tax online , Corporations. File income tax online Controlled group of, Controlled group of corporations. File income tax online Personal service, Corporations. File income tax online , Corporations. File income tax online Qualified, Qualified corporation. File income tax online CRD, Commercial revitalization deduction (CRD). File income tax online D Deductions, passive activity, Passive Activity Deductions Disabled farmer, Retired or disabled farmer and surviving spouse of a farmer. File income tax online Disclosure requirement, Appropriate Economic Units Dispositions Death, Dispositions by death. File income tax online Gift, Dispositions by gift. File income tax online Installment sale, Installment sale of an entire interest. File income tax online Partial, Partial dispositions. File income tax online E Excluded business, definition of, Qualifying business. File income tax online F Farm loss, Excess Farm Loss Farmer, Retired or disabled farmer and surviving spouse of a farmer. File income tax online Form 6198, Form 6198. File income tax online 8582, Step Three—Completing Form 8582 8810, Who Must Use These Rules? Former passive activity, Treatment of former passive activities. File income tax online Free tax services, Free help with your tax return. File income tax online G Grouping passive activities, Grouping Your Activities H Help (see Tax help) I Income, passive activity, Passive Activity Income L Limited entrepreneur, Limited entrepreneur. File income tax online Limited partners, Limited partners. File income tax online M Material participation, Material Participation, Corporations. File income tax online Modified adjusted gross income, Phaseout rule. File income tax online N Nonrecourse loan, Nonrecourse financing. File income tax online P Participation, Participation. File income tax online Active, Active participation. File income tax online Material, Material Participation Passive activity, Passive Activity Limits Comprehensive example, How To Report Your Passive Activity Loss Disposition, Dispositions Former, Treatment of former passive activities. File income tax online Grouping, Grouping Your Activities Limits, Passive Activity Limits Material participation, Material Participation Rental, Rental Activities Rules, Passive Activities, Grouping Your Activities Who must use these rules, Who Must Use These Rules? Passive activity deductions, Passive Activity Deductions Passive activity income, Passive Activity Income Passive income, recharacterization of, Recharacterization of Passive Income Publications (see Tax help) Publicly traded partnership, Publicly Traded Partnership, Publicly traded partnership (PTP). File income tax online Q Qualified person, nonrecourse financing, Qualified person. File income tax online Qualifying business, at-risk rules, Qualifying business. File income tax online R Real estate professional, Real Estate Professional Recapture rule under at-risk limits, Recapture Rule Recharacterization of passive income, Recharacterization of Passive Income Reductions of amounts at risk, Reductions of Amounts At Risk Related persons, Related persons. File income tax online Rental activity $25,000 offset, Special $25,000 allowance. File income tax online Active participation, Active participation. File income tax online Exceptions, Exceptions. File income tax online Phaseout rule, Phaseout rule. File income tax online Real estate professional, Real Estate Professional Retired farmer, Retired or disabled farmer and surviving spouse of a farmer. File income tax online S Section 1245 property, Section 1245 property. File income tax online Self-charged interest, Self-charged interest. File income tax online Separate activity, Separation of Activities Significant participation passive activities, Significant Participation Passive Activities Special $25,000 allowance, Special $25,000 allowance. File income tax online Surviving spouse of farmer, Retired or disabled farmer and surviving spouse of a farmer. File income tax online T Tax help, How To Get Tax Help Trade or business activities Definition of, Trade or Business Activities Real property, Real property trades or businesses. File income tax online W Worksheet 1, Worksheet 1. File income tax online Worksheet 3, Worksheet 3. File income tax online Worksheet 4, Step Four—Completing Worksheet 4 Worksheet 5, Step Five—Completing Worksheet 5 Worksheet 6, Step Six—Using Worksheets 6 and 7 Worksheet 7, Step Six—Using Worksheets 6 and 7 Worksheet A, Worksheet A. File income tax online , Worksheet A. File income tax online Significant Participation Passive Activities Worksheet B, Worksheet B. File income tax online , Worksheet B. File income tax online Significant Participation Activities With Net Income Prev  Up     Home   More Online Publications