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Filing State Returns

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Filing State Returns

Filing state returns 2. Filing state returns   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. Filing state returns This is the section 179 deduction. Filing state returns You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions. Filing state returns Estates and trusts cannot elect the section 179 deduction. Filing state returns 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. Filing state returns It also explains when and how to recapture the deduction. Filing state returns 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. Filing state returns What Property Qualifies? To qualify for the section 179 deduction, your property must meet all the following requirements. Filing state returns It must be eligible property. Filing state returns It must be acquired for business use. Filing state returns It must have been acquired by purchase. Filing state returns It must not be property described later under What Property Does Not Qualify . Filing state returns The following discussions provide information about these requirements and exceptions. Filing state returns Eligible Property To qualify for the section 179 deduction, your property must be one of the following types of depreciable property. Filing state returns Tangible personal property. Filing state returns 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. Filing state returns Single purpose agricultural (livestock) or horticultural structures. Filing state returns See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures. Filing state returns Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Filing state returns Off-the-shelf computer software. Filing state returns Qualified real property (described below). Filing state returns Tangible personal property. Filing state returns   Tangible personal property is any tangible property that is not real property. Filing state returns It includes the following property. Filing state returns Machinery and equipment. Filing state returns 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. Filing state returns Gasoline storage tanks and pumps at retail service stations. Filing state returns Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals. Filing state returns   The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. Filing state returns 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. Filing state returns Off-the-shelf computer software. Filing state returns   Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. Filing state returns 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. Filing state returns It includes any program designed to cause a computer to perform a desired function. Filing state returns 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. Filing state returns Qualified real property. Filing state returns   You can elect to treat certain qualified real property you placed in service as section 179 property for tax years beginning in 2013. Filing state returns 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. Filing state returns 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. Filing state returns For more information, see Special rules for qualified section 179 real property, later. Filing state returns Also, see Election for certain qualified section 179 real property, later, for information on how to make this election. Filing state returns Qualified leasehold improvement property. Filing state returns   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. Filing state returns   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. Filing state returns 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. Filing state returns Examples include the following. Filing state returns A complete liquidation of a subsidiary. Filing state returns A transfer to a corporation controlled by the transferor. Filing state returns An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Filing state returns Qualified restaurant property. Filing state returns   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. Filing state returns 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. Filing state returns Qualified retail improvement property. Filing state returns   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. Filing state returns 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. Filing state returns The improvement is placed in service more than 3 years after the date the building was first placed in service. Filing state returns 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. Filing state returns 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. Filing state returns 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. Filing state returns Examples include the following. Filing state returns A complete liquidation of a subsidiary. Filing state returns A transfer to a corporation controlled by the transferor. Filing state returns An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Filing state returns 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. Filing state returns 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. Filing state returns Partial business use. Filing state returns   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. Filing state returns If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. Filing state returns Use the resulting business cost to figure your section 179 deduction. Filing state returns Example. Filing state returns May Oak bought and placed in service an item of section 179 property costing $11,000. Filing state returns She used the property 80% for her business and 20% for personal purposes. Filing state returns The business part of the cost of the property is $8,800 (80% × $11,000). Filing state returns Property Acquired by Purchase To qualify for the section 179 deduction, your property must have been acquired by purchase. Filing state returns For example, property acquired by gift or inheritance does not qualify. Filing state returns Property is not considered acquired by purchase in the following situations. Filing state returns It is acquired by one component member of a controlled group from another component member of the same group. Filing state returns 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. Filing state returns It is acquired from a related person. Filing state returns Related persons. Filing state returns   Related persons are described under Related persons earlier. Filing state returns 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. Filing state returns Example. Filing state returns Ken Larch is a tailor. Filing state returns He bought two industrial sewing machines from his father. Filing state returns He placed both machines in service in the same year he bought them. Filing state returns They do not qualify as section 179 property because Ken and his father are related persons. Filing state returns He cannot claim a section 179 deduction for the cost of these machines. Filing state returns What Property Does Not Qualify? Certain property does not qualify for the section 179 deduction. Filing state returns This includes the following. Filing state returns Land and Improvements Land and land improvements do not qualify as section 179 property. Filing state returns Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences. Filing state returns 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. Filing state returns Certain property you lease to others (if you are a noncorporate lessor). Filing state returns Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Filing state returns Air conditioning or heating units. Filing state returns Property used predominantly outside the United States, except property described in section 168(g)(4) of the Internal Revenue Code. Filing state returns 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. Filing state returns Property used by governmental units or foreign persons or entities, except property used under a lease with a term of less than 6 months. Filing state returns Leased property. Filing state returns   Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. Filing state returns This rule does not apply to corporations. Filing state returns However, you can claim a section 179 deduction for the cost of the following property. Filing state returns Property you manufacture or produce and lease to others. Filing state returns Property you purchase and lease to others if both the following tests are met. Filing state returns The term of the lease (including options to renew) is less than 50% of the property's class life. Filing state returns 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. Filing state returns Property used for lodging. Filing state returns   Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. Filing state returns However, this does not apply to the following types of property. Filing state returns 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. Filing state returns 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. Filing state returns Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures. Filing state returns Any energy property. Filing state returns Energy property. Filing state returns   Energy property is property that meets the following requirements. Filing state returns It is one of the following types of property. Filing state returns 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. Filing state returns 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. Filing state returns Equipment used to produce, distribute, or use energy derived from a geothermal deposit. Filing state returns For electricity generated by geothermal power, this includes equipment up to (but not including) the electrical transmission stage. Filing state returns Qualified fuel cell property or qualified microturbine property placed in service after December 31, 2005, and before January 1, 2017. Filing state returns The construction, reconstruction, or erection of the property must be completed by you. Filing state returns For property you acquire, the original use of the property must begin with you. Filing state returns 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. Filing state returns   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). Filing state returns How Much Can You Deduct? Your section 179 deduction is generally the cost of the qualifying property. Filing state returns However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. Filing state returns These limits apply to each taxpayer, not to each business. Filing state returns However, see Married Individuals under Dollar Limits , later. Filing state returns For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. Filing state returns See Do the Passenger Automobile Limits Apply in chapter 5 . Filing state returns 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. Filing state returns Trade-in of other property. Filing state returns   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. Filing state returns Example. Filing state returns Silver Leaf, a retail bakery, traded two ovens having a total adjusted basis of $680 for a new oven costing $1,320. Filing state returns They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. Filing state returns The bakery also traded a used van with an adjusted basis of $4,500 for a new van costing $9,000. Filing state returns They received a $4,800 trade-in allowance on the used van and paid $4,200 in cash for the new van. Filing state returns Only the portion of the new property's basis paid by cash qualifies for the section 179 deduction. Filing state returns Therefore, Silver Leaf's qualifying costs for the section 179 deduction are $4,720 ($520 + $4,200). Filing state returns 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. Filing state returns 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. Filing state returns You do not have to claim the full $500,000. Filing state returns 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. Filing state returns 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. Filing state returns 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. Filing state returns Example. Filing state returns In 2013, you bought and placed in service $500,000 in machinery and a $25,000 circular saw for your business. Filing state returns You elect to deduct $475,000 for the machinery and the entire $25,000 for the saw, a total of $500,000. Filing state returns This is the maximum amount you can deduct. Filing state returns Your $25,000 deduction for the saw completely recovered its cost. Filing state returns Your basis for depreciation is zero. Filing state returns The basis for depreciation of your machinery is $25,000. Filing state returns You figure this by subtracting your $475,000 section 179 deduction for the machinery from the $500,000 cost of the machinery. Filing state returns Situations affecting dollar limit. Filing state returns   Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. Filing state returns The general dollar limit is affected by any of the following situations. Filing state returns The cost of your section 179 property placed in service exceeds $2,000,000. Filing state returns Your business is an enterprise zone business. Filing state returns You placed in service a sport utility or certain other vehicles. Filing state returns You are married filing a joint or separate return. Filing state returns 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. Filing state returns 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. Filing state returns Example. Filing state returns In 2013, Jane Ash placed in service machinery costing $2,100,000. Filing state returns This cost is $100,000 more than $2,000,000, so she must reduce her dollar limit to $400,000 ($500,000 − $100,000). Filing state returns 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. Filing state returns 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. Filing state returns 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). Filing state returns Note. Filing state returns   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). Filing state returns 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. Filing state returns 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. Filing state returns 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. Filing state returns Married Individuals If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. Filing state returns 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. Filing state returns 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. Filing state returns You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. Filing state returns If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. Filing state returns Example. Filing state returns Jack Elm is married. Filing state returns He and his wife file separate returns. Filing state returns Jack bought and placed in service $2,000,000 of qualified farm machinery in 2013. Filing state returns His wife has her own business, and she bought and placed in service $30,000 of qualified business equipment. Filing state returns Their combined dollar limit is $470,000. Filing state returns This is because they must figure the limit as if they were one taxpayer. Filing state returns They reduce the $500,000 dollar limit by the $30,000 excess of their costs over $2,000,000. Filing state returns They elect to allocate the $470,000 dollar limit as follows. Filing state returns $446,500 ($470,000 x 95%) to Mr. Filing state returns Elm's machinery. Filing state returns $23,500 ($470,000 x 5%) to Mrs. Filing state returns Elm's equipment. Filing state returns 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. Filing state returns Joint return after filing separate returns. Filing state returns   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. Filing state returns The dollar limit (after reduction for any cost of section 179 property over $2,000,000). Filing state returns The total cost of section 179 property you and your spouse elected to expense on your separate returns. Filing state returns Example. Filing state returns 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. Filing state returns After the due date of their returns, they file a joint return. Filing state returns Their dollar limit for the section 179 deduction is $32,000. Filing state returns This is the lesser of the following amounts. Filing state returns $470,000—The dollar limit less the cost of section 179 property over $2,000,000. Filing state returns $32,000—The total they elected to expense on their separate returns. Filing state returns 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. Filing state returns 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. Filing state returns Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Filing state returns Special rules apply to a 2013 deduction of qualified section 179 real property that is disallowed because of the business income limit. Filing state returns See Special rules for qualified section 179 property under Carryover of disallowed deduction, later. Filing state returns Taxable income. Filing state returns   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. Filing state returns Net income or loss from a trade or business includes the following items. Filing state returns Section 1231 gains (or losses). Filing state returns Interest from working capital of your trade or business. Filing state returns Wages, salaries, tips, or other pay earned as an employee. Filing state returns For information about section 1231 gains and losses, see chapter 3 in Publication 544. Filing state returns   In addition, figure taxable income without regard to any of the following. Filing state returns The section 179 deduction. Filing state returns The self-employment tax deduction. Filing state returns Any net operating loss carryback or carryforward. Filing state returns Any unreimbursed employee business expenses. Filing state returns Two different taxable income limits. Filing state returns   In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. Filing state returns You may have to figure the limit for this other deduction taking into account the section 179 deduction. Filing state returns If so, complete the following steps. Filing state returns Step Action 1 Figure taxable income without the section 179 deduction or the other deduction. Filing state returns 2 Figure a hypothetical section 179 deduction using the taxable income figured in Step 1. Filing state returns 3 Subtract the hypothetical section 179 deduction figured in Step 2 from the taxable income figured in Step 1. Filing state returns 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. Filing state returns 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1. Filing state returns 6 Figure your actual section 179 deduction using the taxable income figured in Step 5. Filing state returns 7 Subtract your actual section 179 deduction figured in Step 6 from the taxable income figured in Step 1. Filing state returns 8 Figure your actual other deduction using the taxable income figured in Step 7. Filing state returns Example. Filing state returns On February 1, 2013, the XYZ corporation purchased and placed in service qualifying section 179 property that cost $500,000. Filing state returns It elects to expense the entire $500,000 cost under section 179. Filing state returns In June, the corporation gave a charitable contribution of $10,000. Filing state returns A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. Filing state returns The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. Filing state returns XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $520,000. Filing state returns XYZ figures its section 179 deduction and its deduction for charitable contributions as follows. Filing state returns Step 1– Taxable income figured without either deduction is $520,000. Filing state returns Step 2– Using $520,000 as taxable income, XYZ's hypothetical section 179 deduction is $500,000. Filing state returns Step 3– $20,000 ($520,000 − $500,000). Filing state returns 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. Filing state returns Step 5– $518,000 ($520,000 − $2,000). Filing state returns Step 6– Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. Filing state returns Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 deduction. Filing state returns Step 7– $20,000 ($520,000 − $500,000). Filing state returns 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. Filing state returns Carryover of disallowed deduction. Filing state returns   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. Filing state returns This disallowed deduction amount is shown on line 13 of Form 4562. Filing state returns You use the amount you carry over to determine your section 179 deduction in the next year. Filing state returns Enter that amount on line 10 of your Form 4562 for the next year. Filing state returns   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. Filing state returns Your selections must be shown in your books and records. Filing state returns For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. Filing state returns If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year. Filing state returns   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. Filing state returns Special rules for qualified section 179 real property. Filing state returns   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. Filing state returns 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. Filing state returns 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). Filing state returns See section 179(f) of the Internal Revenue Code and Notice 2013-59 for more information. Filing state returns 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. Filing state returns Instead, you must add it back to the property's basis. Filing state returns Partnerships and Partners The section 179 deduction limits apply both to the partnership and to each partner. Filing state returns The partnership determines its section 179 deduction subject to the limits. Filing state returns It then allocates the deduction among its partners. Filing state returns Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Filing state returns ) to his or her nonpartnership section 179 costs and then applies the dollar limit to this total. Filing state returns 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. Filing state returns 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. Filing state returns Partnership's taxable income. Filing state returns   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. Filing state returns See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). Filing state returns 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. Filing state returns Partner's share of partnership's taxable income. Filing state returns   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. Filing state returns Example. Filing state returns In 2013, Beech Partnership placed in service section 179 property with a total cost of $2,025,000. Filing state returns The partnership must reduce its dollar limit by $25,000 ($2,025,000 − $2,000,000). Filing state returns Its maximum section 179 deduction is $475,000 ($500,000 − $25,000), and it elects to expense that amount. Filing state returns 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. Filing state returns It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners. Filing state returns 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. Filing state returns 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. Filing state returns He had a net loss of $5,000 from that business for the year. Filing state returns 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. Filing state returns His maximum section 179 deduction is $500,000. Filing state returns 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. Filing state returns 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). Filing state returns He carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2014. Filing state returns 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. Filing state returns Different tax years. Filing state returns   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. Filing state returns Example. Filing state returns John and James Oak are equal partners in Oak Partnership. Filing state returns Oak Partnership uses a tax year ending January 31. Filing state returns John and James both use a tax year ending December 31. Filing state returns 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. Filing state returns 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. Filing state returns Adjustment of partner's basis in partnership. Filing state returns   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. Filing state returns 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. Filing state returns Adjustment of partnership's basis in section 179 property. Filing state returns   The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. Filing state returns 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. Filing state returns S Corporations Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. Filing state returns The deduction limits apply to an S corporation and to each shareholder. Filing state returns The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits. Filing state returns Figuring taxable income for an S corporation. Filing state returns   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. Filing state returns   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. Filing state returns However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. Filing state returns For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. Filing state returns 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. Filing state returns 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. Filing state returns 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). Filing state returns 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. Filing state returns How Do You Elect the Deduction? You elect to take the section 179 deduction by completing Part I of Form 4562. Filing state returns If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I. Filing state returns For property placed in service in 2013, file Form 4562 with either of the following. Filing state returns Your original 2013 tax return, whether or not you file it timely. Filing state returns An amended return for 2013 filed within the time prescribed by law. Filing state returns 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. Filing state returns The amended return must also include any resulting adjustments to taxable income. Filing state returns You must keep records that show the specific identification of each piece of qualifying section 179 property. Filing state returns These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Filing state returns Election for certain qualified section 179 real property. Filing state returns   You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2013. Filing state returns 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. Filing state returns   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. Filing state returns Your original 2013 tax return, whether or not you file it timely. Filing state returns An amended return for 2013 filed within the time prescribed by law. Filing state returns The amended return must also include any adjustments to taxable income. Filing state returns   The statement should indicate your election to expense certain qualified real property under section 179(f) on your return. Filing state returns 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. Filing state returns Also, report this on line 6 of Form 4562. Filing state returns    The maximum section 179 expense deduction that can be taken for qualified section 179 real property is limited to $250,000. Filing state returns Revoking an election. Filing state returns   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. Filing state returns The amended return must be filed within the time prescribed by law. Filing state returns The amended return must also include any resulting adjustments to taxable income. Filing state returns Once made, the revocation is irrevocable. Filing state returns 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. Filing state returns 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. Filing state returns You also increase the basis of the property by the recapture amount. Filing state returns Recovery periods for property are discussed under Which Recovery Period Applies in chapter 4 . Filing state returns If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Filing state returns Instead, use the rules for recapturing depreciation explained in chapter 3 of Publication 544 under Section 1245 Property. Filing state returns 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. Filing state returns 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. Filing state returns Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement. Filing state returns Figuring the recapture amount. Filing state returns   To figure the amount to recapture, take the following steps. Filing state returns Figure the depreciation that would have been allowable on the section 179 deduction you claimed. Filing state returns Begin with the year you placed the property in service and include the year of recapture. Filing state returns Subtract the depreciation figured in (1) from the section 179 deduction you claimed. Filing state returns The result is the amount you must recapture. Filing state returns Example. Filing state returns In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. Filing state returns The property is not listed property. Filing state returns The property is 3-year property. Filing state returns He elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. Filing state returns He used the property only for business in 2011 and 2012. Filing state returns In 2013, he used the property 40% for business and 60% for personal use. Filing state returns He figures his recapture amount as follows. Filing state returns Section 179 deduction claimed (2011) $5,000. Filing state returns 00 Minus: Allowable depreciation using Table A-1 (instead of section 179 deduction):   2011 $1,666. Filing state returns 50   2012 2,222. Filing state returns 50   2013 ($740. Filing state returns 50 × 40% (business)) 296. Filing state returns 20 4,185. Filing state returns 20 2013 — Recapture amount $ 814. Filing state returns 80 Paul must include $814. Filing state returns 80 in income for 2013. Filing state returns 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. Filing state returns Prev  Up  Next   Home   More Online Publications
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The Filing State Returns

Filing state returns Index A Acknowledgment, Acknowledgment. Filing state returns Adoption expenses, Personal Expenses Airplanes, donations of, Cars, Boats, and Airplanes Appraisal fees, Appraisal Fees Assistance (see Tax help) Athletic events, Athletic events. Filing state returns B Bargain sales, Bargain Sales Blood donated, Value of Time or Services Boats, donations of, Cars, Boats, and Airplanes Boats, fair market value, Cars, boats, and airplanes. Filing state returns C Canadian charity, Canadian charities. Filing state returns Capital gain property, Capital Gain Property Car expenses, Car expenses. Filing state returns , Car expenses. Filing state returns Carryovers, Carryovers Cars, donations of, Cars, Boats, and Airplanes Cash contributions, records to keep, Cash Contributions Charity benefit events, Charity benefit events. Filing state returns Church deacon, Church deacon. Filing state returns Clothing Fair market value of, Used clothing. Filing state returns Conservation contribution, Special 50% Limit for Qualified Conservation Contributions Contributions from which you benefit, Contributions From Which You Benefit, Contributions From Which You Benefit Contributions of property, Contributions of Property Contributions subject to special rules Car, boat, or airplane, 1098–C, Contributions Subject to Special Rules Clothing, Contributions Subject to Special Rules Fractional interest in tangible personal property, Contributions Subject to Special Rules Future interest in tangible personal property, Contributions Subject to Special Rules Household items, Contributions Subject to Special Rules Inventory from your business, Contributions Subject to Special Rules Partial interest in property, Contributions Subject to Special Rules Patent or other intellectual property, Contributions Subject to Special Rules Property subject to a debt, Contributions Subject to Special Rules Qualified conservation contribution, Contributions Subject to Special Rules Taxidermy property, Contributions Subject to Special Rules Contributions to nonqualified organizations Foreign organizations, Contributions to Nonqualified Organizations Contributions you can deduct, Contributions You Can Deduct Conventions of a qualified organization, Conventions. Filing state returns D Daily allowance (per diem) from a charitable organization, Daily allowance (per diem). Filing state returns Deduction limits, Limits on Deductions Determining fair market value, Determining Fair Market Value Disaster relief, Reminders Donor-advised funds, Contributions to Donor-Advised Funds E Easement, Building in registered historic district. Filing state returns F Farmer, Qualified farmer or rancher. Filing state returns Food inventory, Food Inventory Foreign organizations Canadian, Canadian charities. Filing state returns Israeli, Israeli charities. Filing state returns Mexican, Mexican charities. Filing state returns Form 8282, Form 8282. Filing state returns 8283, Total deduction over $500. Filing state returns Foster parents, Foster parents. Filing state returns Free tax services, Free help with your tax return. Filing state returns Future interests in property, Future Interest in Tangible Personal Property H Help (see Tax help) Historic building, Building in registered historic district. Filing state returns Household items Fair market value of, Household items. Filing state returns How to report, How To Report Noncash contributions, Reporting expenses for student living with you. Filing state returns I Introduction, Introduction Inventory, Food Inventory Israeli charity, Israeli charities. Filing state returns L Legislation, influencing, Contributions From Which You Benefit Limit on itemized deductions, What's New Limits on deductions, Limits on Deductions 20% limit, 20% Limit 30% limit, 30% Limit 50% limit, 50% Limit Calculation, How To Figure Your Deduction When Limits Apply Capital gain property, Special 30% Limit for Capital Gain Property Qualified conservation contributions, Special 50% Limit for Qualified Conservation Contributions M Meals, Personal Expenses Membership fees or dues, Membership fees or dues. Filing state returns Mexican charity, Mexican charities. Filing state returns Motor vehicles, donations of, Cars, Boats, and Airplanes Motor vehicles, fair market value, Cars, boats, and airplanes. Filing state returns N Noncash contributions, Noncash Contributions How to report, Reporting expenses for student living with you. Filing state returns Records to keep, Noncash Contributions Nondeductible contributions, Contributions You Cannot Deduct O Ordinary income property, Ordinary Income Property Out-of-pocket expenses, Out-of-pocket expenses. Filing state returns Out-of-pocket expenses in giving services, Out-of-Pocket Expenses in Giving Services P Payroll deductions, Payroll deductions. Filing state returns , Payroll deductions. Filing state returns Penalty, valuation overstatement, Penalty Personal expenses, Personal Expenses Private foundation, 50% Limit Organizations Private nonoperating foundation, Contributions to private nonoperating foundations. Filing state returns , 50% Limit Organizations Private operating foundation, 50% Limit Organizations Property Bargain sales, Bargain Sales Basis, Giving Property That Has Decreased in Value Capital gain, Capital Gain Property Capital gain election, Capital gain property election. Filing state returns Decreased in value, Giving Property That Has Decreased in Value Future interests, Future Interest in Tangible Personal Property Increased in value, Giving Property That Has Increased in Value Inventory, Food Inventory Ordinary income, Ordinary Income Property Unrelated use, Tangible personal property put to unrelated use. Filing state returns Publications (see Tax help) Q Qualified charitable distributions, Qualified Charitable Distributions Qualified conservation contribution, Special 50% Limit for Qualified Conservation Contributions Qualified organizations Foreign qualified organizations Canadian, Organizations That Qualify To Receive Deductible Contributions Israeli, Organizations That Qualify To Receive Deductible Contributions Mexican, Organizations That Qualify To Receive Deductible Contributions Types, Organizations That Qualify To Receive Deductible Contributions R Raffle or bingo, Contributions From Which You Benefit Recapture No exempt use, Recapture if no exempt use. Filing state returns Recapture of deduction of fractional interest in tangible personal property Additional tax, Recapture of deduction. Filing state returns Records to keep, Records To Keep Reminders Disaster relief, Reminders Reporting, How To Report Retirement home, Contributions From Which You Benefit S Services, value of, Value of Time or Services Split-dollar insurance arrangements, Contributions From Which You Benefit Student, Mutual exchange program. Filing state returns Exchange program, Mutual exchange program. Filing state returns Living with you, Student living with you. Filing state returns Student living with you, Expenses Paid for Student Living With You, Reporting expenses for student living with you. Filing state returns T Tangible personal property Future interest in, Future Interest in Tangible Personal Property Tax help, How To Get Tax Help Time, value of, Value of Time or Services Token items, Certain membership benefits can be disregarded. Filing state returns Travel expenses, Travel. Filing state returns Travel expenses for charitable services, Deductible travel expenses. Filing state returns Tuition, Contributions From Which You Benefit U Underprivileged youths, Underprivileged youths selected by charity. Filing state returns Uniforms, Uniforms. Filing state returns Unrelated use, Unrelated use. Filing state returns V Volunteers, Out-of-Pocket Expenses in Giving Services W Whaling captain, Expenses of Whaling Captains When to deduct, When To Deduct Prev  Up     Home   More Online Publications