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Form 1040x Instructions

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Form 1040x Instructions

Form 1040x instructions 1. Form 1040x instructions   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. Form 1040x instructions It is an allowance for the wear and tear, deterioration, or obsolescence of the property. Form 1040x instructions This chapter discusses the general rules for depreciating property and answers the following questions. Form 1040x instructions What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. Form 1040x instructions What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. Form 1040x instructions You also can depreciate certain intangible property, such as patents, copyrights, and computer software. Form 1040x instructions To be depreciable, the property must meet all the following requirements. Form 1040x instructions It must be property you own. Form 1040x instructions It must be used in your business or income-producing activity. Form 1040x instructions It must have a determinable useful life. Form 1040x instructions It must be expected to last more than one year. Form 1040x instructions The following discussions provide information about these requirements. Form 1040x instructions Property You Own To claim depreciation, you usually must be the owner of the property. Form 1040x instructions You are considered as owning property even if it is subject to a debt. Form 1040x instructions Example 1. Form 1040x instructions You made a down payment to purchase rental property and assumed the previous owner's mortgage. Form 1040x instructions You own the property and you can depreciate it. Form 1040x instructions Example 2. Form 1040x instructions You bought a new van that you will use only for your courier business. Form 1040x instructions You will be making payments on the van over the next 5 years. Form 1040x instructions You own the van and you can depreciate it. Form 1040x instructions Leased property. Form 1040x instructions   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). Form 1040x instructions This means you bear the burden of exhaustion of the capital investment in the property. Form 1040x instructions Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Form 1040x instructions You can, however, depreciate any capital improvements you make to the property. Form 1040x instructions See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. Form 1040x instructions   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Form 1040x instructions However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. Form 1040x instructions Incidents of ownership. Form 1040x instructions   Incidents of ownership in property include the following. Form 1040x instructions The legal title to the property. Form 1040x instructions The legal obligation to pay for the property. Form 1040x instructions The responsibility to pay maintenance and operating expenses. Form 1040x instructions The duty to pay any taxes on the property. Form 1040x instructions The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. Form 1040x instructions Life tenant. Form 1040x instructions   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Form 1040x instructions However, see Certain term interests in property under Excepted Property, later. Form 1040x instructions Cooperative apartments. Form 1040x instructions   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. Form 1040x instructions   Figure your depreciation deduction as follows. Form 1040x instructions Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. Form 1040x instructions If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Form 1040x instructions Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. Form 1040x instructions Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Form 1040x instructions Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Form 1040x instructions Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Form 1040x instructions Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. Form 1040x instructions Multiply the result of (2) by the percentage you figured in (3). Form 1040x instructions This is your depreciation on the stock. Form 1040x instructions   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. Form 1040x instructions You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. Form 1040x instructions Example. Form 1040x instructions You figure your share of the cooperative housing corporation's depreciation to be $30,000. Form 1040x instructions Your adjusted basis in the stock of the corporation is $50,000. Form 1040x instructions You use one half of your apartment solely for business purposes. Form 1040x instructions Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). Form 1040x instructions Change to business use. Form 1040x instructions   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. Form 1040x instructions The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Form 1040x instructions The fair market value of the property on the date you change your apartment to business use. Form 1040x instructions This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Form 1040x instructions The corporation's adjusted basis in the property on that date. Form 1040x instructions Do not subtract depreciation when figuring the corporation's adjusted basis. Form 1040x instructions   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. Form 1040x instructions The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Form 1040x instructions   For a discussion of fair market value and adjusted basis, see Publication 551. Form 1040x instructions Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Form 1040x instructions If you use property to produce income (investment use), the income must be taxable. Form 1040x instructions You cannot depreciate property that you use solely for personal activities. Form 1040x instructions Partial business or investment use. Form 1040x instructions   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. Form 1040x instructions For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. Form 1040x instructions    You must keep records showing the business, investment, and personal use of your property. Form 1040x instructions For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. Form 1040x instructions    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. Form 1040x instructions For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. Form 1040x instructions Office in the home. Form 1040x instructions   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. Form 1040x instructions For information about depreciating your home office, see Publication 587. Form 1040x instructions Inventory. Form 1040x instructions   You cannot depreciate inventory because it is not held for use in your business. Form 1040x instructions Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Form 1040x instructions   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. Form 1040x instructions See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. Form 1040x instructions   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. Form 1040x instructions If it is unclear, examine carefully all the facts in the operation of the particular business. Form 1040x instructions The following example shows how a careful examination of the facts in two similar situations results in different conclusions. Form 1040x instructions Example. Form 1040x instructions Maple Corporation is in the business of leasing cars. Form 1040x instructions At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. Form 1040x instructions Maple does not have a showroom, used car lot, or individuals to sell the cars. Form 1040x instructions Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. Form 1040x instructions Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. Form 1040x instructions If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. Form 1040x instructions In this situation, the cars are held primarily for sale to customers in the ordinary course of business. Form 1040x instructions Containers. Form 1040x instructions   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. Form 1040x instructions However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. Form 1040x instructions They qualify as property used in your business. Form 1040x instructions Title to the containers does not pass to the buyer. Form 1040x instructions   To determine if these requirements are met, consider the following questions. Form 1040x instructions Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Form 1040x instructions This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Form 1040x instructions Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. Form 1040x instructions Example. Form 1040x instructions You maintain a library for use in your profession. Form 1040x instructions You can depreciate it. Form 1040x instructions However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. Form 1040x instructions Instead, you deduct their cost as a business expense. Form 1040x instructions What Property Cannot Be Depreciated? Certain property cannot be depreciated. Form 1040x instructions This includes land and certain excepted property. Form 1040x instructions Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. Form 1040x instructions The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Form 1040x instructions Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Form 1040x instructions These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Form 1040x instructions Example. Form 1040x instructions You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Form 1040x instructions Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. Form 1040x instructions If you replace the building, you would have to destroy the bushes and trees right next to it. Form 1040x instructions These bushes and trees are closely associated with the building, so they have a determinable useful life. Form 1040x instructions Therefore, you can depreciate them. Form 1040x instructions Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Form 1040x instructions Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. Form 1040x instructions Property placed in service and disposed of in the same year. Form 1040x instructions Determining when property is placed in service is explained later. Form 1040x instructions Equipment used to build capital improvements. Form 1040x instructions You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Form 1040x instructions See Uniform Capitalization Rules in Publication 551. Form 1040x instructions Section 197 intangibles. Form 1040x instructions You must amortize these costs. Form 1040x instructions Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. Form 1040x instructions Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. Form 1040x instructions See Intangible Property , later. Form 1040x instructions Certain term interests. Form 1040x instructions Certain term interests in property. Form 1040x instructions   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Form 1040x instructions A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. Form 1040x instructions Related persons. Form 1040x instructions   For a description of related persons, see Related Persons, later. Form 1040x instructions For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Form 1040x instructions Basis adjustments. Form 1040x instructions   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. Form 1040x instructions   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. Form 1040x instructions However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. Form 1040x instructions The term interest is held by an organization exempt from tax. Form 1040x instructions The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. Form 1040x instructions Exceptions. Form 1040x instructions   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Form 1040x instructions They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. Form 1040x instructions When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Form 1040x instructions You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Form 1040x instructions Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Form 1040x instructions Even if you are not using the property, it is in service when it is ready and available for its specific use. Form 1040x instructions Example 1. Form 1040x instructions Donald Steep bought a machine for his business. Form 1040x instructions The machine was delivered last year. Form 1040x instructions However, it was not installed and operational until this year. Form 1040x instructions It is considered placed in service this year. Form 1040x instructions If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. Form 1040x instructions Example 2. Form 1040x instructions On April 6, Sue Thorn bought a house to use as residential rental property. Form 1040x instructions She made several repairs and had it ready for rent on July 5. Form 1040x instructions At that time, she began to advertise it for rent in the local newspaper. Form 1040x instructions The house is considered placed in service in July when it was ready and available for rent. Form 1040x instructions She can begin to depreciate it in July. Form 1040x instructions Example 3. Form 1040x instructions James Elm is a building contractor who specializes in constructing office buildings. Form 1040x instructions He bought a truck last year that had to be modified to lift materials to second-story levels. Form 1040x instructions The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. Form 1040x instructions The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. Form 1040x instructions Conversion to business use. Form 1040x instructions   If you place property in service in a personal activity, you cannot claim depreciation. Form 1040x instructions However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. Form 1040x instructions You place the property in service in the business or income-producing activity on the date of the change. Form 1040x instructions Example. Form 1040x instructions You bought a home and used it as your personal home several years before you converted it to rental property. Form 1040x instructions Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Form 1040x instructions You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. Form 1040x instructions Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). Form 1040x instructions For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Form 1040x instructions Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Form 1040x instructions You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Form 1040x instructions See What Is the Basis of Your Depreciable Property , later. Form 1040x instructions Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Form 1040x instructions You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Form 1040x instructions You sell or exchange the property. Form 1040x instructions You convert the property to personal use. Form 1040x instructions You abandon the property. Form 1040x instructions You transfer the property to a supplies or scrap account. Form 1040x instructions The property is destroyed. Form 1040x instructions If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. Form 1040x instructions What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. Form 1040x instructions MACRS is discussed in chapter 4. Form 1040x instructions You cannot use MACRS to depreciate the following property. Form 1040x instructions Property you placed in service before 1987. Form 1040x instructions Certain property owned or used in 1986. Form 1040x instructions Intangible property. Form 1040x instructions Films, video tapes, and recordings. Form 1040x instructions Certain corporate or partnership property acquired in a nontaxable transfer. Form 1040x instructions Property you elected to exclude from MACRS. Form 1040x instructions The following discussions describe the property listed above and explain what depreciation method should be used. Form 1040x instructions Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). Form 1040x instructions Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. Form 1040x instructions For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. Form 1040x instructions Use of real property changed. Form 1040x instructions   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Form 1040x instructions Improvements made after 1986. Form 1040x instructions   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Form 1040x instructions Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Form 1040x instructions For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. Form 1040x instructions Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. Form 1040x instructions If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. Form 1040x instructions For the following discussions, do not treat property as owned before you placed it in service. Form 1040x instructions If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. Form 1040x instructions Personal property. Form 1040x instructions   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. Form 1040x instructions You or someone related to you owned or used the property in 1986. Form 1040x instructions You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. Form 1040x instructions You lease the property to a person (or someone related to this person) who owned or used the property in 1986. Form 1040x instructions You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. Form 1040x instructions Real property. Form 1040x instructions   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. Form 1040x instructions You or someone related to you owned the property in 1986. Form 1040x instructions You lease the property to a person who owned the property in 1986 (or someone related to that person). Form 1040x instructions You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. Form 1040x instructions MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. Form 1040x instructions It does not apply to the carried-over part of the basis. Form 1040x instructions Exceptions. Form 1040x instructions   The rules above do not apply to the following. Form 1040x instructions Residential rental property or nonresidential real property. Form 1040x instructions Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. Form 1040x instructions For information on how to figure depreciation under ACRS, see Publication 534. Form 1040x instructions Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. Form 1040x instructions Related persons. Form 1040x instructions   For this purpose, the following are related persons. Form 1040x instructions An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. Form 1040x instructions A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. Form 1040x instructions Two corporations that are members of the same controlled group. Form 1040x instructions A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. Form 1040x instructions The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Form 1040x instructions The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Form 1040x instructions A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. Form 1040x instructions Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. Form 1040x instructions A corporation and a partnership if the same persons own both of the following. Form 1040x instructions More than 10% of the value of the outstanding stock of the corporation. Form 1040x instructions More than 10% of the capital or profits interest in the partnership. Form 1040x instructions The executor and beneficiary of any estate. Form 1040x instructions A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. Form 1040x instructions Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. Form 1040x instructions The related person and a person who is engaged in trades or businesses under common control. Form 1040x instructions See section 52(a) and 52(b) of the Internal Revenue Code. Form 1040x instructions When to determine relationship. Form 1040x instructions   You must determine whether you are related to another person at the time you acquire the property. Form 1040x instructions   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. Form 1040x instructions For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. Form 1040x instructions Constructive ownership of stock or partnership interest. Form 1040x instructions   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. Form 1040x instructions Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Form 1040x instructions However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. Form 1040x instructions An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. Form 1040x instructions An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. Form 1040x instructions For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. Form 1040x instructions However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. Form 1040x instructions Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. Form 1040x instructions However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). Form 1040x instructions You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. Form 1040x instructions Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. Form 1040x instructions To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Form 1040x instructions Subtract the salvage value, if any, from the adjusted basis. Form 1040x instructions The balance is the total depreciation you can take over the useful life of the property. Form 1040x instructions Divide the balance by the number of years in the useful life. Form 1040x instructions This gives you your yearly depreciation deduction. Form 1040x instructions Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. Form 1040x instructions If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Form 1040x instructions Example. Form 1040x instructions In April, Frank bought a patent for $5,100 that is not a section 197 intangible. Form 1040x instructions He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. Form 1040x instructions He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. Form 1040x instructions He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. Form 1040x instructions Next year, Frank can deduct $300 for the full year. Form 1040x instructions Patents and copyrights. Form 1040x instructions   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. Form 1040x instructions The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. Form 1040x instructions However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. Form 1040x instructions Computer software. Form 1040x instructions   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. Form 1040x instructions   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Form 1040x instructions It is readily available for purchase by the general public. Form 1040x instructions It is subject to a nonexclusive license. Form 1040x instructions It has not been substantially modified. Form 1040x instructions   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. Form 1040x instructions If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. Form 1040x instructions    Tax-exempt use property subject to a lease. Form 1040x instructions   The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. Form 1040x instructions Certain created intangibles. Form 1040x instructions   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. Form 1040x instructions For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. Form 1040x instructions   The following are not eligible. Form 1040x instructions Any intangible asset acquired from another person. Form 1040x instructions Created financial interests. Form 1040x instructions Any intangible asset that has a useful life that can be estimated with reasonable accuracy. Form 1040x instructions Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. Form 1040x instructions Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. Form 1040x instructions   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. Form 1040x instructions For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. Form 1040x instructions Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. Form 1040x instructions Motion picture films or video tapes. Form 1040x instructions Sound recordings. Form 1040x instructions Copyrights. Form 1040x instructions Books. Form 1040x instructions Patents. Form 1040x instructions Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. Form 1040x instructions The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. Form 1040x instructions For more information, see section 167(g) of the Internal Revenue Code. Form 1040x instructions Films, video tapes, and recordings. Form 1040x instructions   You cannot use MACRS for motion picture films, video tapes, and sound recordings. Form 1040x instructions For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. Form 1040x instructions You can depreciate this property using either the straight line method or the income forecast method. Form 1040x instructions Participations and residuals. Form 1040x instructions   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. Form 1040x instructions The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. Form 1040x instructions For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. Form 1040x instructions   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. Form 1040x instructions Videocassettes. Form 1040x instructions   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. Form 1040x instructions If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. Form 1040x instructions Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. Form 1040x instructions You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. Form 1040x instructions However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. Form 1040x instructions The nontaxable transfers covered by this rule include the following. Form 1040x instructions A distribution in complete liquidation of a subsidiary. Form 1040x instructions A transfer to a corporation controlled by the transferor. Form 1040x instructions An exchange of property solely for corporate stock or securities in a reorganization. Form 1040x instructions A contribution of property to a partnership in exchange for a partnership interest. Form 1040x instructions A partnership distribution of property to a partner. Form 1040x instructions Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. Form 1040x instructions You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. Form 1040x instructions You must make this election by the return due date (including extensions) for the tax year you place your property in service. Form 1040x instructions 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 six months of the due date of the return (excluding extensions). Form 1040x instructions Attach the election to the amended return and write “Filed pursuant to section 301. Form 1040x instructions 9100-2” on the election statement. Form 1040x instructions File the amended return at the same address you filed the original return. Form 1040x instructions Use of standard mileage rate. Form 1040x instructions   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. Form 1040x instructions See Publication 463 for a discussion of the standard mileage rate. Form 1040x instructions What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Form 1040x instructions To determine basis, you need to know the cost or other basis of your property. Form 1040x instructions Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. Form 1040x instructions The cost includes the amount you pay in cash, debt obligations, other property, or services. Form 1040x instructions Exception. Form 1040x instructions   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Form 1040x instructions If you make that choice, you cannot include those sales taxes as part of your cost basis. Form 1040x instructions Assumed debt. Form 1040x instructions   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. Form 1040x instructions Example. Form 1040x instructions You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. Form 1040x instructions Your total cost is $140,000, the cash you paid plus the mortgage you assumed. Form 1040x instructions Settlement costs. Form 1040x instructions   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. Form 1040x instructions These generally are shown on your settlement statement and include the following. Form 1040x instructions Legal and recording fees. Form 1040x instructions Abstract fees. Form 1040x instructions Survey charges. Form 1040x instructions Owner's title insurance. Form 1040x instructions Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Form 1040x instructions   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. Form 1040x instructions Property you construct or build. Form 1040x instructions   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. Form 1040x instructions For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. Form 1040x instructions Other Basis Other basis usually refers to basis that is determined by the way you received the property. Form 1040x instructions For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. Form 1040x instructions If you acquired property in this or some other way, see Publication 551 to determine your basis. Form 1040x instructions Property changed from personal use. Form 1040x instructions   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. Form 1040x instructions The fair market value (FMV) of the property on the date of the change in use. Form 1040x instructions Your original cost or other basis adjusted as follows. Form 1040x instructions Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. Form 1040x instructions Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. Form 1040x instructions Example. Form 1040x instructions Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. Form 1040x instructions Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. Form 1040x instructions Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. Form 1040x instructions Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). Form 1040x instructions On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Form 1040x instructions The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). Form 1040x instructions Property acquired in a nontaxable transaction. Form 1040x instructions   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. Form 1040x instructions Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. Form 1040x instructions See Like-kind exchanges and involuntary conversions. Form 1040x instructions under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. Form 1040x instructions   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. Form 1040x instructions See How Do You Use General Asset Accounts in chapter 4. Form 1040x instructions Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Form 1040x instructions These events could include the following. Form 1040x instructions Installing utility lines. Form 1040x instructions Paying legal fees for perfecting the title. Form 1040x instructions Settling zoning issues. Form 1040x instructions Receiving rebates. Form 1040x instructions Incurring a casualty or theft loss. Form 1040x instructions For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. Form 1040x instructions If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. Form 1040x instructions For more information, see What Is the Basis for Depreciation in chapter 4. Form 1040x instructions . Form 1040x instructions Basis adjustment for depreciation allowed or allowable. Form 1040x instructions   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Form 1040x instructions Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Form 1040x instructions Depreciation allowable is depreciation you are entitled to deduct. Form 1040x instructions   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Form 1040x instructions   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Form 1040x instructions How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. Form 1040x instructions Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. Form 1040x instructions You generally deduct the cost of repairing business property in the same way as any other business expense. Form 1040x instructions However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Form 1040x instructions Example. Form 1040x instructions You repair a small section on one corner of the roof of a rental house. Form 1040x instructions You deduct the cost of the repair as a rental expense. Form 1040x instructions However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. Form 1040x instructions You depreciate the cost of the new roof. Form 1040x instructions Improvements to rented property. Form 1040x instructions   You can depreciate permanent improvements you make to business property you rent from someone else. Form 1040x instructions Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. Form 1040x instructions Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. Form 1040x instructions A section 179 deduction for the current year or a section 179 carryover from a prior year. Form 1040x instructions See chapter 2 for information on the section 179 deduction. Form 1040x instructions Depreciation for property placed in service during the current year. Form 1040x instructions Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Form 1040x instructions See chapter 5 for information on listed property. Form 1040x instructions A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Form 1040x instructions Amortization of costs if the current year is the first year of the amortization period. Form 1040x instructions Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. Form 1040x instructions S. Form 1040x instructions Income Tax Return for an S Corporation) regardless of when it was placed in service. Form 1040x instructions You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. Form 1040x instructions Table 1-1 presents an overview of the purpose of the various parts of Form 4562. Form 1040x instructions Employee. Form 1040x instructions   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. Form 1040x instructions Instead, use either Form 2106 or Form 2106-EZ. Form 1040x instructions Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. Form 1040x instructions How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Form 1040x instructions See Filing an Amended Return , next. Form 1040x instructions If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Form 1040x instructions See Changing Your Accounting Method , later. Form 1040x instructions Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Form 1040x instructions You claimed the incorrect amount because of a mathematical error made in any year. Form 1040x instructions You claimed the incorrect amount because of a posting error made in any year. Form 1040x instructions You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Form 1040x instructions You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Form 1040x instructions Adoption of accounting method defined. Form 1040x instructions   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. Form 1040x instructions   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Form 1040x instructions irs. Form 1040x instructions gov/pub/irs-irbs/irb11-04. Form 1040x instructions pdf. Form 1040x instructions (Note. Form 1040x instructions Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Form 1040x instructions For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Form 1040x instructions irs. Form 1040x instructions gov/pub/irs-irbs/irb12-14. Form 1040x instructions pdf. Form 1040x instructions )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Form 1040x instructions irs. Form 1040x instructions gov/pub/irs-irbs/irb07-29. Form 1040x instructions pdf. Form 1040x instructions When to file. Form 1040x instructions   If an amended return is allowed, you must file it by the later of the following. Form 1040x instructions 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Form 1040x instructions A return filed before an unextended due date is considered filed on that due date. Form 1040x instructions 2 years from the time you paid your tax for that year. Form 1040x instructions Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Form 1040x instructions You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. Form 1040x instructions The following are examples of a change in method of accounting for depreciation. Form 1040x instructions A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. Form 1040x instructions A change in the treatment of an asset from nondepreciable to depreciable or vice versa. Form 1040x instructions A change in the depreciation method, period of recovery, or convention of a depreciable asset. Form 1040x instructions A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. Form 1040x instructions A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). Form 1040x instructions Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. Form 1040x instructions An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. Form 1040x instructions A change in use of an asset in the hands of the same taxpayer. Form 1040x instructions Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). Form 1040x instructions If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. Form 1040x instructions Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. Form 1040x instructions You must submit a request for a letter ruling to make a late election or revoke an election. Form 1040x instructions Any change in the placed in service date of a depreciable asset. Form 1040x instructions See section 1. Form 1040x instructions 446-1(e)(2)(ii)(d) of the regulations for more information and examples. Form 1040x instructions IRS approval. Form 1040x instructions   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. Form 1040x instructions If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. Form 1040x instructions B. Form 1040x instructions 680. Form 1040x instructions Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. Form 1040x instructions Additional guidance. Form 1040x instructions    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Form 1040x instructions irs. Form 1040x instructions gov/pub/irs-irbs/irb11-04. Form 1040x instructions pdf. Form 1040x instructions (Note. Form 1040x instructions Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Form 1040x instructions For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Form 1040x instructions irs. Form 1040x instructions gov/pub/irs-irbs/irb12-14. Form 1040x instructions pdf. Form 1040x instructions )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Form 1040x instructions irs. Form 1040x instructions gov/pub/irs-irbs/irb07-29. Form 1040x instructions pdf. Form 1040x instructions Table 1-1. Form 1040x instructions Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. Form 1040x instructions For more information, see Form 4562 and its instructions. Form 1040x instructions Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. Form 1040x instructions   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. Form 1040x instructions The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. Form 1040x instructions If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. Form 1040x instructions A negative section 481(a) adjustment results in a decrease in taxable income. Form 1040x instructions It is taken into account in the year of change and is reported on your business tax returns as “other expenses. Form 1040x instructions ” A positive section 481(a) adjustment results in an increase in taxable income. Form 1040x instructions It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. Form 1040x instructions ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. Form 1040x instructions Make the election by completing the appropriate line on Form 3115. Form 1040x instructions   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. Form 1040x instructions Prev  Up  Next   Home   More Online Publications
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Industry Issue Resolution Program

The IRS offers a number of programs and tools to assist taxpayers in resolving contentious and industry-specific tax issues. In addition to the Industry Issue Resolution Program, other programs available include:

The Industry Issue Resolution (IIR) Program resolves frequently disputed or burdensome tax issues that affect a significant number of business taxpayers through the issuance of guidance. IRS solicits suggestions for issues from taxpayers, representatives and associations for the IIR Program. For each issue selected for the program, a resolution team of IRS, Chief Counsel and Treasury personnel is assembled to gather and analyze relevant information for the issue and develop and recommend guidance.

IIR Program:

Issues Submitted/Selected for IIR Program:

 

New IIR Selection dated 11-19-2012 - 2012 Issue Selected for the IIR Program
IR-2010-40 dated 04-02-2010 - 2009/2010 Issues Reviewed/Selected for the IIR Program
IR-2008-110 dated 09-25-2008 - 2008 Issues Reviewed/Selected for the IIR Program 
 IR-2007-39 dated 02-22-2007 - 2006 Issues Reviewed/Selected for the IIR Program
 IR 2005-81 dated 08-08-2005 - 2005 Issues Reviewed/Selected for the IIR Program 
 IR-2004-154 dated 12-21-2004 - 2004 Issues Reviewed/Selected for the IIR Program - 2nd Review 
 IR-2004-100 dated 07-29-2004 - 2004 Issues Reviewed/Selected for the IIR Program - 1st Review 
 IR-2003-92 dated 07-24-2003 - 2003 Issues Reviewed/Selected for the IIR Program 

IIR Guidance Issued

Page Last Reviewed or Updated: 04-Sep-2013

The Form 1040x Instructions

Form 1040x instructions Index Symbols 403(b) account, What Is a 403(b) Plan? 403(b) plans Basics, 403(b) Plan Basics Benefits, What Are the Benefits of Contributing to a 403(b) Plan? Participation, Who Can Participate in a 403(b) Plan? Self-employed ministers, Who Can Set Up a 403(b) Account? What is a 403(b) plan?, What Is a 403(b) Plan? Who can set up a 403(b) account?, Who Can Set Up a 403(b) Account? A After-tax contributions, How Can Contributions Be Made to My 403(b) Account? Assistance (see Tax help) B Basics, 403(b) Plan Basics Benefits, What Are the Benefits of Contributing to a 403(b) Plan? C Catch-up contributions, Catch-Up Contributions Chaplain, Ministers. Form 1040x instructions Church employees, Ministers and Church Employees Years of service, Changes to Years of Service Comments on publication, Comments and suggestions. Form 1040x instructions Contributions, How Can Contributions Be Made to My 403(b) Account? After-tax, How Can Contributions Be Made to My 403(b) Account? Catch-up, Catch-Up Contributions Elective deferrals, How Can Contributions Be Made to My 403(b) Account?, Elective deferrals only. Form 1040x instructions Nonelective, How Can Contributions Be Made to My 403(b) Account? Reporting, Do I Report Contributions on My Tax Return? Correcting excess contributions, What Happens If I Have Excess Contributions? Credit, for retirement savings contributions, Retirement Savings Contributions Credit (Saver's Credit) D Distributions, Distributions and Rollovers, Distributions 10-year tax option, No Special 10-Year Tax Option 90-24 transfer, Contract exchanges. Form 1040x instructions Deceased employees, Spouses of deceased employees. Form 1040x instructions Direct rollover, Direct rollovers of 403(b) plan distributions. Form 1040x instructions Eligible retirement plans, Eligible retirement plans. Form 1040x instructions Frozen deposit, Frozen deposits. Form 1040x instructions Gift tax, Gift Tax Minimum required, Minimum Required Distributions Qualified domestic relations order, Qualified domestic relations order. Form 1040x instructions Rollovers, Tax-Free Rollovers, Rollovers to and from 403(b) plans. Form 1040x instructions Second rollover, Second rollover. Form 1040x instructions Transfers, Transfer of Interest in 403(b) Contract E Elective deferrals, How Can Contributions Be Made to My 403(b) Account?, Elective deferrals only. Form 1040x instructions Eligible employees, Eligible employees. Form 1040x instructions , Church employee. Form 1040x instructions Employer's annual work period, Employer's annual work period. Form 1040x instructions Excess contributions, Excess Contributions Correcting, What Happens If I Have Excess Contributions? Determining, How Do I Know If I Have Excess Contributions? Excess amounts, Excess Annual Addition Excess deferrals, Excess Annual Addition Excess elective deferral, Excess Elective Deferral Excise tax, Excise Tax Excise tax Excess contributions, Excise Tax Reporting requirement, Reporting requirement. Form 1040x instructions F Free tax services, How To Get Tax Help, Free help with your tax return. Form 1040x instructions Full-time or part-time, Years of Service G Gift tax, Gift Tax H Help (see Tax help) I Incidental life insurance, Cost of Incidental Life Insurance Includible compensation, Includible Compensation 403(b) plan, Changes to Includible Compensation Figuring, Figuring Includible Compensation for Your Most Recent Year of Service Foreign missionaries, Changes to Includible Compensation Incidental life insurance, Cost of Incidental Life Insurance Self-employed ministers, Changes to Includible Compensation Includible compensation for your most recent year of service Definition, Definition. Form 1040x instructions L Limit on annual additions, Limit on Annual Additions Limit on elective deferrals, Limit on Elective Deferrals 15-year rule, 15-Year Rule Figuring, Figuring the Limit on Elective Deferrals General limit, General Limit M MAC (see Maximum amount contributable) Maximum amount contributable, Maximum Amount Contributable (MAC) Components, Components of Your MAC How to figure MAC, How Do I Figure My MAC? When to figure MAC, When Should I Figure My MAC? Minimum required distributions, Minimum Required Distributions Ministers, Ministers. Form 1040x instructions , Ministers and Church Employees Missing children, Reminder More information (see Tax help) Most recent year of service, Most Recent Year of Service Most recent year of service, figuring, Figuring Your Most Recent Year of Service N Nonelective contributions, How Can Contributions Be Made to My 403(b) Account?, Nonelective contributions only. Form 1040x instructions P Pre-tax contributions, Includible Compensation, Table 3-4. Form 1040x instructions Worksheet B. Form 1040x instructions Includible Compensation for Your Most Recent Year of Service1 , Rollovers to and from 403(b) plans. Form 1040x instructions , Worksheet B. Form 1040x instructions Includible Compensation for Your Most Recent Year of Service1 Publications (see Tax help) Q Qualified domestic relations order, Qualified domestic relations order. Form 1040x instructions R Reporting Contributions Self-employed ministers, Self-employed ministers. Form 1040x instructions Reporting contributions Chaplains, Chaplains. Form 1040x instructions Required distributions, Minimum Required Distributions Retirement savings contributions credit, What's New for 2013, What's New for 2014, Retirement Savings Contributions Credit (Saver's Credit) Rollovers, Distributions and Rollovers, Tax-Free Rollovers Roth contribution program, Roth contribution program. Form 1040x instructions S Salary reduction agreement, Limit on Elective Deferrals Self-employed ministers, Ministers. Form 1040x instructions , Who Can Set Up a 403(b) Account?, Self-employed minister. Form 1040x instructions , Self-employed ministers. Form 1040x instructions , Self-employed minister. Form 1040x instructions Suggestions for publication, Comments and suggestions. Form 1040x instructions T Tax help, How To Get Tax Help Transfers, Transfer of Interest in 403(b) Contract 90-24 transfer, Transfer of Interest in 403(b) Contract Conservatorship, Contract exchanges. Form 1040x instructions Direct-trustee-to-trustee, Direct trustee-to-trustee transfer. Form 1040x instructions Insolvency, Tax-free transfers for certain cash distributions. Form 1040x instructions Permissive service credit, Permissive service credit. Form 1040x instructions TTY/TDD information, How To Get Tax Help V Voluntary deductible contributions, Voluntary deductible contributions. Form 1040x instructions W What is a 403(b) plan?, What Is a 403(b) Plan? Y Years of service, Years of Service Church employees, Church employee. Form 1040x instructions , Changes to Years of Service Definition, Definition Employer's annual work period, Employer's annual work period. Form 1040x instructions Full year of service, Full year of service. Form 1040x instructions Full-time employee for the full year, Full-Time Employee for the Full Year Full-time for part of the year, Full-time for part of the year. Form 1040x instructions Other than full-time for the full year, Other Than Full-Time for the Full Year Part-time for the full year, Part-time for the full year. Form 1040x instructions Part-time for the part of the year, Part-time for part of the year. Form 1040x instructions Self-employed minister, Changes to Years of Service Total years of service, Total years of service. Form 1040x instructions Prev  Up     Home   More Online Publications