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Free Online Tax Filing 2011

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Free Online Tax Filing 2011

Free online tax filing 2011 Publication 524 - Main Content Table of Contents Are You Eligible for the Credit?Qualified Individual Income Limits Credit Figured for You Figuring the Credit YourselfStep 1. Free online tax filing 2011 Determine Initial Amount Step 2. Free online tax filing 2011 Total Certain Nontaxable Pensions and Benefits Step 3. Free online tax filing 2011 Determine Excess Adjusted Gross Income Step 4. Free online tax filing 2011 Determine the Total of Steps 2 and 3 Step 5. Free online tax filing 2011 Determine Your Credit Examples How To Get Tax Help Are You Eligible for the Credit? You can take the credit for the elderly or the disabled if you meet both of the following requirements. Free online tax filing 2011 You are a qualified individual. Free online tax filing 2011 Your income is not more than certain limits. Free online tax filing 2011 You can use Figure A and Table 1 as guides to see if you are eligible for the credit. Free online tax filing 2011 Use Figure A first to see if you are a qualified individual. Free online tax filing 2011 If you are, go to Table 1 to make sure your income is not too high to take the credit. Free online tax filing 2011 You can take the credit only if you file Form 1040 or Form 1040A. Free online tax filing 2011 You cannot take the credit if you file Form 1040EZ or Form 1040NR. Free online tax filing 2011 Qualified Individual You are a qualified individual for this credit if you are a U. Free online tax filing 2011 S. Free online tax filing 2011 citizen or resident alien, and either of the following applies. Free online tax filing 2011 You were age 65 or older at the end of 2013. Free online tax filing 2011 You were under age 65 at the end of 2013 and all three of the following statements are true. Free online tax filing 2011 You retired on permanent and total disability (explained later). Free online tax filing 2011 You received taxable disability income for 2013. Free online tax filing 2011 On January 1, 2013, you had not reached mandatory retirement age (defined later under Disability income ). Free online tax filing 2011 Age 65. Free online tax filing 2011   You are considered to be age 65 on the day before your 65th birthday. Free online tax filing 2011 As a result, if you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. Free online tax filing 2011 U. Free online tax filing 2011 S. Free online tax filing 2011 Citizen or Resident Alien You must be a U. Free online tax filing 2011 S. Free online tax filing 2011 citizen or resident alien (or be treated as a resident alien) to take the credit. Free online tax filing 2011 Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year. Free online tax filing 2011 Exceptions. Free online tax filing 2011   You may be able to take the credit if you are a nonresident alien who is married to a U. Free online tax filing 2011 S. Free online tax filing 2011 citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U. Free online tax filing 2011 S. Free online tax filing 2011 resident alien. Free online tax filing 2011 If you make that choice, both you and your spouse are taxed on your worldwide incomes. Free online tax filing 2011   If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U. Free online tax filing 2011 S. Free online tax filing 2011 citizen or resident alien at the end of the year, you may be able to choose to be treated as a U. Free online tax filing 2011 S. Free online tax filing 2011 resident alien for the entire year. Free online tax filing 2011 In that case, you may be allowed to take the credit. Free online tax filing 2011   For information on these choices, see chapter 1 of Publication 519, U. Free online tax filing 2011 S. Free online tax filing 2011 Tax Guide for Aliens. Free online tax filing 2011 Married Persons Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. Free online tax filing 2011 However, if you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit. Free online tax filing 2011 Head of household. Free online tax filing 2011   You can file as head of household and qualify to take the credit, even if your spouse lived with you during the first 6 months of the year, if you meet all the following tests. Free online tax filing 2011 You file a separate return. Free online tax filing 2011 You paid more than half the cost of keeping up your home during the tax year. Free online tax filing 2011 Your spouse did not live in your home at any time during the last 6 months of the tax year and the absence was not temporary. Free online tax filing 2011 (See Temporary absences under Head of Household in Publication 501. Free online tax filing 2011 ) Your home was the main home of your child, stepchild, or an eligible foster child for more than half the year. Free online tax filing 2011 An eligible foster child is a child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Free online tax filing 2011 You can claim an exemption for that child, or you cannot claim the exemption only because the noncustodial parent can claim the child using the rules for children of divorced or separated parents. Free online tax filing 2011 For more information, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Free online tax filing 2011 Figure A. Free online tax filing 2011 Are You a Qualified Individual? Please click here for the text description of the image. Free online tax filing 2011 figure a Under Age 65 If you are under age 65 at the end of 2013, you can qualify for the credit only if you are retired on permanent and total disability (discussed next) and have taxable disability income (discussed later under Disability income ). Free online tax filing 2011 You are retired on permanent and total disability if: You were permanently and totally disabled when you retired, and You retired on disability before the close of the tax year. Free online tax filing 2011 Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability. Free online tax filing 2011 If you retired on disability before 1977, and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977. Free online tax filing 2011 You are considered to be under age 65 at the end of 2013 if you were born after January 1, 1949. Free online tax filing 2011 Permanent and total disability. Free online tax filing 2011    You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. Free online tax filing 2011 A qualified physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. Free online tax filing 2011 See Physician's statement , later. Free online tax filing 2011 Substantial gainful activity. Free online tax filing 2011   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. Free online tax filing 2011 Full-time work (or part-time work done at your employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity. Free online tax filing 2011   Substantial gainful activity is not work you do to take care of yourself or your home. Free online tax filing 2011 It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. Free online tax filing 2011 However, doing this kind of work may show that you are able to engage in substantial gainful activity. Free online tax filing 2011    The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity. Free online tax filing 2011   The following examples illustrate the tests of substantial gainful activity. Free online tax filing 2011 Example 1. Free online tax filing 2011 Trisha, a sales clerk, retired on disability. Free online tax filing 2011 She is 53 years old and now works as a full-time babysitter for the minimum wage. Free online tax filing 2011 Even though Trisha is doing different work, she is able to do the duties of her new job in a full-time competitive work situation for the minimum wage. Free online tax filing 2011 She cannot take the credit because she is able to engage in substantial gainful activity. Free online tax filing 2011 Example 2. Free online tax filing 2011 Tom, a bookkeeper, retired on disability. Free online tax filing 2011 He is 59 years old and now drives a truck for a charitable organization. Free online tax filing 2011 He sets his own hours and is not paid. Free online tax filing 2011 Duties of this nature generally are performed for pay or profit. Free online tax filing 2011 Some weeks he works 10 hours, and some weeks he works 40 hours. Free online tax filing 2011 Over the year he averages 20 hours a week. Free online tax filing 2011 The kind of work and his average hours a week conclusively show that Tom is able to engage in substantial gainful activity. Free online tax filing 2011 This is true even though Tom is not paid and he sets his own hours. Free online tax filing 2011 He cannot take the credit. Free online tax filing 2011 Example 3. Free online tax filing 2011 John, who retired on disability, took a job with a former employer on a trial basis. Free online tax filing 2011 The purpose of the job was to see if John could do the work. Free online tax filing 2011 The trial period lasted for 6 months during which John was paid the minimum wage. Free online tax filing 2011 Because of John's disability, he was assigned only light duties of a nonproductive “make-work” nature. Free online tax filing 2011 The activity was gainful because John was paid at least the minimum wage. Free online tax filing 2011 But the activity was not substantial because his duties were nonproductive. Free online tax filing 2011 These facts do not, by themselves, show that John is able to engage in substantial gainful activity. Free online tax filing 2011 Example 4. Free online tax filing 2011 Joan, who retired on disability from a job as a bookkeeper, lives with her sister who manages several motel units. Free online tax filing 2011 Joan helps her sister for 1 or 2 hours a day by performing duties such as washing dishes, answering phones, registering guests, and bookkeeping. Free online tax filing 2011 Joan can select the time of day when she feels most fit to work. Free online tax filing 2011 Work of this nature, performed off and on during the day at Joan's convenience, is not activity of a “substantial and gainful” nature even if she is paid for the work. Free online tax filing 2011 The performance of these duties does not, of itself, show that Joan is able to engage in substantial gainful activity. Free online tax filing 2011 Sheltered employment. Free online tax filing 2011   Certain work offered at qualified locations to physically or mentally impaired persons is considered sheltered employment. Free online tax filing 2011 These qualified locations are in sheltered workshops, hospitals and similar institutions, homebound programs, and Department of Veterans Affairs (VA) sponsored homes. Free online tax filing 2011   Compared to commercial employment, pay is lower for sheltered employment. Free online tax filing 2011 Therefore, one usually does not look for sheltered employment if he or she can get other employment. Free online tax filing 2011 The fact that one has accepted sheltered employment is not proof of the person's ability to engage in substantial gainful activity. Free online tax filing 2011 Physician's statement. Free online tax filing 2011   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. Free online tax filing 2011 You can use the statement in the Instructions for Schedule R. Free online tax filing 2011   You do not have to file this statement with your Form 1040 or Form 1040A, but you must keep it for your records. Free online tax filing 2011 Veterans. Free online tax filing 2011    If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. Free online tax filing 2011 VA Form 21-0172 must be signed by a person authorized by the VA to do so. Free online tax filing 2011 You can get this form from your local VA regional office. Free online tax filing 2011 Physician's statement obtained in earlier year. Free online tax filing 2011   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2013, you may not need to get another physician's statement for 2013. Free online tax filing 2011 For a detailed explanation of the conditions you must meet, see the instructions for Schedule R, Part II. Free online tax filing 2011 If you meet the required conditions, check the box on your Schedule R, Part II, line 2. Free online tax filing 2011   If you checked box 4, 5, or 6 in Part I of Schedule R, enter in the space above the box on line 2 in Part II the first name(s) of the spouse(s) for whom the box is checked. Free online tax filing 2011 Disability income. Free online tax filing 2011   If you are under age 65, you must also have taxable disability income to qualify for the credit. Free online tax filing 2011 Disability income must meet both of the following requirements. Free online tax filing 2011 It must be paid under your employer's accident or health plan or pension plan. Free online tax filing 2011 It must be included in your income as wages (or payments instead of wages) for the time you are absent from work because of permanent and total disability. Free online tax filing 2011 Payments that are not disability income. Free online tax filing 2011    Any payment you receive from a plan that does not provide for disability retirement is not disability income. Free online tax filing 2011 Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income. Free online tax filing 2011    For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. Free online tax filing 2011 Mandatory retirement age is the age set by your employer at which you would have had to retire, had you not become disabled. Free online tax filing 2011 Income Limits To determine if you can claim the credit, you must consider two income limits. Free online tax filing 2011 The first limit is the amount of your adjusted gross income (AGI). Free online tax filing 2011 The second limit is the amount of nontaxable social security and other nontaxable pensions, annuities, or disability income you received. Free online tax filing 2011 The limits are shown in Table 1. Free online tax filing 2011 If your AGI and your nontaxable pensions, annuities, or disability income are less than the income limits, you may be able to claim the credit. Free online tax filing 2011 See Figuring the Credit Yourself , later. Free online tax filing 2011 Table 1. Free online tax filing 2011 Income Limits IF your filing status is THEN, even if you qualify (see Figure A), you CANNOT take the credit if   Your adjusted gross income (AGI)* is equal to or more than. Free online tax filing 2011 . Free online tax filing 2011 . Free online tax filing 2011     OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than. Free online tax filing 2011 . Free online tax filing 2011 . Free online tax filing 2011   single, head of household, or qualifying widow(er) with dependent child   $17,500     $5,000   married filing jointly and only one spouse qualifies in Figure A   $20,000     $5,000   married filing jointly and both spouses qualify in Figure A   $25,000     $7,500   married filing separately and you lived apart from your spouse for all of 2013   $12,500     $3,750   * AGI is the amount on Form 1040A, line 22, or Form 1040, line 38. Free online tax filing 2011 If your AGI or your nontaxable pensions, annuities, or disability income are equal to or more than the income limits, you cannot take the credit. Free online tax filing 2011 Credit Figured for You You can figure the credit yourself, or the Internal Revenue Service (IRS) will figure it for you. Free online tax filing 2011 See Figuring the Credit Yourself , next. Free online tax filing 2011 If you can take the credit and you want the IRS to figure the credit for you, attach Schedule R to your return. Free online tax filing 2011 Check the appropriate box in Part I of Schedule R and fill in Part II and lines 11, 13a, and 13b of Part III, if they apply to you. Free online tax filing 2011 If you file Form 1040A, enter “CFE” in the space to the left of Form 1040A, line 30. Free online tax filing 2011 If you file Form 1040, check box c on Form 1040, line 53, and enter “CFE” on the line next to that box. Free online tax filing 2011 Attach Schedule R to your return. Free online tax filing 2011 Table 2. Free online tax filing 2011 Initial Amounts IF your filing status is. Free online tax filing 2011 . Free online tax filing 2011 . Free online tax filing 2011   THEN enter on line 10 of Schedule R. Free online tax filing 2011 . Free online tax filing 2011 . Free online tax filing 2011 single,head of household, or qualifying widow(er) with dependent child and, by the end of 2013, you were       • 65 or older $5,000   • under 65 and retired on permanent and total disability1 $5,000 married filing a joint return and by the end of 2013       • both of you were 65 or older $7,500   • both of you were under 65 and one of you retired on permanent and total disability1 $5,000   • both of you were under 65 and both of you retired on permanent and total disability2 $7,500   • one of you was 65 or older, and the other was under 65 and retired on permanent  and total disability3 $7,500   • one of you was 65 or older, and the other was under 65 and not retired on permanent  and total disability $5,000 married filing a separate return and you did not live with your spouse at any time during the year and, by the end of 2013, you were       • 65 or older $3,750   • under 65 and retired on permanent and total disability1 $3,750   1 Amount cannot be more than the taxable disability income. Free online tax filing 2011     2 Amount cannot be more than your combined taxable disability income. Free online tax filing 2011     3 Amount is $5,000 plus the taxable disability income of the spouse under age 65, but not more than $7,500. Free online tax filing 2011   Figuring the Credit Yourself If you figure the credit yourself, fill out the front of Schedule R. Free online tax filing 2011 Next, fill out Schedule R, Part III. Free online tax filing 2011 If you file Form 1040A, enter the amount from Schedule R, line 22 on line 30. Free online tax filing 2011 If you file Form 1040, include the amount from Schedule R, line 22 on line 53, check box c, and enter “Sch R” on the line next to that box. Free online tax filing 2011 There are five steps in Part III to determine the amount of your credit. Free online tax filing 2011 Determine your initial amount (lines 10–12). Free online tax filing 2011 Determine the total of any nontaxable social security and certain other nontaxable pensions, annuities, and disability benefits you received (lines 13a, 13b, and 13c). Free online tax filing 2011 Determine your excess adjusted gross income (lines 14–17). Free online tax filing 2011 Determine the total of steps 2 and 3 (line 18). Free online tax filing 2011 Determine your credit (lines 19–22). Free online tax filing 2011 These steps are discussed in more detail next. Free online tax filing 2011 Step 1. Free online tax filing 2011 Determine Initial Amount To figure the credit, you must first determine your initial amount using lines 10 through 12. Free online tax filing 2011 See Table 2. Free online tax filing 2011 Your initial amount is on line 12. Free online tax filing 2011 Initial amounts for persons under age 65. Free online tax filing 2011   If you are a qualified individual under age 65, your initial amount cannot be more than your taxable disability income. Free online tax filing 2011 Special rules for joint returns. Free online tax filing 2011   If you are a qualified individual under age 65, and your spouse is also a qualified individual, your initial amount is your taxable disability income plus $5,000. Free online tax filing 2011   If you are a qualified individual, and both you and your spouse are under age 65, your initial amount cannot be more than your combined taxable disability income. Free online tax filing 2011 Step 2. Free online tax filing 2011 Total Certain Nontaxable Pensions and Benefits Step 2 is to figure the total amount of nontaxable social security and certain other nontaxable payments you received during the year. Free online tax filing 2011 You must reduce your initial amount by these payments. Free online tax filing 2011 Enter these nontaxable payments on lines 13a or 13b and total them on line 13c. Free online tax filing 2011 If you are married filing jointly, you must enter the combined amount of nontaxable payments both you and your spouse received. Free online tax filing 2011 Worksheets are provided in the instructions for Forms 1040 and 1040A to help you determine if any of your social security benefits (or equivalent railroad retirement benefits) are taxable. Free online tax filing 2011 Include the following nontaxable payments in the amounts you enter on lines 13a and 13b. Free online tax filing 2011 Nontaxable social security payments. Free online tax filing 2011 This is the nontaxable part of the benefits shown in box 5 of Form SSA-1099, Social Security Benefit Statement, before deducting any amounts withheld to pay premiums on supplementary Medicare insurance, and before any reduction because of benefits received under workers' compensation. Free online tax filing 2011 (Do not include a lump-sum death benefit payment you may receive as a surviving spouse, or a surviving child's insurance benefit payments you may receive as a guardian. Free online tax filing 2011 ) Nontaxable railroad retirement pension payments treated as social security. Free online tax filing 2011 This is the nontaxable part of the benefits shown in box 5 of Form RRB-1099, Payments by the Railroad Retirement Board. Free online tax filing 2011 Nontaxable pension or annuity payments or disability benefits that are paid under a law administered by the Department of Veterans Affairs (VA). Free online tax filing 2011 (Do not include amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country or in the National Oceanic and Atmospheric Administration or the Public Health Service, or as a disability annuity under section 808 of the Foreign Service Act of 1980. Free online tax filing 2011 ) Pension or annuity payments or disability benefits that are excluded from income under any provision of federal law other than the Internal Revenue Code. Free online tax filing 2011 (Do not include amounts that are a return of your cost of a pension or annuity. Free online tax filing 2011 These amounts do not reduce your initial amount. Free online tax filing 2011 ) You should be sure to take into account all of the nontaxable amounts you receive. Free online tax filing 2011 These amounts are verified by the IRS through information supplied by other government agencies. Free online tax filing 2011 Step 3. Free online tax filing 2011 Determine Excess Adjusted Gross Income You also must reduce your initial amount by your excess adjusted gross income. Free online tax filing 2011 Figure your excess adjusted gross income on lines 14–17. Free online tax filing 2011 You figure your excess adjusted gross income as follows. Free online tax filing 2011 Subtract from your adjusted gross income (Form 1040A, line 22 or Form 1040, line 38) the amount shown for your filing status. Free online tax filing 2011 $7,500 if you are single, a head of household, or a qualifying widow(er) with dependent child, $10,000 if you are married filing jointly, or $5,000 if you are married filing separately and you and your spouse did not live in the same household at any time during the tax year. Free online tax filing 2011 Divide the result of (1) by 2. Free online tax filing 2011 Step 4. Free online tax filing 2011 Determine the Total of Steps 2 and 3 To determine if you can take the credit, you must add (on line 18) the amounts you figured in Step 2 (line 13c) and Step 3 (line 17). Free online tax filing 2011 Step 5. Free online tax filing 2011 Determine Your Credit Subtract the amount determined in Step 4 (line 18) from the amount determined in Step 1 (line 12), and multiply the result by 15% (. Free online tax filing 2011 15). Free online tax filing 2011 In certain cases, the amount of your credit may be limited. Free online tax filing 2011 See Limit on credit , later. Free online tax filing 2011 Example. Free online tax filing 2011 You are 66 years old and your spouse is 64. Free online tax filing 2011 Your spouse is not disabled. Free online tax filing 2011 You file a joint return on Form 1040. Free online tax filing 2011 Your adjusted gross income is $14,630. Free online tax filing 2011 Together you received $3,200 from social security, which was nontaxable. Free online tax filing 2011 You figure the credit as follows: Example applying the 5 step process Amount (Line references (shown in parentheses) are to the Schedule R)      1. Free online tax filing 2011 Initial amount (line 12) $5,000 2. Free online tax filing 2011 Total nontaxable social security  and other nontaxable  pensions (line 13c) $3,200   3. Free online tax filing 2011 Excess adjusted gross income  ($14,630–$10,000) ÷ 2 (line 17) 2,315   4. Free online tax filing 2011 Add (2) and (3) (line 18) 5,515 5. Free online tax filing 2011 Subtract (4) from (1) (line 12 – line 18 = line 19) (Do not enter less than -0-) $ -0- You cannot take the credit because your nontaxable social security plus your excess adjusted gross income is more than your initial amount. Free online tax filing 2011 Limit on credit. Free online tax filing 2011   The amount of credit you can claim is generally limited to the amount of your tax. Free online tax filing 2011 Use the Credit Limit Worksheet in the Instructions for Schedule R to determine if your credit is limited. Free online tax filing 2011 Examples The following examples illustrate the credit for the elderly or the disabled. Free online tax filing 2011 The initial amounts are taken from Table 2, earlier. Free online tax filing 2011 Example 1. Free online tax filing 2011 James Davis is 58 years old, single, and files Form 1040A. Free online tax filing 2011 In 2011 he retired on permanent and total disability, and he is still permanently and totally disabled. Free online tax filing 2011 He got the required physician's statement in 2011 and kept it with his tax records. Free online tax filing 2011 His physician signed on line B of the statement. Free online tax filing 2011 This year James checks the box in Schedule R, Part II. Free online tax filing 2011 He does not need to get another statement for 2013. Free online tax filing 2011 He received the following income for the year: Nontaxable social security $1,500 Interest (taxable) 100 Taxable disability pension 11,400       James' adjusted gross income is $11,500 ($11,400 + $100). Free online tax filing 2011 He figures the credit on Schedule R as follows: 1. Free online tax filing 2011 Initial amount   $5,000 2. Free online tax filing 2011 Taxable disability pension   11,400 3. Free online tax filing 2011 Smaller of line 1 or line 2   5,000 4. Free online tax filing 2011 Nontaxable social security  benefits $1,500     5. Free online tax filing 2011 Excess adjusted gross income  ($11,500 − $7,500) ÷ 2 2,000     6. Free online tax filing 2011 Add lines 4 and 5   3,500 7. Free online tax filing 2011 Subtract line 6 from line 3  (Do not enter less than (-0-))   1,500 8. Free online tax filing 2011 Multiply line 7 by 15% (. Free online tax filing 2011 15)   225 9. Free online tax filing 2011 Enter the amount from the  Credit Limit Worksheet in the  Instructions for Schedule R, line 21   151 10. Free online tax filing 2011 Credit (Enter the smaller of  line 8 or line 9)   $ 151 He enters $151 on line 30 of Form 1040A. Free online tax filing 2011 The Schedule R for James Davis is not shown. Free online tax filing 2011 Example 2. Free online tax filing 2011 William White is 53. Free online tax filing 2011 His wife Helen is 49. Free online tax filing 2011 William had a stroke 3 years ago and retired on permanent and total disability. Free online tax filing 2011 He is still permanently and totally disabled because of the stroke. Free online tax filing 2011 In November, Helen was injured in an accident at work and retired on permanent and total disability. Free online tax filing 2011 William received nontaxable social security disability benefits of $2,000 during the year and a taxable disability pension of $6,200. Free online tax filing 2011 Helen earned $12,500 from her job and received a taxable disability pension of $1,700. Free online tax filing 2011 Their joint return on Form 1040 shows adjusted gross income of $20,400 ($6,200 + $12,500 + $1,700). Free online tax filing 2011 They do not itemize deductions. Free online tax filing 2011 They do not have any amounts that would increase their standard deduction. Free online tax filing 2011 Helen's doctor completed the physician's statement in the Instructions for Schedule R. Free online tax filing 2011 Helen is not required to include the statement with their return, but she must keep it for her records. Free online tax filing 2011 William got a physician's statement for the year he had the stroke. Free online tax filing 2011 His doctor had signed on line B of that physician's statement to certify that William was permanently and totally disabled. Free online tax filing 2011 William has kept the physician's statement with his records. Free online tax filing 2011 He checks the box on Schedule R, Part II and writes his first name in the space above the box on line 2. Free online tax filing 2011 William and Helen use Schedule R to figure their $41 credit for the elderly or the disabled. Free online tax filing 2011 They attach Schedule R to their Form 1040 and enter $41 on line 53. Free online tax filing 2011 They check box c on line 53 and enter “Sch R” on the line next to that box. Free online tax filing 2011 See their filled-in Schedule R and Helen's filled-in physician's statement, later. Free online tax filing 2011 Instructions for Physician's Statement     Taxpayer Physician If you retired after 1976, enter the date you retired in the space provided on the statement below. Free online tax filing 2011 A person is permanently and totally disabled if both of the following apply:   1. Free online tax filing 2011 He or she cannot engage in any substantial gainful activity because of a physical or mental condition. Free online tax filing 2011   2. Free online tax filing 2011 A physician determines that the disability has lasted or can be expected to last continuously for at least a year or can lead to death. Free online tax filing 2011 Physician's Statement     I certify that Helen A. Free online tax filing 2011 White Name of disabled person was permanently and totally disabled on January 1, 1976, or January 1, 1977, or was permanently and totally disabled on the date he or she retired. Free online tax filing 2011 If retired after 1976, enter the date retired ▶ November 1, 2013   Physician: Sign your name on either A or B below. Free online tax filing 2011 AThe disability has lasted or can be expected to last continuously for at least a year     Physician's signatureDate BThere is no reasonable probability that the disabled condition will ever improve Ayden D. Free online tax filing 2011 Doctor 2/8/14   Physician's signatureDate Physician's name Physician's address Ayden D. Free online tax filing 2011 Doctor 1900 Green St. Free online tax filing 2011 , Hometown, MD 20000         This image is too large to be displayed in the current screen. Free online tax filing 2011 Please click the link to view the image. Free online tax filing 2011 Page 1 of Schedule R for the Whites This image is too large to be displayed in the current screen. Free online tax filing 2011 Please click the link to view the image. Free online tax filing 2011 Page 2 of Schedule R for the Whites How To Get Tax Help Go online, use a smart phone, call or walk in to an office near you. Free online tax filing 2011 Whether it's help with a tax issue, preparing your tax return or picking up a free publication or form, get the help you need the way you want it. Free online tax filing 2011 Free help with your tax return. Free online tax filing 2011   Free help in preparing your return is available nationwide from IRS-certified volunteers. Free online tax filing 2011 The Volunteer Income Tax Assistance (VITA) program is designed to help low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers. Free online tax filing 2011 The Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Free online tax filing 2011 Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Free online tax filing 2011 Some VITA and TCE sites provide taxpayers the opportunity to prepare their return with the assistance of an IRS-certified volunteer. Free online tax filing 2011 To find the nearest VITA or TCE site, visit IRS. Free online tax filing 2011 gov or call 1-800-906-9887. Free online tax filing 2011   As part of the TCE program, AARP offers the Tax-Aide counseling program. Free online tax filing 2011 To find the nearest AARP Tax-Aide site, visit AARP's website at www. Free online tax filing 2011 aarp. Free online tax filing 2011 org/money/taxaide or call 1-888-227-7669. Free online tax filing 2011   For more information on these programs, go to IRS. Free online tax filing 2011 gov and enter “VITA” in the search box. Free online tax filing 2011 Internet. Free online tax filing 2011 IRS. Free online tax filing 2011 gov and IRS2Go are ready when you are — every day, every night, 24 hours a day, 7 days a week. Free online tax filing 2011 Apply for an Employer Identification Number (EIN). Free online tax filing 2011 Go to IRS. Free online tax filing 2011 gov and enter Apply for an EIN in the search box. Free online tax filing 2011 Request an Electronic Filing PIN by going to IRS. Free online tax filing 2011 gov and entering Electronic Filing PIN in the search box. Free online tax filing 2011 Check the status of your 2013 refund with Where's My Refund? Go to IRS. Free online tax filing 2011 gov or the IRS2Go app, and click on Where's My Refund? You'll get a personalized refund date as soon as the IRS processes your tax return and approves your refund. Free online tax filing 2011 If you e-file, your refund status is usually available within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Free online tax filing 2011 Check the status of your amended return. Free online tax filing 2011 Go to IRS. Free online tax filing 2011 gov and enter Where's My Amended Return in the search box. Free online tax filing 2011 Download forms, instructions, and publications, including some accessible versions. Free online tax filing 2011 Order free transcripts of your tax returns or tax account using the Order a Transcript tool on IRS. Free online tax filing 2011 gov or IRS2Go. Free online tax filing 2011 Tax return and tax account transcripts are generally available for the current year and past three years. Free online tax filing 2011 Figure your income tax withholding with the IRS Withholding Calculator on IRS. Free online tax filing 2011 gov. Free online tax filing 2011 Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Free online tax filing 2011 Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Free online tax filing 2011 gov. Free online tax filing 2011 Locate the nearest Taxpayer Assistance Center using the Office Locator tool on IRS. Free online tax filing 2011 gov or IRS2Go. Free online tax filing 2011 Stop by most business days for face-to-face tax help, no appointment necessary — just walk in. Free online tax filing 2011 An employee can explain IRS letters, request adjustments to your tax account or help you set up a payment plan. Free online tax filing 2011 Before you visit, check the Office Locator for the address, phone number, hours of operation and the services provided. Free online tax filing 2011 If you have an ongoing tax account problem or a special need, such as a disability, you can request an appointment. Free online tax filing 2011 Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Free online tax filing 2011 Locate the nearest volunteer help site with the VITA Locator Tool on IRS. Free online tax filing 2011 gov. Free online tax filing 2011 Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Free online tax filing 2011 The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. Free online tax filing 2011 Most VITA and TCE sites offer free electronic filing and some provide IRS-certified volunteers who can help prepare your tax return. Free online tax filing 2011 AARP offers the Tax-Aide counseling program as part of the TCE program. Free online tax filing 2011 Visit AARP's website to find the nearest Tax-Aide location. Free online tax filing 2011 Research your tax questions. Free online tax filing 2011 Search publications and instructions by topic or keyword. Free online tax filing 2011 Read the Internal Revenue Code, regulations, or other official guidance. Free online tax filing 2011 Read Internal Revenue Bulletins. Free online tax filing 2011 Sign up to receive local and national tax news by email. Free online tax filing 2011 Phone. Free online tax filing 2011 You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Free online tax filing 2011 Download the free IRS2Go mobile app from the iTunes app store or from Google Play. Free online tax filing 2011 Use it to watch the IRS YouTube channel, get IRS news as soon as it's released to the public, order transcripts of your tax returns or tax account, check your refund status, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Free online tax filing 2011 Call to locate the nearest volunteer help site, 1-800-906-9887. Free online tax filing 2011 Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Free online tax filing 2011 The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. Free online tax filing 2011 Most VITA and TCE sites offer free electronic filing. Free online tax filing 2011 Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Free online tax filing 2011 Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Free online tax filing 2011 Call to check the status of your 2013 refund, 1-800-829-1954 or 1-800-829-4477. Free online tax filing 2011 The automated Where's My Refund? information is available 24 hours a day, 7 days a week. Free online tax filing 2011 If you e-file, your refund status is usually available within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Free online tax filing 2011 Before you call, have your 2013 tax return handy so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Free online tax filing 2011 Where's My Refund? can give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Free online tax filing 2011 Where's My Refund? includes information for the most recent return filed in the current year and does not include information about amended returns. Free online tax filing 2011 Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Free online tax filing 2011 Call to order forms, instructions and publications, 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions and publications, and prior-year forms and instructions (limited to 5 years). Free online tax filing 2011 You should receive your order within 10 business days. Free online tax filing 2011 Call to order transcripts of your tax returns or tax account, 1-800-908-9946. Free online tax filing 2011 Follow the prompts to provide your Social Security Number or Individual Taxpayer Identification Number, date of birth, street address and ZIP code. Free online tax filing 2011 Call for TeleTax topics, 1-800-829-4477, to listen to pre-recorded messages covering various tax topics. Free online tax filing 2011 Call to ask tax questions, 1-800-829-1040. Free online tax filing 2011 Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Free online tax filing 2011 The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Free online tax filing 2011 These individuals can also contact the IRS through relay services such as the Federal Relay Service available at www. Free online tax filing 2011 gsa. Free online tax filing 2011 gov/fedrelay. Free online tax filing 2011 Walk-in. Free online tax filing 2011 You can find a selection of forms, publications and services — in-person, face-to-face. Free online tax filing 2011 Products. Free online tax filing 2011 You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Free online tax filing 2011 Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Free online tax filing 2011 Services. Free online tax filing 2011 You can walk in to your local TAC most business days for personal, face-to-face tax help. Free online tax filing 2011 An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Free online tax filing 2011 If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local TAC where you can talk with an IRS representative face-to-face. Free online tax filing 2011 No appointment is necessary—just walk in. Free online tax filing 2011 Before visiting, check www. Free online tax filing 2011 irs. Free online tax filing 2011 gov/localcontacts for hours of operation and services provided. Free online tax filing 2011 Mail. Free online tax filing 2011 You can send your order for forms, instructions, and publications to the address below. Free online tax filing 2011 You should receive a response within 10 business days after your request is received. Free online tax filing 2011  Internal Revenue Service 1201 N. Free online tax filing 2011 Mitsubishi Motorway Bloomington, IL 61705-6613 The Taxpayer Advocate Service Is Here to Help You. Free online tax filing 2011   The Taxpayer Advocate Service (TAS) is your voice at the IRS. Free online tax filing 2011 Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Free online tax filing 2011 What can TAS do for you?   We can offer you free help with IRS problems that you can't resolve on your own. Free online tax filing 2011 We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Free online tax filing 2011 You face (or your business is facing) an immediate threat of adverse action. Free online tax filing 2011 You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Free online tax filing 2011   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Free online tax filing 2011 Here's why we can help: TAS is an independent organization within the IRS. Free online tax filing 2011 Our advocates know how to work with the IRS. Free online tax filing 2011 Our services are free and tailored to meet your needs. Free online tax filing 2011 We have offices in every state, the District of Columbia, and Puerto Rico. Free online tax filing 2011 How can you reach us?   If you think TAS can help you, call your local advocate, whose number is in your local directory and at www. Free online tax filing 2011 irs. Free online tax filing 2011 gov/advocate, or call us toll-free at 1-877-777-4778. Free online tax filing 2011 How else does TAS help taxpayers?   TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Free online tax filing 2011 If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. Free online tax filing 2011 irs. Free online tax filing 2011 gov/sams. Free online tax filing 2011 Low Income Taxpayer Clinics. Free online tax filing 2011   Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Free online tax filing 2011 Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Free online tax filing 2011 Visit www. Free online tax filing 2011 TaxpayerAdvocate. Free online tax filing 2011 irs. Free online tax filing 2011 gov or see IRS Publication 4134, Low Income Taxpayer Clinic List. Free online tax filing 2011 Prev  Up  Next   Home   More Online Publications
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Free online tax filing 2011 1. Free online tax filing 2011   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. Free online tax filing 2011 It is an allowance for the wear and tear, deterioration, or obsolescence of the property. Free online tax filing 2011 This chapter discusses the general rules for depreciating property and answers the following questions. Free online tax filing 2011 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. Free online tax filing 2011 What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. Free online tax filing 2011 You also can depreciate certain intangible property, such as patents, copyrights, and computer software. Free online tax filing 2011 To be depreciable, the property must meet all the following requirements. Free online tax filing 2011 It must be property you own. Free online tax filing 2011 It must be used in your business or income-producing activity. Free online tax filing 2011 It must have a determinable useful life. Free online tax filing 2011 It must be expected to last more than one year. Free online tax filing 2011 The following discussions provide information about these requirements. Free online tax filing 2011 Property You Own To claim depreciation, you usually must be the owner of the property. Free online tax filing 2011 You are considered as owning property even if it is subject to a debt. Free online tax filing 2011 Example 1. Free online tax filing 2011 You made a down payment to purchase rental property and assumed the previous owner's mortgage. Free online tax filing 2011 You own the property and you can depreciate it. Free online tax filing 2011 Example 2. Free online tax filing 2011 You bought a new van that you will use only for your courier business. Free online tax filing 2011 You will be making payments on the van over the next 5 years. Free online tax filing 2011 You own the van and you can depreciate it. Free online tax filing 2011 Leased property. Free online tax filing 2011   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). Free online tax filing 2011 This means you bear the burden of exhaustion of the capital investment in the property. Free online tax filing 2011 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. Free online tax filing 2011 You can, however, depreciate any capital improvements you make to the property. Free online tax filing 2011 See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. Free online tax filing 2011   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. Free online tax filing 2011 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. Free online tax filing 2011 Incidents of ownership. Free online tax filing 2011   Incidents of ownership in property include the following. Free online tax filing 2011 The legal title to the property. Free online tax filing 2011 The legal obligation to pay for the property. Free online tax filing 2011 The responsibility to pay maintenance and operating expenses. Free online tax filing 2011 The duty to pay any taxes on the property. Free online tax filing 2011 The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. Free online tax filing 2011 Life tenant. Free online tax filing 2011   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. Free online tax filing 2011 However, see Certain term interests in property under Excepted Property, later. Free online tax filing 2011 Cooperative apartments. Free online tax filing 2011   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. Free online tax filing 2011   Figure your depreciation deduction as follows. Free online tax filing 2011 Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. Free online tax filing 2011 If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Free online tax filing 2011 Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. Free online tax filing 2011 Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. Free online tax filing 2011 Multiply the result of (2) by the percentage you figured in (3). Free online tax filing 2011 This is your depreciation on the stock. Free online tax filing 2011   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. Free online tax filing 2011 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. Free online tax filing 2011 Example. Free online tax filing 2011 You figure your share of the cooperative housing corporation's depreciation to be $30,000. Free online tax filing 2011 Your adjusted basis in the stock of the corporation is $50,000. Free online tax filing 2011 You use one half of your apartment solely for business purposes. Free online tax filing 2011 Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). Free online tax filing 2011 Change to business use. Free online tax filing 2011   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. Free online tax filing 2011 The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Free online tax filing 2011 The fair market value of the property on the date you change your apartment to business use. Free online tax filing 2011 This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Free online tax filing 2011 The corporation's adjusted basis in the property on that date. Free online tax filing 2011 Do not subtract depreciation when figuring the corporation's adjusted basis. Free online tax filing 2011   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. Free online tax filing 2011 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. Free online tax filing 2011   For a discussion of fair market value and adjusted basis, see Publication 551. Free online tax filing 2011 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. Free online tax filing 2011 If you use property to produce income (investment use), the income must be taxable. Free online tax filing 2011 You cannot depreciate property that you use solely for personal activities. Free online tax filing 2011 Partial business or investment use. Free online tax filing 2011   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. Free online tax filing 2011 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. Free online tax filing 2011    You must keep records showing the business, investment, and personal use of your property. Free online tax filing 2011 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. Free online tax filing 2011    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. Free online tax filing 2011 For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. Free online tax filing 2011 Office in the home. Free online tax filing 2011   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. Free online tax filing 2011 For information about depreciating your home office, see Publication 587. Free online tax filing 2011 Inventory. Free online tax filing 2011   You cannot depreciate inventory because it is not held for use in your business. Free online tax filing 2011 Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Free online tax filing 2011   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. Free online tax filing 2011 See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. Free online tax filing 2011   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. Free online tax filing 2011 If it is unclear, examine carefully all the facts in the operation of the particular business. Free online tax filing 2011 The following example shows how a careful examination of the facts in two similar situations results in different conclusions. Free online tax filing 2011 Example. Free online tax filing 2011 Maple Corporation is in the business of leasing cars. Free online tax filing 2011 At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. Free online tax filing 2011 Maple does not have a showroom, used car lot, or individuals to sell the cars. Free online tax filing 2011 Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 In this situation, the cars are held primarily for sale to customers in the ordinary course of business. Free online tax filing 2011 Containers. Free online tax filing 2011   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. Free online tax filing 2011 However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. Free online tax filing 2011 They qualify as property used in your business. Free online tax filing 2011 Title to the containers does not pass to the buyer. Free online tax filing 2011   To determine if these requirements are met, consider the following questions. Free online tax filing 2011 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. Free online tax filing 2011 This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Free online tax filing 2011 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. Free online tax filing 2011 Example. Free online tax filing 2011 You maintain a library for use in your profession. Free online tax filing 2011 You can depreciate it. Free online tax filing 2011 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. Free online tax filing 2011 Instead, you deduct their cost as a business expense. Free online tax filing 2011 What Property Cannot Be Depreciated? Certain property cannot be depreciated. Free online tax filing 2011 This includes land and certain excepted property. Free online tax filing 2011 Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. Free online tax filing 2011 The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Free online tax filing 2011 Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Free online tax filing 2011 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. Free online tax filing 2011 Example. Free online tax filing 2011 You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Free online tax filing 2011 Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. Free online tax filing 2011 If you replace the building, you would have to destroy the bushes and trees right next to it. Free online tax filing 2011 These bushes and trees are closely associated with the building, so they have a determinable useful life. Free online tax filing 2011 Therefore, you can depreciate them. Free online tax filing 2011 Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Free online tax filing 2011 Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. Free online tax filing 2011 Property placed in service and disposed of in the same year. Free online tax filing 2011 Determining when property is placed in service is explained later. Free online tax filing 2011 Equipment used to build capital improvements. Free online tax filing 2011 You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Free online tax filing 2011 See Uniform Capitalization Rules in Publication 551. Free online tax filing 2011 Section 197 intangibles. Free online tax filing 2011 You must amortize these costs. Free online tax filing 2011 Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. Free online tax filing 2011 Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. Free online tax filing 2011 See Intangible Property , later. Free online tax filing 2011 Certain term interests. Free online tax filing 2011 Certain term interests in property. Free online tax filing 2011   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. Free online tax filing 2011 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. Free online tax filing 2011 Related persons. Free online tax filing 2011   For a description of related persons, see Related Persons, later. Free online tax filing 2011 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. Free online tax filing 2011 Basis adjustments. Free online tax filing 2011   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. Free online tax filing 2011   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. Free online tax filing 2011 However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. Free online tax filing 2011 The term interest is held by an organization exempt from tax. Free online tax filing 2011 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. Free online tax filing 2011 Exceptions. Free online tax filing 2011   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 Even if you are not using the property, it is in service when it is ready and available for its specific use. Free online tax filing 2011 Example 1. Free online tax filing 2011 Donald Steep bought a machine for his business. Free online tax filing 2011 The machine was delivered last year. Free online tax filing 2011 However, it was not installed and operational until this year. Free online tax filing 2011 It is considered placed in service this year. Free online tax filing 2011 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. Free online tax filing 2011 Example 2. Free online tax filing 2011 On April 6, Sue Thorn bought a house to use as residential rental property. Free online tax filing 2011 She made several repairs and had it ready for rent on July 5. Free online tax filing 2011 At that time, she began to advertise it for rent in the local newspaper. Free online tax filing 2011 The house is considered placed in service in July when it was ready and available for rent. Free online tax filing 2011 She can begin to depreciate it in July. Free online tax filing 2011 Example 3. Free online tax filing 2011 James Elm is a building contractor who specializes in constructing office buildings. Free online tax filing 2011 He bought a truck last year that had to be modified to lift materials to second-story levels. Free online tax filing 2011 The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. Free online tax filing 2011 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. Free online tax filing 2011 Conversion to business use. Free online tax filing 2011   If you place property in service in a personal activity, you cannot claim depreciation. Free online tax filing 2011 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. Free online tax filing 2011 You place the property in service in the business or income-producing activity on the date of the change. Free online tax filing 2011 Example. Free online tax filing 2011 You bought a home and used it as your personal home several years before you converted it to rental property. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 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). Free online tax filing 2011 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. Free online tax filing 2011 Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Free online tax filing 2011 You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Free online tax filing 2011 See What Is the Basis of Your Depreciable Property , later. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 You sell or exchange the property. Free online tax filing 2011 You convert the property to personal use. Free online tax filing 2011 You abandon the property. Free online tax filing 2011 You transfer the property to a supplies or scrap account. Free online tax filing 2011 The property is destroyed. Free online tax filing 2011 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. Free online tax filing 2011 What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. Free online tax filing 2011 MACRS is discussed in chapter 4. Free online tax filing 2011 You cannot use MACRS to depreciate the following property. Free online tax filing 2011 Property you placed in service before 1987. Free online tax filing 2011 Certain property owned or used in 1986. Free online tax filing 2011 Intangible property. Free online tax filing 2011 Films, video tapes, and recordings. Free online tax filing 2011 Certain corporate or partnership property acquired in a nontaxable transfer. Free online tax filing 2011 Property you elected to exclude from MACRS. Free online tax filing 2011 The following discussions describe the property listed above and explain what depreciation method should be used. Free online tax filing 2011 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). Free online tax filing 2011 Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. Free online tax filing 2011 For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. Free online tax filing 2011 Use of real property changed. Free online tax filing 2011   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. Free online tax filing 2011 Improvements made after 1986. Free online tax filing 2011   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Free online tax filing 2011 Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. Free online tax filing 2011 For the following discussions, do not treat property as owned before you placed it in service. Free online tax filing 2011 If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. Free online tax filing 2011 Personal property. Free online tax filing 2011   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. Free online tax filing 2011 You or someone related to you owned or used the property in 1986. Free online tax filing 2011 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. Free online tax filing 2011 You lease the property to a person (or someone related to this person) who owned or used the property in 1986. Free online tax filing 2011 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. Free online tax filing 2011 Real property. Free online tax filing 2011   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. Free online tax filing 2011 You or someone related to you owned the property in 1986. Free online tax filing 2011 You lease the property to a person who owned the property in 1986 (or someone related to that person). Free online tax filing 2011 You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. Free online tax filing 2011 MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. Free online tax filing 2011 It does not apply to the carried-over part of the basis. Free online tax filing 2011 Exceptions. Free online tax filing 2011   The rules above do not apply to the following. Free online tax filing 2011 Residential rental property or nonresidential real property. Free online tax filing 2011 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. Free online tax filing 2011 For information on how to figure depreciation under ACRS, see Publication 534. Free online tax filing 2011 Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. Free online tax filing 2011 Related persons. Free online tax filing 2011   For this purpose, the following are related persons. Free online tax filing 2011 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. Free online tax filing 2011 A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. Free online tax filing 2011 Two corporations that are members of the same controlled group. Free online tax filing 2011 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. Free online tax filing 2011 The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 A corporation and a partnership if the same persons own both of the following. Free online tax filing 2011 More than 10% of the value of the outstanding stock of the corporation. Free online tax filing 2011 More than 10% of the capital or profits interest in the partnership. Free online tax filing 2011 The executor and beneficiary of any estate. Free online tax filing 2011 A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. Free online tax filing 2011 Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. Free online tax filing 2011 The related person and a person who is engaged in trades or businesses under common control. Free online tax filing 2011 See section 52(a) and 52(b) of the Internal Revenue Code. Free online tax filing 2011 When to determine relationship. Free online tax filing 2011   You must determine whether you are related to another person at the time you acquire the property. Free online tax filing 2011   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. Free online tax filing 2011 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. Free online tax filing 2011 Constructive ownership of stock or partnership interest. Free online tax filing 2011   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. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. Free online tax filing 2011 However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). Free online tax filing 2011 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. Free online tax filing 2011 Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. Free online tax filing 2011 To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Free online tax filing 2011 Subtract the salvage value, if any, from the adjusted basis. Free online tax filing 2011 The balance is the total depreciation you can take over the useful life of the property. Free online tax filing 2011 Divide the balance by the number of years in the useful life. Free online tax filing 2011 This gives you your yearly depreciation deduction. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 Example. Free online tax filing 2011 In April, Frank bought a patent for $5,100 that is not a section 197 intangible. Free online tax filing 2011 He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. Free online tax filing 2011 He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. Free online tax filing 2011 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. Free online tax filing 2011 Next year, Frank can deduct $300 for the full year. Free online tax filing 2011 Patents and copyrights. Free online tax filing 2011   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 Computer software. Free online tax filing 2011   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. Free online tax filing 2011   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. Free online tax filing 2011 It is readily available for purchase by the general public. Free online tax filing 2011 It is subject to a nonexclusive license. Free online tax filing 2011 It has not been substantially modified. Free online tax filing 2011   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. Free online tax filing 2011 If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. Free online tax filing 2011    Tax-exempt use property subject to a lease. Free online tax filing 2011   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. Free online tax filing 2011 Certain created intangibles. Free online tax filing 2011   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. Free online tax filing 2011 For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. Free online tax filing 2011   The following are not eligible. Free online tax filing 2011 Any intangible asset acquired from another person. Free online tax filing 2011 Created financial interests. Free online tax filing 2011 Any intangible asset that has a useful life that can be estimated with reasonable accuracy. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011   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. Free online tax filing 2011 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. Free online tax filing 2011 Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. Free online tax filing 2011 Motion picture films or video tapes. Free online tax filing 2011 Sound recordings. Free online tax filing 2011 Copyrights. Free online tax filing 2011 Books. Free online tax filing 2011 Patents. Free online tax filing 2011 Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. Free online tax filing 2011 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. Free online tax filing 2011 For more information, see section 167(g) of the Internal Revenue Code. Free online tax filing 2011 Films, video tapes, and recordings. Free online tax filing 2011   You cannot use MACRS for motion picture films, video tapes, and sound recordings. Free online tax filing 2011 For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. Free online tax filing 2011 You can depreciate this property using either the straight line method or the income forecast method. Free online tax filing 2011 Participations and residuals. Free online tax filing 2011   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. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011   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. Free online tax filing 2011 Videocassettes. Free online tax filing 2011   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. Free online tax filing 2011 If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. Free online tax filing 2011 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. Free online tax filing 2011 You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. Free online tax filing 2011 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. Free online tax filing 2011 The nontaxable transfers covered by this rule include the following. Free online tax filing 2011 A distribution in complete liquidation of a subsidiary. Free online tax filing 2011 A transfer to a corporation controlled by the transferor. Free online tax filing 2011 An exchange of property solely for corporate stock or securities in a reorganization. Free online tax filing 2011 A contribution of property to a partnership in exchange for a partnership interest. Free online tax filing 2011 A partnership distribution of property to a partner. Free online tax filing 2011 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. Free online tax filing 2011 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. Free online tax filing 2011 You must make this election by the return due date (including extensions) for the tax year you place your property in service. Free online tax filing 2011 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). Free online tax filing 2011 Attach the election to the amended return and write “Filed pursuant to section 301. Free online tax filing 2011 9100-2” on the election statement. Free online tax filing 2011 File the amended return at the same address you filed the original return. Free online tax filing 2011 Use of standard mileage rate. Free online tax filing 2011   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. Free online tax filing 2011 See Publication 463 for a discussion of the standard mileage rate. Free online tax filing 2011 What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Free online tax filing 2011 To determine basis, you need to know the cost or other basis of your property. Free online tax filing 2011 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. Free online tax filing 2011 The cost includes the amount you pay in cash, debt obligations, other property, or services. Free online tax filing 2011 Exception. Free online tax filing 2011   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). Free online tax filing 2011 If you make that choice, you cannot include those sales taxes as part of your cost basis. Free online tax filing 2011 Assumed debt. Free online tax filing 2011   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. Free online tax filing 2011 Example. Free online tax filing 2011 You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. Free online tax filing 2011 Your total cost is $140,000, the cash you paid plus the mortgage you assumed. Free online tax filing 2011 Settlement costs. Free online tax filing 2011   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. Free online tax filing 2011 These generally are shown on your settlement statement and include the following. Free online tax filing 2011 Legal and recording fees. Free online tax filing 2011 Abstract fees. Free online tax filing 2011 Survey charges. Free online tax filing 2011 Owner's title insurance. Free online tax filing 2011 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. Free online tax filing 2011   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. Free online tax filing 2011 Property you construct or build. Free online tax filing 2011   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. Free online tax filing 2011 For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. Free online tax filing 2011 Other Basis Other basis usually refers to basis that is determined by the way you received the property. Free online tax filing 2011 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. Free online tax filing 2011 If you acquired property in this or some other way, see Publication 551 to determine your basis. Free online tax filing 2011 Property changed from personal use. Free online tax filing 2011   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. Free online tax filing 2011 The fair market value (FMV) of the property on the date of the change in use. Free online tax filing 2011 Your original cost or other basis adjusted as follows. Free online tax filing 2011 Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. Free online tax filing 2011 Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. Free online tax filing 2011 Example. Free online tax filing 2011 Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. Free online tax filing 2011 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. Free online tax filing 2011 Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. Free online tax filing 2011 Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). Free online tax filing 2011 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. Free online tax filing 2011 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). Free online tax filing 2011 Property acquired in a nontaxable transaction. Free online tax filing 2011   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. Free online tax filing 2011 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. Free online tax filing 2011 See Like-kind exchanges and involuntary conversions. Free online tax filing 2011 under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. Free online tax filing 2011   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. Free online tax filing 2011 See How Do You Use General Asset Accounts in chapter 4. Free online tax filing 2011 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. Free online tax filing 2011 These events could include the following. Free online tax filing 2011 Installing utility lines. Free online tax filing 2011 Paying legal fees for perfecting the title. Free online tax filing 2011 Settling zoning issues. Free online tax filing 2011 Receiving rebates. Free online tax filing 2011 Incurring a casualty or theft loss. Free online tax filing 2011 For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. Free online tax filing 2011 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. Free online tax filing 2011 For more information, see What Is the Basis for Depreciation in chapter 4. Free online tax filing 2011 . Free online tax filing 2011 Basis adjustment for depreciation allowed or allowable. Free online tax filing 2011   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Free online tax filing 2011 Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Free online tax filing 2011 Depreciation allowable is depreciation you are entitled to deduct. Free online tax filing 2011   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. Free online tax filing 2011   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). Free online tax filing 2011 How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. Free online tax filing 2011 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. Free online tax filing 2011 You generally deduct the cost of repairing business property in the same way as any other business expense. Free online tax filing 2011 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. Free online tax filing 2011 Example. Free online tax filing 2011 You repair a small section on one corner of the roof of a rental house. Free online tax filing 2011 You deduct the cost of the repair as a rental expense. Free online tax filing 2011 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. Free online tax filing 2011 You depreciate the cost of the new roof. Free online tax filing 2011 Improvements to rented property. Free online tax filing 2011   You can depreciate permanent improvements you make to business property you rent from someone else. Free online tax filing 2011 Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. Free online tax filing 2011 Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. Free online tax filing 2011 A section 179 deduction for the current year or a section 179 carryover from a prior year. Free online tax filing 2011 See chapter 2 for information on the section 179 deduction. Free online tax filing 2011 Depreciation for property placed in service during the current year. Free online tax filing 2011 Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Free online tax filing 2011 See chapter 5 for information on listed property. Free online tax filing 2011 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). Free online tax filing 2011 Amortization of costs if the current year is the first year of the amortization period. Free online tax filing 2011 Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. Free online tax filing 2011 S. Free online tax filing 2011 Income Tax Return for an S Corporation) regardless of when it was placed in service. Free online tax filing 2011 You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. Free online tax filing 2011 Table 1-1 presents an overview of the purpose of the various parts of Form 4562. Free online tax filing 2011 Employee. Free online tax filing 2011   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. Free online tax filing 2011 Instead, use either Form 2106 or Form 2106-EZ. Free online tax filing 2011 Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. Free online tax filing 2011 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. Free online tax filing 2011 See Filing an Amended Return , next. Free online tax filing 2011 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. Free online tax filing 2011 See Changing Your Accounting Method , later. Free online tax filing 2011 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. Free online tax filing 2011 You claimed the incorrect amount because of a mathematical error made in any year. Free online tax filing 2011 You claimed the incorrect amount because of a posting error made in any year. Free online tax filing 2011 You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Free online tax filing 2011 You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Free online tax filing 2011 Adoption of accounting method defined. Free online tax filing 2011   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. Free online tax filing 2011   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. Free online tax filing 2011 irs. Free online tax filing 2011 gov/pub/irs-irbs/irb11-04. Free online tax filing 2011 pdf. Free online tax filing 2011 (Note. Free online tax filing 2011 Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Free online tax filing 2011 For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Free online tax filing 2011 irs. Free online tax filing 2011 gov/pub/irs-irbs/irb12-14. Free online tax filing 2011 pdf. Free online tax filing 2011 )   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. Free online tax filing 2011 irs. Free online tax filing 2011 gov/pub/irs-irbs/irb07-29. Free online tax filing 2011 pdf. Free online tax filing 2011 When to file. Free online tax filing 2011   If an amended return is allowed, you must file it by the later of the following. Free online tax filing 2011 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Free online tax filing 2011 A return filed before an unextended due date is considered filed on that due date. Free online tax filing 2011 2 years from the time you paid your tax for that year. Free online tax filing 2011 Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Free online tax filing 2011 You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. Free online tax filing 2011 The following are examples of a change in method of accounting for depreciation. Free online tax filing 2011 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. Free online tax filing 2011 A change in the treatment of an asset from nondepreciable to depreciable or vice versa. Free online tax filing 2011 A change in the depreciation method, period of recovery, or convention of a depreciable asset. Free online tax filing 2011 A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. Free online tax filing 2011 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). Free online tax filing 2011 Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. Free online tax filing 2011 An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. Free online tax filing 2011 A change in use of an asset in the hands of the same taxpayer. Free online tax filing 2011 Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). Free online tax filing 2011 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. Free online tax filing 2011 Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. Free online tax filing 2011 You must submit a request for a letter ruling to make a late election or revoke an election. Free online tax filing 2011 Any change in the placed in service date of a depreciable asset. Free online tax filing 2011 See section 1. Free online tax filing 2011 446-1(e)(2)(ii)(d) of the regulations for more information and examples. Free online tax filing 2011 IRS approval. Free online tax filing 2011   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. Free online tax filing 2011 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. Free online tax filing 2011 B. Free online tax filing 2011 680. Free online tax filing 2011 Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. Free online tax filing 2011 Additional guidance. Free online tax filing 2011    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. Free online tax filing 2011 irs. Free online tax filing 2011 gov/pub/irs-irbs/irb11-04. Free online tax filing 2011 pdf. Free online tax filing 2011 (Note. Free online tax filing 2011 Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Free online tax filing 2011 For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Free online tax filing 2011 irs. Free online tax filing 2011 gov/pub/irs-irbs/irb12-14. Free online tax filing 2011 pdf. Free online tax filing 2011 )   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. Free online tax filing 2011 irs. Free online tax filing 2011 gov/pub/irs-irbs/irb07-29. Free online tax filing 2011 pdf. Free online tax filing 2011 Table 1-1. Free online tax filing 2011 Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. Free online tax filing 2011 For more information, see Form 4562 and its instructions. Free online tax filing 2011 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. Free online tax filing 2011   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. Free online tax filing 2011 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. Free online tax filing 2011 If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. Free online tax filing 2011 A negative section 481(a) adjustment results in a decrease in taxable income. Free online tax filing 2011 It is taken into account in the year of change and is reported on your business tax returns as “other expenses. Free online tax filing 2011 ” A positive section 481(a) adjustment results in an increase in taxable income. Free online tax filing 2011 It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. Free online tax filing 2011 ” 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. Free online tax filing 2011 Make the election by completing the appropriate line on Form 3115. Free online tax filing 2011   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. Free online tax filing 2011 Prev  Up  Next   Home   More Online Publications