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H&r block federal free Index Symbols 403(b) plans, 403(b) Plans A Accounting methods, Nonaccrual-Experience Method Acquisition date: Special depreciation allowance, Acquisition date test. H&r block federal free Special Liberty Zone depreciation allowance, Acquisition date test. H&r block federal free Annuities, tax-sheltered 403(b) plans, 403(b) Plans Assistance (see Tax help) Automobile (see Passenger automobile) B Bonds: New York Liberty, Tax Incentives for New York Liberty Zone Qualified zone academy, Issuance of Qualified Zone Academy Bonds C Car (see Passenger automobile) Car expenses, Car Expenses Catch-up contributions, 403(b), 403(b) Plans Child and dependent care, Child and Dependent Care Expenses Church employees and ministers, Years of service for church employees and ministers. H&r block federal free Clean-fuel vehicle, Electric and Clean-Fuel Vehicles Comments, Comments and suggestions. H&r block federal free Credit: Child and dependent care, Child and Dependent Care Expenses Credit for pension plan startup, Credit For Pension Plan Startup Costs Electric vehicles, Electric and Clean-Fuel Vehicles Indian employment, Indian Employment Credit Extended Renewable electricity production, Renewable Electricity Production Credit Welfare-to-work, Welfare-to-Work Credit Extended Work opportunity, Work Opportunity Credit Expanded in New York Liberty Zone , Work Opportunity Credit Extended D Deduction limit, automobile, Passenger Automobiles Deemed IRAs, Deemed IRAs Depletion, Depletion Depreciation: New property, Special Depreciation Allowance Property on reservations, Depreciation of Property Used on Indian Reservations Special depreciation allowance, Special Depreciation Allowance Special Liberty Zone depreciation allowance, Special Liberty Zone Depreciation Allowance Supplement to Publication 946, Depreciation E Election: Deemed not to claim special allowance, Deemed election. H&r block federal free Not to claim special allowance, Election Not To Claim the Allowance Not to claim special Liberty Zone allowance, Election Not To Claim the Liberty Zone Allowance Electric vehicle, Electric and Clean-Fuel Vehicles Eligible educator, Deduction for Educator Expenses Estimated tax payments, Adjusting your withholding or estimated tax payments for 2002. H&r block federal free Excepted property: Special depreciation allowance, Excepted Property Special Liberty Zone depreciation allowance, Excepted property. H&r block federal free F Foreign missionaries, Foreign missionaries. H&r block federal free Form 1099, Electronic Form 1099 Free tax services, How To Get Tax Help H Help (see Tax help) I Indian employment credit, Indian Employment Credit Extended Indian reservations, depreciation rules, Depreciation of Property Used on Indian Reservations IRAs, Deemed IRAs L Leasehold improvement property, defined, Qualified leasehold improvement property. H&r block federal free Liberty Zone leasehold improvement property: Defined, Qualified New York Liberty Zone leasehold improvement property. H&r block federal free Depreciated as 5-year property, Liberty Zone Leasehold Improvement Property Returns filed before June 1, 2002, Returns Filed Before June 1, 2002 Liberty Zone property: Increased section 179 dollar limit, Increased Dollar Limit Reduced section 179 dollar limit, Reduced Dollar Limit M Marginal production, Depletion More information (see Tax help) N Net operating losses, New 5-Year Carryback Rule for Net Operating Losses (NOLs), New 5-Year Carryback Rule for Net Operating Losses (NOLs) New York Liberty Zone: Area defined, New York Liberty Zone Benefits Leasehold improvement property, Liberty Zone Leasehold Improvement Property Section 179 deduction, Increased Section 179 Deduction Special depreciation, Special Liberty Zone Depreciation Allowance Tax incentives, Tax Incentives for New York Liberty Zone Work opportunity credit, Work Opportunity Credit Expanded in New York Liberty Zone NOLs, New 5-Year Carryback Rule for Net Operating Losses (NOLs), New 5-Year Carryback Rule for Net Operating Losses (NOLs) Nonaccrual-experience method, Nonaccrual-Experience Method Nonresidential real property, Nonresidential real property and residential rental property. H&r block federal free P Passenger automobile, limit on, Passenger Automobiles Pension plan startup costs, Credit For Pension Plan Startup Costs Placed in service date, Placed in service date test. H&r block federal free , Placed in service date test. H&r block federal free Plans, tax-sheltered annuities, 403(b) plans, 403(b) Plans Publications (see Tax help) Q Qualified leasehold improvement property, defined, Qualified leasehold improvement property. H&r block federal free Qualified Liberty Zone leasehold improvement property, Qualified New York Liberty Zone leasehold improvement property. H&r block federal free Qualified property: Increased section 179 deduction, Qualified property. H&r block federal free Special depreciation allowance, Qualified Property Special Liberty Zone depreciation allowance, Qualified Liberty Zone Property Qualified zone academy bonds, Issuance of Qualified Zone Academy Bonds R Recapture, section 179 deduction, Recapture Rules Renewable electricity, Renewable Electricity Production Credit Residential rental property, Nonresidential real property and residential rental property. H&r block federal free Rollovers, 403(b) plans, Rollovers to and from 403(b) plans. H&r block federal free S Section 1256 contracts, Wash Sale Rules Do Not Apply to Section 1256 Contracts Section 179 deduction: Increased dollar limit for Liberty Zone property, Increased Dollar Limit Reduced dollar limit for Liberty Zone property, Reduced Dollar Limit Returns filed before June 1, 2002, Returns Filed Before June 1, 2002 Simplified employee pensions (SEPs), Simplified Employee Pensions (SEPs) Special depreciation allowance: Election not to claim, Election Not To Claim the Allowance Excepted property, Excepted Property Qualified property, Qualified Property Requirements for claiming, Qualified Property Returns filed before June 1, 2002, Rules for Returns Filed Before June 1, 2002 Tests for qualification, Tests To Be Met Special Liberty Zone depreciation allowance: Election not to claim, Election Not To Claim the Liberty Zone Allowance Excepted property, Excepted property. H&r block federal free Qualified property, Qualified Liberty Zone Property Requirements for claiming, Qualified Liberty Zone Property Returns filed before June 1, 2002, Returns filed before June 1, 2002. H&r block federal free Tests for qualification, Tests to be met. H&r block federal free Substantial use, special Liberty Zone depreciation allowance, Substantial use test. H&r block federal free Suggestions, Comments and suggestions. H&r block federal free T Tax help, How To Get Tax Help Tax-sheltered annuity plans, 403(b) plans, 403(b) Plans Taxpayer Advocate, Contacting your Taxpayer Advocate. H&r block federal free Teachers, classroom materials, Deduction for Educator Expenses Tests for qualification, Tests To Be Met, Tests to be met. H&r block federal free TTY/TDD information, How To Get Tax Help W Wash sale rules, Wash Sale Rules Do Not Apply to Section 1256 Contracts Welfare-to-work credit, Welfare-to-Work Credit Extended Withholding, Adjusting your withholding or estimated tax payments for 2002. H&r block federal free Work opportunity credit, Work Opportunity Credit Expanded in New York Liberty Zone , Work Opportunity Credit Extended Y Years of service, church employees and ministers, Years of service for church employees and ministers. H&r block federal free Prev  Up     Home   More Online Publications
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The Office of Fair Housing and Equal Opportunity enforces federal laws and establishes policies to ensure that all Americans have equal access to the housing of their choice.

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