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H&r block online 10. H&r block online   Education Savings Bond Program Table of Contents Introduction Who Can Cash In Bonds Tax FreeAdjusted qualified education expenses. H&r block online Eligible educational institution. H&r block online Dependent for whom you claim an exemption. H&r block online MAGI when using Form 1040A. H&r block online MAGI when using Form 1040. H&r block online Figuring the Tax-Free AmountEffect of the Amount of Your Income on the Amount of Your Exclusion Claiming the Exclusion Introduction Generally, you must pay tax on the interest earned on U. H&r block online S. H&r block online savings bonds. H&r block online If you do not include the interest in income in the years it is earned, you must include it in your income in the year in which you cash in the bonds. H&r block online However, when you cash in certain savings bonds under an education savings bond program, you may be able to exclude the interest from income. H&r block online Who Can Cash In Bonds Tax Free You may be able to cash in qualified U. H&r block online S. H&r block online savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet the following conditions. H&r block online You pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return. H&r block online Your modified adjusted gross income (MAGI) is less than the amount specified for your filing status. H&r block online Your filing status is not married filing separately. H&r block online Qualified U. H&r block online S. H&r block online savings bonds. H&r block online   A qualified U. H&r block online S. H&r block online savings bond is a series EE bond issued after 1989 or a series I bond. H&r block online The bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners). H&r block online   The owner must be at least 24 years old before the bond's issue date. H&r block online The issue date is printed on the front of the savings bond. H&r block online    The issue date is not necessarily the date of purchase—it will be the first day of the month in which the bond is purchased (or posted, if bought electronically). H&r block online Qualified education expenses. H&r block online   These include the following items you pay for either yourself, your spouse, or a dependent for whom you claim an exemption. H&r block online Tuition and fees required to enroll at or attend an eligible educational institution. H&r block online Qualified education expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. H&r block online Contributions to a qualified tuition program (QTP) (see How Much Can You Contribute in chapter 8, Qualified Tuition Program). H&r block online Contributions to a Coverdell education savings account (ESA) (see Contributions in chapter 7, Coverdell Education Savings Account). H&r block online Adjusted qualified education expenses. H&r block online   You must reduce your qualified education expenses by all of the following tax-free benefits. H&r block online Tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). H&r block online Expenses used to figure the tax-free portion of distributions from a Coverdell ESA (see Qualified Education Expenses in chapter 7, Coverdell Education Savings Account). H&r block online Expenses used to figure the tax-free portion of distributions from a QTP (see Qualified education expenses in chapter 8, Qualified Tuition Program). H&r block online Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Qualified tuition reductions (see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), or Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ). H&r block online Any expenses used in figuring the American opportunity and lifetime learning credits. H&r block online See What Expenses Qualify in chapter 2, American Opportunity Credit, and What Expenses Qualify in chapter 3, Lifetime Learning Credit, for more information. H&r block online Eligible educational institution. H&r block online   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. H&r block online S. H&r block online Department of Education. H&r block online It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. H&r block online The educational institution should be able to tell you if it is an eligible educational institution. H&r block online   Certain educational institutions located outside the United States also participate in the U. H&r block online S. H&r block online Department of Education's Federal Student Aid (FSA) programs. H&r block online Dependent for whom you claim an exemption. H&r block online   You claim an exemption for a person if you list his or her name and other required information on Form 1040 (or Form 1040A), line 6c. H&r block online Modified adjusted gross income (MAGI). H&r block online   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return without taking into account this interest exclusion. H&r block online However, as discussed below, there may be other modifications. H&r block online MAGI when using Form 1040A. H&r block online   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). H&r block online MAGI when using Form 1040. H&r block online   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. H&r block online    Use the worksheet in the instructions for line 9 of Form 8815 to figure your MAGI. H&r block online If you claim any of the exclusion or deduction items (1)–(6) listed above, add the amount of the exclusion or deduction to the amount on line 5 of the worksheet. H&r block online Do not add in the deduction for (7) student loan interest, and (8) tuition and fees, or (9) domestic production activities because line 4 of the worksheet already includes these amounts. H&r block online Enter the total on Form 8815, line 9, as your modified adjusted gross income (MAGI). H&r block online    Because the deduction for interest expenses attributable to royalties and other investments is limited to your net investment income, you cannot figure the deduction until you have figured this interest exclusion. H&r block online Therefore, if you had interest expenses attributable to royalties and deductible on Schedule E (Form 1040), Supplemental Income and Loss, you must make a special computation of your deductible interest without regard to this exclusion to figure the net royalty income included in your MAGI. H&r block online See Royalties included in MAGI under Education Savings Bond Program in Publication 550, chapter 1. H&r block online Figuring the Tax-Free Amount If the total you receive when you cash in the bonds is not more than the adjusted qualified education expenses for the year, all of the interest on the bonds may be tax free. H&r block online However, if the total you receive when you cash in the bonds is more than the adjusted expenses, only part of the interest may be tax free. H&r block online To determine the tax-free amount, multiply the interest part of the proceeds by a fraction. H&r block online The numerator (top part) of the fraction is the adjusted qualified education expenses (AQEE) you paid during the year. H&r block online The denominator (bottom part) of the fraction is the total proceeds you received during the year. H&r block online Example. H&r block online In February 2013, Mark and Joan Washington, a married couple, cashed a qualified series EE U. H&r block online S. H&r block online savings bond. H&r block online They received proceeds of $9,000, representing principal of $6,000 and interest of $3,000. H&r block online In 2013, they paid $7,650 of their daughter's college tuition. H&r block online They are not claiming an American opportunity or lifetime learning credit for those expenses, and their daughter does not have any tax-free educational assistance. H&r block online Their MAGI for 2013 was $80,000. H&r block online   $3,000 interest × $7,650 AQEE  $9,000 proceeds = $2,550 tax-free interest   They can exclude $2,550 of interest in 2013. H&r block online They must pay tax on the remaining $450 ($3,000 − $2,550) interest. H&r block online Effect of the Amount of Your Income on the Amount of Your Exclusion The amount of your interest exclusion is gradually reduced (phased out) based on your MAGI and filing status. H&r block online Claiming the Exclusion Use Form 8815 to figure your education savings bond interest exclusion. H&r block online Enter your exclusion on line 3 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. H&r block online Attach Form 8815 to your tax return. H&r block online Prev  Up  Next   Home   More Online Publications
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Environment, Energy, and Agriculture

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H&r block online 3. H&r block online   Claiming the Special Depreciation Allowance Table of Contents Introduction What Is Qualified Property?Qualified Reuse and Recycling Property Qualified Cellulosic Biofuel Plant Property Qualified Disaster Assistance Property Certain Qualified Property Acquired After December 31, 2007 Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance How Much Can You Deduct? How Can You Elect Not To Claim an Allowance? When Must You Recapture an Allowance? Introduction You can take a special depreciation allowance to recover part of the cost of qualified property (defined next), placed in service during the tax year. H&r block online The allowance applies only for the first year you place the property in service. H&r block online For qualified property placed in service in 2013, you can take an additional 50% special allowance. H&r block online The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service. H&r block online This chapter explains what is qualified property. H&r block online It also includes rules regarding how to figure an allowance, how to elect not to claim an allowance, and when you must recapture an allowance. H&r block online Corporations can elect to accelerate certain minimum tax credits in lieu of claiming the special depreciation allowance for eligible qualified property. H&r block online See Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance , later. H&r block online See chapter 6 for information about getting publications and forms. H&r block online What Is Qualified Property? Your property is qualified property if it is one of the following. H&r block online Qualified reuse and recycling property. H&r block online Qualified cellulosic biofuel plant property. H&r block online Qualified disaster assistance property. H&r block online Certain qualified property acquired after December 31, 2007. H&r block online The following discussions provide information about the types of qualified property listed above for which you can take the special depreciation allowance. H&r block online Qualified Reuse and Recycling Property You can take a 50% special depreciation allowance for qualified reuse and recycling property. H&r block online Qualified reuse and recycling property is any machinery or equipment (not including buildings or real estate), along with any appurtenance, that is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials (as defined in section 168(m)(3)(B) of the Internal Revenue Code). H&r block online Qualified reuse and recycling property also includes software necessary to operate such equipment. H&r block online The property must meet the following requirements. H&r block online The property must be depreciated under MACRS. H&r block online The property must have a useful life of at least 5 years. H&r block online The original use of the property must begin with you after August 31, 2008. H&r block online You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after August 31, 2008, with no binding written contract for the acquisition in effect before September 1, 2008. H&r block online The property must be placed in service for use in your trade or business after August 31, 2008. H&r block online Excepted Property Qualified reuse and recycling property does not include any of the following. H&r block online Any rolling stock or other equipment used to transport reuse or recyclable materials. H&r block online Property required to be depreciated using the Alternative Depreciation System (ADS). H&r block online For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . H&r block online Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. H&r block online Property for which you elected not to claim any special depreciation allowance (discussed later). H&r block online Property placed in service and disposed of in the same tax year. H&r block online Property converted from business use to personal use in the same tax year acquired. H&r block online Property converted from personal use to business use in the same or later tax year may be qualified reuse and recycling property. H&r block online Qualified Cellulosic Biofuel Plant Property You can take a 50% special depreciation allowance for qualified cellulosic biofuel plant property. H&r block online Cellulosic biofuel is any liquid fuel which is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis. H&r block online Examples include bagasse (from sugar cane), corn stalks, and switchgrass. H&r block online The property must meet the following requirements. H&r block online The property is used in the United States solely to produce cellulosic biofuel. H&r block online The original use of the property must begin with you after December 20, 2006. H&r block online You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after December 20, 2006, with no binding written contract for acquisition in effect before December 21, 2006. H&r block online The property must be placed in service for use in your trade or business or for the production of income after October 3, 2008, and before January 3, 2013. H&r block online Note. H&r block online For property placed in service after January 2, 2013, and before January 1, 2014, you can take a 50% special depreciation allowance for qualified second generation biofuel plant property that is used solely in the United States to produce second generation biofuel (as defined in section 40(b)(6)(E)). H&r block online The other requirements for qualified second generation biofuel plant property to be eligible for the special depreciation allowance are identical to the requirements discussed for Qualified Cellulosic Biofuel Plant Property above. H&r block online Special Rules Sale-leaseback. H&r block online   If you sold qualified cellulosic biofuel plant property you placed in service after October 3, 2008, and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. H&r block online   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before December 21, 2006. H&r block online Syndicated leasing transactions. H&r block online   If qualified cellulosic biofuel plant property is originally placed in service by a lessor after October 3, 2008, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. H&r block online   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. H&r block online Excepted Property Qualified cellulosic biofuel plant property does not include any of the following. H&r block online Property placed in service and disposed of in the same tax year. H&r block online Property converted from business use to personal use in the same tax year it is acquired. H&r block online Property converted from personal use to business use in the same or later tax year may be qualified cellulosic biomass ethanol plant property. H&r block online Property required to be depreciated using the Alternative Depreciation System (ADS). H&r block online For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . H&r block online Property any portion of which is financed with the proceeds of any obligation the interest on which is exempt from tax under section 103 of the Internal Revenue Code. H&r block online Property for which you elected not to claim any special depreciation allowance (discussed later). H&r block online Property for which a deduction was taken under section 179C for certain qualified refinery property. H&r block online Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. H&r block online Qualified Disaster Assistance Property You can take a 50% special depreciation allowance for qualified disaster assistance property placed in service in federally declared disaster areas in which the disaster occurred in 2009. H&r block online A list of the federally declared disaster areas is available at the FEMA website at www. H&r block online fema. H&r block online gov. H&r block online Your property is qualified disaster assistance property if it meets the following requirements. H&r block online The property is nonresidential real property or residential real property placed in service before January 1, 2014, in a federally declared disaster area in which the disaster occurred in 2009. H&r block online You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) on or after the applicable disaster date, with no binding written contract for the acquisition in effect before the applicable disaster date. H&r block online The property must rehabilitate property damaged, or replace property destroyed or condemned, as a result of the applicable federally declared disaster. H&r block online The property must be similar in nature to, and located in the same county as, the rehabilitated or replaced property. H&r block online The original use of the property within the applicable disaster area must have begun with you on or after the applicable disaster date. H&r block online The property is placed in service by you on or before the date which is the last day of the fourth calendar year. H&r block online Substantially all (80% or more) of the use of the property must be in the active conduct of your trade or business in a federally declared disaster area, occurring in 2009. H&r block online It is not excepted property (explained later in Excepted Property ). H&r block online Special Rules Sale-leaseback. H&r block online   If you sold qualified disaster assistance property you placed in service after the applicable disaster date and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. H&r block online   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before the applicable disaster date. H&r block online Syndicated leasing transactions. H&r block online   If qualified disaster assistance property is originally placed in service by a lessor after the applicable disaster date, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. H&r block online   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. H&r block online Excepted Property Qualified disaster assistance property does not include any of the following. H&r block online Property required to be depreciated using the Alternative Depreciation System (ADS). H&r block online For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . H&r block online Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103 of the Internal Revenue Code. H&r block online Any qualified revitalization building (defined later) placed in service before January 1, 2010, for which you have elected to claim a commercial revitalization deduction for qualified revitalization expenditures. H&r block online Any property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store, the principal business of which is the sale of alcoholic beverages for consumption off premises. H&r block online Any property for which the special allowance under section 168(k) or section 1400N(d) of the Internal Revenue Code applies. H&r block online Property for which you elected not to claim any special depreciation allowance (discussed later). H&r block online Property placed in service and disposed of in the same tax year. H&r block online Property converted from business use to personal use in the same tax year acquired. H&r block online Property converted from personal use to business use in the same or later tax year may be qualified disaster assistance property. H&r block online Any gambling or animal racing property (defined later). H&r block online Qualified revitalization building. H&r block online   This is a commercial building and its structural components that you placed in service in a renewal community before January 1, 2010. H&r block online If the building is new, the original use of the building must begin with you. H&r block online If the building is not new, you must substantially rehabilitate the building and then place it in service. H&r block online For more information, including definitions of substantially rehabilitated building and qualified revitalization expenditure, see section 1400I(b) of the Internal Revenue Code. H&r block online Gambling or animal racing property. H&r block online   Gambling or animal racing property includes the following personal and real property. H&r block online Any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing. H&r block online Any real property determined by square footage (other than any portion that is less than 100 square feet) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing. H&r block online Certain Qualified Property Acquired After December 31, 2007 You can take a 50% special depreciation deduction allowance for certain qualified property acquired after December 31, 2007. H&r block online Your property is qualified property if it meets the following requirements. H&r block online It is one of the following types of property. H&r block online Tangible property depreciated under MACRS with a recovery period of 20 years or less. H&r block online Water utility property. H&r block online Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. H&r block online (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. H&r block online ) Qualified leasehold improvement property (defined under Qualified leasehold improvement property later). H&r block online You must have acquired the property after December 31, 2007, with no binding written contract for the acquisition in effect before January 1, 2008. H&r block online The property must be placed in service for use in your trade or business or for the production of income before January 1, 2014 (before January 1, 2015, for certain property with a long production period and certain aircraft (defined next)). H&r block online The original use of the property must begin with you after December 31, 2007. H&r block online It is not excepted property (explained later in Excepted property). H&r block online Qualified leasehold improvement property. H&r block online    Generally, this is any improvement to an interior part of a building that is nonresidential real property, if all the following requirements are met. H&r block online The improvement is made under or according to a lease by the lessee (or any sublessee) or the lessor of that part of the building. H&r block online That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. H&r block online The improvement is placed in service more than 3 years after the date the building was first placed in service by any person. H&r block online The improvement is section 1250 property. H&r block online See chapter 3 in Publication 544, Sales and Other Dispositions of Assets, for the definition of section 1250 property. H&r block online   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. H&r block online The enlargement of the building. H&r block online Any elevator or escalator. H&r block online Any structural component benefiting a common area. H&r block online The internal structural framework of the building. H&r block online   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. H&r block online However, a lease between related persons is not treated as a lease. H&r block online Related persons. H&r block online   For this purpose, the following are related persons. H&r block online Members of an affiliated group. H&r block online 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. H&r block online A corporation and an individual who directly or indirectly owns 80% or more of the value of the outstanding stock of that corporation. H&r block online Two corporations that are members of the same controlled group. H&r block online A trust fiduciary and a corporation if 80% or more of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. H&r block online The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. H&r block online 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. H&r block online 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. H&r block online Two S corporations, and an S corporation and a regular corporation, if the same persons own 80% or more of the value of the outstanding stock of each corporation. H&r block online A corporation and a partnership if the same persons own both of the following. H&r block online 80% or more of the value of the outstanding stock of the corporation. H&r block online 80% or more of the capital or profits interest in the partnership. H&r block online The executor and beneficiary of any estate. H&r block online Long Production Period Property To be qualified property, long production period property must meet the following requirements. H&r block online It must meet the requirements in (2)-(5), above. H&r block online The property has a recovery period of at least 10 years or is transportation property. H&r block online Transportation property is tangible personal property used in the trade or business of transporting persons or property. H&r block online The property is subject to section 263A of the Internal Revenue Code. H&r block online The property has an estimated production period exceeding 1 year and an estimated production cost exceeding $1,000,000. H&r block online Noncommercial Aircraft To be qualified property, noncommercial aircraft must meet the following requirements. H&r block online It must meet the requirements in (2)-(5), above. H&r block online The aircraft must not be tangible personal property used in the trade or business of transporting persons or property (except for agricultural or firefighting purposes). H&r block online The aircraft must be purchased (as discussed under Property Acquired by Purchase in chapter 2 ) by a purchaser who at the time of the contract for purchase, makes a nonrefundable deposit of the lesser of 10% of the cost or $100,000. H&r block online The aircraft must have an estimated production period exceeding four months and a cost exceeding $200,000. H&r block online Special Rules Sale-leaseback. H&r block online   If you sold qualified property you placed in service after December 31, 2007, and leased it back within 3 months after you originally placed in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. H&r block online   The property will not qualify for the special depreciation allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before January 1, 2008. H&r block online Syndicated leasing transactions. H&r block online   If qualified property is originally placed in service by a lessor after December 31, 2007, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. H&r block online   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of the last sale if the property is sold within 3 months after the final unit is placed in service and the period between the time the first and last units are placed in service does not exceed 12 months. H&r block online Excepted Property Qualified property does not include any of the following. H&r block online Property placed in service and disposed of in the same tax year. H&r block online Property converted from business use to personal use in the same tax year acquired. H&r block online Property converted from personal use to business use in the same or later tax year may be qualified property. H&r block online Property required to be depreciated under the Alternative Depreciation System (ADS). H&r block online This includes listed property used 50% or less in a qualified business use. H&r block online For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . H&r block online Qualified restaurant property (as defined in section 168(e)(7) of the Internal Revenue Code). H&r block online Qualified retail improvement property (as defined in section 168(e)(8) of the Internal Revenue Code). H&r block online Property for which you elected not to claim any special depreciation allowance (discussed later). H&r block online Property for which you elected to accelerate certain credits in lieu of the special depreciation allowance (discussed next). H&r block online Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 2 extension property (as defined in section 168(k)(4)(I)(iv)), unless the corporation made an election not to apply the section 168(k)(4) election to round 2 extension property for its first tax year ending after December 31, 2010. H&r block online For 2013, round 2 extension property generally is long production period and noncommercial aircraft if acquired after March 31, 2008, and placed in service after December 31, 2012, but before January 1, 2014. H&r block online An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 3 extension property (as defined in section 168(k)(4)(J)(iv)), unless the corporation makes an election not to apply the section 168(k)(4) election to round 3 extension property. H&r block online If a corporation did not make a section 168(k)(4) election for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, the corporation may elect for its first tax year ending after December 31, 2012, to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for only round 3 extension property. H&r block online If you make an election to accelerate these credits in lieu of claiming the special depreciation allowance for eligible property, you must not take the 50% special depreciation allowance for the property and must depreciate the basis in the property under MACRS using the straight line method. H&r block online See Which Depreciation Method Applies in chapter 4 . H&r block online Once made, the election cannot be revoked without IRS consent. H&r block online Additional guidance. H&r block online   For additional guidance on the election to accelerate the research or minimum tax credit in lieu of claiming the special depreciation allowance, see Rev. H&r block online Proc. H&r block online 2008-65 on page 1082 of Internal Revenue Bulletin 2008-44, available at www. H&r block online irs. H&r block online gov/pub/irs-irbs/irb08-44. H&r block online pdf, Rev. H&r block online Proc. H&r block online 2009-16 on page 449 of Internal Revenue Bulletin 2009-06, available at www. H&r block online irs. H&r block online gov/pub/irs-irbs/irb09-06. H&r block online pdf, and Rev. H&r block online Proc. H&r block online 2009-33 on page 150 of Internal Revenue Bulletin 2009-29, available at www. H&r block online irs. H&r block online gov/pub/irs-irbs/irb09-29. H&r block online pdf. H&r block online Also, see Form 3800, General Business Credit; Form 8827, Credit for Prior Year Minimum Tax — Corporations; and related instructions. H&r block online   Additional guidance regarding the election to accelerate the minimum tax credit in lieu of claiming the special depreciation allowance for round 2 extension property and round 3 extension property may also be available in later Internal Revenue Bulletins available at www. H&r block online irs. H&r block online gov/irb. H&r block online How Much Can You Deduct? Figure the special depreciation allowance by multiplying the depreciable basis of qualified reuse and recycling property, qualified cellulosic biofuel plant property, qualified disaster assistance property, and certain qualified property acquired after December 31, 2007, by 50%. H&r block online For qualified property other than listed property, enter the special allowance on line 14 in Part II of Form 4562. H&r block online For qualified property that is listed property, enter the special allowance on line 25 in Part V of Form 4562. H&r block online If you place qualified property in service in a short tax year, you can take the full amount of a special depreciation allowance. H&r block online Depreciable basis. H&r block online   This is the property's cost or other basis multiplied by the percentage of business/investment use, reduced by the total amount of any credits and deductions allocable to the property. H&r block online   The following are examples of some credits and deductions that reduce depreciable basis. H&r block online Any section 179 deduction. H&r block online Any deduction for removal of barriers to the disabled and the elderly. H&r block online Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. H&r block online Basis adjustment to investment credit property under section 50(c) of the Internal Revenue Code. H&r block online   For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. H&r block online   For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . H&r block online For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . H&r block online Depreciating the remaining cost. H&r block online   After you figure your special depreciation allowance for your qualified property, you can use the remaining cost to figure your regular MACRS depreciation deduction (discussed in chapter 4 . H&r block online Therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before figuring your regular MACRS depreciation deduction. H&r block online Example. H&r block online On November 1, 2013, Tom Brown bought and placed in service in his business qualified property that cost $450,000. H&r block online He did not elect to claim a section 179 deduction. H&r block online He deducts 50% of the cost ($225,000) as a special depreciation allowance for 2013. H&r block online He uses the remaining $225,000 of cost to figure his regular MACRS depreciation deduction for 2013 and later years. H&r block online Like-kind exchanges and involuntary conversions. H&r block online   If you acquire qualified property in a like-kind exchange or involuntary conversion, the carryover basis of the acquired property is eligible for a special depreciation allowance. H&r block online After you figure your special allowance, you can use the remaining carryover basis to figure your regular MACRS depreciation deduction. H&r block online In the year you claim the allowance (the year you place in service the property received in the exchange or dispose of involuntarily converted property), you must reduce the carryover basis of the property by the allowance before figuring your regular MACRS depreciation deduction. H&r block online See Figuring the Deduction for Property Acquired in a Nontaxable Exchange , in chapter 4 under How Is the Depreciation Deduction Figured . H&r block online The excess basis (the part of the acquired property's basis that exceeds its carryover basis) is also eligible for a special depreciation allowance. H&r block online How Can You Elect Not To Claim an Allowance? You can elect, for any class of property, not to deduct any special allowances for all property in such class placed in service during the tax year. H&r block online To make an election, attach a statement to your return indicating what election you are making and the class of property for which you are making the election. H&r block online When to make election. H&r block online   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. H&r block online   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). H&r block online Attach the election statement to the amended return. H&r block online On the amended return, write “Filed pursuant to section 301. H&r block online 9100-2. H&r block online ” Revoking an election. H&r block online   Once you elect not to deduct a special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. H&r block online A request to revoke the election is a request for a letter ruling. H&r block online If you elect not to have any special allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. H&r block online When Must You Recapture an Allowance? When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. H&r block online See When Do You Recapture MACRS Depreciation in chapter 4 or more information. H&r block online Recapture of allowance deducted for qualified GO Zone property. H&r block online   If, in any year after the year you claim the special depreciation allowance for qualified GO Zone property (including specified GO Zone extension property), the property ceases to be used in the GO Zone, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. H&r block online For additional guidance, see Notice 2008-25 on page 484 of Internal Revenue Bulletin 2008-9. H&r block online Qualified cellulosic biomass ethanol plant property and qualified cellulosic biofuel plant property. H&r block online   If, in any year after the year you claim the special depreciation allowance for any qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, the property ceases to be qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. H&r block online Recapture of allowance for qualified Recovery Assistance property. H&r block online   If, in any year after the year you claim the special depreciation allowance for qualified Recovery Assistance property, the property ceases to be used in the Kansas disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. H&r block online For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. H&r block online Recapture of allowance for qualified disaster assistance property. H&r block online   If, in any year after the year you claim the special depreciation allowance for qualified disaster assistance property, the property ceases to be used in the applicable disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. H&r block online   For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. H&r block online Prev  Up  Next   Home   More Online Publications