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How Can I Amend My 2010 Tax Return

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How Can I Amend My 2010 Tax Return

How can i amend my 2010 tax return 5. How can i amend my 2010 tax return   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. How can i amend my 2010 tax return Short-term lease. How can i amend my 2010 tax return Retail space. How can i amend my 2010 tax return Qualified long-term real property. How can i amend my 2010 tax return Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. How can i amend my 2010 tax return If there is a connection between any income you receive and your business, the income is business income. How can i amend my 2010 tax return A connection exists if it is clear that the payment of income would not have been made if you did not have the business. How can i amend my 2010 tax return You can have business income even if you are not involved in the activity on a regular full-time basis. How can i amend my 2010 tax return Income from work you do on the side in addition to your regular job can be business income. How can i amend my 2010 tax return You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. How can i amend my 2010 tax return But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. How can i amend my 2010 tax return For information on selling business assets, see chapter 3. How can i amend my 2010 tax return Nonemployee compensation. How can i amend my 2010 tax return Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. How can i amend my 2010 tax return This includes amounts reported as nonemployee compensation in box 7 of the form. How can i amend my 2010 tax return You can find more information in the instructions on the back of the Form 1099-MISC you received. How can i amend my 2010 tax return Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. How can i amend my 2010 tax return In most cases, your business income will be in the form of cash, checks, and credit card charges. How can i amend my 2010 tax return But business income can be in other forms, such as property or services. How can i amend my 2010 tax return These and other types of income are explained next. How can i amend my 2010 tax return If you are a U. How can i amend my 2010 tax return S. How can i amend my 2010 tax return citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. How can i amend my 2010 tax return S. How can i amend my 2010 tax return law. How can i amend my 2010 tax return If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. How can i amend my 2010 tax return For details, see Publication 54, Tax Guide for U. How can i amend my 2010 tax return S. How can i amend my 2010 tax return Citizens and Resident Aliens Abroad. How can i amend my 2010 tax return Bartering for Property or Services Bartering is an exchange of property or services. How can i amend my 2010 tax return You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. How can i amend my 2010 tax return If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. How can i amend my 2010 tax return Example 1. How can i amend my 2010 tax return You are a self-employed lawyer. How can i amend my 2010 tax return You perform legal services for a client, a small corporation. How can i amend my 2010 tax return In payment for your services, you receive shares of stock in the corporation. How can i amend my 2010 tax return You must include the fair market value of the shares in income. How can i amend my 2010 tax return Example 2. How can i amend my 2010 tax return You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. How can i amend my 2010 tax return You must include the fair rental value of the apartment in your gross receipts. How can i amend my 2010 tax return Your landlord must include the fair market value of the work of art in his or her rental income. How can i amend my 2010 tax return Example 3. How can i amend my 2010 tax return You are a self-employed accountant. How can i amend my 2010 tax return Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. How can i amend my 2010 tax return Members get in touch with other members directly and bargain for the value of the services to be performed. How can i amend my 2010 tax return In return for accounting services you provided for the house painter's business, the house painter painted your home. How can i amend my 2010 tax return You must include in gross receipts the fair market value of the services you received from the house painter. How can i amend my 2010 tax return The house painter must include the fair market value of your accounting services in his or her gross receipts. How can i amend my 2010 tax return Example 4. How can i amend my 2010 tax return You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. How can i amend my 2010 tax return As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. How can i amend my 2010 tax return You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. How can i amend my 2010 tax return The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. How can i amend my 2010 tax return It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. How can i amend my 2010 tax return See Publication 15 (Circular E), Employer's Tax Guide. How can i amend my 2010 tax return Example 5. How can i amend my 2010 tax return You operate a plumbing business and use the cash method of accounting. How can i amend my 2010 tax return You join a barter club and agree to provide plumbing services to any member for a specified number of hours. How can i amend my 2010 tax return Each member has access to a directory that lists the members of the club and the services available. How can i amend my 2010 tax return Members contact each other directly and request services to be performed. How can i amend my 2010 tax return You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. How can i amend my 2010 tax return You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. How can i amend my 2010 tax return Information returns. How can i amend my 2010 tax return   If you are involved in a bartering transaction, you may have to file either of the following forms. How can i amend my 2010 tax return Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. How can i amend my 2010 tax return Form 1099-MISC, Miscellaneous Income. How can i amend my 2010 tax return For information about these forms, see the General Instructions for Certain Information Returns. How can i amend my 2010 tax return Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. How can i amend my 2010 tax return , who provides services (maid services, etc. How can i amend my 2010 tax return ) for guests, report the rental income and expenses on Schedule C or C-EZ. How can i amend my 2010 tax return If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. How can i amend my 2010 tax return For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). How can i amend my 2010 tax return Real estate dealer. How can i amend my 2010 tax return   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. How can i amend my 2010 tax return Rent you receive from real estate held for sale to customers is subject to SE tax. How can i amend my 2010 tax return However, rent you receive from real estate held for speculation or investment is not subject to SE tax. How can i amend my 2010 tax return Trailer park owner. How can i amend my 2010 tax return   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. How can i amend my 2010 tax return    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. How can i amend my 2010 tax return Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. How can i amend my 2010 tax return   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. How can i amend my 2010 tax return   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. How can i amend my 2010 tax return Hotels, boarding houses, and apartments. How can i amend my 2010 tax return   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. How can i amend my 2010 tax return   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. How can i amend my 2010 tax return An example of a service that is not normally provided for the convenience of the occupants is maid service. How can i amend my 2010 tax return However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. How can i amend my 2010 tax return Prepaid rent. How can i amend my 2010 tax return   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. How can i amend my 2010 tax return This is true no matter what accounting method or period you use. How can i amend my 2010 tax return Lease bonus. How can i amend my 2010 tax return   A bonus you receive from a lessee for granting a lease is an addition to the rent. How can i amend my 2010 tax return Include it in your gross receipts in the year received. How can i amend my 2010 tax return Lease cancellation payments. How can i amend my 2010 tax return   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. How can i amend my 2010 tax return Payments to third parties. How can i amend my 2010 tax return   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. How can i amend my 2010 tax return A common example of this kind of income is a lessee's payment of your property taxes on leased real property. How can i amend my 2010 tax return Settlement payments. How can i amend my 2010 tax return   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. How can i amend my 2010 tax return Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. How can i amend my 2010 tax return ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. How can i amend my 2010 tax return Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. How can i amend my 2010 tax return If you receive any of those payments, include them in your gross receipts as explained in that discussion. How can i amend my 2010 tax return Interest and Dividend Income Interest and dividends may be considered business income. How can i amend my 2010 tax return Interest. How can i amend my 2010 tax return   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. How can i amend my 2010 tax return Interest received on loans is business income if you are in the business of lending money. How can i amend my 2010 tax return Uncollectible loans. How can i amend my 2010 tax return   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. How can i amend my 2010 tax return If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. How can i amend my 2010 tax return See Bad Debts in chapter 8. How can i amend my 2010 tax return Unstated interest. How can i amend my 2010 tax return   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. How can i amend my 2010 tax return See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. How can i amend my 2010 tax return Dividends. How can i amend my 2010 tax return   Generally, dividends are business income to dealers in securities. How can i amend my 2010 tax return For most sole proprietors and statutory employees, however, dividends are nonbusiness income. How can i amend my 2010 tax return If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. How can i amend my 2010 tax return   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. How can i amend my 2010 tax return To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. How can i amend my 2010 tax return Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. How can i amend my 2010 tax return General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. How can i amend my 2010 tax return Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. How can i amend my 2010 tax return If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. How can i amend my 2010 tax return Exceptions The following discussion covers some exceptions to the general rule for canceled debt. How can i amend my 2010 tax return Price reduced after purchase. How can i amend my 2010 tax return   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. How can i amend my 2010 tax return Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. How can i amend my 2010 tax return Deductible debt. How can i amend my 2010 tax return   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return You get accounting services for your business on credit. How can i amend my 2010 tax return Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. How can i amend my 2010 tax return Your accountant forgives part of the amount you owe for the accounting services. How can i amend my 2010 tax return How you treat the canceled debt depends on your method of accounting. How can i amend my 2010 tax return Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. How can i amend my 2010 tax return Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. How can i amend my 2010 tax return   For information on the cash and accrual methods of accounting, see chapter 2. How can i amend my 2010 tax return Exclusions Do not include canceled debt in income in the following situations. How can i amend my 2010 tax return However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. How can i amend my 2010 tax return For more information, see Form 982. How can i amend my 2010 tax return The cancellation takes place in a bankruptcy case under title 11 of the U. How can i amend my 2010 tax return S. How can i amend my 2010 tax return Code (relating to bankruptcy). How can i amend my 2010 tax return See Publication 908, Bankruptcy Tax Guide. How can i amend my 2010 tax return The cancellation takes place when you are insolvent. How can i amend my 2010 tax return You can exclude the canceled debt to the extent you are insolvent. How can i amend my 2010 tax return See Publication 908. How can i amend my 2010 tax return The canceled debt is a qualified farm debt owed to a qualified person. How can i amend my 2010 tax return See chapter 3 in Publication 225, Farmer's Tax Guide. How can i amend my 2010 tax return The canceled debt is a qualified real property business debt. How can i amend my 2010 tax return This situation is explained later. How can i amend my 2010 tax return The canceled debt is qualified principal residence indebtedness which is discharged after 2006. How can i amend my 2010 tax return See Form 982. How can i amend my 2010 tax return If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. How can i amend my 2010 tax return If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. How can i amend my 2010 tax return Debt. How can i amend my 2010 tax return   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. How can i amend my 2010 tax return Qualified real property business debt. How can i amend my 2010 tax return   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. How can i amend my 2010 tax return If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. How can i amend my 2010 tax return Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. How can i amend my 2010 tax return However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. How can i amend my 2010 tax return Cancellation of qualified real property business debt. How can i amend my 2010 tax return   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. How can i amend my 2010 tax return It was incurred or assumed in connection with real property used in a trade or business. How can i amend my 2010 tax return It was secured by such real property. How can i amend my 2010 tax return It was incurred or assumed at either of the following times. How can i amend my 2010 tax return Before January 1, 1993. How can i amend my 2010 tax return After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. How can i amend my 2010 tax return It is debt to which you choose to apply these rules. How can i amend my 2010 tax return   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. How can i amend my 2010 tax return   You cannot exclude more than either of the following amounts. How can i amend my 2010 tax return The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. How can i amend my 2010 tax return The total adjusted bases of depreciable real property held by you immediately before the cancellation. How can i amend my 2010 tax return These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. How can i amend my 2010 tax return Do not take into account depreciable real property acquired in contemplation of the cancellation. How can i amend my 2010 tax return Election. How can i amend my 2010 tax return   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. How can i amend my 2010 tax return You must file your return by the due date (including extensions). How can i amend my 2010 tax return 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 return (excluding extensions). How can i amend my 2010 tax return For more information, see When To File in the form instructions. How can i amend my 2010 tax return Other Income The following discussion explains how to treat other types of business income you may receive. How can i amend my 2010 tax return Restricted property. How can i amend my 2010 tax return   Restricted property is property that has certain restrictions that affect its value. How can i amend my 2010 tax return If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. How can i amend my 2010 tax return However, you can choose to be taxed in the year you receive the property. How can i amend my 2010 tax return For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. How can i amend my 2010 tax return Gains and losses. How can i amend my 2010 tax return   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. How can i amend my 2010 tax return Instead, you must report these gains and losses on other forms. How can i amend my 2010 tax return For more information, see chapter 3. How can i amend my 2010 tax return Promissory notes. How can i amend my 2010 tax return   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. How can i amend my 2010 tax return In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. How can i amend my 2010 tax return Lost income payments. How can i amend my 2010 tax return   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. How can i amend my 2010 tax return Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. How can i amend my 2010 tax return Damages. How can i amend my 2010 tax return   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. How can i amend my 2010 tax return Patent infringement. How can i amend my 2010 tax return Breach of contract or fiduciary duty. How can i amend my 2010 tax return Antitrust injury. How can i amend my 2010 tax return Economic injury. How can i amend my 2010 tax return   You may be entitled to a deduction against the income if it compensates you for actual economic injury. How can i amend my 2010 tax return Your deduction is the smaller of the following amounts. How can i amend my 2010 tax return The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. How can i amend my 2010 tax return Your loss from the injury that you have not yet deducted. How can i amend my 2010 tax return Punitive damages. How can i amend my 2010 tax return   You must also include punitive damages in income. How can i amend my 2010 tax return Kickbacks. How can i amend my 2010 tax return   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. How can i amend my 2010 tax return However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. How can i amend my 2010 tax return Recovery of items previously deducted. How can i amend my 2010 tax return   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. How can i amend my 2010 tax return However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. How can i amend my 2010 tax return If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. How can i amend my 2010 tax return He also had 2 personal exemptions for a total of $7,800. How can i amend my 2010 tax return He would not pay income tax even if he did not deduct the bad debt. How can i amend my 2010 tax return Therefore, he will not report as income any part of the $300 he may recover in any future year. How can i amend my 2010 tax return Exception for depreciation. How can i amend my 2010 tax return   This rule does not apply to depreciation. How can i amend my 2010 tax return You recover depreciation using the rules explained next. How can i amend my 2010 tax return Recapture of depreciation. How can i amend my 2010 tax return   In the following situations, you have to recapture the depreciation deduction. How can i amend my 2010 tax return This means you include in income part or all of the depreciation you deducted in previous years. How can i amend my 2010 tax return Listed property. How can i amend my 2010 tax return   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. How can i amend my 2010 tax return You do this by including in income on Schedule C part of the depreciation you deducted in previous years. How can i amend my 2010 tax return Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. How can i amend my 2010 tax return For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. How can i amend my 2010 tax return That chapter explains how to determine whether property is used more than 50% in your business. How can i amend my 2010 tax return Section 179 property. How can i amend my 2010 tax return   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. How can i amend my 2010 tax return You do this by including in income on Schedule C part of the deduction you took. How can i amend my 2010 tax return Use Part IV of Form 4797 to figure the amount to include on Schedule C. How can i amend my 2010 tax return See chapter 2 in Publication 946 to find out when you recapture the deduction. How can i amend my 2010 tax return Sale or exchange of depreciable property. How can i amend my 2010 tax return   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. How can i amend my 2010 tax return You figure the income due to depreciation recapture in Part III of Form 4797. How can i amend my 2010 tax return For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. How can i amend my 2010 tax return Items That Are Not Income In some cases the property or money you receive is not income. How can i amend my 2010 tax return Appreciation. How can i amend my 2010 tax return   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. How can i amend my 2010 tax return Consignments. How can i amend my 2010 tax return   Consignments of merchandise to others to sell for you are not sales. How can i amend my 2010 tax return The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. How can i amend my 2010 tax return Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. How can i amend my 2010 tax return Merchandise you have shipped out on consignment is included in your inventory until it is sold. How can i amend my 2010 tax return   Do not include merchandise you receive on consignment in your inventory. How can i amend my 2010 tax return Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. How can i amend my 2010 tax return Construction allowances. How can i amend my 2010 tax return   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. How can i amend my 2010 tax return Under a short-term lease of retail space. How can i amend my 2010 tax return For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. How can i amend my 2010 tax return Amount you can exclude. How can i amend my 2010 tax return   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. How can i amend my 2010 tax return Short-term lease. How can i amend my 2010 tax return   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. How can i amend my 2010 tax return The following rules apply in determining whether the lease is for 15 years or less. How can i amend my 2010 tax return Take into account options to renew when figuring whether the lease is for 15 years or less. How can i amend my 2010 tax return But do not take into account any option to renew at fair market value determined at the time of renewal. How can i amend my 2010 tax return Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. How can i amend my 2010 tax return Retail space. How can i amend my 2010 tax return   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. How can i amend my 2010 tax return Qualified long-term real property. How can i amend my 2010 tax return   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. How can i amend my 2010 tax return Exchange of like-kind property. How can i amend my 2010 tax return   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. How can i amend my 2010 tax return This means that the gain is not taxable and the loss is not deductible. How can i amend my 2010 tax return A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. How can i amend my 2010 tax return For more information, see Form 8824. How can i amend my 2010 tax return Leasehold improvements. How can i amend my 2010 tax return   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. How can i amend my 2010 tax return However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. How can i amend my 2010 tax return Loans. How can i amend my 2010 tax return   Money borrowed through a bona fide loan is not income. How can i amend my 2010 tax return Sales tax. How can i amend my 2010 tax return   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. How can i amend my 2010 tax return Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). How can i amend my 2010 tax return Direct seller. How can i amend my 2010 tax return   You must report all income you receive as a direct seller on Schedule C or C-EZ. How can i amend my 2010 tax return This includes any of the following. How can i amend my 2010 tax return Income from sales—payments you receive from customers for products they buy from you. How can i amend my 2010 tax return Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. How can i amend my 2010 tax return Prizes, awards, and gifts you receive from your selling business. How can i amend my 2010 tax return You must report this income regardless of whether it is reported to you on an information return. How can i amend my 2010 tax return   You are a direct seller if you meet all the following conditions. How can i amend my 2010 tax return You are engaged in one of the following trades or businesses. How can i amend my 2010 tax return Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. How can i amend my 2010 tax return Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). How can i amend my 2010 tax return Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. How can i amend my 2010 tax return Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. How can i amend my 2010 tax return Executor or administrator. How can i amend my 2010 tax return   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. How can i amend my 2010 tax return A nonprofessional fiduciary (personal representative) and both of the following apply. How can i amend my 2010 tax return The estate includes an active trade or business in which you actively participate. How can i amend my 2010 tax return Your fees are related to the operation of that trade or business. How can i amend my 2010 tax return A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. How can i amend my 2010 tax return    If the fees do not meet the above requirements, report them on line 21 of Form 1040. How can i amend my 2010 tax return Fishing crew member. How can i amend my 2010 tax return    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . How can i amend my 2010 tax return Insurance agent, former. How can i amend my 2010 tax return   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. How can i amend my 2010 tax return You received payments after your agreement to perform services for the company ended. How can i amend my 2010 tax return You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. How can i amend my 2010 tax return You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. How can i amend my 2010 tax return The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. How can i amend my 2010 tax return The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). How can i amend my 2010 tax return Insurance agent, retired. How can i amend my 2010 tax return   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. How can i amend my 2010 tax return Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. How can i amend my 2010 tax return   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. How can i amend my 2010 tax return Newspaper carrier or distributor. How can i amend my 2010 tax return   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. How can i amend my 2010 tax return You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). How can i amend my 2010 tax return Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. How can i amend my 2010 tax return You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. How can i amend my 2010 tax return   This rule applies whether or not you hire others to help you make deliveries. How can i amend my 2010 tax return It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. How can i amend my 2010 tax return Newspaper or magazine vendor. How can i amend my 2010 tax return   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. How can i amend my 2010 tax return You sell newspapers or magazines to ultimate consumers. How can i amend my 2010 tax return You sell them at a fixed price. How can i amend my 2010 tax return Your earnings are based on the difference between the sales price and your cost of goods sold. How can i amend my 2010 tax return   This rule applies whether or not you are guaranteed a minimum amount of earnings. How can i amend my 2010 tax return It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. How can i amend my 2010 tax return Notary public. How can i amend my 2010 tax return   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. How can i amend my 2010 tax return These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). How can i amend my 2010 tax return Public official. How can i amend my 2010 tax return   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. How can i amend my 2010 tax return This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. How can i amend my 2010 tax return Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. How can i amend my 2010 tax return   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. How can i amend my 2010 tax return Real estate agent or direct seller. How can i amend my 2010 tax return   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. How can i amend my 2010 tax return Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. How can i amend my 2010 tax return You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. How can i amend my 2010 tax return Securities dealer. How can i amend my 2010 tax return   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. How can i amend my 2010 tax return For more information, see sections 1256 and 1402(i). How can i amend my 2010 tax return Securities trader. How can i amend my 2010 tax return   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. How can i amend my 2010 tax return As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. How can i amend my 2010 tax return However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. How can i amend my 2010 tax return For more information about securities traders, see Publication 550, Investment Income and Expenses. How can i amend my 2010 tax return Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. How can i amend my 2010 tax return This section discusses some of the more common differences that may affect business transactions. How can i amend my 2010 tax return Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). How can i amend my 2010 tax return If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. How can i amend my 2010 tax return Dealers in real estate are not allowed to use inventories. How can i amend my 2010 tax return For more information on inventories, see chapter 2. How can i amend my 2010 tax return Income paid to a third party. How can i amend my 2010 tax return   All income you earn is taxable to you. How can i amend my 2010 tax return You cannot avoid tax by having the income paid to a third party. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return You rent out your property and the rental agreement directs the lessee to pay the rent to your son. How can i amend my 2010 tax return The amount paid to your son is gross income to you. How can i amend my 2010 tax return Cash discounts. How can i amend my 2010 tax return   These are amounts the seller permits you to deduct from the invoice price for prompt payment. How can i amend my 2010 tax return For income tax purposes, you can use either of the following two methods to account for cash discounts. How can i amend my 2010 tax return Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). How can i amend my 2010 tax return Credit the cash discount to a discount income account. How can i amend my 2010 tax return You must use the chosen method every year for all your purchase discounts. How can i amend my 2010 tax return   If you use the second method, the credit balance in the account at the end of your tax year is business income. How can i amend my 2010 tax return Under this method, you do not reduce the cost of goods sold by the cash discounts you received. How can i amend my 2010 tax return When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. How can i amend my 2010 tax return Trade discounts. How can i amend my 2010 tax return   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. How can i amend my 2010 tax return Do not enter these discounts on your books of account. How can i amend my 2010 tax return Instead, use only the net amount as the cost of the merchandise purchased. How can i amend my 2010 tax return For more information, see Trade discounts in chapter 6. How can i amend my 2010 tax return Payment placed in escrow. How can i amend my 2010 tax return   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. How can i amend my 2010 tax return However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. How can i amend my 2010 tax return Sales returns and allowances. How can i amend my 2010 tax return   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. How can i amend my 2010 tax return Advance payments. How can i amend my 2010 tax return   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. How can i amend my 2010 tax return Insurance proceeds. How can i amend my 2010 tax return   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. How can i amend my 2010 tax return You cannot deduct the reimbursed part of a casualty or theft loss. How can i amend my 2010 tax return   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. How can i amend my 2010 tax return Prev  Up  Next   Home   More Online Publications
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The How Can I Amend My 2010 Tax Return

How can i amend my 2010 tax return 1. How can i amend my 2010 tax return   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. How can i amend my 2010 tax return It is an allowance for the wear and tear, deterioration, or obsolescence of the property. How can i amend my 2010 tax return This chapter discusses the general rules for depreciating property and answers the following questions. How can i amend my 2010 tax return What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. How can i amend my 2010 tax return What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. How can i amend my 2010 tax return You also can depreciate certain intangible property, such as patents, copyrights, and computer software. How can i amend my 2010 tax return To be depreciable, the property must meet all the following requirements. How can i amend my 2010 tax return It must be property you own. How can i amend my 2010 tax return It must be used in your business or income-producing activity. How can i amend my 2010 tax return It must have a determinable useful life. How can i amend my 2010 tax return It must be expected to last more than one year. How can i amend my 2010 tax return The following discussions provide information about these requirements. How can i amend my 2010 tax return Property You Own To claim depreciation, you usually must be the owner of the property. How can i amend my 2010 tax return You are considered as owning property even if it is subject to a debt. How can i amend my 2010 tax return Example 1. How can i amend my 2010 tax return You made a down payment to purchase rental property and assumed the previous owner's mortgage. How can i amend my 2010 tax return You own the property and you can depreciate it. How can i amend my 2010 tax return Example 2. How can i amend my 2010 tax return You bought a new van that you will use only for your courier business. How can i amend my 2010 tax return You will be making payments on the van over the next 5 years. How can i amend my 2010 tax return You own the van and you can depreciate it. How can i amend my 2010 tax return Leased property. How can i amend my 2010 tax return   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). How can i amend my 2010 tax return This means you bear the burden of exhaustion of the capital investment in the property. How can i amend my 2010 tax return Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. How can i amend my 2010 tax return You can, however, depreciate any capital improvements you make to the property. How can i amend my 2010 tax return See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. How can i amend my 2010 tax return   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. How can i amend my 2010 tax return However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. How can i amend my 2010 tax return Incidents of ownership. How can i amend my 2010 tax return   Incidents of ownership in property include the following. How can i amend my 2010 tax return The legal title to the property. How can i amend my 2010 tax return The legal obligation to pay for the property. How can i amend my 2010 tax return The responsibility to pay maintenance and operating expenses. How can i amend my 2010 tax return The duty to pay any taxes on the property. How can i amend my 2010 tax return The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. How can i amend my 2010 tax return Life tenant. How can i amend my 2010 tax return   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. How can i amend my 2010 tax return However, see Certain term interests in property under Excepted Property, later. How can i amend my 2010 tax return Cooperative apartments. How can i amend my 2010 tax return   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. How can i amend my 2010 tax return   Figure your depreciation deduction as follows. How can i amend my 2010 tax return Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. How can i amend my 2010 tax return If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. How can i amend my 2010 tax return Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. How can i amend my 2010 tax return Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. How can i amend my 2010 tax return Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. How can i amend my 2010 tax return Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. How can i amend my 2010 tax return Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. How can i amend my 2010 tax return Multiply the result of (2) by the percentage you figured in (3). How can i amend my 2010 tax return This is your depreciation on the stock. How can i amend my 2010 tax return   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. How can i amend my 2010 tax return You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return You figure your share of the cooperative housing corporation's depreciation to be $30,000. How can i amend my 2010 tax return Your adjusted basis in the stock of the corporation is $50,000. How can i amend my 2010 tax return You use one half of your apartment solely for business purposes. How can i amend my 2010 tax return Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). How can i amend my 2010 tax return Change to business use. How can i amend my 2010 tax return   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. How can i amend my 2010 tax return The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. How can i amend my 2010 tax return The fair market value of the property on the date you change your apartment to business use. How can i amend my 2010 tax return This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. How can i amend my 2010 tax return The corporation's adjusted basis in the property on that date. How can i amend my 2010 tax return Do not subtract depreciation when figuring the corporation's adjusted basis. How can i amend my 2010 tax return   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. How can i amend my 2010 tax return The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. How can i amend my 2010 tax return   For a discussion of fair market value and adjusted basis, see Publication 551. How can i amend my 2010 tax return Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. How can i amend my 2010 tax return If you use property to produce income (investment use), the income must be taxable. How can i amend my 2010 tax return You cannot depreciate property that you use solely for personal activities. How can i amend my 2010 tax return Partial business or investment use. How can i amend my 2010 tax return   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. How can i amend my 2010 tax return For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. How can i amend my 2010 tax return    You must keep records showing the business, investment, and personal use of your property. How can i amend my 2010 tax return For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. How can i amend my 2010 tax return    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. How can i amend my 2010 tax return For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. How can i amend my 2010 tax return Office in the home. How can i amend my 2010 tax return   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. How can i amend my 2010 tax return For information about depreciating your home office, see Publication 587. How can i amend my 2010 tax return Inventory. How can i amend my 2010 tax return   You cannot depreciate inventory because it is not held for use in your business. How can i amend my 2010 tax return Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. How can i amend my 2010 tax return   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. How can i amend my 2010 tax return See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. How can i amend my 2010 tax return   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. How can i amend my 2010 tax return If it is unclear, examine carefully all the facts in the operation of the particular business. How can i amend my 2010 tax return The following example shows how a careful examination of the facts in two similar situations results in different conclusions. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return Maple Corporation is in the business of leasing cars. How can i amend my 2010 tax return At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. How can i amend my 2010 tax return Maple does not have a showroom, used car lot, or individuals to sell the cars. How can i amend my 2010 tax return Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. How can i amend my 2010 tax return Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. How can i amend my 2010 tax return If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. How can i amend my 2010 tax return In this situation, the cars are held primarily for sale to customers in the ordinary course of business. How can i amend my 2010 tax return Containers. How can i amend my 2010 tax return   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. How can i amend my 2010 tax return However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. How can i amend my 2010 tax return They qualify as property used in your business. How can i amend my 2010 tax return Title to the containers does not pass to the buyer. How can i amend my 2010 tax return   To determine if these requirements are met, consider the following questions. How can i amend my 2010 tax return Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. How can i amend my 2010 tax return This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. How can i amend my 2010 tax return Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return You maintain a library for use in your profession. How can i amend my 2010 tax return You can depreciate it. How can i amend my 2010 tax return However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. How can i amend my 2010 tax return Instead, you deduct their cost as a business expense. How can i amend my 2010 tax return What Property Cannot Be Depreciated? Certain property cannot be depreciated. How can i amend my 2010 tax return This includes land and certain excepted property. How can i amend my 2010 tax return Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. How can i amend my 2010 tax return The cost of land generally includes the cost of clearing, grading, planting, and landscaping. How can i amend my 2010 tax return Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. How can i amend my 2010 tax return These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. How can i amend my 2010 tax return Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. How can i amend my 2010 tax return If you replace the building, you would have to destroy the bushes and trees right next to it. How can i amend my 2010 tax return These bushes and trees are closely associated with the building, so they have a determinable useful life. How can i amend my 2010 tax return Therefore, you can depreciate them. How can i amend my 2010 tax return Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. How can i amend my 2010 tax return Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. How can i amend my 2010 tax return Property placed in service and disposed of in the same year. How can i amend my 2010 tax return Determining when property is placed in service is explained later. How can i amend my 2010 tax return Equipment used to build capital improvements. How can i amend my 2010 tax return You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. How can i amend my 2010 tax return See Uniform Capitalization Rules in Publication 551. How can i amend my 2010 tax return Section 197 intangibles. How can i amend my 2010 tax return You must amortize these costs. How can i amend my 2010 tax return Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. How can i amend my 2010 tax return Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. How can i amend my 2010 tax return See Intangible Property , later. How can i amend my 2010 tax return Certain term interests. How can i amend my 2010 tax return Certain term interests in property. How can i amend my 2010 tax return   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. How can i amend my 2010 tax return A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. How can i amend my 2010 tax return Related persons. How can i amend my 2010 tax return   For a description of related persons, see Related Persons, later. How can i amend my 2010 tax return For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. How can i amend my 2010 tax return Basis adjustments. How can i amend my 2010 tax return   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. How can i amend my 2010 tax return   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. How can i amend my 2010 tax return However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. How can i amend my 2010 tax return The term interest is held by an organization exempt from tax. How can i amend my 2010 tax return The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. How can i amend my 2010 tax return Exceptions. How can i amend my 2010 tax return   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. How can i amend my 2010 tax return They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. How can i amend my 2010 tax return When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. How can i amend my 2010 tax return You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. How can i amend my 2010 tax return Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. How can i amend my 2010 tax return Even if you are not using the property, it is in service when it is ready and available for its specific use. How can i amend my 2010 tax return Example 1. How can i amend my 2010 tax return Donald Steep bought a machine for his business. How can i amend my 2010 tax return The machine was delivered last year. How can i amend my 2010 tax return However, it was not installed and operational until this year. How can i amend my 2010 tax return It is considered placed in service this year. How can i amend my 2010 tax return If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. How can i amend my 2010 tax return Example 2. How can i amend my 2010 tax return On April 6, Sue Thorn bought a house to use as residential rental property. How can i amend my 2010 tax return She made several repairs and had it ready for rent on July 5. How can i amend my 2010 tax return At that time, she began to advertise it for rent in the local newspaper. How can i amend my 2010 tax return The house is considered placed in service in July when it was ready and available for rent. How can i amend my 2010 tax return She can begin to depreciate it in July. How can i amend my 2010 tax return Example 3. How can i amend my 2010 tax return James Elm is a building contractor who specializes in constructing office buildings. How can i amend my 2010 tax return He bought a truck last year that had to be modified to lift materials to second-story levels. How can i amend my 2010 tax return The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. How can i amend my 2010 tax return The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. How can i amend my 2010 tax return Conversion to business use. How can i amend my 2010 tax return   If you place property in service in a personal activity, you cannot claim depreciation. How can i amend my 2010 tax return However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. How can i amend my 2010 tax return You place the property in service in the business or income-producing activity on the date of the change. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return You bought a home and used it as your personal home several years before you converted it to rental property. How can i amend my 2010 tax return Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. How can i amend my 2010 tax return You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. How can i amend my 2010 tax return Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). How can i amend my 2010 tax return For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. How can i amend my 2010 tax return Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. How can i amend my 2010 tax return You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. How can i amend my 2010 tax return See What Is the Basis of Your Depreciable Property , later. How can i amend my 2010 tax return Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. How can i amend my 2010 tax return You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. How can i amend my 2010 tax return You sell or exchange the property. How can i amend my 2010 tax return You convert the property to personal use. How can i amend my 2010 tax return You abandon the property. How can i amend my 2010 tax return You transfer the property to a supplies or scrap account. How can i amend my 2010 tax return The property is destroyed. How can i amend my 2010 tax return If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. How can i amend my 2010 tax return What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. How can i amend my 2010 tax return MACRS is discussed in chapter 4. How can i amend my 2010 tax return You cannot use MACRS to depreciate the following property. How can i amend my 2010 tax return Property you placed in service before 1987. How can i amend my 2010 tax return Certain property owned or used in 1986. How can i amend my 2010 tax return Intangible property. How can i amend my 2010 tax return Films, video tapes, and recordings. How can i amend my 2010 tax return Certain corporate or partnership property acquired in a nontaxable transfer. How can i amend my 2010 tax return Property you elected to exclude from MACRS. How can i amend my 2010 tax return The following discussions describe the property listed above and explain what depreciation method should be used. How can i amend my 2010 tax return Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). How can i amend my 2010 tax return Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. How can i amend my 2010 tax return For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. How can i amend my 2010 tax return Use of real property changed. How can i amend my 2010 tax return   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. How can i amend my 2010 tax return Improvements made after 1986. How can i amend my 2010 tax return   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. How can i amend my 2010 tax return Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. How can i amend my 2010 tax return For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. How can i amend my 2010 tax return Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. How can i amend my 2010 tax return If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. How can i amend my 2010 tax return For the following discussions, do not treat property as owned before you placed it in service. How can i amend my 2010 tax return If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. How can i amend my 2010 tax return Personal property. How can i amend my 2010 tax return   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. How can i amend my 2010 tax return You or someone related to you owned or used the property in 1986. How can i amend my 2010 tax return You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. How can i amend my 2010 tax return You lease the property to a person (or someone related to this person) who owned or used the property in 1986. How can i amend my 2010 tax return You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. How can i amend my 2010 tax return Real property. How can i amend my 2010 tax return   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. How can i amend my 2010 tax return You or someone related to you owned the property in 1986. How can i amend my 2010 tax return You lease the property to a person who owned the property in 1986 (or someone related to that person). How can i amend my 2010 tax return You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. How can i amend my 2010 tax return MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. How can i amend my 2010 tax return It does not apply to the carried-over part of the basis. How can i amend my 2010 tax return Exceptions. How can i amend my 2010 tax return   The rules above do not apply to the following. How can i amend my 2010 tax return Residential rental property or nonresidential real property. How can i amend my 2010 tax return Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. How can i amend my 2010 tax return For information on how to figure depreciation under ACRS, see Publication 534. How can i amend my 2010 tax return Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. How can i amend my 2010 tax return Related persons. How can i amend my 2010 tax return   For this purpose, the following are related persons. How can i amend my 2010 tax return 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. How can i amend my 2010 tax return A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. How can i amend my 2010 tax return Two corporations that are members of the same controlled group. How can i amend my 2010 tax return A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. How can i amend my 2010 tax return The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. How can i amend my 2010 tax return 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. How can i amend my 2010 tax return 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. How can i amend my 2010 tax return Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. How can i amend my 2010 tax return A corporation and a partnership if the same persons own both of the following. How can i amend my 2010 tax return More than 10% of the value of the outstanding stock of the corporation. How can i amend my 2010 tax return More than 10% of the capital or profits interest in the partnership. How can i amend my 2010 tax return The executor and beneficiary of any estate. How can i amend my 2010 tax return A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. How can i amend my 2010 tax return Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. How can i amend my 2010 tax return The related person and a person who is engaged in trades or businesses under common control. How can i amend my 2010 tax return See section 52(a) and 52(b) of the Internal Revenue Code. How can i amend my 2010 tax return When to determine relationship. How can i amend my 2010 tax return   You must determine whether you are related to another person at the time you acquire the property. How can i amend my 2010 tax return   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. How can i amend my 2010 tax return For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. How can i amend my 2010 tax return Constructive ownership of stock or partnership interest. How can i amend my 2010 tax return   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. How can i amend my 2010 tax return Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. How can i amend my 2010 tax return However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. How can i amend my 2010 tax return An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. How can i amend my 2010 tax return An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. How can i amend my 2010 tax return For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. How can i amend my 2010 tax return However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. How can i amend my 2010 tax return Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. How can i amend my 2010 tax return However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). How can i amend my 2010 tax return You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. How can i amend my 2010 tax return Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. How can i amend my 2010 tax return To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. How can i amend my 2010 tax return Subtract the salvage value, if any, from the adjusted basis. How can i amend my 2010 tax return The balance is the total depreciation you can take over the useful life of the property. How can i amend my 2010 tax return Divide the balance by the number of years in the useful life. How can i amend my 2010 tax return This gives you your yearly depreciation deduction. How can i amend my 2010 tax return Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. How can i amend my 2010 tax return If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return In April, Frank bought a patent for $5,100 that is not a section 197 intangible. How can i amend my 2010 tax return He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. How can i amend my 2010 tax return He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. How can i amend my 2010 tax return He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. How can i amend my 2010 tax return Next year, Frank can deduct $300 for the full year. How can i amend my 2010 tax return Patents and copyrights. How can i amend my 2010 tax return   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. How can i amend my 2010 tax return The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. How can i amend my 2010 tax return However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. How can i amend my 2010 tax return Computer software. How can i amend my 2010 tax return   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. How can i amend my 2010 tax return   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. How can i amend my 2010 tax return It is readily available for purchase by the general public. How can i amend my 2010 tax return It is subject to a nonexclusive license. How can i amend my 2010 tax return It has not been substantially modified. How can i amend my 2010 tax return   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. How can i amend my 2010 tax return If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. How can i amend my 2010 tax return    Tax-exempt use property subject to a lease. How can i amend my 2010 tax return   The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. How can i amend my 2010 tax return Certain created intangibles. How can i amend my 2010 tax return   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. How can i amend my 2010 tax return For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. How can i amend my 2010 tax return   The following are not eligible. How can i amend my 2010 tax return Any intangible asset acquired from another person. How can i amend my 2010 tax return Created financial interests. How can i amend my 2010 tax return Any intangible asset that has a useful life that can be estimated with reasonable accuracy. How can i amend my 2010 tax return Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. How can i amend my 2010 tax return Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. How can i amend my 2010 tax return   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. How can i amend my 2010 tax return For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. How can i amend my 2010 tax return Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. How can i amend my 2010 tax return Motion picture films or video tapes. How can i amend my 2010 tax return Sound recordings. How can i amend my 2010 tax return Copyrights. How can i amend my 2010 tax return Books. How can i amend my 2010 tax return Patents. How can i amend my 2010 tax return Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. How can i amend my 2010 tax return The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. How can i amend my 2010 tax return For more information, see section 167(g) of the Internal Revenue Code. How can i amend my 2010 tax return Films, video tapes, and recordings. How can i amend my 2010 tax return   You cannot use MACRS for motion picture films, video tapes, and sound recordings. How can i amend my 2010 tax return For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. How can i amend my 2010 tax return You can depreciate this property using either the straight line method or the income forecast method. How can i amend my 2010 tax return Participations and residuals. How can i amend my 2010 tax return   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. How can i amend my 2010 tax return The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. How can i amend my 2010 tax return For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. How can i amend my 2010 tax return   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. How can i amend my 2010 tax return Videocassettes. How can i amend my 2010 tax return   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. How can i amend my 2010 tax return If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. How can i amend my 2010 tax return Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. How can i amend my 2010 tax return You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. How can i amend my 2010 tax return However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. How can i amend my 2010 tax return The nontaxable transfers covered by this rule include the following. How can i amend my 2010 tax return A distribution in complete liquidation of a subsidiary. How can i amend my 2010 tax return A transfer to a corporation controlled by the transferor. How can i amend my 2010 tax return An exchange of property solely for corporate stock or securities in a reorganization. How can i amend my 2010 tax return A contribution of property to a partnership in exchange for a partnership interest. How can i amend my 2010 tax return A partnership distribution of property to a partner. How can i amend my 2010 tax return Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. How can i amend my 2010 tax return You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. How can i amend my 2010 tax return You must make this election by the return due date (including extensions) for the tax year you place your property in service. How can i amend my 2010 tax return However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). How can i amend my 2010 tax return Attach the election to the amended return and write “Filed pursuant to section 301. How can i amend my 2010 tax return 9100-2” on the election statement. How can i amend my 2010 tax return File the amended return at the same address you filed the original return. How can i amend my 2010 tax return Use of standard mileage rate. How can i amend my 2010 tax return   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. How can i amend my 2010 tax return See Publication 463 for a discussion of the standard mileage rate. How can i amend my 2010 tax return What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. How can i amend my 2010 tax return To determine basis, you need to know the cost or other basis of your property. How can i amend my 2010 tax return Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. How can i amend my 2010 tax return The cost includes the amount you pay in cash, debt obligations, other property, or services. How can i amend my 2010 tax return Exception. How can i amend my 2010 tax return   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). How can i amend my 2010 tax return If you make that choice, you cannot include those sales taxes as part of your cost basis. How can i amend my 2010 tax return Assumed debt. How can i amend my 2010 tax return   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. How can i amend my 2010 tax return Your total cost is $140,000, the cash you paid plus the mortgage you assumed. How can i amend my 2010 tax return Settlement costs. How can i amend my 2010 tax return   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. How can i amend my 2010 tax return These generally are shown on your settlement statement and include the following. How can i amend my 2010 tax return Legal and recording fees. How can i amend my 2010 tax return Abstract fees. How can i amend my 2010 tax return Survey charges. How can i amend my 2010 tax return Owner's title insurance. How can i amend my 2010 tax return Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. How can i amend my 2010 tax return   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. How can i amend my 2010 tax return Property you construct or build. How can i amend my 2010 tax return   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. How can i amend my 2010 tax return For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. How can i amend my 2010 tax return Other Basis Other basis usually refers to basis that is determined by the way you received the property. How can i amend my 2010 tax return For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. How can i amend my 2010 tax return If you acquired property in this or some other way, see Publication 551 to determine your basis. How can i amend my 2010 tax return Property changed from personal use. How can i amend my 2010 tax return   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. How can i amend my 2010 tax return The fair market value (FMV) of the property on the date of the change in use. How can i amend my 2010 tax return Your original cost or other basis adjusted as follows. How can i amend my 2010 tax return Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. How can i amend my 2010 tax return Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. How can i amend my 2010 tax return Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. How can i amend my 2010 tax return Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. How can i amend my 2010 tax return Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). How can i amend my 2010 tax return On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. How can i amend my 2010 tax return The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). How can i amend my 2010 tax return Property acquired in a nontaxable transaction. How can i amend my 2010 tax return   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. How can i amend my 2010 tax return Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. How can i amend my 2010 tax return See Like-kind exchanges and involuntary conversions. How can i amend my 2010 tax return under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. How can i amend my 2010 tax return   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. How can i amend my 2010 tax return See How Do You Use General Asset Accounts in chapter 4. How can i amend my 2010 tax return Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. How can i amend my 2010 tax return These events could include the following. How can i amend my 2010 tax return Installing utility lines. How can i amend my 2010 tax return Paying legal fees for perfecting the title. How can i amend my 2010 tax return Settling zoning issues. How can i amend my 2010 tax return Receiving rebates. How can i amend my 2010 tax return Incurring a casualty or theft loss. How can i amend my 2010 tax return For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. How can i amend my 2010 tax return If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. How can i amend my 2010 tax return For more information, see What Is the Basis for Depreciation in chapter 4. How can i amend my 2010 tax return . How can i amend my 2010 tax return Basis adjustment for depreciation allowed or allowable. How can i amend my 2010 tax return   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. How can i amend my 2010 tax return Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). How can i amend my 2010 tax return Depreciation allowable is depreciation you are entitled to deduct. How can i amend my 2010 tax return   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. How can i amend my 2010 tax return   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). How can i amend my 2010 tax return How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. How can i amend my 2010 tax return Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. How can i amend my 2010 tax return You generally deduct the cost of repairing business property in the same way as any other business expense. How can i amend my 2010 tax return However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. How can i amend my 2010 tax return Example. How can i amend my 2010 tax return You repair a small section on one corner of the roof of a rental house. How can i amend my 2010 tax return You deduct the cost of the repair as a rental expense. How can i amend my 2010 tax return However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. How can i amend my 2010 tax return You depreciate the cost of the new roof. How can i amend my 2010 tax return Improvements to rented property. How can i amend my 2010 tax return   You can depreciate permanent improvements you make to business property you rent from someone else. How can i amend my 2010 tax return Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. How can i amend my 2010 tax return Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. How can i amend my 2010 tax return A section 179 deduction for the current year or a section 179 carryover from a prior year. How can i amend my 2010 tax return See chapter 2 for information on the section 179 deduction. How can i amend my 2010 tax return Depreciation for property placed in service during the current year. How can i amend my 2010 tax return Depreciation on any vehicle or other listed property, regardless of when it was placed in service. How can i amend my 2010 tax return See chapter 5 for information on listed property. How can i amend my 2010 tax return A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). How can i amend my 2010 tax return Amortization of costs if the current year is the first year of the amortization period. How can i amend my 2010 tax return Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. How can i amend my 2010 tax return S. How can i amend my 2010 tax return Income Tax Return for an S Corporation) regardless of when it was placed in service. How can i amend my 2010 tax return You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. How can i amend my 2010 tax return Table 1-1 presents an overview of the purpose of the various parts of Form 4562. How can i amend my 2010 tax return Employee. How can i amend my 2010 tax return   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. How can i amend my 2010 tax return Instead, use either Form 2106 or Form 2106-EZ. How can i amend my 2010 tax return Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. How can i amend my 2010 tax return How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. How can i amend my 2010 tax return See Filing an Amended Return , next. How can i amend my 2010 tax return If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. How can i amend my 2010 tax return See Changing Your Accounting Method , later. How can i amend my 2010 tax return Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. How can i amend my 2010 tax return You claimed the incorrect amount because of a mathematical error made in any year. How can i amend my 2010 tax return You claimed the incorrect amount because of a posting error made in any year. How can i amend my 2010 tax return You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. How can i amend my 2010 tax return You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. How can i amend my 2010 tax return Adoption of accounting method defined. How can i amend my 2010 tax return   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. How can i amend my 2010 tax return   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. How can i amend my 2010 tax return irs. How can i amend my 2010 tax return gov/pub/irs-irbs/irb11-04. How can i amend my 2010 tax return pdf. How can i amend my 2010 tax return (Note. How can i amend my 2010 tax return Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. How can i amend my 2010 tax return For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. How can i amend my 2010 tax return irs. How can i amend my 2010 tax return gov/pub/irs-irbs/irb12-14. How can i amend my 2010 tax return pdf. How can i amend my 2010 tax return )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. How can i amend my 2010 tax return irs. How can i amend my 2010 tax return gov/pub/irs-irbs/irb07-29. How can i amend my 2010 tax return pdf. How can i amend my 2010 tax return When to file. How can i amend my 2010 tax return   If an amended return is allowed, you must file it by the later of the following. How can i amend my 2010 tax return 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. How can i amend my 2010 tax return A return filed before an unextended due date is considered filed on that due date. How can i amend my 2010 tax return 2 years from the time you paid your tax for that year. How can i amend my 2010 tax return Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. How can i amend my 2010 tax return You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. How can i amend my 2010 tax return The following are examples of a change in method of accounting for depreciation. How can i amend my 2010 tax return A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. How can i amend my 2010 tax return A change in the treatment of an asset from nondepreciable to depreciable or vice versa. How can i amend my 2010 tax return A change in the depreciation method, period of recovery, or convention of a depreciable asset. How can i amend my 2010 tax return A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. How can i amend my 2010 tax return A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). How can i amend my 2010 tax return Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. How can i amend my 2010 tax return An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. How can i amend my 2010 tax return A change in use of an asset in the hands of the same taxpayer. How can i amend my 2010 tax return Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). How can i amend my 2010 tax return If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. How can i amend my 2010 tax return Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. How can i amend my 2010 tax return You must submit a request for a letter ruling to make a late election or revoke an election. How can i amend my 2010 tax return Any change in the placed in service date of a depreciable asset. How can i amend my 2010 tax return See section 1. How can i amend my 2010 tax return 446-1(e)(2)(ii)(d) of the regulations for more information and examples. How can i amend my 2010 tax return IRS approval. How can i amend my 2010 tax return   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. How can i amend my 2010 tax return If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. How can i amend my 2010 tax return B. How can i amend my 2010 tax return 680. How can i amend my 2010 tax return Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. How can i amend my 2010 tax return Additional guidance. How can i amend my 2010 tax return    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. How can i amend my 2010 tax return irs. How can i amend my 2010 tax return gov/pub/irs-irbs/irb11-04. How can i amend my 2010 tax return pdf. How can i amend my 2010 tax return (Note. How can i amend my 2010 tax return Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. How can i amend my 2010 tax return For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. How can i amend my 2010 tax return irs. How can i amend my 2010 tax return gov/pub/irs-irbs/irb12-14. How can i amend my 2010 tax return pdf. How can i amend my 2010 tax return )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. How can i amend my 2010 tax return irs. How can i amend my 2010 tax return gov/pub/irs-irbs/irb07-29. How can i amend my 2010 tax return pdf. How can i amend my 2010 tax return Table 1-1. How can i amend my 2010 tax return Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. How can i amend my 2010 tax return For more information, see Form 4562 and its instructions. How can i amend my 2010 tax return Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. How can i amend my 2010 tax return   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. How can i amend my 2010 tax return The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. How can i amend my 2010 tax return If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. How can i amend my 2010 tax return A negative section 481(a) adjustment results in a decrease in taxable income. How can i amend my 2010 tax return It is taken into account in the year of change and is reported on your business tax returns as “other expenses. How can i amend my 2010 tax return ” A positive section 481(a) adjustment results in an increase in taxable income. How can i amend my 2010 tax return It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. How can i amend my 2010 tax return ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. How can i amend my 2010 tax return Make the election by completing the appropriate line on Form 3115. How can i amend my 2010 tax return   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. How can i amend my 2010 tax return Prev  Up  Next   Home   More Online Publications