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Irs E File 2013

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Irs E File 2013

Irs e file 2013 6. Irs e file 2013   Retail Tax on Heavy Trucks, Trailers, and Tractors Table of Contents Highway vehicle. Irs e file 2013 Vehicles not considered highway vehicles. Irs e file 2013 Idling reduction device. Irs e file 2013 Separate purchase. Irs e file 2013 Leases. Irs e file 2013 Exported vehicle. Irs e file 2013 Tax on resale of tax-paid trailers and semitrailers. Irs e file 2013 Use treated as sale. Irs e file 2013 Sale. Irs e file 2013 Long-term lease. Irs e file 2013 Short-term lease. Irs e file 2013 Related person. Irs e file 2013 Exclusions from tax base. Irs e file 2013 Sales not at arm's length. Irs e file 2013 Installment sales. Irs e file 2013 Repairs and modifications. Irs e file 2013 Further manufacture. Irs e file 2013 Rail trailers and rail vans. Irs e file 2013 Parts and accessories. Irs e file 2013 Trash containers. Irs e file 2013 House trailers. Irs e file 2013 Camper coaches or bodies for self-propelled mobile homes. Irs e file 2013 Farm feed, seed, and fertilizer equipment. Irs e file 2013 Ambulances and hearses. Irs e file 2013 Truck-tractors. Irs e file 2013 Concrete mixers. Irs e file 2013 Registration requirement. Irs e file 2013 Further manufacture. Irs e file 2013 A tax of 12% of the sales price is imposed on the first retail sale of the following articles, including related parts and accessories sold on or in connection with, or with the sale of, the articles. Irs e file 2013 Truck chassis and bodies. Irs e file 2013 Truck trailer and semitrailer chassis and bodies. Irs e file 2013 Tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. Irs e file 2013 A truck is a highway vehicle primarily designed to transport its load on the same chassis as the engine, even if it is equipped to tow a vehicle, such as a trailer or semitrailer. Irs e file 2013 A tractor is a highway vehicle designed to tow a vehicle, such as a trailer or semitrailer. Irs e file 2013 A tractor may carry incidental items of cargo when towing or limited amounts of cargo when not towing. Irs e file 2013 A sale of a truck, truck trailer, or semitrailer is considered a sale of a chassis and a body. Irs e file 2013 The seller is liable for the tax. Irs e file 2013 Chassis or body. Irs e file 2013   A chassis or body is taxable only if you sell it for use as a component part of a highway vehicle that is a truck, truck trailer or semitrailer, or a tractor of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. Irs e file 2013 Highway vehicle. Irs e file 2013   A highway vehicle is any self-propelled vehicle designed to carry a load over public highways, whether or not it is also designed to perform other functions. Irs e file 2013 Examples of vehicles designed to carry a load over public highways are passenger automobiles, motorcycles, buses, and highway-type trucks and truck tractors. Irs e file 2013 A vehicle is a highway vehicle even though the vehicle's design allows it to perform a highway transportation function for only one of the following. Irs e file 2013 A particular type of load, such as passengers, furnishings, and personal effects (as in a house, office, or utility trailer). Irs e file 2013 A special kind of cargo, goods, supplies, or materials. Irs e file 2013 Some off-highway task unrelated to highway transportation, except as discussed next. Irs e file 2013 Vehicles not considered highway vehicles. Irs e file 2013   Generally, the following kinds of vehicles are not considered highway vehicles for purposes of the retail tax. Irs e file 2013 Specially designed mobile machinery for nontransportation functions. Irs e file 2013 A self-propelled vehicle is not a highway vehicle if all the following apply. Irs e file 2013 The chassis has permanently mounted to it machinery or equipment used to perform certain operations (construction, manufacturing, drilling, mining, timbering, processing, farming, or similar operations) if the operation of the machinery or equipment is unrelated to transportation on or off the public highways. Irs e file 2013 The chassis has been specially designed to serve only as a mobile carriage and mount (and power source, if applicable) for the machinery or equipment, whether or not the machinery or equipment is in operation. Irs e file 2013 The chassis could not, because of its special design and without substantial structural modification, be used as part of a vehicle designed to carry any other load. Irs e file 2013 Vehicles specially designed for off-highway transportation. Irs e file 2013 A vehicle is not treated as a highway vehicle if the vehicle is specially designed for the primary function of transporting a particular type of load other than over the public highway and because of this special design, the vehicles's capability to transport a load over a public highway is substantially limited or impaired. Irs e file 2013 To make this determination, you can take into account the vehicle's size, whether the vehicle is subject to licensing, safety, or other requirements, and whether the vehicle can transport a load at a sustained speed of at least 25 miles per hour. Irs e file 2013 It does not matter that the vehicle can carry heavier loads off highway than it is allowed to carry over the highway. Irs e file 2013 Nontransportation trailers and semitrailers. Irs e file 2013 A trailer or semitrailer is not treated as a highway vehicle if it is specially designed to function only as an enclosed stationary shelter for carrying on a nontransportation function at an off-highway site. Irs e file 2013 For example, a trailer that is capable only of functioning as an office for an off-highway construction operation is not a highway vehicle. Irs e file 2013 Gross vehicle weight. Irs e file 2013   The tax does not apply to truck chassis and bodies suitable for use with a vehicle that has a gross vehicle weight (defined below) of 33,000 pounds or less. Irs e file 2013 It also does not apply to truck trailer and semitrailer chassis and bodies suitable for use with a trailer or semitrailer that has a gross vehicle weight of 26,000 pounds or less. Irs e file 2013 Tractors that have a gross vehicle weight of 19,500 pounds or less and a gross combined weight of 33,000 pounds or less are excluded from the 12% retail tax. Irs e file 2013   The following four classifications of truck body types meet the suitable for use standard and will be excluded from the retail excise tax. Irs e file 2013 Platform truck bodies 21 feet or less in length. Irs e file 2013 Dry freight and refrigerated truck van bodies 24 feet or less in length. Irs e file 2013 Dump truck bodies with load capacities of 8 cubic yards or less. Irs e file 2013 Refuse packer truck bodies with load capacities of 20 cubic yards or less. Irs e file 2013 For more information on these classifications, see Revenue Procedure 2005-19, which is on page 832 of I. Irs e file 2013 R. Irs e file 2013 B. Irs e file 2013 2005-14 at www. Irs e file 2013 irs. Irs e file 2013 gov/pub/irs-irbs/irb05-14. Irs e file 2013 pdf. Irs e file 2013   The gross vehicle weight means the maximum total weight of a loaded vehicle. Irs e file 2013 Generally, this maximum total weight is the gross vehicle weight rating provided by the manufacturer or determined by the seller of the completed article. Irs e file 2013 The seller's gross vehicle weight rating is determined solely on the basis of the strength of the chassis frame and the axle capacity and placement. Irs e file 2013 The seller may not take into account any readily attachable components (such as tires or rim assemblies) in determining the gross vehicle weight. Irs e file 2013 See Regulations section 145. Irs e file 2013 4051-1(e)(3) for more information. Irs e file 2013 Parts or accessories. Irs e file 2013   The tax applies to parts or accessories sold on or in connection with, or with the sale of, a taxable article. Irs e file 2013 For example, if at the time of the sale by the retailer, the part or accessory has been ordered from the retailer, the part or accessory will be considered as sold in connection with the sale of the vehicle. Irs e file 2013 The tax applies in this case whether or not the retailer bills the parts or accessories separately. Irs e file 2013   If the retailer sells a taxable chassis, body, or tractor without parts or accessories considered essential for the operation or appearance of the taxable article, the sale of the parts or accessories by the retailer to the purchaser is considered made in connection with the sale of the taxable article even though they are shipped separately, at the same time, or on a different date. Irs e file 2013 The tax applies unless there is evidence to the contrary. Irs e file 2013 For example, if a retailer sells to any person a chassis and the bumpers for the chassis, or sells a taxable tractor and the fifth wheel and attachments, the tax applies to the parts or accessories regardless of the method of billing or the time at which the shipments were made. Irs e file 2013 The tax does not apply to parts and accessories that are spares or replacements. Irs e file 2013   The tax imposed on parts and accessories sold on or in connection with the taxable articles listed earlier and the tax imposed on the separate purchase of parts and accessories (discussed next) for the taxable articles listed earlier do not apply to an idling reduction device or insulation that has an R value of at least R35 per inch. Irs e file 2013 Idling reduction device. Irs e file 2013   An idling reduction device is any device or system of devices that provide the tractor with services, such as heat, air conditioning, and electricity, without the use of the main drive engine while the tractor is temporarily parked or stationary. Irs e file 2013 The device must be affixed to the tractor and determined by the Administrator of the EPA, in consultation with the Secretary of Energy and Secretary of Transportation, to reduce idling while parked or stationary. Irs e file 2013 The EPA discusses idling reduction technologies on its website at www. Irs e file 2013 epa. Irs e file 2013 gov/smartway/technology/idling. Irs e file 2013 htm. Irs e file 2013 Separate purchase. Irs e file 2013   The tax generally applies to the price of a part or accessory and its installation if the following conditions are met. Irs e file 2013 The owner, lessee, or operator of any vehicle that contains a taxable article installs any part or accessory on the vehicle. Irs e file 2013 The installation occurs within 6 months after the vehicle is first placed in service. Irs e file 2013   The owners of the trade or business installing the parts or accessories are secondarily liable for the tax. Irs e file 2013   A vehicle is placed in service on the date the owner takes actual possession of the vehicle. Irs e file 2013 This date is established by a signed delivery ticket or other comparable document indicating delivery to and acceptance by the owner. Irs e file 2013   The tax does not apply if the installed part or accessory is a replacement part or accessory. Irs e file 2013 The tax also does not apply if the total price of the parts and accessories, including installation charges, during the 6-month period is $1,000 or less. Irs e file 2013 However, if the total price is more than $1,000, the tax applies to the cost of all parts and accessories (and installation charges) during that period. Irs e file 2013 Example. Irs e file 2013 You bought a taxable vehicle and placed it in service on April 8. Irs e file 2013 On May 3, you bought and installed parts and accessories at a cost of $850. Irs e file 2013 On July 15, you bought and installed parts and accessories for $300. Irs e file 2013 Tax of $138 (12% of $1,150) applies on July 15. Irs e file 2013 Also, tax will apply to any costs of additional parts and accessories installed on the vehicle before October 8. Irs e file 2013 First retail sale defined. Irs e file 2013   The sale of an article is treated as the first retail sale, and the seller will be liable for the tax imposed on the sale unless one of the following exceptions applies. Irs e file 2013 There has been a prior taxable sale, lease, or use of the article (however, see Tax on resale of tax-paid trailers and semitrailers, later). Irs e file 2013 The sale qualifies as a tax-free sale under section 4221 (see Sales exempt from tax, later). Irs e file 2013 The seller in good faith accepts from the purchaser a statement signed under penalties of perjury and executed in good faith that the purchaser intends to resell the article or lease it on a long-term basis. Irs e file 2013 There is no registration requirement. Irs e file 2013 Leases. Irs e file 2013   A long-term lease (a lease with a term of 1 year or more, taking into account options to renew) before a first retail sale is treated as a taxable sale. Irs e file 2013 The tax is imposed on the lessor at the time of the lease. Irs e file 2013   A short-term lease (a lease with a term of less than 1 year, taking into account options to renew) before a first retail sale is treated as a taxable use. Irs e file 2013 The tax is imposed on the lessor at the time of the lease. Irs e file 2013 Exported vehicle. Irs e file 2013   A vehicle exported before its first retail sale, used in a foreign country, and then returned to the United States is subject to the retail tax on its first domestic use or retail sale after importation. Irs e file 2013 Tax on resale of tax-paid trailers and semitrailers. Irs e file 2013   The tax applies to a trailer or semitrailer resold within 6 months after having been sold in a taxable sale. Irs e file 2013 The seller liable for the tax on the resale can claim a credit equal to the tax paid on the prior taxable sale. Irs e file 2013 The credit cannot exceed the tax on the resale. Irs e file 2013 See Regulations section 145. Irs e file 2013 4052-1(a)(4) for information on the conditions to allowance for the credit. Irs e file 2013 Use treated as sale. Irs e file 2013   If any person uses a taxable article before the first retail sale of the article, that person is liable for the tax as if the article had been sold at retail by that person. Irs e file 2013 Figure the tax on the price at which similar articles are sold in the ordinary course of trade by retailers. Irs e file 2013 The tax attaches when the use begins. Irs e file 2013   If the seller of an article regularly sells the articles at retail in arm's-length transactions, figure the tax on its use on the lowest established retail price for the articles in effect at the time of the taxable use. Irs e file 2013   If the seller of an article does not regularly sell the articles at retail in arm's-length transactions, a constructive price on which the tax is figured will be determined by the IRS after considering the selling practices and price structures of sellers of similar articles. Irs e file 2013   If a seller of an article incurs liability for tax on the use of the article and later sells or leases the article in a transaction that otherwise would be taxable, liability for tax is not incurred on the later sale or lease. Irs e file 2013 Presumptive retail sales price. Irs e file 2013   There are rules to ensure that the tax base of transactions considered to be taxable sales includes either an actual or presumed markup percentage. Irs e file 2013 If the person liable for tax is the vehicle's manufacturer, producer, or importer, the following discussions show how you figure the presumptive retail sales price depending on the type of transaction and the persons involved in the transaction. Irs e file 2013 Table 6-1 outlines the appropriate tax base calculation for various transactions. Irs e file 2013   The presumed markup percentage to be used for trucks and truck-tractors is 4%. Irs e file 2013 But for truck trailers and semitrailers and remanufactured trucks and tractors, the presumed markup percentage is zero. Irs e file 2013 Sale. Irs e file 2013   For a taxable sale by a manufacturer, producer, importer, or related person, you generally figure the tax on a tax base of the sales price plus an amount equal to the presumed markup percentage times that sales price. Irs e file 2013 Long-term lease. Irs e file 2013   In the case of a long-term lease by a manufacturer, producer, importer, or related person, figure the tax on a tax base of the constructive sales price plus an amount equal to the presumed markup percentage times the constructive sales price. Irs e file 2013 Short-term lease. Irs e file 2013   When a manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a constructive sales price at which those or similar articles generally are sold in the ordinary course of trade by retailers. Irs e file 2013   But if the lessor in this situation regularly sells articles at retail in arm's-length transactions, figure the tax on the lowest established retail price in effect at the time of the taxable use. Irs e file 2013   If a person other than the manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a tax base of the price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor and a presumed markup percentage. Irs e file 2013 Related person. Irs e file 2013   A related person is any member of the same controlled group as the manufacturer, producer, or importer. Irs e file 2013 Do not treat as a related person a person that sells the articles through a permanent retail establishment in the normal course of being a retailer if that person has records to prove the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. Irs e file 2013 Table 6-1. Irs e file 2013 Tax Base IF the transaction is a. Irs e file 2013 . Irs e file 2013 . Irs e file 2013 THEN figuring the base by using the. Irs e file 2013 . Irs e file 2013 . Irs e file 2013 Sale by the manufacturer, producer, importer, or related person Sales price plus (presumed markup percentage × sales price) Sale by the dealer Total consideration paid for the item including any charges incident to placing it in a condition ready for use Long-term lease by the manufacturer, producer, importer, or related person Constructive sales price plus (presumed markup percentage × constructive sales price) Short-term lease by the manufacturer, producer, importer, or related person Constructive sales price at which such or similar articles are sold Short-term lease by a lessor other than the manufacturer, producer, importer, or related person Price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor plus a presumed markup percentage Short-term lease where the articles are regularly sold at arm's length Lowest established retail price in effect at the time of the taxable use General rule for sales by dealers to the consumer. Irs e file 2013   For a taxable sale, other than a long-term lease, by a person other than a manufacturer, producer, importer, or related person, your tax base is the retail sales price as discussed next under Determination of tax base. Irs e file 2013   When you sell an article to the consumer, generally you do not add a presumed markup to the tax base. Irs e file 2013 However, you do add a markup if all the following apply. Irs e file 2013 You do not perform any significant activities relating to the processing of the sale of a taxable article. Irs e file 2013 The main reason for processing the sale through you is to avoid or evade the presumed markup. Irs e file 2013 You do not have records proving that the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. Irs e file 2013 In these situations, your tax base is the sales price plus an amount equal to the presumed markup percentage times that selling price. Irs e file 2013 Determination of tax base. Irs e file 2013   These rules apply to both normal retail sales price and presumptive retail sales price computations. Irs e file 2013 To arrive at the tax base, the price is the total consideration paid (including trade-in allowance) for the item and includes any charge incident to placing the article in a condition ready for use. Irs e file 2013 However, see Presumptive retail sales price, earlier. Irs e file 2013 Exclusions from tax base. Irs e file 2013   Exclude from the tax base the retail excise tax imposed on the sale. Irs e file 2013 Exclude any state or local retail sales tax if stated as a separate charge from the price whether the sales tax is imposed on the seller or purchaser. Irs e file 2013 Also exclude the value of any used component of the article furnished by the first user of the article. Irs e file 2013   Exclude charges for transportation, delivery, insurance, and installation (other than installation charges for parts and accessories, discussed earlier) and other expenses incurred in connection with the delivery of an article to a purchaser. Irs e file 2013 These expenses are those incurred in delivery from the retail dealer to the customer. Irs e file 2013 In the case of delivery directly from the manufacturer to the dealer's customer, include the transportation and delivery charges to the extent the charges do not exceed what it would have cost to ship the article to the dealer. Irs e file 2013   Exclude amounts charged for machinery or equipment that does not contribute to the highway transportation function of the vehicle, provided those charges are supported by adequate records. Irs e file 2013 For example, for an industrial vacuum loader vehicle, exclude amounts charged for the vacuum pump and hose, filter system, material separator, silencer or muffler, control cabinet, and ladder. Irs e file 2013 Similarly, for a sewer cleaning vehicle, exclude amounts charged for the high pressure water pump, hose components, and the vacuum pipe. Irs e file 2013 Sales not at arm's length. Irs e file 2013   For any taxable article sold (not at arm's length) at less than the fair market price, figure the excise tax on the price for which similar articles are sold at retail in the ordinary course of trade. Irs e file 2013   A sale is not at arm's length if either of the following apply. Irs e file 2013 One of the parties is controlled (in law or in fact) by the other or there is common control, whether or not the control is actually exercised to influence the sales price. Irs e file 2013 The sale is made under special arrangements between a seller and a purchaser. Irs e file 2013 Installment sales. Irs e file 2013   If the first retail sale is an installment sale, or other form of sale in which the sales price is paid in installments, tax liability arises at the time of the sale. Irs e file 2013 The tax is figured on the entire sales price. Irs e file 2013 No part of the tax is deferred because the sales price is paid in installments. Irs e file 2013 Repairs and modifications. Irs e file 2013   The tax does not apply to the sale or use of an article that has been repaired or modified unless the cost of the repairs and modifications is more than 75% of the retail price of a comparable new article. Irs e file 2013 This includes modifications that change the transportation function of an article or restore a wrecked article to a functional condition. Irs e file 2013 However, this exception generally does not apply to an article that was not subject to the tax when it was new. Irs e file 2013 Further manufacture. Irs e file 2013   The tax does not apply to the use by a person of a taxable article as material in the manufacture or production of, or as a component part of, another article to be manufactured or produced by that person. Irs e file 2013 Do not treat a person as engaged in the manufacture of any article merely because that person combines the article with a: Coupling device (including any fifth wheel); Wrecker crane; Loading and unloading equipment (including any crane, hoist, winch, or power liftgate); Aerial ladder or tower; Ice and snow control equipment; Earth moving, excavation, and construction equipment; Spreader; Sleeper cab; Cab shield; or Wood or metal floor. Irs e file 2013 Combining an article with an item in this list does not give rise to taxability. Irs e file 2013 However, see Parts or accessories discussed earlier. Irs e file 2013 Articles exempt from tax. Irs e file 2013   The tax on heavy trucks, trailers, and tractors does not apply to sales of the articles described in the following discussions. Irs e file 2013 Rail trailers and rail vans. Irs e file 2013   This is any chassis or body of a trailer or semitrailer designed for use both as a highway vehicle and a railroad car (including any parts and accessories designed primarily for use on and in connection with it). Irs e file 2013 Do not treat a piggyback trailer or semitrailer as designed for use as a railroad car. Irs e file 2013 Parts and accessories. Irs e file 2013   This is any part or accessory sold separately from the truck or trailer, except as described earlier under Parts or accessories and Separate purchase. Irs e file 2013 Trash containers. Irs e file 2013   This is any box, container, receptacle, bin, or similar article that meets all the following conditions. Irs e file 2013 It is designed to be used as a trash container. Irs e file 2013 It is not designed to carry freight other than trash. Irs e file 2013 It is not designed to be permanently mounted on or affixed to a truck chassis or body. Irs e file 2013 House trailers. Irs e file 2013   This is any house trailer (regardless of size) suitable for use in connection with either passenger automobiles or trucks. Irs e file 2013 Camper coaches or bodies for self-propelled mobile homes. Irs e file 2013   This is any article designed to be mounted or placed on trucks, truck chassis, or automobile chassis and to be used primarily as living quarters or camping accommodations. Irs e file 2013 Further, the tax does not apply to chassis specifically designed and constructed to accommodate and transport self-propelled mobile home bodies. Irs e file 2013 Farm feed, seed, and fertilizer equipment. Irs e file 2013   This is any body primarily designed to process or prepare, haul, spread, load, or unload feed, seed, or fertilizer to or on farms. Irs e file 2013 This exemption applies only to the farm equipment body (and parts and accessories) and not to the chassis upon which the farm equipment is mounted. Irs e file 2013 Ambulances and hearses. Irs e file 2013   This is any ambulance, hearse, or combination ambulance-hearse. Irs e file 2013 Truck-tractors. Irs e file 2013   This is any truck-tractor specifically designed for use in shifting semitrailers in and around freight yards and freight terminals. Irs e file 2013 Concrete mixers. Irs e file 2013   This is any article designed to be placed or mounted on a truck, truck trailer, or semitrailer chassis to be used to process or prepare concrete. Irs e file 2013 This exemption does not apply to the chassis on which the article is mounted. Irs e file 2013 Sales exempt from tax. Irs e file 2013   The following sales are ordinarily exempt from tax. Irs e file 2013 Sales to a state or local government for its exclusive use. Irs e file 2013 Sales to Indian tribal governments, but only if the transaction involves the exercise of an essential tribal government function. Irs e file 2013 Sales to a nonprofit educational organization for its exclusive use. Irs e file 2013 Sales to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. Irs e file 2013 Sales for use by the purchaser for further manufacture of other taxable articles (see below). Irs e file 2013 Sales for export or for resale by the purchaser to a second purchaser for export. Irs e file 2013 Sales to the United Nations for official use. Irs e file 2013 Registration requirement. Irs e file 2013   In general, the seller and buyer must be registered for a sale to be tax free. Irs e file 2013 See the Form 637 instructions for more information. Irs e file 2013 Certain registration exceptions apply in the case of sales to state and local governments, sales to foreign purchasers for export, and sales for resale or long term leasing. Irs e file 2013 Further manufacture. Irs e file 2013   If you buy articles tax free and resell or use them other than in the manufacture of another article, you are liable for the tax on their resale or use just as if you had manufactured and made the first retail sale of them. Irs e file 2013 Credits or refunds. Irs e file 2013   A credit or refund (without interest) of the retail tax on the taxable articles described earlier may be allowable if the tax has been paid with respect to an article and, before any other use, such article is used by any person as a component part of another taxable article manufactured or produced. Irs e file 2013 The person using the article as a component part is eligible for the credit or refund. Irs e file 2013   A credit or refund is allowable if, before any other use, an article is, by any person: Exported, Used or sold for use as supplies for vessels, Sold to a state or local government for its exclusive use, Sold to a nonprofit educational organization for its exclusive use, or Sold to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. Irs e file 2013 A credit or refund is also allowable if there is a price readjustment by reason of the return or repossession of an article or by reason of a bona fide discount, rebate, or allowance. Irs e file 2013   See also Conditions to allowance in chapter 5. Irs e file 2013 Tire credit. Irs e file 2013   A credit is allowed against the retail tax on the taxable articles described earlier if taxable tires are sold on or in connection with the sale of the article. Irs e file 2013 The credit is equal to the manufacturers excise tax imposed on the taxable tires (discussed earlier). Irs e file 2013 This is the section 4051(d) taxable tire credit and is claimed on Schedule C (Form 720) for the same quarter for which the tax on the heavy vehicle is reported. Irs e file 2013 Prev  Up  Next   Home   More Online Publications
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The Irs E File 2013

Irs e file 2013 7. Irs e file 2013   Depreciation, Depletion, and Amortization Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Overview of DepreciationWhat Property Can Be Depreciated? What Property Cannot Be Depreciated? When Does Depreciation Begin and End? Can You Use MACRS 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? Section 179 Expense DeductionWhat Property Qualifies? What Property Does Not Qualify? How Much Can You Deduct? How Do You Elect the Deduction? When Must You Recapture the Deduction? Claiming the Special Depreciation AllowanceWhat is Qualified Property? How Can You Elect Not To Claim the Allowance? When Must You Recapture an Allowance Figuring Depreciation Under MACRSWhich Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS? What Is the Placed-in-Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies? Which Convention Applies? Which Depreciation Method Applies? How Is the Depreciation Deduction Figured? How Do You Use General Asset Accounts? When Do You Recapture MACRS Depreciation? Additional Rules for Listed PropertyWhat Is Listed Property? What Is the Business-Use Requirement? Do the Passenger Automobile Limits Apply? Depletion Who Can Claim Depletion? Figuring Depletion AmortizationBusiness Start-Up Costs Reforestation Costs Section 197 Intangibles What's New for 2013 Increased section 179 expense deduction dollar limits. Irs e file 2013  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. Irs e file 2013 This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. Irs e file 2013 See Dollar Limits under Section 179 Expense Deduction , later. Irs e file 2013 Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. Irs e file 2013 . Irs e file 2013  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Irs e file 2013 See Claiming the Special Depreciation Allowance , later. Irs e file 2013 Expiration of the 3- year recovery period for certain race horses. Irs e file 2013  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. Irs e file 2013 Introduction If you buy or make improvements to farm property such as machinery, equipment, livestock, or a structure with a useful life of more than a year, you generally cannot deduct its entire cost in one year. Irs e file 2013 Instead, you must spread the cost over the time you use the property and deduct part of it each year. Irs e file 2013 For most types of property, this is called depreciation. Irs e file 2013 This chapter gives information on depreciation methods that generally apply to property placed in service after 1986. Irs e file 2013 For information on depreciating pre-1987 property, see Publication 534, Depreciating Property Placed in Service Before 1987. Irs e file 2013 Topics - This chapter discusses: Overview of depreciation Section 179 expense deduction Special depreciation allowance Modified Accelerated Cost Recovery System (MACRS) Listed property Basic information on cost depletion (including timber depletion) and percentage depletion Amortization of the costs of going into business, reforestation costs, the costs of pollution control facilities, and the costs of section 197 intangibles Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) T (Timber), Forest Activities Schedule 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Irs e file 2013 It is important to keep good records for property you depreciate. Irs e file 2013 Do not file these records with your return. Irs e file 2013 Instead, you should keep them as part of the permanent records of the depreciated property. Irs e file 2013 They will help you verify the accuracy of the depreciation of assets placed in service in the current and previous tax years. Irs e file 2013 For general information on recordkeeping, see Publication 583, Starting a Business and Keeping Records. Irs e file 2013 For specific information on keeping records for section 179 property and listed property, see Publication 946, How To Depreciate Property. Irs e file 2013 Overview of Depreciation This overview discusses basic information on the following. Irs e file 2013 What property can be depreciated. Irs e file 2013 What property cannot be depreciated. Irs e file 2013 When depreciation begins and ends. Irs e file 2013 Whether MACRS can be used to figure depreciation. Irs e file 2013 What is the basis of your depreciable property. Irs e file 2013 How to treat repairs and improvements. Irs e file 2013 When you must file Form 4562. Irs e file 2013 How you can correct depreciation claimed incorrectly. Irs e file 2013 What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, equipment, vehicles, certain livestock, and furniture. Irs e file 2013 You can also depreciate certain intangible property, such as copyrights, patents, and computer software. Irs e file 2013 To be depreciable, the property must meet all the following requirements. Irs e file 2013 It must be property you own. Irs e file 2013 It must be used in your business or income-producing activity. Irs e file 2013 It must have a determinable useful life. Irs e file 2013 It must have a useful life that extends substantially beyond the year you place it in service. Irs e file 2013 Property You Own To claim depreciation, you usually must be the owner of the property. Irs e file 2013 You are considered as owning property even if it is subject to a debt. Irs e file 2013 Leased property. Irs e file 2013   You can depreciate leased property only if you retain the incidents of ownership in the property. Irs e file 2013 This means you bear the burden of exhaustion of the capital investment in the property. Irs e file 2013 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. Irs e file 2013 You can, however, depreciate any capital improvements you make to the leased property. Irs e file 2013 See Additions and Improvements under Which Recovery Period Applies in chapter 4 of Publication 946. Irs e file 2013   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. Irs e file 2013 However, you cannot depreciate the cost of the property 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. Irs e file 2013 Life tenant. Irs e file 2013   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. Irs e file 2013 See Certain term interests in property , later, for an exception. Irs e file 2013 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. Irs e file 2013 If you use property to produce income (investment use), the income must be taxable. Irs e file 2013 You cannot depreciate property that you use solely for personal activities. Irs e file 2013 However, if you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the percentage of business or investment use. Irs e file 2013 Example 1. Irs e file 2013   If you use your car for farm business, you can deduct depreciation based on its percentage of use in farming. Irs e file 2013 If you also use it for investment purposes, you can depreciate it based on its percentage of investment use. Irs e file 2013 Example 2. Irs e file 2013   If you use part of your home for business, you may be able to deduct depreciation on that part based on its business use. Irs e file 2013 For more information, see Business Use of Your Home in chapter 4. Irs e file 2013 Inventory. Irs e file 2013   You can never depreciate inventory because it is not held for use in your business. Irs e file 2013 Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Irs e file 2013 Livestock. Irs e file 2013   Livestock purchased for draft, breeding, or dairy purposes can be depreciated only if they are not kept in an inventory account. Irs e file 2013 Livestock you raise usually has no depreciable basis because the costs of raising them are deducted and not added to their basis. Irs e file 2013 However, see Immature livestock under When Does Depreciation Begin and End , later, for a special rule. Irs e file 2013 Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Irs e file 2013 This means it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Irs e file 2013 Irrigation systems and water wells. Irs e file 2013   Irrigation systems and wells used in a trade or business can be depreciated if their useful life can be determined. Irs e file 2013 You can depreciate irrigation systems and wells composed of masonry, concrete, tile, metal, or wood. Irs e file 2013 In addition, you can depreciate costs for moving dirt to construct irrigation systems and water wells composed of these materials. Irs e file 2013 However, land preparation costs for center pivot irrigation systems are not depreciable. Irs e file 2013 Dams, ponds, and terraces. Irs e file 2013   In general, you cannot depreciate earthen dams, ponds, and terraces unless the structures have a determinable useful life. Irs e file 2013 What Property Cannot Be Depreciated? Certain property cannot be depreciated, even if the requirements explained earlier are met. Irs e file 2013 This includes the following. Irs e file 2013 Land. Irs e file 2013 You can never depreciate the cost of land because land does not wear out, become obsolete, or get used up. Irs e file 2013 The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Irs e file 2013 Although you cannot depreciate land, you can depreciate certain costs incurred in preparing land for business use. Irs e file 2013 See chapter 1 of Publication 946. Irs e file 2013 Property placed in service and disposed of in the same year. Irs e file 2013 Determining when property is placed in service is explained later. Irs e file 2013 Equipment used to build capital improvements. Irs e file 2013 You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Irs e file 2013 Intangible property such as section 197 intangibles. Irs e file 2013 This property does not have a determinable useful life and generally cannot be depreciated. Irs e file 2013 However, see Amortization , later. Irs e file 2013 Special rules apply to computer software (discussed below). Irs e file 2013 Certain term interests (discussed below). Irs e file 2013 Computer software. Irs e file 2013   Computer software is generally not a section 197 intangible even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Irs e file 2013 It is readily available for purchase by the general public. Irs e file 2013 It is subject to a nonexclusive license. Irs e file 2013 It has not been substantially modified. Irs e file 2013   If the software meets the tests above, it can be depreciated and may qualify for the section 179 expense deduction and the special depreciation allowance (if applicable), discussed later. Irs e file 2013 Certain term interests in property. Irs e file 2013   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. Irs e file 2013 This rule does not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Irs e file 2013 For more information, see chapter 1 of Publication 946. Irs e file 2013 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. Irs e file 2013 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. Irs e file 2013 Placed in Service Property is placed 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. Irs e file 2013 Even if you are not using the property, it is in service when it is ready and available for its specific use. Irs e file 2013 Example. Irs e file 2013 You bought a planter for use in your farm business. Irs e file 2013 The planter was delivered in December 2012 after harvest was over. Irs e file 2013 You begin to depreciate the planter for 2012 because it was ready and available for its specific use in 2012, even though it will not be used until the spring of 2013. Irs e file 2013 If your planter comes unassembled in December 2012 and is put together in February 2013, it is not placed in service until 2013. Irs e file 2013 You begin to depreciate it in 2013. Irs e file 2013 If your planter was delivered and assembled in February 2013 but not used until April 2013, it is placed in service in February 2013, because this is when the planter was ready for its specified use. Irs e file 2013 You begin to depreciate it in 2013. Irs e file 2013 Fruit or nut trees and vines. Irs e file 2013   If you acquire an orchard, grove, or vineyard before the trees or vines have reached the income-producing stage, and they have a preproductive period of more than 2 years, you must capitalize the preproductive-period costs under the uniform capitalization rules (unless you elect not to use these rules). Irs e file 2013 See chapter 6 for information about the uniform capitalization rules. Irs e file 2013 Your depreciation begins when the trees and vines reach the income-producing stage (that is, when they bear fruit, nuts, or grapes in quantities sufficient to commercially warrant harvesting). Irs e file 2013 Immature livestock. Irs e file 2013   Depreciation for livestock begins when the livestock reaches the age of maturity. Irs e file 2013 If you bought immature livestock for drafting purposes, depreciation begins when they can be worked. Irs e file 2013 If you bought immature livestock for dairy purposes, depreciation begins when they can be milked. Irs e file 2013 If you bought immature livestock for breeding purposes, depreciation begins when they can be bred. Irs e file 2013 Your basis for depreciation is your initial cost for the immature livestock. Irs e file 2013 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. Irs e file 2013 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. Irs e file 2013 Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Irs e file 2013 This happens when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Irs e file 2013 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. Irs e file 2013 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. Irs e file 2013 You sell or exchange the property. Irs e file 2013 You convert the property to personal use. Irs e file 2013 You abandon the property. Irs e file 2013 You transfer the property to a supplies or scrap account. Irs e file 2013 The property is destroyed. Irs e file 2013 For information on abandonment of property, see chapter 8. Irs e file 2013 For information on destroyed property, see chapter 11 and Publication 547, Casualties, Disasters, and Thefts. Irs e file 2013 Can You Use MACRS To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most business and investment property placed in service after 1986. Irs e file 2013 MACRS is explained later under Figuring Depreciation Under MACRS . Irs e file 2013 You cannot use MACRS to depreciate the following property. Irs e file 2013 Property you placed in service before 1987. Irs e file 2013 Use the methods discussed in Publication 534. Irs e file 2013 Certain property owned or used in 1986. Irs e file 2013 See chapter 1 of Publication 946. Irs e file 2013 Intangible property. Irs e file 2013 Films, video tapes, and recordings. Irs e file 2013 Certain corporate or partnership property acquired in a nontaxable transfer. Irs e file 2013 Property you elected to exclude from MACRS. Irs e file 2013 For more information, see chapter 1 of Publication 946. Irs e file 2013 What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Irs e file 2013 To determine basis, you need to know the cost or other basis of your property. Irs e file 2013 Cost or other basis. Irs e file 2013   The basis of property you buy is usually its cost plus amounts you paid for items such as sales tax, freight charges, and installation and testing fees. Irs e file 2013 The cost includes the amount you pay in cash, debt obligations, other property, or services. Irs e file 2013   There are times when you cannot use cost as basis. Irs e file 2013 In these situations, the fair market value (FMV) or the adjusted basis of the property may be used. Irs e file 2013 Adjusted basis. Irs e file 2013   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. Irs e file 2013 Basis adjustment for depreciation allowed or allowable. Irs e file 2013   After you place your property in service, you must reduce the basis of the property by the depreciation allowed or allowable, whichever is greater. Irs e file 2013 Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Irs e file 2013 Depreciation allowable is depreciation you are entitled to deduct. Irs e file 2013   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. Irs e file 2013   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). Irs e file 2013   For more information, see chapter 6. Irs e file 2013 How Do You Treat Repairs and Improvements? You generally deduct the cost of repairing business property in the same way as any other business expense. Irs e file 2013 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. Irs e file 2013 Treat improvements as separate depreciable property. Irs e file 2013 See chapter 1 of Publication 946 for more information. Irs e file 2013 Example. Irs e file 2013 You repair a small section on a corner of the roof of a barn that you rent to others. Irs e file 2013 You deduct the cost of the repair as a business expense. Irs e file 2013 However, if you replace the entire roof, the new roof is considered to be an improvement because it increases the value and lengthens the life for the property. Irs e file 2013 You depreciate the cost of the new roof. Irs e file 2013 Improvements to rented property. Irs e file 2013   You can depreciate permanent improvements you make to business property you rent from someone else. Irs e file 2013 Do You Have To File Form 4562? Use Form 4562 to claim your deduction for depreciation and amortization. Irs e file 2013 You must complete and attach Form 4562 to your tax return if you are claiming any of the following. Irs e file 2013 A section 179 expense deduction for the current year or a section 179 carryover from a prior year. Irs e file 2013 Depreciation for property placed in service during the current year. Irs e file 2013 Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Irs e file 2013 Amortization of costs that began in the current year. Irs e file 2013 For more information, see the Instructions for Form 4562. Irs e file 2013 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. Irs e file 2013 You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Irs e file 2013 You claimed the incorrect amount because of a mathematical error made in any year. Irs e file 2013 You claimed the incorrect amount because of a posting error made in any year, for example, omitting an asset from the depreciation schedule. Irs e file 2013 You have not adopted a method of accounting for the property placed in service by you in tax years ending after December 29, 2003. Irs e file 2013 You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Irs e file 2013 Note. Irs e file 2013 You have adopted a method of accounting if you used the same incorrect method of depreciation for two or more consecutively filed returns. Irs e file 2013 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. Irs e file 2013 See the Instructions for Form 3115. Irs e file 2013 Section 179 Expense Deduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Irs e file 2013 This is the section 179 expense deduction. Irs e file 2013 You can elect the section 179 expense deduction instead of recovering the cost by taking depreciation deductions. Irs e file 2013 This part of the chapter explains the rules for the section 179 expense deduction. Irs e file 2013 It explains what property qualifies for the deduction, what property does not qualify for the deduction, the limits that may apply, how to elect the deduction, and when you may have to recapture the deduction. Irs e file 2013 For more information, see chapter 2 of Publication 946. Irs e file 2013 What Property Qualifies? To qualify for the section 179 expense deduction, your property must meet all the following requirements. Irs e file 2013 It must be eligible property. Irs e file 2013 It must be acquired for business use. Irs e file 2013 It must have been acquired by purchase. Irs e file 2013 Eligible Property To qualify for the section 179 expense deduction, your property must be one of the following types of depreciable property. Irs e file 2013 Tangible personal property. Irs e file 2013 Qualified real property. Irs e file 2013 (Special rules apply to qualified real property that you elect to treat as qualified section 179 real property. Irs e file 2013 For more information, see chapter 2 of Publication 946 and section 179(f) of the Internal Revenue Code. Irs e file 2013 ) Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services; A research facility used in connection with any of the activities in (a) above; or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. Irs e file 2013 Single purpose agricultural (livestock) or horticultural structures. Irs e file 2013 Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Irs e file 2013 Off-the-shelf computer software that is readily available for purchase by the general public, is subject to a nonexclusive lease, and has not been substantially modified. Irs e file 2013 Tangible personal property. Irs e file 2013   Tangible personal property is any tangible property that is not real property. Irs e file 2013 It includes the following property. Irs e file 2013 Machinery and equipment. Irs e file 2013 Property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment. Irs e file 2013 Gasoline storage tanks and pumps at retail service stations. Irs e file 2013 Livestock, including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals. Irs e file 2013 Facility used for the bulk storage of fungible commodities. Irs e file 2013   A facility used for the bulk storage of fungible commodities is qualifying property for purposes of the section 179 expense deduction if it is used in connection with any of the activities listed earlier in item (3)(a). Irs e file 2013 Bulk storage means the storage of a commodity in a large mass before it is used. Irs e file 2013 Grain bins. Irs e file 2013   A grain bin is an example of a storage facility that is qualifying section 179 property. Irs e file 2013 It is a facility used in connection with the production of grain or livestock for the bulk storage of fungible commodities. Irs e file 2013 Single purpose agricultural or horticultural structures. Irs e file 2013   A single purpose agricultural (livestock) or horticultural structure is qualifying property for purposes of the section 179 expense deduction. Irs e file 2013 Agricultural structure. Irs e file 2013   A single purpose agricultural (livestock) structure is any building or enclosure specifically designed, constructed, and used for both the following reasons. Irs e file 2013 To house, raise, and feed a particular type of livestock and its produce. Irs e file 2013 To house the equipment, including any replacements, needed to house, raise, or feed the livestock. Irs e file 2013 For this purpose, livestock includes poultry. Irs e file 2013   Single purpose structures are qualifying property if used, for example, to breed chickens or hogs, produce milk from dairy cattle, or produce feeder cattle or pigs, broiler chickens, or eggs. Irs e file 2013 The facility must include, as an integral part of the structure or enclosure, equipment necessary to house, raise, and feed the livestock. Irs e file 2013 Horticultural structure. Irs e file 2013   A single purpose horticultural structure is either of the following. Irs e file 2013 A greenhouse specifically designed, constructed, and used for the commercial production of plants. Irs e file 2013 A structure specifically designed, constructed, and used for the commercial production of mushrooms. Irs e file 2013 Use of structure. Irs e file 2013   A structure must be used only for the purpose that qualified it. Irs e file 2013 For example, a hog barn will not be qualifying property if you use it to house poultry. Irs e file 2013 Similarly, using part of your greenhouse to sell plants will make the greenhouse nonqualifying property. Irs e file 2013   If a structure includes work space, the work space can be used only for the following activities. Irs e file 2013 Stocking, caring for, or collecting livestock or plants or their produce. Irs e file 2013 Maintaining the enclosure or structure. Irs e file 2013 Maintaining or replacing the equipment or stock enclosed or housed in the structure. Irs e file 2013 Property Acquired by Purchase To qualify for the section 179 expense deduction, your property must have been acquired by purchase. Irs e file 2013 For example, property acquired by gift or inheritance does not qualify. Irs e file 2013 Property acquired from a related person (that is, your spouse, ancestors, or lineal descendants) is not considered acquired by purchase. Irs e file 2013 Example. Irs e file 2013 Ken is a farmer. Irs e file 2013 He purchased two tractors, one from his brother and one from his father. Irs e file 2013 He placed both tractors in service in the same year he bought them. Irs e file 2013 The tractor purchased from his father does not qualify for the section 179 expense deduction because he is a related person (as defined above). Irs e file 2013 The tractor purchased from his brother does qualify for the deduction because Ken is not a related person (as defined above). Irs e file 2013 What Property Does Not Qualify? Land and improvements. Irs e file 2013   Land and land improvements, do not qualify as section 179 property. Irs e file 2013 Land improvements include nonagricultural fences, swimming pools, paved parking areas, wharves, docks, bridges, and fences. Irs e file 2013 However, agricultural fences do qualify as section 179 property. Irs e file 2013 Similarly, field drainage tile also qualifies as section 179 property. Irs e file 2013 Excepted property. Irs e file 2013   Even if the requirements explained in the preceding discussions are met, farmers cannot elect the section 179 expense deduction for the following property. Irs e file 2013 Certain property you lease to others (if you are a noncorporate lessor). Irs e file 2013 Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Irs e file 2013 Property used by a tax-exempt organization (other than a tax-exempt farmers' cooperative) unless the property is used mainly in a taxable unrelated trade or business. Irs e file 2013 Property used by governmental units or foreign persons or entities (except property used under a lease with a term of less than 6 months). Irs e file 2013 How Much Can You Deduct? Your section 179 expense deduction is generally the cost of the qualifying property. Irs e file 2013 However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. Irs e file 2013 These limits apply to each taxpayer, not to each business. Irs e file 2013 However, see Married individuals under Dollar Limits , later. Irs e file 2013 See also the special rules for applying the limits for partnerships and S corporations under Partnerships and S Corporations , later. Irs e file 2013 If you deduct only part of the cost of qualifying property as a section 179 expense deduction, you can generally depreciate the cost you do not deduct. Irs e file 2013 Use Part I of Form 4562 to figure your section 179 expense deduction. Irs e file 2013 Partial business use. Irs e file 2013   When you use property for business and nonbusiness purposes, you can elect the section 179 expense deduction only if you use it more than 50% for business in the year you place it in service. Irs e file 2013 If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Irs e file 2013 Use the resulting business cost to figure your section 179 expense deduction. Irs e file 2013 Trade-in of other property. Irs e file 2013   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 expense deduction includes only the cash you paid. Irs e file 2013 For example, if you buy (for cash and a trade-in) a new tractor for use in your business, your cost for the section 179 expense deduction is the cash you paid. Irs e file 2013 It does not include the adjusted basis of the old tractor you trade for the new tractor. Irs e file 2013 Example. Irs e file 2013 J-Bar Farms traded two cultivators having a total adjusted basis of $6,800 for a new cultivator costing $13,200. Irs e file 2013 They received an $8,000 trade-in allowance for the old cultivators and paid $5,200 cash for the new cultivator. Irs e file 2013 J-Bar also traded a used pickup truck with an adjusted basis of $8,000 for a new pickup truck costing $35,000. Irs e file 2013 They received a $5,000 trade-in allowance and paid $30,000 cash for the new pickup truck. Irs e file 2013 Only the cash paid by J-Bar qualifies for the section 179 expense deduction. Irs e file 2013 J-Bar's business costs that qualify for a section 179 expense deduction are $35,200 ($5,200 + $30,000). Irs e file 2013 Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 is $500,000. Irs e file 2013 If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 expense deduction among the items in any way, as long as the total deduction is not more than $500,000. Irs e file 2013 Qualified real property that you elect to treat as section 179 property is limited to $250,000 of the maximum section 179 deduction of $500,000 for 2013. Irs e file 2013 You do not have to claim the full $500,000. Irs e file 2013 For specific information on the section 179 dollar limits, see chapter 2 of Publication 946. Irs e file 2013 Reduced dollar limit for cost exceeding $2 million. Irs e file 2013   If the cost of your qualifying section 179 property placed in service in 2013 is over $2 million, you must reduce the dollar limit (but not below zero) by the amount of cost over $2 million. Irs e file 2013 If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 expense deduction and you cannot carry over the cost that is more than $2,500,000. Irs e file 2013 Example. Irs e file 2013 This year, James Smith placed in service machinery costing $2,050,000. Irs e file 2013 Because this cost is $50,000 more than $2 million, he must reduce his dollar limit to $450,000 ($500,000 − $50,000). Irs e file 2013 Limits for sport utility vehicles. Irs e file 2013   The total amount you can elect to deduct for certain sport utility vehicles and certain other vehicles placed in service in 2013 is $25,000. Irs e file 2013 This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, and highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. Irs e file 2013   For more information, see chapter 2 of Publication 946. Irs e file 2013 Limits for passenger automobiles. Irs e file 2013   For a passenger automobile that is placed in service in 2013, the total section 179 and depreciation deduction is limited. Irs e file 2013 See Do the Passenger Automobile Limits Apply , later. Irs e file 2013 Married individuals. Irs e file 2013   If you are married, how you figure your section 179 expense deduction depends on whether you file jointly or separately. Irs e file 2013 If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Irs e file 2013 If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2 million. Irs e file 2013 You must allocate the dollar limit (after any reduction) equally between you, unless you both elect a different allocation. Irs e file 2013 If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. Irs e file 2013 Joint return after separate returns. Irs e file 2013   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. Irs e file 2013 The dollar limit (after reduction for any cost of section 179 property over $2 million). Irs e file 2013 The total cost of section 179 property you and your spouse elected to expense on your separate returns. Irs e file 2013 Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Irs e file 2013 Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. Irs e file 2013 Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Irs e file 2013 See Carryover of disallowed deduction , later. Irs e file 2013 Taxable income. Irs e file 2013   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Irs e file 2013 In addition to net income or loss from a sole proprietorship, partnership, or S corporation, net income or loss derived from a trade or business also includes the following items. Irs e file 2013 Section 1231 gains (or losses) as discussed in chapter 9. Irs e file 2013 Interest from working capital of your trade or business. Irs e file 2013 Wages, salaries, tips, or other pay earned by you (or your spouse if you file a joint return) as an employee of any employer. Irs e file 2013   In addition, figure taxable income without regard to any of the following. Irs e file 2013 The section 179 expense deduction. Irs e file 2013 The self-employment tax deduction. Irs e file 2013 Any net operating loss carryback or carryforward. Irs e file 2013 Any unreimbursed employee business expenses. Irs e file 2013 Two different taxable income limits. Irs e file 2013   In addition to the business income limit for your section 179 expense deduction, you may have a taxable income limit for some other deduction (for example, charitable contributions). Irs e file 2013 You may have to figure the limit for this other deduction taking into account the section 179 expense deduction. Irs e file 2013 If so, complete the following steps. Irs e file 2013 Step Action 1 Figure taxable income without the section 179 expense deduction or the other deduction. Irs e file 2013 2 Figure a hypothetical section 179 expense deduction using the taxable income figured in Step 1. Irs e file 2013 3 Subtract the hypothetical section 179 expense deduction figured in Step 2 from the taxable income figured in Step 1. Irs e file 2013 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. Irs e file 2013 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in  Step 1. Irs e file 2013 6 Figure your actual section 179 expense deduction using the taxable income figured in Step 5. Irs e file 2013 7 Subtract your actual section 179 expense deduction figured in Step 6 from the taxable income figured in Step 1. Irs e file 2013 8 Figure your actual other deduction using the taxable income figured in Step 7. Irs e file 2013 Example. Irs e file 2013 On February 1, 2013, the XYZ farm corporation purchased and placed in service qualifying section 179 property that cost $500,000. Irs e file 2013 It elects to expense the entire $500,000 cost under section 179. Irs e file 2013 In June, the corporation gave a charitable contribution of $10,000. Irs e file 2013 A corporation's limit on charitable contributions is figured after subtracting any section 179 expense deduction. Irs e file 2013 The business income limit for the section 179 expense deduction is figured after subtracting any allowable charitable contributions. Irs e file 2013 XYZ's taxable income figured without the section 179 expense deduction or the deduction for charitable contributions is $520,000. Irs e file 2013 XYZ figures its section 179 expense deduction and its deduction for charitable contributions as follows. Irs e file 2013 Step 1. Irs e file 2013 Taxable income figured without either deduction is $520,000. Irs e file 2013 Step 2. Irs e file 2013 Using $520,000 as taxable income, XYZ's hypothetical section 179 expense deduction is $500,000. Irs e file 2013 Step 3. Irs e file 2013 $20,000 ($520,000 − $500,000). Irs e file 2013 Step 4. Irs e file 2013 Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. Irs e file 2013 Step 5. Irs e file 2013 $518,000 ($520,000 − $2,000). Irs e file 2013 Step 6. Irs e file 2013 Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 expense deduction. Irs e file 2013 Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 expense deduction. Irs e file 2013 Step 7. Irs e file 2013 $20,000 ($520,000 − $500,000). Irs e file 2013 Step 8. Irs e file 2013 Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. Irs e file 2013 Carryover of disallowed deduction. Irs e file 2013   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. Irs e file 2013   The amount you carry over is used in determining your section 179 expense deduction in the next year. Irs e file 2013 However, it is subject to the limits in that year. Irs e file 2013 If you place more than one property in service in a year, you can select the properties for which all or a part of the cost will be carried forward. Irs e file 2013 Your selections must be shown in your books and records. Irs e file 2013 Example. Irs e file 2013 Last year, Joyce Jones placed in service a machine that cost $8,000 and elected to deduct all $8,000 under section 179. Irs e file 2013 The taxable income from her business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) was $6,000. Irs e file 2013 Her section 179 expense deduction was limited to $6,000. Irs e file 2013 The $2,000 cost that was not allowed as a section 179 expense deduction (because of the business income limit) is carried to this year. Irs e file 2013 This year, Joyce placed another machine in service that cost $9,000. Irs e file 2013 Her taxable income from business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) is $10,000. Irs e file 2013 Joyce can deduct the full cost of the machine ($9,000) but only $1,000 of the carryover from last year because of the business income limit. Irs e file 2013 She can carry over the balance of $1,000 to next year. Irs e file 2013 Partnerships and S Corporations The section 179 expense deduction limits apply both to the partnership or S corporation and to each partner or shareholder. Irs e file 2013 The partnership or S corporation determines its section 179 expense deduction subject to the limits. Irs e file 2013 It then allocates the deduction among its partners or shareholders. Irs e file 2013 If you are a partner in a partnership or shareholder of an S corporation, you add the amount allocated from the partnership or S corporation to any section 179 costs not related to the partnership or S corporation and then apply the dollar limit to this total. Irs e file 2013 To determine any reduction in the dollar limit for costs over $560,000, you do not include any of the cost of section 179 property placed in service by the partnership or S corporation. Irs e file 2013 After you apply the dollar limit, you apply the business income limit to any remaining section 179 costs. Irs e file 2013 For more information, see chapter 2 of Publication 946. Irs e file 2013 Example. Irs e file 2013 In 2013, Partnership P placed in service section 179 property with a total cost of $2,160,000. Irs e file 2013 P must reduce its dollar limit by $160,000 ($2,160,000 − $2,000,000). Irs e file 2013 Its maximum section 179 expense deduction is $340,000 ($500,000 − $160,000), and it elects to expense that amount. Irs e file 2013 Because P's taxable income from the active conduct of all its trades or businesses for the year was $400,000, it can deduct the full $340,000. Irs e file 2013 P allocates $100,000 of its section 179 expense deduction and $110,000 of its taxable income to John, one of its partners. Irs e file 2013 John also conducts a business as a sole proprietor and in 2013, placed in service in that business, section 179 property costing $28,000. Irs e file 2013 John's taxable income from that business was $10,000. Irs e file 2013 In addition to the $100,000 allocated from P, he elects to expense the $28,000 of his sole proprietorship's section 179 costs. Irs e file 2013 However, John's deduction is limited to his business taxable income of $120,000 ($110,000 from P plus $10,000 from his sole proprietorship). Irs e file 2013 He carries over $8,000 ($128,000 − $120,000) of the elected section 179 costs to 2014. Irs e file 2013 How Do You Elect the Deduction? You elect to take the section 179 expense deduction by completing Part I of Form 4562. Irs e file 2013 If you elect the deduction for listed property, complete Part V of  Form 4562 before completing Part I. Irs e file 2013   File Form 4562 with either of the following: Your original tax return (whether or not you filed it timely), or An amended return filed within the time prescribed by law. Irs e file 2013 An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Irs e file 2013 The amended return must also include any resulting adjustments to taxable income. Irs e file 2013 Revoking an election. Irs e file 2013   An election (or any specification made in the election) to take a section 179 expense deduction for 2013 can be revoked without IRS approval by filing an amended return. Irs e file 2013 The amended return must be filed within the time prescribed by law. Irs e file 2013 The amended return must also include any resulting adjustments to taxable income (for example, allowable depreciation in that tax year for the item of section 179 property for which the election pertains. Irs e file 2013 ) Once made, the revocation is irrevocable. Irs e file 2013 When Must You Recapture the Deduction? You may have to recapture the section 179 expense deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. Irs e file 2013 In the year the business use drops to 50% or less, you include the recapture amount as ordinary income. Irs e file 2013 You also increase the basis of the property by the recapture amount. Irs e file 2013 Recovery periods for property are discussed later. Irs e file 2013 If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Irs e file 2013 Instead, use the rules for recapturing depreciation explained in  chapter 9 under Section 1245 Property. Irs e file 2013   If the property is listed property, do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Irs e file 2013 Instead, use the rules for recapturing depreciation explained in chapter 5 of Publication 946 under Recapture of Excess Depreciation. Irs e file 2013 Figuring the recapture amount. Irs e file 2013   To figure the amount to recapture, take the following steps. Irs e file 2013 Figure the allowable depreciation for the section 179 expense deduction you claimed. Irs e file 2013 Begin with the year you placed the property in service and include the year of recapture. Irs e file 2013 Subtract the depreciation figured in (1) from the section 179 expense deduction you actually claimed. Irs e file 2013 The result is the amount you must recapture. Irs e file 2013 Example. Irs e file 2013 In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. Irs e file 2013 The property is not listed property. Irs e file 2013 He elected a $5,000 section 179 expense deduction for the property and also elected not to claim a special depreciation allowance. Irs e file 2013 He used the property only for business in 2011 and 2012. Irs e file 2013 During 2013, he used the property 40% for business and 60% for personal use. Irs e file 2013 He figures his recapture amount as follows. Irs e file 2013 Section 179 expense deduction claimed (2011) $5,000 Minus: Allowable depreciation (instead of section 179 expense deduction):   2011 $1,250   2012 1,875   2013 ($1,250 × 40% (business)) 500 3,625 2013 — Recapture amount $1,375     Paul must include $1,375 in income for 2013. Irs e file 2013 Where to report recapture. Irs e file 2013   Report any recapture of the section 179 expense deduction as ordinary income in Part IV of Form 4797 and include it in income on Schedule F (Form 1040). Irs e file 2013 Recapture for qualified section 179 GO Zone property. Irs e file 2013   If any qualified section 179 GO Zone property ceases to be used in the GO Zone in a later year, you must recapture the benefit of the increased section 179 expense deduction as “other income. Irs e file 2013 ” Claiming the Special Depreciation Allowance For qualified property (defined below) placed in service in 2013, you can take an additional 50% special depreciation allowance. Irs e file 2013 The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS. Irs e file 2013 Figure the special depreciation allowance by multiplying the depreciable basis of the qualified property by 50%. Irs e file 2013 What is Qualified Property? For farmers, qualified property generally is certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Irs e file 2013 Certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Irs e file 2013   Certain qualified property (defined below) acquired after December 31, 2007, and before January 1, 2014, is eligible for a 50% special depreciation allowance. Irs e file 2013   Qualified property includes the following: Tangible property depreciated under the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less. Irs e file 2013 Water utility property. Irs e file 2013 Off-the-shelf computer software. Irs e file 2013 Qualified leasehold improvement property. Irs e file 2013   Qualified property must also meet all of the following tests: You must have acquired qualified property by purchase after December 31, 2007. Irs e file 2013 If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. Irs e file 2013 Qualified property must be placed in service after December 31, 2007 and placed in service before January 1, 2014 (before January 1, 2015 for certain property with a long production period and for certain aircraft). Irs e file 2013 The original use of the property must begin with you after December 31, 2007. Irs e file 2013 For more information, see chapter 3 of Publication 946. Irs e file 2013 How Can You Elect Not To Claim the Allowance? You can elect, for any class of property, not to deduct the special depreciation allowance for all property in such class placed in service during the tax year. Irs e file 2013 To make the election, attach a statement to your return indicating the class of property for which you are making the election. Irs e file 2013 Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Irs e file 2013 However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Irs e file 2013 Attach the election statement to the amended return. Irs e file 2013 On the amended return, write “Filed pursuant to section 301. Irs e file 2013 9100-2. Irs e file 2013 ” Once made, the election may not be revoked without IRS consent. Irs e file 2013 If you elect not to have the special depreciation allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. Irs e file 2013 When Must You Recapture an Allowance When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. Irs e file 2013 For more information, see chapter 3 of Publication 946. Irs e file 2013 Figuring Depreciation Under MACRS The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. Irs e file 2013 MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Irs e file 2013 Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Irs e file 2013 To be sure you can use MACRS to figure depreciation for your property, see Can You Use MACRS To Depreciate Your Property, earlier. Irs e file 2013 This part explains how to determine which MACRS depreciation system applies to your property. Irs e file 2013 It also discusses the following information that you need to know before you can figure depreciation under MACRS. Irs e file 2013 Property's recovery class. Irs e file 2013 Placed-in-service date. Irs e file 2013 Basis for depreciation. Irs e file 2013 Recovery period. Irs e file 2013 Convention. Irs e file 2013 Depreciation method. Irs e file 2013 Finally, this part explains how to use this information to figure your depreciation deduction. Irs e file 2013 Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. Irs e file 2013 You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Irs e file 2013 Required use of ADS. Irs e file 2013   You must use ADS for the following property. Irs e file 2013 All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. Irs e file 2013 Listed property used 50% or less in a qualified business use. Irs e file 2013 See Additional Rules for Listed Property , later. Irs e file 2013 Any tax-exempt use property. Irs e file 2013 Any tax-exempt bond-financed property. Irs e file 2013 Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. Irs e file 2013 Any tangible property used predominantly outside the United States during the year. Irs e file 2013 If you are required to use ADS to depreciate your property, you cannot claim the special depreciation allowance. Irs e file 2013 Electing ADS. Irs e file 2013   Although your property may qualify for GDS, you can elect to use ADS. Irs e file 2013 The election generally must cover all property in the same property class you placed in service during the year. Irs e file 2013 However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Irs e file 2013 Once you make this election, you can never revoke it. Irs e file 2013   You make the election by completing line 20 in Part III of Form 4562. Irs e file 2013 Which Property Class Applies Under GDS? The following is a list of the nine property classes under GDS. Irs e file 2013 3-year property. Irs e file 2013 5-year property. Irs e file 2013 7-year property. Irs e file 2013 10-year property. Irs e file 2013 15-year property. Irs e file 2013 20-year property. Irs e file 2013 25-year property. Irs e file 2013 Residential rental property. Irs e file 2013 Nonresidential real property. Irs e file 2013 See Which Property Class Applies Under GDS in chapter 4 of Publication 946 for examples of the types of property included in each class. Irs e file 2013 What Is the Placed-in-Service Date? You begin to claim depreciation when your property is placed in service for use either in a trade or business or for the production of income. Irs e file 2013 The placed-in-service date for your property is the date the property is ready and available for a specific use. Irs e file 2013 It is therefore not necessarily the date it is first used. Irs e file 2013 If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. Irs e file 2013 See Placed in Service under When Does Depreciation Begin and End , earlier, for examples illustrating when property is placed in service. Irs e file 2013 What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. Irs e file 2013 Reduce that amount by any credits and deductions allocable to the property. Irs e file 2013 The following are examples of some of the credits and deductions that reduce basis. Irs e file 2013 Any deduction for section 179 property. Irs e file 2013 Any deduction for removal of barriers to the disabled and the elderly. Irs e file 2013 Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Irs e file 2013 Any special depreciation allowance. Irs e file 2013 Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Irs e file 2013 For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property , earlier. Irs e file 2013 Also, see chapter 6. Irs e file 2013 For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Irs e file 2013 Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Irs e file 2013 It is determined based on the depreciation system (GDS or ADS) used. Irs e file 2013 See Table 7-1 for recovery periods under both GDS and ADS for some commonly used assets. Irs e file 2013 For a complete list of recovery periods, see the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. Irs e file 2013 House trailers for farm laborers. Irs e file 2013   To depreciate a house trailer you supply as housing for those who work on your farm, use one of the following recovery periods if the house trailer is mobile (it has wheels and a history of movement). Irs e file 2013 A 7-year recovery period under GDS. Irs e file 2013 A 10-year recovery period under ADS. Irs e file 2013   However, if the house trailer is not mobile (its wheels have been removed and permanent utilities and pipes attached to it), use one of the following recovery periods. Irs e file 2013 A 20-year recovery period under GDS. Irs e file 2013 A 25-year recovery period under ADS. Irs e file 2013 Water wells. Irs e file 2013   Water wells used to provide water for raising poultry and livestock are land improvements. Irs e file 2013 If they are depreciable, use one of the following recovery periods. Irs e file 2013 A 15-year recovery period under GDS. Irs e file 2013 A 20-year recovery period under ADS. Irs e file 2013   The types of water wells that can be depreciated were discussed earlier in Irrigation systems and water wells under Property Having a Determinable Useful Life . Irs e file 2013 Table 7-1. Irs e file 2013 Farm Property Recovery Periods   Recovery Period in Years Assets GDS ADS Agricultural structures (single purpose) 10 15 Automobiles 5 5 Calculators and copiers 5 6 Cattle (dairy or breeding) 5 7 Communication equipment1 7 10 Computer and peripheral equipment 5 5 Drainage facilities 15 20 Farm buildings2 20 25 Farm machinery and equipment 7 10 Fences (agricultural) 7 10 Goats and sheep (breeding) 5 5 Grain bin 7 10 Hogs (breeding) 3 3 Horses (age when placed in service)     Breeding and working (12 years or less) 7 10 Breeding and working (more than 12 years) 3 10 Racing horses 3 12 Horticultural structures (single purpose) 10 15 Logging machinery and equipment3 5 6 Nonresidential real property 394 40 Office furniture, fixtures, and equipment (not calculators, copiers, or typewriters) 7 10 Paved lots 15 20 Residential rental property 27. Irs e file 2013 5 40 Tractor units (over-the-road) 3 4 Trees or vines bearing fruit or nuts 10 20 Truck (heavy duty, unloaded weight 13,000 lbs. Irs e file 2013 or more) 5 6 Truck (actual weight less than 13,000 lbs) 5 5 Water wells 15 20 1 Not including communication equipment listed in other classes. Irs e file 2013 2 Not including single purpose agricultural or horticultural structures. Irs e file 2013 3 Used by logging and sawmill operators for cutting of timber. Irs e file 2013 4 For property placed in service after May 12, 1993; for property placed in service before May 13, 1993,  the recovery period is 31. Irs e file 2013 5 years. Irs e file 2013 Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Irs e file 2013 The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. Irs e file 2013 Use one of the following conventions. Irs e file 2013 The half-year convention. Irs e file 2013 The mid-month convention. Irs e file 2013 The mid-quarter convention. Irs e file 2013 For a detailed explanation of each convention, see Which Convention Applies in chapter 4 of Publication 946. Irs e file 2013 Also, see the Instructions for Form 4562. Irs e file 2013 Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Irs e file 2013 The 200% declining balance method over a GDS recovery period. Irs e file 2013 The 150% declining balance method over a GDS recovery period. Irs e file 2013 The straight line method over a GDS recovery period. Irs e file 2013 The straight line method over an ADS recovery period. Irs e file 2013 Depreciation Table. Irs e file 2013   The following table lists the types of property you can depreciate under each method. Irs e file 2013 The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Irs e file 2013 Depreciation Table System/Method   Type of Property GDS using  150% DB • All property used in a farming business (except real property)   • All 15- and 20-year property   • Nonfarm 3-, 5-, 7-, and 10-year property1 GDS using SL • Nonresidential real property   • Residential rental property   • Trees or vines bearing fruit or nuts   • All 3-, 5-, 7-, 10-, 15-, and 20-year property1 ADS using SL • Property used predomi- nantly outside the United States   • Farm property used when an election not to apply the uniform capitalization rules is in effect   • Tax-exempt property   • Tax-exempt bond-financed property   • Imported property2   • Any property for which you elect to use this method1 GDS using  200% DB • Nonfarm 3-, 5-, 7-, and 10-year property 1Elective method 2See section 168(g)(6) of the Internal Revenue  Code Property used in farming business. Irs e file 2013   For personal property placed in service after 1988 in a farming business, you must use the 150% declining balance method over a GDS recovery period or you can elect one of the following methods. Irs e file 2013 The straight line method over a GDS recovery period. Irs e file 2013 The straight line method over an ADS recovery period. Irs e file 2013 For property placed in service before 1999, you could have elected to use the 150% declining balance method using the ADS recovery periods for certain property classes. Irs e file 2013 If you made this election, continue to use the same method and recovery period for that property. Irs e file 2013 Real property. Irs e file 2013   You can depreciate real property using the straight line method under either GDS or ADS. Irs e file 2013 Switching to straight line. Irs e file 2013   If you use a declining balance method, you switch to the straight line method in the year it provides an equal or greater deduction. Irs e file 2013 If you use the MACRS percentage tables, discussed later under How Is the Depreciation Deduction Figured , you do not need to determine in which year your deduction is greater using the straight line method. Irs e file 2013 The tables have the switch to the straight line method built into their rates. Irs e file 2013 Fruit or nut trees and vines. Irs e file 2013   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a 10-year recovery period. Irs e file 2013 ADS required for some farmers. Irs e file 2013   If you elect not to apply the uniform capitalization rules to any plant shown in Table 6-1 of chapter 6 and produced in your farming business, you must use ADS for all property you place in service in any year the election is in effect. Irs e file 2013 See chapter 6 for a discussion of the application of the uniform capitalization rules to farm property. Irs e file 2013 Electing a different method. Irs e file 2013   As shown in the Depreciation Table , you can elect a different method for depreciation for certain types of property. Irs e file 2013 You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Irs e file 2013 However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). Irs e file 2013 Attach the election to the amended return and write “Filed pursuant to section 301. Irs e file 2013 9100-2” on the election statement. Irs e file 2013 File the amended return at the same address you filed the original return. Irs e file 2013 Once you make the election, you cannot change it. Irs e file 2013    If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. Irs e file 2013 However, you can make the election on a property-by-property basis for residential rental and nonresidential real property. Irs e file 2013 Straight line election. Irs e file 2013   Instead of using the declining balance method, you can elect to use the straight line method over the GDS recovery period. Irs e file 2013 Make the election by entering “S/L” under column (f) in Part III of Form 4562. Irs e file 2013 ADS election. Irs e file 2013   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. Irs e file 2013 ADS uses the straight line method of depreciation over the ADS recovery periods, which are generally longer than the GDS recovery periods. Irs e file 2013 The ADS recovery periods for many assets used in the business of farming are listed in Table 7–1. Irs e file 2013 Additional ADS recovery periods for other classes of property may be found in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. Irs e file 2013 How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed-in-service date, basis amount, recovery period, convention, and depreciation method that applies to your property. Irs e file 2013 Then you are ready to figure your depreciation deduction. Irs e file 2013 You can figure it in one of two ways. Irs e file 2013 You can use the percentage tables provided by the IRS. Irs e file 2013 You can figure your own deduction without using the tables. Irs e file 2013 Figuring your own MACRS deduction will generally result in a slightly different amount than using the tables. Irs e file 2013 Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. Irs e file 2013 These percentage tables are in Appendix A of Publication 946. Irs e file 2013 Rules for using the tables. Irs e file 2013   The following rules cover the use of the percentage tables. Irs e file 2013 You must apply the rates in the percentage tables to your property's unadjusted basis. Irs e file 2013 Unadjusted basis is the same basis amount you would use to figure gain on a sale but figured without reducing your original basis by any MACRS depreciation taken in earlier years. Irs e file 2013 You cannot use the percentage tables for a short tax year. Irs e file 2013 See chapter 4 of Publication 946 for information on how to figure the deduction for a short tax year. Irs e file 2013 You generally must continue to use them for the entire recovery period of the property. Irs e file 2013 You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to the property, which is depreciated as a separate property. Irs e file 2013 Basis adjustment due to casualty loss. Irs e file 2013   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Irs e file 2013 For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. Irs e file 2013 See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Irs e file 2013 Figuring depreciation using the 150% DB method and half-year convention. Irs e file 2013    Table 7-2 has the percentages for 3-, 5-, 7-, and 20-year property. Irs e file 2013 The percentages are based on the 150% declining balance method with a change to the straight line method. Irs e file 2013 This table covers only the half-year convention and the first 8 years for 20-year property. Irs e file 2013 See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. Irs e file 2013   The following examples show how to figure depreciation under MACRS using the percentages in Table 7-2 . Irs e file 2013 Example 1. Irs e file 2013 During the year, you bought an item of 7-year property for $10,000 and placed it in service. Irs e file 2013 You do not elect a section 179 expense deduction for this property. Irs e file 2013 In addition, the property is not qualified property for purposes of the special depreciation allowance. Irs e file 2013 The unadjusted basis of the property is $10,000. Irs e file 2013 You use the percentages in Table 7-2 to figure your deduction. Irs e file 2013 Since this is 7-year property, you multiply $10,000 by 10. Irs e file 2013 71% to get this year's depreciation of $1,071. Irs e file 2013 For next year, your depreciation will be $1,913 ($10,000 × 19. Irs e file 2013 13%). Irs e file 2013 Example 2. Irs e file 2013 You had a barn constructed on your farm at a cost of $20,000. Irs e file 2013 You placed the barn in service this year. Irs e file 2013 You elect not to claim the special depreciation allowance. Irs e file 2013 The barn is 20-year property and you use the table percentages to figure your deduction. Irs e file 2013 You figure this year's depreciation by multiplying $20,000 (unadjusted basis) by 3. Irs e file 2013 75% to get $750. Irs e file 2013 For next year, your depreciation will be $1,443. Irs e file 2013 80 ($20,000 × 7. Irs e file 2013 219%). Irs e file 2013 Table 7-2. Irs e file 2013 150% Declining Balance Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 25. Irs e file 2013 0 % 15. Irs e file 2013 00 % 10. Irs e file 2013 71 % 3. Irs e file 2013 750 % 2 37. Irs e file 2013 5   25. Irs e file 2013 50   19. Irs e file 2013 13   7. Irs e file 2013 219   3 25. Irs e file 2013 0   17. Irs e file 2013 85   15. Irs e file 2013 03   6. Irs e file 2013 677   4 12. Irs e file 2013 5   16. Irs e file 2013 66   12. Irs e file 2013 25   6. Irs e file 2013 177   5     16. Irs e file 2013 66   12. Irs e file 2013 25   5. Irs e file 2013 713   6     8. Irs e file 2013 33   12. Irs e file 2013 25   5. Irs e file 2013 285   7         12. Irs e file 2013 25   4. Irs e file 2013 888   8         6. Irs e file 2013 13   4. Irs e file 2013 522   Figuring depreciation using the straight line method and half-year convention. Irs e file 2013   The following table has the straight line percentages for 3-, 5-, 7-, and 20-year property using the half-year convention. Irs e file 2013 The table covers only the first 8 years for 20-year property. Irs e file 2013 See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. Irs e file 2013 Table 7-3. Irs e file 2013 Straight Line Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 16. Irs e file 2013 67 % 10 % 7. Irs e file 2013 14 % 2. Irs e file 2013 5 % 2 33. Irs e file 2013 33   20   14. Irs e file 2013 29   5. Irs e file 2013 0   3 33. Irs e file 2013 33   20   14. Irs e file 2013 29   5. Irs e file 2013 0   4 16. Irs e file 2013 67   20   14. Irs e file 2013 28   5. Irs e file 2013 0   5     20   14. Irs e file 2013 29   5. Irs e file 2013 0   6     10   14. Irs e file 2013 28   5. Irs e file 2013 0   7         14. Irs e file 2013 29   5. Irs e file 2013 0   8         7. Irs e file 2013 14   5. Irs e file 2013 0