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

The U.S. Sentencing Commission studies and develops sentencing policies for the federal courts. The Commission serves as an information resource for Congress, the executive, the courts and the public on matters relating to federal crime and sentencing as well.

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The Irs Free Tax Filing

Irs free tax filing 1. Irs free tax filing   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). Irs free tax filing  You can set up and make contributions to an IRA if you receive taxable compensation. Irs free tax filing Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. Irs free tax filing For more information about IRAs, see Publication 590. Irs free tax filing Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. Irs free tax filing The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. Irs free tax filing Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. Irs free tax filing Many types of educational assistance are tax free if they meet the requirements discussed here. Irs free tax filing Special rules apply to U. Irs free tax filing S. Irs free tax filing citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. Irs free tax filing For information about these rules, see Publication 54, Tax Guide for U. Irs free tax filing S. Irs free tax filing Citizens and Resident Aliens Abroad. Irs free tax filing Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. Irs free tax filing A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Irs free tax filing Amount of scholarship or fellowship. Irs free tax filing   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. Irs free tax filing This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. Irs free tax filing The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. Irs free tax filing Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. Irs free tax filing Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Irs free tax filing A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. Irs free tax filing (But for exceptions, see Payment for services,later. Irs free tax filing Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. Irs free tax filing Candidate for a degree. Irs free tax filing   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. Irs free tax filing Eligible educational institution. Irs free tax filing   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Irs free tax filing Qualified education expenses. Irs free tax filing   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Irs free tax filing These items must be required of all students in your course of instruction. Irs free tax filing Expenses that do not qualify. Irs free tax filing   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Irs free tax filing Payment for services. Irs free tax filing   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. Irs free tax filing This applies even if all candidates for a degree must perform the services to receive the degree. Irs free tax filing (See exceptions next. Irs free tax filing ) Exceptions. Irs free tax filing   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Irs free tax filing Example 1. Irs free tax filing You received a scholarship of $2,500. Irs free tax filing The scholarship was not received under either of the exceptions mentioned above. Irs free tax filing As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Irs free tax filing Of the $2,500 scholarship, $1,000 represents payment for teaching. Irs free tax filing The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Irs free tax filing Your qualified education expenses were at least $1,500. Irs free tax filing Assuming that all other conditions are met, $1,500 of your scholarship is tax free. Irs free tax filing The $1,000 you received for teaching is taxable. Irs free tax filing Example 2. Irs free tax filing You are a candidate for a degree at a medical school. Irs free tax filing You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. Irs free tax filing The terms of your scholarship require you to perform future services. Irs free tax filing A substantial penalty applies if you do not comply. Irs free tax filing The entire amount of your grant is taxable as payment for services in the year it is received. Irs free tax filing Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. Irs free tax filing Worksheet 1-1. Irs free tax filing    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. Irs free tax filing    Worksheet 1-1. Irs free tax filing Taxable Scholarship and Fellowship Income 1. Irs free tax filing Enter the total amount of any scholarship or fellowship for 2013. Irs free tax filing See Amount of scholarship or fellowship, earlier. Irs free tax filing 1. Irs free tax filing       If you are a degree candidate at an eligible educational institution, go to line 2. Irs free tax filing If you are not a degree candidate at an eligible educational institution, stop here. Irs free tax filing The entire amount is taxable. Irs free tax filing For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. Irs free tax filing       2. Irs free tax filing Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Irs free tax filing (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. Irs free tax filing ) 2. Irs free tax filing     3. Irs free tax filing Subtract line 2 from line 1 3. Irs free tax filing     4. Irs free tax filing Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. Irs free tax filing     5. Irs free tax filing Subtract line 4 from line 3 5. Irs free tax filing     6. Irs free tax filing Enter the amount of your qualified education expenses 6. Irs free tax filing     7. Irs free tax filing Enter the smaller of line 5 or line 6. Irs free tax filing This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. Irs free tax filing     8. Irs free tax filing Subtract line 7 from line 5 8. Irs free tax filing     9. Irs free tax filing Taxable part. Irs free tax filing Add lines 2, 4, and 8. Irs free tax filing See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. Irs free tax filing     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. Irs free tax filing You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. Irs free tax filing Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. Irs free tax filing If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. Irs free tax filing If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. Irs free tax filing You must report the taxable amount whether or not you received a Form W-2. Irs free tax filing If you receive an incorrect Form W-2, ask the payer for a corrected one. Irs free tax filing For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. Irs free tax filing How To Report How you report any taxable scholarship or fellowship income depends on which return you file. Irs free tax filing Form 1040EZ. Irs free tax filing   If you file Form 1040EZ, include the taxable amount in the total on line 1. Irs free tax filing If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. Irs free tax filing Form 1040A. Irs free tax filing   If you file Form 1040A, include the taxable amount in the total on line 7. Irs free tax filing If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. Irs free tax filing Form 1040. Irs free tax filing   If you file Form 1040, include the taxable amount in the total on line 7. Irs free tax filing If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. Irs free tax filing Schedule SE (Form 1040). Irs free tax filing   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. Irs free tax filing If your net earnings are $400 or more, you must pay self-employment tax. Irs free tax filing Use Schedule SE, Self-Employment Tax, to figure this tax. Irs free tax filing Form 1040NR. Irs free tax filing   If you file Form 1040NR, report the taxable amount on line 12. Irs free tax filing Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. Irs free tax filing S. Irs free tax filing Source Income Subject to Withholding. Irs free tax filing See the Instructions for Form 1040NR for more information. Irs free tax filing Form 1040NR-EZ. Irs free tax filing   If you file Form 1040NR-EZ, report the taxable amount on line 5. Irs free tax filing Generally, you must report the amount shown in box 2 of Form(s) 1042-S. Irs free tax filing See the Instructions for Form 1040NR-EZ for more information. Irs free tax filing Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. Irs free tax filing Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. Irs free tax filing Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. Irs free tax filing They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. Irs free tax filing Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. Irs free tax filing Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Irs free tax filing Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. Irs free tax filing Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Irs free tax filing Do not include these payments as income on your federal tax return. Irs free tax filing If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. Irs free tax filing This applies only to the part of your VA payments that is required to be used for education expenses. Irs free tax filing You may want to visit the Veteran's Administration website at www. Irs free tax filing gibill. Irs free tax filing va. Irs free tax filing gov for specific information about the various VA benefits for education. Irs free tax filing Example. Irs free tax filing You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Irs free tax filing Neither of these benefits is taxable and you do not report them on your tax return. Irs free tax filing You also want to claim an American opportunity credit on your return. Irs free tax filing You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). Irs free tax filing To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. Irs free tax filing You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. Irs free tax filing Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. Irs free tax filing This is called a “tuition reduction. Irs free tax filing ” You do not have to include a qualified tuition reduction in your income. Irs free tax filing A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. Irs free tax filing You do not have to use the tuition reduction at the eligible educational institution from which you received it. Irs free tax filing In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. Irs free tax filing The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. Irs free tax filing You must include in your income any tuition reduction you receive that is payment for your services. Irs free tax filing Eligible educational institution. Irs free tax filing   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Irs free tax filing Officers, owners, and highly compensated employees. Irs free tax filing   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. Irs free tax filing This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. Irs free tax filing The group must be defined under a reasonable classification set up by the employer. Irs free tax filing The classification must not discriminate in favor of owners, officers, or highly compensated employees. Irs free tax filing Payment for services. Irs free tax filing   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. Irs free tax filing This applies even if all candidates for a degree must perform the services to receive the degree. Irs free tax filing (See below for exceptions. Irs free tax filing ) Exceptions. Irs free tax filing   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Irs free tax filing Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. Irs free tax filing You are an employee of the eligible educational institution. Irs free tax filing You were an employee of the eligible educational institution, but you retired or left on disability. Irs free tax filing You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. Irs free tax filing You are the dependent child or spouse of an individual described in (1) through (3), above. Irs free tax filing Child of deceased parents. Irs free tax filing   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. Irs free tax filing Child of divorced parents. Irs free tax filing   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. Irs free tax filing Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. Irs free tax filing It is provided by an eligible educational institution. Irs free tax filing You are a graduate student who performs teaching or research activities for the educational institution. Irs free tax filing You must include in income any other tuition reductions for graduate education that you receive. Irs free tax filing How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. Irs free tax filing Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Irs free tax filing Prev  Up  Next   Home   More Online Publications