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Www. Www.1040ez.com 1040ez. Www.1040ez.com com Depreciation Table of Contents Introduction Special Depreciation AllowanceQualified Property Election Not To Claim the Allowance Rules for Returns Filed Before June 1, 2002 Passenger Automobiles New York Liberty Zone BenefitsSpecial Liberty Zone Depreciation Allowance Increased Section 179 Deduction Liberty Zone Leasehold Improvement Property If you depreciate business property that you acquired and placed in service after September 10, 2001, new law contains provisions that may affect your depreciation deduction for that property. Www.1040ez.com Publication 946, How To Depreciate Property, contains information on depreciation. Www.1040ez.com However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. Www.1040ez.com The new provisions are in the Supplement to Publication 946, which is reprinted below. Www.1040ez.com Supplement to Publication 946 How To Depreciate Property   Introduction After Publication 946 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. Www.1040ez.com The new law made several changes in the tax rules explained in the publication. Www.1040ez.com Some of the changes apply to property placed in service during 2001. Www.1040ez.com This supplemental publication describes those changes and explains what you should do if you are affected by them. Www.1040ez.com The situations and examples in Publication 946 do not reflect any of the changes made by the Job Creation and Worker Assistance Act of 2002. Www.1040ez.com The new law contains the following provisions. Www.1040ez.com 30% depreciation deductions (special depreciation allowance and special New York Liberty Zone (Liberty Zone) depreciation allowance) for the year qualified property is placed in service after September 10, 2001. Www.1040ez.com An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. Www.1040ez.com A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. Www.1040ez.com An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. Www.1040ez.com If you believe you qualify for an increased deduction under any of these new rules, you must file the revised 2001 Form 4562 (dated March 2002) for 2001 calendar or fiscal years and 2000 fiscal years ending after September 10, 2001. Www.1040ez.com If you have already filed a tax return, this supplemental publication explains how to claim these benefits and how to elect not to claim the special depreciation allowance or special Liberty Zone depreciation allowance. Www.1040ez.com See Table 2 at the end of the supplement for an overview of the rules that apply if you filed your return before June 1, 2002. Www.1040ez.com Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. Www.1040ez.com The allowance is an additional deduction of 30% of the property's depreciable basis. Www.1040ez.com To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Www.1040ez.com See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Www.1040ez.com The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Www.1040ez.com There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Www.1040ez.com In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Www.1040ez.com Example 1. Www.1040ez.com On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. Www.1040ez.com You did not elect to claim a section 179 deduction. Www.1040ez.com You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. Www.1040ez.com You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. Www.1040ez.com Example 2. Www.1040ez.com The facts are the same as in Example 1, except that you choose to deduct $24,000 of the property's cost as a section 179 deduction. Www.1040ez.com You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). Www.1040ez.com You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. Www.1040ez.com Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. Www.1040ez.com It is new property of one of the following types. Www.1040ez.com Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Www.1040ez.com See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Www.1040ez.com Water utility property. Www.1040ez.com See 25-year property on page 22 in Publication 946. Www.1040ez.com Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Www.1040ez.com (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Www.1040ez.com ) Qualified leasehold improvement property (defined later). Www.1040ez.com It meets the following tests (explained later under Tests To Be Met). Www.1040ez.com Acquisition date test. Www.1040ez.com Placed in service date test. Www.1040ez.com Original use test. Www.1040ez.com It is not excepted property (explained later under Excepted Property). Www.1040ez.com Qualified leasehold improvement property. Www.1040ez.com    Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the following requirements are met. Www.1040ez.com The improvement is made under or pursuant to a lease by the lessee (or any sublessee) or the lessor of that part of the building. Www.1040ez.com That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. Www.1040ez.com The improvement is placed in service more than 3 years after the date the building was first placed in service. Www.1040ez.com   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. Www.1040ez.com The enlargement of the building. Www.1040ez.com Any elevator or escalator. Www.1040ez.com Any structural component benefiting a common area. Www.1040ez.com The internal structural framework of the building. Www.1040ez.com   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. Www.1040ez.com However, a binding commitment between related persons is not treated as a lease. Www.1040ez.com Related persons. Www.1040ez.com   For this purpose, the following are related persons. Www.1040ez.com Members of an affiliated group. Www.1040ez.com The persons listed in items (1) through (9) under Related persons on page 8 of Publication 946 (except that “80% or more” should be substituted for “more than 10%” each place it appears). Www.1040ez.com An executor and a beneficiary of the same estate. Www.1040ez.com Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. Www.1040ez.com Acquisition date test. Www.1040ez.com    Generally, you must have acquired the property either: After September 10, 2001, and before September 11, 2004, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or Pursuant to a written binding contract entered into after September 10, 2001, and before September 11, 2004. Www.1040ez.com   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001, and before September 11, 2004. Www.1040ez.com Placed in service date test. Www.1040ez.com   Generally, the property must be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. Www.1040ez.com   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Www.1040ez.com Original use test. Www.1040ez.com   The original use of the property must have begun with you after September 10, 2001. Www.1040ez.com “Original use” means the first use to which the property is put, whether or not by you. Www.1040ez.com Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. Www.1040ez.com Excepted Property The following property does not qualify for the special depreciation allowance. Www.1040ez.com Property used by any person before September 11, 2001. Www.1040ez.com Property required to be depreciated using ADS. Www.1040ez.com This includes listed property used 50% or less in a qualified business use. Www.1040ez.com Qualified New York Liberty Zone leasehold improvement property (defined next). Www.1040ez.com Qualified New York Liberty Zone leasehold improvement property. Www.1040ez.com   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. Www.1040ez.com The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). Www.1040ez.com The improvement is placed in service after September 10, 2001, and before January 1, 2007. Www.1040ez.com No written binding contract for the improvement was in effect before September 11, 2001. Www.1040ez.com Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. Www.1040ez.com If you make this election for any property, it applies to all property in the same property class placed in service during the year. Www.1040ez.com To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Www.1040ez.com When to make election. Www.1040ez.com   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. Www.1040ez.com   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). Www.1040ez.com Attach the election statement to the amended return. Www.1040ez.com At the top of the election statement, write “Filed pursuant to section 301. Www.1040ez.com 9100–2. Www.1040ez.com ” Revoking an election. Www.1040ez.com   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Www.1040ez.com A request to revoke the election is subject to a user fee. Www.1040ez.com Rules for Returns Filed Before June 1, 2002 The following rules apply if you placed qualified property in service after September 10, 2001, and filed your return before June 1, 2002. Www.1040ez.com The rules apply to returns for the following years. Www.1040ez.com 2000 fiscal years that end after September 10, 2001. Www.1040ez.com 2001 calendar and fiscal years. Www.1040ez.com Claiming the allowance. Www.1040ez.com   If you did not claim the allowance on your return and did not make the election not to claim the allowance, you can do either of the following to claim the allowance. Www.1040ez.com File an amended return by the due date (not including extensions) of your return for the year following the year the property was placed in service. Www.1040ez.com Write “Filed Pursuant to Rev. Www.1040ez.com Proc. Www.1040ez.com 2002–33” at the top of the amended return. Www.1040ez.com File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. Www.1040ez.com Your return must be filed by the due date (including extensions). Www.1040ez.com Write “Automatic Change Filed Under Rev. Www.1040ez.com Proc. Www.1040ez.com 2002–33” on the appropriate line of Form 3115. Www.1040ez.com You must also file a copy (with signature) of the completed Form 3115 with the IRS National Office no later than when you file the original with your return. Www.1040ez.com For more information about filing Form 3115, including the address to send it to, see Revenue Procedure 2002–9, Revenue Procedure 2002–19, and Revenue Procedure 2002–33. Www.1040ez.com Example 1. Www.1040ez.com You are an individual and you use the calendar year. Www.1040ez.com You placed qualified property in service for your business in December 2001. Www.1040ez.com You filed your 2001 income tax return before April 15, 2002. Www.1040ez.com You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. Www.1040ez.com You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. Www.1040ez.com Proc. Www.1040ez.com 2002–33” at the top of the amended return. Www.1040ez.com You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. Www.1040ez.com Example 2. Www.1040ez.com The facts concerning your 2001 return are the same as in Example 1. Www.1040ez.com In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. Www.1040ez.com You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. Www.1040ez.com Proc. Www.1040ez.com 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. Www.1040ez.com You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. Www.1040ez.com Electing not to claim the allowance. Www.1040ez.com   Generally, you have elected not to claim the special depreciation allowance for a class of property if you: Filed your return timely (including extensions) for the year you placed qualified property in service and indicated on a statement with the return that you are not claiming the allowance, or Filed your return timely and filed an amended return within 6 months of the due date of the original return (not including extensions) and indicated on a statement with the amended return that you are not claiming the allowance. Www.1040ez.com The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. Www.1040ez.com The statement can be either attached to or written on the return. Www.1040ez.com You can, for example, write “not deducting 30%” on Form 4562. Www.1040ez.com Deemed election. Www.1040ez.com   If you have not followed either of the procedures described above to elect not to claim the allowance, you may still be treated as making the election. Www.1040ez.com You will be treated as making the election if you meet both of the following conditions. Www.1040ez.com You filed your return for the year you placed the property in service and claimed depreciation, but not the special allowance, for any class of property. Www.1040ez.com You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. Www.1040ez.com See Claiming the allowance, earlier. Www.1040ez.com Passenger Automobiles The limit on your depreciation deduction (including any section 179 deduction) for any passenger automobile that is qualified property (defined earlier) placed in service after September 10, 2001, and for which you claim the special depreciation allowance is increased. Www.1040ez.com Generally, the limit is increased from $3,060 to $7,660. Www.1040ez.com However, if the automobile is a qualified electric car, the limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002). Www.1040ez.com Table 1 shows the maximum deduction amounts for 2001. Www.1040ez.com Table 1. Www.1040ez.com Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. Www.1040ez.com 11 Placed in Service After Sept. Www.1040ez.com 10 Passenger automobile $3,060 $7,660 Electric car 9,280 23,080 1 1$22,980 if you place an electric car in service in 2002. Www.1040ez.com Election not to claim the allowance. Www.1040ez.com   The increased maximum depreciation deduction does not apply if you elected not to claim the special depreciation allowance as explained earlier under Election Not To Claim the Allowance and Rules for Returns Filed Before June 1, 2002. Www.1040ez.com New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). Www.1040ez.com They include a special depreciation allowance for the year you place the property in service, an increased section 179 deduction, and the classification of certain leasehold improvement property as 5-year property. Www.1040ez.com Area defined. Www.1040ez.com   The New York Liberty Zone is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York. Www.1040ez.com Special Liberty Zone Depreciation Allowance You can take a special depreciation allowance for qualified Liberty Zone property you place in service after September 10, 2001. Www.1040ez.com The allowance is an additional deduction of 30% of the property's depreciable basis. Www.1040ez.com To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Www.1040ez.com See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Www.1040ez.com The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Www.1040ez.com There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Www.1040ez.com In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Www.1040ez.com You cannot claim the special Liberty Zone depreciation allowance for property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Www.1040ez.com Qualified property is eligible for only one special depreciation allowance. Www.1040ez.com Example 1. Www.1040ez.com On November 1, 2001, you bought and placed in service in your business, which is in the Liberty Zone, qualified Liberty Zone property that cost $200,000. Www.1040ez.com You did not elect to claim a section 179 deduction. Www.1040ez.com You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. Www.1040ez.com You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. Www.1040ez.com Example 2. Www.1040ez.com The facts are the same as in Example 1, except that you choose to deduct $59,000 of the property's cost as a section 179 deduction. Www.1040ez.com (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). Www.1040ez.com You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). Www.1040ez.com You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. Www.1040ez.com Qualified Liberty Zone Property For a 2001 calendar or fiscal year and a 2000 fiscal year that ends after September 10, 2001, property qualifies for the special Liberty Zone depreciation allowance if it meets the following requirements. Www.1040ez.com It is one of the following types of property. Www.1040ez.com Used property depreciated under MACRS with a recovery period of 20 years or less. Www.1040ez.com See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Www.1040ez.com Used water utility property. Www.1040ez.com See 25-year property on page 22 in Publication 946. Www.1040ez.com Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Www.1040ez.com (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Www.1040ez.com ) Certain nonresidential real property and residential rental property (defined later). Www.1040ez.com It meets the following tests (explained later under Tests to be met). Www.1040ez.com Acquisition date test. Www.1040ez.com Placed in service date test. Www.1040ez.com Substantial use test. Www.1040ez.com Original use test. Www.1040ez.com It is not excepted property (explained later under Excepted property). Www.1040ez.com Nonresidential real property and residential rental property. Www.1040ez.com   This property is qualifying property only to the extent it rehabilitates real property damaged, or replaces real property destroyed or condemned, as a result of the terrorist attack of September 11, 2001. Www.1040ez.com Property is treated as replacing destroyed or condemned property if, as part of an integrated plan, such property replaces real property included in a continuous area that includes real property destroyed or condemned. Www.1040ez.com   For these purposes, real property is considered destroyed (or condemned) only if an entire building or structure was destroyed (or condemned) as a result of the terrorist attack. Www.1040ez.com Otherwise, the property is considered damaged real property. Www.1040ez.com For example, if certain structural components of a building (such as walls, floors, or plumbing fixtures) are damaged or destroyed as a result of the terrorist attack, but the building is not destroyed (or condemned), then only costs related to replacing the damaged or destroyed structural components qualify for the special Liberty Zone depreciation allowance. Www.1040ez.com Tests to be met. Www.1040ez.com   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. Www.1040ez.com Acquisition date test. Www.1040ez.com   You must have acquired the property by purchase after September 10, 2001, and there must not have been a binding written contract for the acquisition in effect before September 11, 2001. Www.1040ez.com   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. Www.1040ez.com   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001. Www.1040ez.com Placed in service date test. Www.1040ez.com   Generally, the property must be placed in service for use in your trade or business or for the production of income before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property). Www.1040ez.com   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Www.1040ez.com Substantial use test. Www.1040ez.com   Substantially all use of the property must be in the Liberty Zone and in the active conduct of your trade or business in the Liberty Zone. Www.1040ez.com Original use test. Www.1040ez.com   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. Www.1040ez.com   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. Www.1040ez.com Also, additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test if the original use of the property in the Liberty Zone began with you. Www.1040ez.com Excepted property. Www.1040ez.com   The following property does not qualify for the special Liberty Zone depreciation allowance. Www.1040ez.com Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Www.1040ez.com Property required to be depreciated using ADS. Www.1040ez.com This includes listed property used 50% or less in a qualified business use. Www.1040ez.com Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). Www.1040ez.com Example. Www.1040ez.com In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. Www.1040ez.com New office furniture with a MACRS recovery period of 7 years. Www.1040ez.com A used computer with a MACRS recovery period of 5 years. Www.1040ez.com The computer had not previously been used within the Liberty Zone. Www.1040ez.com Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. Www.1040ez.com Because the computer is used property that had not previously been used in the Liberty Zone, it qualifies for the special Liberty Zone depreciation allowance, but not the special depreciation allowance. Www.1040ez.com Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. Www.1040ez.com If you make this election for any property, it applies to all property in the same property class placed in service during the year. Www.1040ez.com To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Www.1040ez.com When to make the election. Www.1040ez.com   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. Www.1040ez.com   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). Www.1040ez.com Attach the election statement to the amended return. Www.1040ez.com At the top of the election statement, write “Filed pursuant to section 301. Www.1040ez.com 9100–2. Www.1040ez.com ” Revoking an election. Www.1040ez.com   Once you elect not to deduct the special Liberty Zone depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Www.1040ez.com A request to revoke the election is subject to a user fee. Www.1040ez.com Returns filed before June 1, 2002. Www.1040ez.com   The rules that apply to the special depreciation allowance discussed earlier in Rules for Returns Filed Before June 1, 2002 under Special Depreciation Allowance also apply to the special Liberty Zone depreciation allowance. Www.1040ez.com Increased Section 179 Deduction Under section 179 of the Internal Revenue Code, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Www.1040ez.com For tax years beginning in 2000, that limit was $20,000. Www.1040ez.com For tax years beginning in 2001 and 2002, that limit is generally $24,000. Www.1040ez.com If the cost of qualifying section 179 property placed in service in a year is over $200,000, you must reduce the dollar limit (but not below zero) by the amount of the cost over $200,000. Www.1040ez.com Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. Www.1040ez.com The increase is the smaller of the following amounts. Www.1040ez.com $35,000. Www.1040ez.com The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. Www.1040ez.com If you use the revised 2001 Form 4562 (dated March 2002) for a tax year beginning in 2000, you must reduce the section 179 dollar limit to $20,000 before adding the additional amount for qualified property. Www.1040ez.com Qualified property. Www.1040ez.com   To qualify for the increased section 179 deduction, your property must be section 179 property that is either: Qualified Liberty Zone property, or Property that would be qualified Liberty Zone property except that it is eligible for the special depreciation allowance. Www.1040ez.com Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. Www.1040ez.com Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. Www.1040ez.com For information on the requirements that must be met for property to qualify for the section 179 deduction, see What Property Qualifies? on page 14 of Publication 946. Www.1040ez.com Example 1. Www.1040ez.com In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. Www.1040ez.com Because this cost is less than $35,000, the dollar limit on the section 179 deduction is increased by $25,000 to $49,000 ($24,000 + $25,000). Www.1040ez.com Example 2. Www.1040ez.com In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. Www.1040ez.com Because $35,000 is less than the cost of the property you place in service, the dollar limit on the section 179 deduction you can claim is increased by $35,000 to $59,000 ($24,000 + $35,000). Www.1040ez.com Reduced Dollar Limit Generally, you must reduce the dollar limit for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. Www.1040ez.com However, if the cost of your Liberty Zone property exceeds $200,000, you take into account only 50% (instead of 100%) of the cost of qualified property placed in service in a year. Www.1040ez.com Example. Www.1040ez.com In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. Www.1040ez.com Your increased dollar limit is $59,000 ($35,000 + $24,000). Www.1040ez.com Because 50% of the cost of the property you place in service ($230,000) is $30,000 more than $200,000, you must reduce your $59,000 dollar limit to $29,000 ($59,000 - $30,000). Www.1040ez.com Recapture Rules Rules similar to those explained on page 20 of Publication 946 under When Must You Recapture the Deduction? apply with respect to any qualified property you stop using in the Liberty Zone. Www.1040ez.com Returns Filed Before June 1, 2002 If you filed a return before June 1, 2002, and did not deduct the increased section 179 amount for qualified property placed in service after September 10, 2001, you can deduct the increased amount by filing an amended return by the due date (not including extensions) of the return for the year after the year the property was placed in service. Www.1040ez.com This rule applies to returns for the following years. Www.1040ez.com 2000 fiscal years that end after September 10, 2001. Www.1040ez.com 2001 calendar and fiscal years. Www.1040ez.com On the amended return, write “Filed Pursuant to Rev. Www.1040ez.com Proc. Www.1040ez.com 2002–33. Www.1040ez.com ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. Www.1040ez.com This means that it is depreciated over a recovery period of 5 years. Www.1040ez.com For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. Www.1040ez.com The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. Www.1040ez.com Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. Www.1040ez.com Returns Filed Before June 1, 2002 If you filed either of the following returns before June 1, 2002, and did not depreciate qualified Liberty Zone leasehold improvement property placed in service during the tax year as 5-year property using the straight line method, you should file an amended return before you file your return for the year after the year the property was placed in service. Www.1040ez.com Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). Www.1040ez.com Your 2001 calendar or fiscal year return. Www.1040ez.com On the amended return, write “Filed Pursuant to Rev. Www.1040ez.com Proc. Www.1040ez.com 2002–33. Www.1040ez.com ” Table 2. Www.1040ez.com Rules for Returns Filed Before June 1, 2002 Note:This chart highlights the rules for returns affected by the Job Creation and Worker Assistance Act of 2002 that were filed before June 1, 2002, without accounting for any of the new benefits under the law. Www.1040ez.com See the text for definitions and examples. Www.1040ez.com Do not rely on this chart alone. Www.1040ez.com IF you want to. Www.1040ez.com . Www.1040ez.com . Www.1040ez.com THEN you. Www.1040ez.com . Www.1040ez.com . Www.1040ez.com BY. Www.1040ez.com . Www.1040ez.com . Www.1040ez.com claim the special depreciation allowance or special Liberty Zone depreciation allowance • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service, or • must file Form 3115, Application for Change in Accounting Method, with your return for the year after the year the property was placed in service • the due date (including extensions) of your return for the year after the year the property was placed in service, and • must file a copy of your completed Form 3115 with the IRS National Office • the date you file the original Form 3115 with your return for the year after the year the property was placed in service. Www.1040ez.com elect not to claim the special depreciation allowance or the special Liberty Zone depreciation allowance 1 • must have filed your return timely for the year the property was placed in service, and   • must file an amended return stating you are not claiming the allowance • the date that is 6 months after the due date of the original return (not including extensions). Www.1040ez.com deduct the increased section 179 amount • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service. Www.1040ez.com use a 5-year recovery period for depreciating qualified Liberty Zone leasehold improvement property • should file an amended return • the date you file your return for the year after the year the property was placed in service. Www.1040ez.com 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. Www.1040ez.com Prev  Up  Next   Home   More Online Publications
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Www. Www.1040ez.com 1040ez. Www.1040ez.com com Index A Accelerated death benefits, Accelerated Death Benefits Accounting periods Change in, standard deduction not allowed, Persons not eligible for the standard deduction. Www.1040ez.com Accrued leave payment Disability retirement and, Accrued leave payment. Www.1040ez.com Adjusted gross income (AGI), Adjustments to Income Adjustments to income, Adjustments to Income Age Standard deduction for age 65 or older, Higher standard deduction for age (65 or older). Www.1040ez.com Age 65, Qualified Individual American Association of Retired Persons (AARP), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. Www.1040ez.com Annuities, Pensions and Annuities Assistance (see Tax help) B Base amount, social security benefits, Base Amount Benefits Accident or health, Other compensation. Www.1040ez.com Long-term care, Long-Term Care Insurance Contracts No-fault insurance, Other compensation. Www.1040ez.com Sickness and injury, Sickness and Injury Benefits Social security, Are Any of Your Benefits Taxable? Veterans', Veterans' benefits. Www.1040ez.com Bequests, Gifts and inheritances. Www.1040ez.com Blind persons Standard deduction for, Higher standard deduction for blindness. Www.1040ez.com C Child and dependent care credit, Child and Dependent Care Credit Children Standard deduction for, Standard Deduction for Dependents Chronically ill persons, Chronically ill individual. Www.1040ez.com Chronically ill, defined, Terminally or chronically ill defined. Www.1040ez.com Compensation For services, Compensation for Services Loss or disfigurement, Other compensation. Www.1040ez.com Contributions Foreign employment, Foreign employment contributions. Www.1040ez.com Pension or annuity, Cost. Www.1040ez.com Cost, pension or annuity, Cost. Www.1040ez.com Credit Child and dependent care, Child and Dependent Care Credit Earned income, Earned Income Credit (EIC) The elderly or the disabled, Credit for the Elderly or the Disabled Credit for the elderly or the disabled, Credit for the Elderly or the Disabled D Death benefit, accelerated, Accelerated Death Benefits Decedents, Dependents. Www.1040ez.com Standard deduction, Decedent's final return. Www.1040ez.com Deductions Generally, Deductions Insurance premiums, Medical Insurance Premiums Itemized, Itemized Deductions Meals and lodging, Meals and Lodging Medical and dental, Medical and Dental Expenses Standard, Standard Deduction Dependents, Dependents. Www.1040ez.com Standard deduction for, Standard Deduction for Dependents Disabilities, individuals with Ownership and use test, Exception to use test for individuals with a disability. Www.1040ez.com Disability Person with, Persons with disabilities. Www.1040ez.com Physician's statement, Physician's statement. Www.1040ez.com Total and permanent, Permanent and total disability. Www.1040ez.com Disability income, Disability Pensions, Other compensation. Www.1040ez.com , Disability income. Www.1040ez.com Distributions, retirement plan, Retirement Plan Distributions Drugs (see Medicines) Dual-status taxpayers Standard deduction, Persons not eligible for the standard deduction. Www.1040ez.com E Early distributions, tax, Tax on Early Distributions Earned income credit, Earned Income Credit (EIC) Elderly or disabled credit, Credit for the Elderly or the Disabled Elderly persons Standard deduction for age 65 or older, Higher standard deduction for age (65 or older). Www.1040ez.com Employment tax withholding, Reminders Employment taxes, Employment taxes. Www.1040ez.com Endowment proceeds, Endowment Contract Proceeds Estimated tax, Tax Withholding and Estimated Tax, Estimated Tax, Who Must Make Estimated Tax Payments Excess accumulation, tax on, Tax on Excess Accumulation Exclusion, gain on sale of home, Maximum Amount of Exclusion F Federal Employees Compensation Act (FECA) payments, Federal Employees' Compensation Act (FECA). Www.1040ez.com Filing requirements Decedents, Dependents. Www.1040ez.com General requirements, General Requirements Surviving spouse, Surviving spouse. Www.1040ez.com Final return for decedent Standard deduction, Decedent's final return. Www.1040ez.com First-time homebuyer credit Recapture, Repaying the first-time homebuyer credit because you sold your home. Www.1040ez.com Form, Credit for the Elderly or the Disabled, Physician's statement. Www.1040ez.com 1099-R, Form 1099-R. Www.1040ez.com , Form 1099-R. Www.1040ez.com 5329, Form 5329. Www.1040ez.com 8853, Accelerated Death Benefits Schedule R, Credit for the Elderly or the Disabled, Physician's statement. Www.1040ez.com W-4P, Withholding. Www.1040ez.com Free tax services, Free help with your tax return. Www.1040ez.com G Gain on sale of home (see Sale of home) General rule, pension or annuity, Pensions and Annuities Gifts, Gifts and inheritances. Www.1040ez.com H Help (see Tax help) Home care (see Nursing services) Home improvements, Home Improvements Home, sale of, Sale of Home Hospital services, Hospital Services Household help, Household Help I Income Adjustments, Adjustments to Income Disability, Disability Pensions, Disability income. Www.1040ez.com Gross, defined, Gross income. Www.1040ez.com Nontaxable, Taxable and Nontaxable Income Sale of home, Sale of Home Self-employment, Self-employed persons. Www.1040ez.com Taxable, Taxable and Nontaxable Income Individual retirement arrangement (IRA) Adjustments to income, Individual Retirement Arrangement (IRA) Contributions and Deductions Contributions, Contributions. Www.1040ez.com Deductible contribution, Deductible contribution. Www.1040ez.com Distributions, Individual Retirement Arrangements (IRAs) Inheritances, Gifts and inheritances. Www.1040ez.com Injury benefits, Sickness and Injury Benefits, Cost paid by you. Www.1040ez.com Insurance Accident and health, Other compensation. Www.1040ez.com , Medical Insurance Premiums Benefits, long-term care, Long-Term Care Insurance Contracts Benefits, no-fault insurance, Other compensation. Www.1040ez.com Life insurance proceeds, Life Insurance Proceeds Proceeds paid after death, Life Insurance Proceeds Proceeds paid before death, Accelerated Death Benefits Insurance premiums for retired public safety officers, Insurance Premiums for Retired Public Safety Officers Itemized deductions, Itemized Deductions Married filing separately One spouse has itemized, Persons not eligible for the standard deduction. Www.1040ez.com L Life insurance proceeds, Life Insurance Proceeds Long-term care, Long-Term Care Chronically ill individuals, Chronically ill individual. Www.1040ez.com Maintenance and personal care services, Maintenance and personal care services. Www.1040ez.com Qualified insurance contracts, Qualified long-term care insurance contracts. Www.1040ez.com Qualified services, Qualified long-term care services. Www.1040ez.com Long-term care insurance, Long-Term Care Insurance Contracts Loss or disfigurement compensation, Other compensation. Www.1040ez.com Lump-sum distributions, Lump-sum distributions. Www.1040ez.com Lump-sum election, social security, Lump-Sum Election M Maintenance and personal care services, Maintenance and personal care services. Www.1040ez.com Married filing separately Itemized deductions One spouse has itemized so other must as well, Persons not eligible for the standard deduction. Www.1040ez.com Married taxpayers Age 65 or older spouse Standard deduction, Spouse 65 or older or blind. Www.1040ez.com Blind spouse Standard deduction, Spouse 65 or older or blind. Www.1040ez.com Meals and lodging expenses, Meals and Lodging Medical expenses, Medical and Dental Expenses Medicare, Medicare Part A. Www.1040ez.com , Medicare Part B. Www.1040ez.com , Medicare Part D. Www.1040ez.com Benefits, Medicare. Www.1040ez.com Medicines, Medicines Imported, Imported medicines and drugs. Www.1040ez.com Military retirement pay, Military Retirement Pay Minimum distributions, Tax on Excess Accumulation Minimum wage, Substantial gainful activity. Www.1040ez.com Missing children, Reminders Mortgage assistance payments, Mortgage assistance payments. Www.1040ez.com N Nonperiodic distributions, Nonperiodic Distributions Nonqualified use, Period of nonqualified use. Www.1040ez.com Nonresident aliens Standard deduction, Persons not eligible for the standard deduction. Www.1040ez.com Nontaxable income, Payments from a state fund for victims of crime. Www.1040ez.com Accident or health insurance benefits, Other compensation. Www.1040ez.com Bequests, Gifts and inheritances. Www.1040ez.com Generally, Taxable and Nontaxable Income Gifts, Gifts and inheritances. Www.1040ez.com Inheritances, Gifts and inheritances. Www.1040ez.com Mortgage assistance payments, Mortgage assistance payments. Www.1040ez.com No-fault insurance benefits, Other compensation. Www.1040ez.com Nutrition program for elderly, Nutrition Program for the Elderly. Www.1040ez.com Public assistance payments, Welfare benefits. Www.1040ez.com Sickness and injury benefits, Sickness and Injury Benefits Veterans' benefits, Veterans' benefits. Www.1040ez.com Winter energy use, Payments to reduce cost of winter energy use. Www.1040ez.com Workers' compensation, Workers' Compensation Nursing home, Nursing home. Www.1040ez.com Nursing services, Nursing Services Chronically ill individuals, Chronically ill individual. Www.1040ez.com Nutrition program for elderly, Nutrition Program for the Elderly. Www.1040ez.com O Old-age, survivors, and disability insurance benefits (OASDI), Old-age, survivors, and disability insurance benefits (OASDI). Www.1040ez.com Other items, Other Items Overall limitation, Overall limitation. Www.1040ez.com P Payments, estimated tax, Estimated Tax Pensions, Pensions and Annuities Pensions, disability, Disability Pensions Photographs, missing children, Reminders Physician's statement, disability, Physician's statement. Www.1040ez.com Prepaid insurance premiums, Prepaid insurance premiums. Www.1040ez.com Preparer, paid, Reminders Preparing your return, Return preparation assistance. Www.1040ez.com Profit-sharing plan, Retirement and profit-sharing plans. Www.1040ez.com Public assistance payments, Welfare benefits. Www.1040ez.com Publications (see Tax help) Q Qualified retirement plan, Tax on Early Distributions R Railroad retirement benefits, Railroad Retirement Benefits, Social Security and Equivalent Railroad Retirement Benefits Repayments Social security benefits, Repayment of Benefits Reporting pension income, How to report. Www.1040ez.com Residence, sale of, Sale of Home Retirement plans, distributions, Retirement Plan Distributions Returns Decedent, Dependents. Www.1040ez.com Executors and administrators, Dependents. Www.1040ez.com Filing requirements, 2013 Filing Requirements Surviving spouse, Surviving spouse. Www.1040ez.com Reverse mortgages, Reverse Mortgages S Salaries (see Compensation) Sale of Home First-time homebuyer credit, Repaying the first-time homebuyer credit because you sold your home. Www.1040ez.com Surviving spouse, Reminders Sale of home, Sale of Home Self-employed, Self-employed persons. Www.1040ez.com Short tax year Change in annual accounting period, Persons not eligible for the standard deduction. Www.1040ez.com Sickness and injury benefits, Sickness and Injury Benefits Simplified method, Pensions and Annuities Social security benefits, Social Security and Equivalent Railroad Retirement Benefits Standard deduction, Standard Deduction Age 65 or older, Higher standard deduction for age (65 or older). Www.1040ez.com Blind persons, Higher standard deduction for blindness. Www.1040ez.com Dependents, Standard Deduction for Dependents Final return of decedent, Decedent's final return. Www.1040ez.com Married filing separately One spouse has itemized, Persons not eligible for the standard deduction. Www.1040ez.com Starting date, annuity, Cost. Www.1040ez.com State fund for victims of crime, Payments from a state fund for victims of crime. Www.1040ez.com Substantial gainful activity, Substantial gainful activity. Www.1040ez.com Surrender of Iife insurance, Surrender of policy for cash. Www.1040ez.com Surviving Spouse, Reminders Surviving spouse, Surviving spouse. Www.1040ez.com Surviving spouse, insurance, Surviving spouse. Www.1040ez.com Survivors of retirees, Survivors of retirees. Www.1040ez.com T Tax Early distributions, Tax on Early Distributions Estimated, Tax Withholding and Estimated Tax, Estimated Tax Excess accumulation, Tax on Excess Accumulation Tax counseling for the elderly (TCE), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. Www.1040ez.com Tax help, How To Get Tax Help Tax option, 10-year, Lump-sum distributions. Www.1040ez.com Tax return preparers, Reminders Taxable income, Taxable and Nontaxable Income Taxation of benefits, Are Any of Your Benefits Taxable? Terminally ill, defined, Terminally or chronically ill defined. Www.1040ez.com Total and permanent disability, defined, Permanent and total disability. Www.1040ez.com Transportation expenses, Transportation TTY/TDD information, How To Get Tax Help U U. Www.1040ez.com S. Www.1040ez.com citizen or resident, U. Www.1040ez.com S. Www.1040ez.com citizen or resident alien. Www.1040ez.com Unemployment compensation, Unemployment compensation. Www.1040ez.com V Veterans' benefits, Veterans' benefits. Www.1040ez.com Viatical settlement, Accelerated Death Benefits Victims of crime, Payments from a state fund for victims of crime. Www.1040ez.com Volunteer income tax assistance (VITA), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. Www.1040ez.com Volunteer work, Volunteer work. Www.1040ez.com W Wages (see Compensation) Winter energy use payments, Payments to reduce cost of winter energy use. Www.1040ez.com Withholding Employment tax, Reminders Pensions and annuities, Withholding. Www.1040ez.com Workers' compensation, Workers' Compensation Worksheets, social security, Which worksheet to use. Www.1040ez.com Prev  Up     Home   More Online Publications