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Www h and r block com 7. Www h and r block com   Depreciation, Depletion, and Amortization Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Overview of DepreciationWhat Property Can Be Depreciated? What Property Cannot Be Depreciated? When Does Depreciation Begin and End? Can You Use MACRS To Depreciate Your Property? What Is the Basis of Your Depreciable Property? How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions? Section 179 Expense DeductionWhat Property Qualifies? What Property Does Not Qualify? How Much Can You Deduct? How Do You Elect the Deduction? When Must You Recapture the Deduction? Claiming the Special Depreciation AllowanceWhat is Qualified Property? How Can You Elect Not To Claim the Allowance? When Must You Recapture an Allowance Figuring Depreciation Under MACRSWhich Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS? What Is the Placed-in-Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies? Which Convention Applies? Which Depreciation Method Applies? How Is the Depreciation Deduction Figured? How Do You Use General Asset Accounts? When Do You Recapture MACRS Depreciation? Additional Rules for Listed PropertyWhat Is Listed Property? What Is the Business-Use Requirement? Do the Passenger Automobile Limits Apply? Depletion Who Can Claim Depletion? Figuring Depletion AmortizationBusiness Start-Up Costs Reforestation Costs Section 197 Intangibles What's New for 2013 Increased section 179 expense deduction dollar limits. Www h and r block com  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. Www h and r block com This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. Www h and r block com See Dollar Limits under Section 179 Expense Deduction , later. Www h and r block com Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. Www h and r block com . Www h and r block com  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Www h and r block com See Claiming the Special Depreciation Allowance , later. Www h and r block com Expiration of the 3- year recovery period for certain race horses. Www h and r block com  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. Www h and r block com Introduction If you buy or make improvements to farm property such as machinery, equipment, livestock, or a structure with a useful life of more than a year, you generally cannot deduct its entire cost in one year. Www h and r block com Instead, you must spread the cost over the time you use the property and deduct part of it each year. Www h and r block com For most types of property, this is called depreciation. Www h and r block com This chapter gives information on depreciation methods that generally apply to property placed in service after 1986. Www h and r block com For information on depreciating pre-1987 property, see Publication 534, Depreciating Property Placed in Service Before 1987. Www h and r block com Topics - This chapter discusses: Overview of depreciation Section 179 expense deduction Special depreciation allowance Modified Accelerated Cost Recovery System (MACRS) Listed property Basic information on cost depletion (including timber depletion) and percentage depletion Amortization of the costs of going into business, reforestation costs, the costs of pollution control facilities, and the costs of section 197 intangibles Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) T (Timber), Forest Activities Schedule 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Www h and r block com It is important to keep good records for property you depreciate. Www h and r block com Do not file these records with your return. Www h and r block com Instead, you should keep them as part of the permanent records of the depreciated property. Www h and r block com They will help you verify the accuracy of the depreciation of assets placed in service in the current and previous tax years. Www h and r block com For general information on recordkeeping, see Publication 583, Starting a Business and Keeping Records. Www h and r block com For specific information on keeping records for section 179 property and listed property, see Publication 946, How To Depreciate Property. Www h and r block com Overview of Depreciation This overview discusses basic information on the following. Www h and r block com What property can be depreciated. Www h and r block com What property cannot be depreciated. Www h and r block com When depreciation begins and ends. Www h and r block com Whether MACRS can be used to figure depreciation. Www h and r block com What is the basis of your depreciable property. Www h and r block com How to treat repairs and improvements. Www h and r block com When you must file Form 4562. Www h and r block com How you can correct depreciation claimed incorrectly. Www h and r block com What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, equipment, vehicles, certain livestock, and furniture. Www h and r block com You can also depreciate certain intangible property, such as copyrights, patents, and computer software. Www h and r block com To be depreciable, the property must meet all the following requirements. Www h and r block com It must be property you own. Www h and r block com It must be used in your business or income-producing activity. Www h and r block com It must have a determinable useful life. Www h and r block com It must have a useful life that extends substantially beyond the year you place it in service. Www h and r block com Property You Own To claim depreciation, you usually must be the owner of the property. Www h and r block com You are considered as owning property even if it is subject to a debt. Www h and r block com Leased property. Www h and r block com   You can depreciate leased property only if you retain the incidents of ownership in the property. Www h and r block com This means you bear the burden of exhaustion of the capital investment in the property. Www h and r block com Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Www h and r block com You can, however, depreciate any capital improvements you make to the leased property. Www h and r block com See Additions and Improvements under Which Recovery Period Applies in chapter 4 of Publication 946. Www h and r block com   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Www h and r block com However, you cannot depreciate the cost of the property if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased. Www h and r block com Life tenant. Www h and r block com   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Www h and r block com See Certain term interests in property , later, for an exception. Www h and r block com Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Www h and r block com If you use property to produce income (investment use), the income must be taxable. Www h and r block com You cannot depreciate property that you use solely for personal activities. Www h and r block com However, if you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the percentage of business or investment use. Www h and r block com Example 1. Www h and r block com   If you use your car for farm business, you can deduct depreciation based on its percentage of use in farming. Www h and r block com If you also use it for investment purposes, you can depreciate it based on its percentage of investment use. Www h and r block com Example 2. Www h and r block com   If you use part of your home for business, you may be able to deduct depreciation on that part based on its business use. Www h and r block com For more information, see Business Use of Your Home in chapter 4. Www h and r block com Inventory. Www h and r block com   You can never depreciate inventory because it is not held for use in your business. Www h and r block com Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Www h and r block com Livestock. Www h and r block com   Livestock purchased for draft, breeding, or dairy purposes can be depreciated only if they are not kept in an inventory account. Www h and r block com Livestock you raise usually has no depreciable basis because the costs of raising them are deducted and not added to their basis. Www h and r block com However, see Immature livestock under When Does Depreciation Begin and End , later, for a special rule. Www h and r block com Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Www h and r block com This means it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Www h and r block com Irrigation systems and water wells. Www h and r block com   Irrigation systems and wells used in a trade or business can be depreciated if their useful life can be determined. Www h and r block com You can depreciate irrigation systems and wells composed of masonry, concrete, tile, metal, or wood. Www h and r block com In addition, you can depreciate costs for moving dirt to construct irrigation systems and water wells composed of these materials. Www h and r block com However, land preparation costs for center pivot irrigation systems are not depreciable. Www h and r block com Dams, ponds, and terraces. Www h and r block com   In general, you cannot depreciate earthen dams, ponds, and terraces unless the structures have a determinable useful life. Www h and r block com What Property Cannot Be Depreciated? Certain property cannot be depreciated, even if the requirements explained earlier are met. Www h and r block com This includes the following. Www h and r block com Land. Www h and r block com You can never depreciate the cost of land because land does not wear out, become obsolete, or get used up. Www h and r block com The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Www h and r block com Although you cannot depreciate land, you can depreciate certain costs incurred in preparing land for business use. Www h and r block com See chapter 1 of Publication 946. Www h and r block com Property placed in service and disposed of in the same year. Www h and r block com Determining when property is placed in service is explained later. Www h and r block com Equipment used to build capital improvements. Www h and r block com You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Www h and r block com Intangible property such as section 197 intangibles. Www h and r block com This property does not have a determinable useful life and generally cannot be depreciated. Www h and r block com However, see Amortization , later. Www h and r block com Special rules apply to computer software (discussed below). Www h and r block com Certain term interests (discussed below). Www h and r block com Computer software. Www h and r block com   Computer software is generally not a section 197 intangible even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Www h and r block com It is readily available for purchase by the general public. Www h and r block com It is subject to a nonexclusive license. Www h and r block com It has not been substantially modified. Www h and r block com   If the software meets the tests above, it can be depreciated and may qualify for the section 179 expense deduction and the special depreciation allowance (if applicable), discussed later. Www h and r block com Certain term interests in property. Www h and r block com   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Www h and r block com This rule does not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Www h and r block com For more information, see chapter 1 of Publication 946. Www h and r block com When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Www h and r block com You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Www h and r block com Placed in Service Property is placed in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Www h and r block com Even if you are not using the property, it is in service when it is ready and available for its specific use. Www h and r block com Example. Www h and r block com You bought a planter for use in your farm business. Www h and r block com The planter was delivered in December 2012 after harvest was over. Www h and r block com You begin to depreciate the planter for 2012 because it was ready and available for its specific use in 2012, even though it will not be used until the spring of 2013. Www h and r block com If your planter comes unassembled in December 2012 and is put together in February 2013, it is not placed in service until 2013. Www h and r block com You begin to depreciate it in 2013. Www h and r block com If your planter was delivered and assembled in February 2013 but not used until April 2013, it is placed in service in February 2013, because this is when the planter was ready for its specified use. Www h and r block com You begin to depreciate it in 2013. Www h and r block com Fruit or nut trees and vines. Www h and r block com   If you acquire an orchard, grove, or vineyard before the trees or vines have reached the income-producing stage, and they have a preproductive period of more than 2 years, you must capitalize the preproductive-period costs under the uniform capitalization rules (unless you elect not to use these rules). Www h and r block com See chapter 6 for information about the uniform capitalization rules. Www h and r block com Your depreciation begins when the trees and vines reach the income-producing stage (that is, when they bear fruit, nuts, or grapes in quantities sufficient to commercially warrant harvesting). Www h and r block com Immature livestock. Www h and r block com   Depreciation for livestock begins when the livestock reaches the age of maturity. Www h and r block com If you bought immature livestock for drafting purposes, depreciation begins when they can be worked. Www h and r block com If you bought immature livestock for dairy purposes, depreciation begins when they can be milked. Www h and r block com If you bought immature livestock for breeding purposes, depreciation begins when they can be bred. Www h and r block com Your basis for depreciation is your initial cost for the immature livestock. Www h and r block com Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle. Www h and r block com For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Www h and r block com Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Www h and r block com This happens when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Www h and r block com Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Www h and r block com You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Www h and r block com You sell or exchange the property. Www h and r block com You convert the property to personal use. Www h and r block com You abandon the property. Www h and r block com You transfer the property to a supplies or scrap account. Www h and r block com The property is destroyed. Www h and r block com For information on abandonment of property, see chapter 8. Www h and r block com For information on destroyed property, see chapter 11 and Publication 547, Casualties, Disasters, and Thefts. Www h and r block com Can You Use MACRS To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most business and investment property placed in service after 1986. Www h and r block com MACRS is explained later under Figuring Depreciation Under MACRS . Www h and r block com You cannot use MACRS to depreciate the following property. Www h and r block com Property you placed in service before 1987. Www h and r block com Use the methods discussed in Publication 534. Www h and r block com Certain property owned or used in 1986. Www h and r block com See chapter 1 of Publication 946. Www h and r block com Intangible property. Www h and r block com Films, video tapes, and recordings. Www h and r block com Certain corporate or partnership property acquired in a nontaxable transfer. Www h and r block com Property you elected to exclude from MACRS. Www h and r block com For more information, see chapter 1 of Publication 946. Www h and r block com What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Www h and r block com To determine basis, you need to know the cost or other basis of your property. Www h and r block com Cost or other basis. Www h and r block com   The basis of property you buy is usually its cost plus amounts you paid for items such as sales tax, freight charges, and installation and testing fees. Www h and r block com The cost includes the amount you pay in cash, debt obligations, other property, or services. Www h and r block com   There are times when you cannot use cost as basis. Www h and r block com In these situations, the fair market value (FMV) or the adjusted basis of the property may be used. Www h and r block com Adjusted basis. Www h and r block com   To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Www h and r block com Basis adjustment for depreciation allowed or allowable. Www h and r block com   After you place your property in service, you must reduce the basis of the property by the depreciation allowed or allowable, whichever is greater. Www h and r block com Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Www h and r block com Depreciation allowable is depreciation you are entitled to deduct. Www h and r block com   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Www h and r block com   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Www h and r block com   For more information, see chapter 6. Www h and r block com How Do You Treat Repairs and Improvements? You generally deduct the cost of repairing business property in the same way as any other business expense. Www h and r block com However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Www h and r block com Treat improvements as separate depreciable property. Www h and r block com See chapter 1 of Publication 946 for more information. Www h and r block com Example. Www h and r block com You repair a small section on a corner of the roof of a barn that you rent to others. Www h and r block com You deduct the cost of the repair as a business expense. Www h and r block com However, if you replace the entire roof, the new roof is considered to be an improvement because it increases the value and lengthens the life for the property. Www h and r block com You depreciate the cost of the new roof. Www h and r block com Improvements to rented property. Www h and r block com   You can depreciate permanent improvements you make to business property you rent from someone else. Www h and r block com Do You Have To File Form 4562? Use Form 4562 to claim your deduction for depreciation and amortization. Www h and r block com You must complete and attach Form 4562 to your tax return if you are claiming any of the following. Www h and r block com A section 179 expense deduction for the current year or a section 179 carryover from a prior year. Www h and r block com Depreciation for property placed in service during the current year. Www h and r block com Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Www h and r block com Amortization of costs that began in the current year. Www h and r block com For more information, see the Instructions for Form 4562. Www h and r block com How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Www h and r block com You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Www h and r block com You claimed the incorrect amount because of a mathematical error made in any year. Www h and r block com You claimed the incorrect amount because of a posting error made in any year, for example, omitting an asset from the depreciation schedule. Www h and r block com You have not adopted a method of accounting for the property placed in service by you in tax years ending after December 29, 2003. Www h and r block com You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Www h and r block com Note. Www h and r block com You have adopted a method of accounting if you used the same incorrect method of depreciation for two or more consecutively filed returns. Www h and r block com If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Www h and r block com See the Instructions for Form 3115. Www h and r block com Section 179 Expense Deduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Www h and r block com This is the section 179 expense deduction. Www h and r block com You can elect the section 179 expense deduction instead of recovering the cost by taking depreciation deductions. Www h and r block com This part of the chapter explains the rules for the section 179 expense deduction. Www h and r block com It explains what property qualifies for the deduction, what property does not qualify for the deduction, the limits that may apply, how to elect the deduction, and when you may have to recapture the deduction. Www h and r block com For more information, see chapter 2 of Publication 946. Www h and r block com What Property Qualifies? To qualify for the section 179 expense deduction, your property must meet all the following requirements. Www h and r block com It must be eligible property. Www h and r block com It must be acquired for business use. Www h and r block com It must have been acquired by purchase. Www h and r block com Eligible Property To qualify for the section 179 expense deduction, your property must be one of the following types of depreciable property. Www h and r block com Tangible personal property. Www h and r block com Qualified real property. Www h and r block com (Special rules apply to qualified real property that you elect to treat as qualified section 179 real property. Www h and r block com For more information, see chapter 2 of Publication 946 and section 179(f) of the Internal Revenue Code. Www h and r block com ) Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services; A research facility used in connection with any of the activities in (a) above; or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. Www h and r block com Single purpose agricultural (livestock) or horticultural structures. Www h and r block com Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Www h and r block com Off-the-shelf computer software that is readily available for purchase by the general public, is subject to a nonexclusive lease, and has not been substantially modified. Www h and r block com Tangible personal property. Www h and r block com   Tangible personal property is any tangible property that is not real property. Www h and r block com It includes the following property. Www h and r block com Machinery and equipment. Www h and r block com Property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment. Www h and r block com Gasoline storage tanks and pumps at retail service stations. Www h and r block com Livestock, including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals. Www h and r block com Facility used for the bulk storage of fungible commodities. Www h and r block com   A facility used for the bulk storage of fungible commodities is qualifying property for purposes of the section 179 expense deduction if it is used in connection with any of the activities listed earlier in item (3)(a). Www h and r block com Bulk storage means the storage of a commodity in a large mass before it is used. Www h and r block com Grain bins. Www h and r block com   A grain bin is an example of a storage facility that is qualifying section 179 property. Www h and r block com It is a facility used in connection with the production of grain or livestock for the bulk storage of fungible commodities. Www h and r block com Single purpose agricultural or horticultural structures. Www h and r block com   A single purpose agricultural (livestock) or horticultural structure is qualifying property for purposes of the section 179 expense deduction. Www h and r block com Agricultural structure. Www h and r block com   A single purpose agricultural (livestock) structure is any building or enclosure specifically designed, constructed, and used for both the following reasons. Www h and r block com To house, raise, and feed a particular type of livestock and its produce. Www h and r block com To house the equipment, including any replacements, needed to house, raise, or feed the livestock. Www h and r block com For this purpose, livestock includes poultry. Www h and r block com   Single purpose structures are qualifying property if used, for example, to breed chickens or hogs, produce milk from dairy cattle, or produce feeder cattle or pigs, broiler chickens, or eggs. Www h and r block com The facility must include, as an integral part of the structure or enclosure, equipment necessary to house, raise, and feed the livestock. Www h and r block com Horticultural structure. Www h and r block com   A single purpose horticultural structure is either of the following. Www h and r block com A greenhouse specifically designed, constructed, and used for the commercial production of plants. Www h and r block com A structure specifically designed, constructed, and used for the commercial production of mushrooms. Www h and r block com Use of structure. Www h and r block com   A structure must be used only for the purpose that qualified it. Www h and r block com For example, a hog barn will not be qualifying property if you use it to house poultry. Www h and r block com Similarly, using part of your greenhouse to sell plants will make the greenhouse nonqualifying property. Www h and r block com   If a structure includes work space, the work space can be used only for the following activities. Www h and r block com Stocking, caring for, or collecting livestock or plants or their produce. Www h and r block com Maintaining the enclosure or structure. Www h and r block com Maintaining or replacing the equipment or stock enclosed or housed in the structure. Www h and r block com Property Acquired by Purchase To qualify for the section 179 expense deduction, your property must have been acquired by purchase. Www h and r block com For example, property acquired by gift or inheritance does not qualify. Www h and r block com Property acquired from a related person (that is, your spouse, ancestors, or lineal descendants) is not considered acquired by purchase. Www h and r block com Example. Www h and r block com Ken is a farmer. Www h and r block com He purchased two tractors, one from his brother and one from his father. Www h and r block com He placed both tractors in service in the same year he bought them. Www h and r block com The tractor purchased from his father does not qualify for the section 179 expense deduction because he is a related person (as defined above). Www h and r block com The tractor purchased from his brother does qualify for the deduction because Ken is not a related person (as defined above). Www h and r block com What Property Does Not Qualify? Land and improvements. Www h and r block com   Land and land improvements, do not qualify as section 179 property. Www h and r block com Land improvements include nonagricultural fences, swimming pools, paved parking areas, wharves, docks, bridges, and fences. Www h and r block com However, agricultural fences do qualify as section 179 property. Www h and r block com Similarly, field drainage tile also qualifies as section 179 property. Www h and r block com Excepted property. Www h and r block com   Even if the requirements explained in the preceding discussions are met, farmers cannot elect the section 179 expense deduction for the following property. Www h and r block com Certain property you lease to others (if you are a noncorporate lessor). Www h and r block com Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Www h and r block com Property used by a tax-exempt organization (other than a tax-exempt farmers' cooperative) unless the property is used mainly in a taxable unrelated trade or business. Www h and r block com Property used by governmental units or foreign persons or entities (except property used under a lease with a term of less than 6 months). Www h and r block com How Much Can You Deduct? Your section 179 expense deduction is generally the cost of the qualifying property. Www h and r block com However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. Www h and r block com These limits apply to each taxpayer, not to each business. Www h and r block com However, see Married individuals under Dollar Limits , later. Www h and r block com See also the special rules for applying the limits for partnerships and S corporations under Partnerships and S Corporations , later. Www h and r block com If you deduct only part of the cost of qualifying property as a section 179 expense deduction, you can generally depreciate the cost you do not deduct. Www h and r block com Use Part I of Form 4562 to figure your section 179 expense deduction. Www h and r block com Partial business use. Www h and r block com   When you use property for business and nonbusiness purposes, you can elect the section 179 expense deduction only if you use it more than 50% for business in the year you place it in service. Www h and r block com If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Www h and r block com Use the resulting business cost to figure your section 179 expense deduction. Www h and r block com Trade-in of other property. Www h and r block com   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 expense deduction includes only the cash you paid. Www h and r block com For example, if you buy (for cash and a trade-in) a new tractor for use in your business, your cost for the section 179 expense deduction is the cash you paid. Www h and r block com It does not include the adjusted basis of the old tractor you trade for the new tractor. Www h and r block com Example. Www h and r block com J-Bar Farms traded two cultivators having a total adjusted basis of $6,800 for a new cultivator costing $13,200. Www h and r block com They received an $8,000 trade-in allowance for the old cultivators and paid $5,200 cash for the new cultivator. Www h and r block com J-Bar also traded a used pickup truck with an adjusted basis of $8,000 for a new pickup truck costing $35,000. Www h and r block com They received a $5,000 trade-in allowance and paid $30,000 cash for the new pickup truck. Www h and r block com Only the cash paid by J-Bar qualifies for the section 179 expense deduction. Www h and r block com J-Bar's business costs that qualify for a section 179 expense deduction are $35,200 ($5,200 + $30,000). Www h and r block com Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 is $500,000. Www h and r block com If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 expense deduction among the items in any way, as long as the total deduction is not more than $500,000. Www h and r block com Qualified real property that you elect to treat as section 179 property is limited to $250,000 of the maximum section 179 deduction of $500,000 for 2013. Www h and r block com You do not have to claim the full $500,000. Www h and r block com For specific information on the section 179 dollar limits, see chapter 2 of Publication 946. Www h and r block com Reduced dollar limit for cost exceeding $2 million. Www h and r block com   If the cost of your qualifying section 179 property placed in service in 2013 is over $2 million, you must reduce the dollar limit (but not below zero) by the amount of cost over $2 million. Www h and r block com If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 expense deduction and you cannot carry over the cost that is more than $2,500,000. Www h and r block com Example. Www h and r block com This year, James Smith placed in service machinery costing $2,050,000. Www h and r block com Because this cost is $50,000 more than $2 million, he must reduce his dollar limit to $450,000 ($500,000 − $50,000). Www h and r block com Limits for sport utility vehicles. Www h and r block com   The total amount you can elect to deduct for certain sport utility vehicles and certain other vehicles placed in service in 2013 is $25,000. Www h and r block com This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, and highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. Www h and r block com   For more information, see chapter 2 of Publication 946. Www h and r block com Limits for passenger automobiles. Www h and r block com   For a passenger automobile that is placed in service in 2013, the total section 179 and depreciation deduction is limited. Www h and r block com See Do the Passenger Automobile Limits Apply , later. Www h and r block com Married individuals. Www h and r block com   If you are married, how you figure your section 179 expense deduction depends on whether you file jointly or separately. Www h and r block com If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Www h and r block com If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2 million. Www h and r block com You must allocate the dollar limit (after any reduction) equally between you, unless you both elect a different allocation. Www h and r block com If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. Www h and r block com Joint return after separate returns. Www h and r block com   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. Www h and r block com The dollar limit (after reduction for any cost of section 179 property over $2 million). Www h and r block com The total cost of section 179 property you and your spouse elected to expense on your separate returns. Www h and r block com Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Www h and r block com Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. Www h and r block com Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Www h and r block com See Carryover of disallowed deduction , later. Www h and r block com Taxable income. Www h and r block com   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Www h and r block com In addition to net income or loss from a sole proprietorship, partnership, or S corporation, net income or loss derived from a trade or business also includes the following items. Www h and r block com Section 1231 gains (or losses) as discussed in chapter 9. Www h and r block com Interest from working capital of your trade or business. Www h and r block com Wages, salaries, tips, or other pay earned by you (or your spouse if you file a joint return) as an employee of any employer. Www h and r block com   In addition, figure taxable income without regard to any of the following. Www h and r block com The section 179 expense deduction. Www h and r block com The self-employment tax deduction. Www h and r block com Any net operating loss carryback or carryforward. Www h and r block com Any unreimbursed employee business expenses. Www h and r block com Two different taxable income limits. Www h and r block com   In addition to the business income limit for your section 179 expense deduction, you may have a taxable income limit for some other deduction (for example, charitable contributions). Www h and r block com You may have to figure the limit for this other deduction taking into account the section 179 expense deduction. Www h and r block com If so, complete the following steps. Www h and r block com Step Action 1 Figure taxable income without the section 179 expense deduction or the other deduction. Www h and r block com 2 Figure a hypothetical section 179 expense deduction using the taxable income figured in Step 1. Www h and r block com 3 Subtract the hypothetical section 179 expense deduction figured in Step 2 from the taxable income figured in Step 1. Www h and r block com 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. Www h and r block com 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in  Step 1. Www h and r block com 6 Figure your actual section 179 expense deduction using the taxable income figured in Step 5. Www h and r block com 7 Subtract your actual section 179 expense deduction figured in Step 6 from the taxable income figured in Step 1. Www h and r block com 8 Figure your actual other deduction using the taxable income figured in Step 7. Www h and r block com Example. Www h and r block com On February 1, 2013, the XYZ farm corporation purchased and placed in service qualifying section 179 property that cost $500,000. Www h and r block com It elects to expense the entire $500,000 cost under section 179. Www h and r block com In June, the corporation gave a charitable contribution of $10,000. Www h and r block com A corporation's limit on charitable contributions is figured after subtracting any section 179 expense deduction. Www h and r block com The business income limit for the section 179 expense deduction is figured after subtracting any allowable charitable contributions. Www h and r block com XYZ's taxable income figured without the section 179 expense deduction or the deduction for charitable contributions is $520,000. Www h and r block com XYZ figures its section 179 expense deduction and its deduction for charitable contributions as follows. Www h and r block com Step 1. Www h and r block com Taxable income figured without either deduction is $520,000. Www h and r block com Step 2. Www h and r block com Using $520,000 as taxable income, XYZ's hypothetical section 179 expense deduction is $500,000. Www h and r block com Step 3. Www h and r block com $20,000 ($520,000 − $500,000). Www h and r block com Step 4. Www h and r block com Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. Www h and r block com Step 5. Www h and r block com $518,000 ($520,000 − $2,000). Www h and r block com Step 6. Www h and r block com Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 expense deduction. Www h and r block com Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 expense deduction. Www h and r block com Step 7. Www h and r block com $20,000 ($520,000 − $500,000). Www h and r block com Step 8. Www h and r block com Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. Www h and r block com Carryover of disallowed deduction. Www h and r block com   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. Www h and r block com   The amount you carry over is used in determining your section 179 expense deduction in the next year. Www h and r block com However, it is subject to the limits in that year. Www h and r block com If you place more than one property in service in a year, you can select the properties for which all or a part of the cost will be carried forward. Www h and r block com Your selections must be shown in your books and records. Www h and r block com Example. Www h and r block com Last year, Joyce Jones placed in service a machine that cost $8,000 and elected to deduct all $8,000 under section 179. Www h and r block com The taxable income from her business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) was $6,000. Www h and r block com Her section 179 expense deduction was limited to $6,000. Www h and r block com The $2,000 cost that was not allowed as a section 179 expense deduction (because of the business income limit) is carried to this year. Www h and r block com This year, Joyce placed another machine in service that cost $9,000. Www h and r block com Her taxable income from business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) is $10,000. Www h and r block com Joyce can deduct the full cost of the machine ($9,000) but only $1,000 of the carryover from last year because of the business income limit. Www h and r block com She can carry over the balance of $1,000 to next year. Www h and r block com Partnerships and S Corporations The section 179 expense deduction limits apply both to the partnership or S corporation and to each partner or shareholder. Www h and r block com The partnership or S corporation determines its section 179 expense deduction subject to the limits. Www h and r block com It then allocates the deduction among its partners or shareholders. Www h and r block com If you are a partner in a partnership or shareholder of an S corporation, you add the amount allocated from the partnership or S corporation to any section 179 costs not related to the partnership or S corporation and then apply the dollar limit to this total. Www h and r block com To determine any reduction in the dollar limit for costs over $560,000, you do not include any of the cost of section 179 property placed in service by the partnership or S corporation. Www h and r block com After you apply the dollar limit, you apply the business income limit to any remaining section 179 costs. Www h and r block com For more information, see chapter 2 of Publication 946. Www h and r block com Example. Www h and r block com In 2013, Partnership P placed in service section 179 property with a total cost of $2,160,000. Www h and r block com P must reduce its dollar limit by $160,000 ($2,160,000 − $2,000,000). Www h and r block com Its maximum section 179 expense deduction is $340,000 ($500,000 − $160,000), and it elects to expense that amount. Www h and r block com Because P's taxable income from the active conduct of all its trades or businesses for the year was $400,000, it can deduct the full $340,000. Www h and r block com P allocates $100,000 of its section 179 expense deduction and $110,000 of its taxable income to John, one of its partners. Www h and r block com John also conducts a business as a sole proprietor and in 2013, placed in service in that business, section 179 property costing $28,000. Www h and r block com John's taxable income from that business was $10,000. Www h and r block com In addition to the $100,000 allocated from P, he elects to expense the $28,000 of his sole proprietorship's section 179 costs. Www h and r block com However, John's deduction is limited to his business taxable income of $120,000 ($110,000 from P plus $10,000 from his sole proprietorship). Www h and r block com He carries over $8,000 ($128,000 − $120,000) of the elected section 179 costs to 2014. Www h and r block com How Do You Elect the Deduction? You elect to take the section 179 expense deduction by completing Part I of Form 4562. Www h and r block com If you elect the deduction for listed property, complete Part V of  Form 4562 before completing Part I. Www h and r block com   File Form 4562 with either of the following: Your original tax return (whether or not you filed it timely), or An amended return filed within the time prescribed by law. Www h and r block com An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Www h and r block com The amended return must also include any resulting adjustments to taxable income. Www h and r block com Revoking an election. Www h and r block com   An election (or any specification made in the election) to take a section 179 expense deduction for 2013 can be revoked without IRS approval by filing an amended return. Www h and r block com The amended return must be filed within the time prescribed by law. Www h and r block com The amended return must also include any resulting adjustments to taxable income (for example, allowable depreciation in that tax year for the item of section 179 property for which the election pertains. Www h and r block com ) Once made, the revocation is irrevocable. Www h and r block com When Must You Recapture the Deduction? You may have to recapture the section 179 expense deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. Www h and r block com In the year the business use drops to 50% or less, you include the recapture amount as ordinary income. Www h and r block com You also increase the basis of the property by the recapture amount. Www h and r block com Recovery periods for property are discussed later. Www h and r block com If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Www h and r block com Instead, use the rules for recapturing depreciation explained in  chapter 9 under Section 1245 Property. Www h and r block com   If the property is listed property, do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Www h and r block com Instead, use the rules for recapturing depreciation explained in chapter 5 of Publication 946 under Recapture of Excess Depreciation. Www h and r block com Figuring the recapture amount. Www h and r block com   To figure the amount to recapture, take the following steps. Www h and r block com Figure the allowable depreciation for the section 179 expense deduction you claimed. Www h and r block com Begin with the year you placed the property in service and include the year of recapture. Www h and r block com Subtract the depreciation figured in (1) from the section 179 expense deduction you actually claimed. Www h and r block com The result is the amount you must recapture. Www h and r block com Example. Www h and r block com In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. Www h and r block com The property is not listed property. Www h and r block com He elected a $5,000 section 179 expense deduction for the property and also elected not to claim a special depreciation allowance. Www h and r block com He used the property only for business in 2011 and 2012. Www h and r block com During 2013, he used the property 40% for business and 60% for personal use. Www h and r block com He figures his recapture amount as follows. Www h and r block com Section 179 expense deduction claimed (2011) $5,000 Minus: Allowable depreciation (instead of section 179 expense deduction):   2011 $1,250   2012 1,875   2013 ($1,250 × 40% (business)) 500 3,625 2013 — Recapture amount $1,375     Paul must include $1,375 in income for 2013. Www h and r block com Where to report recapture. Www h and r block com   Report any recapture of the section 179 expense deduction as ordinary income in Part IV of Form 4797 and include it in income on Schedule F (Form 1040). Www h and r block com Recapture for qualified section 179 GO Zone property. Www h and r block com   If any qualified section 179 GO Zone property ceases to be used in the GO Zone in a later year, you must recapture the benefit of the increased section 179 expense deduction as “other income. Www h and r block com ” Claiming the Special Depreciation Allowance For qualified property (defined below) placed in service in 2013, you can take an additional 50% special depreciation allowance. Www h and r block com The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS. Www h and r block com Figure the special depreciation allowance by multiplying the depreciable basis of the qualified property by 50%. Www h and r block com What is Qualified Property? For farmers, qualified property generally is certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Www h and r block com Certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Www h and r block com   Certain qualified property (defined below) acquired after December 31, 2007, and before January 1, 2014, is eligible for a 50% special depreciation allowance. Www h and r block com   Qualified property includes the following: Tangible property depreciated under the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less. Www h and r block com Water utility property. Www h and r block com Off-the-shelf computer software. Www h and r block com Qualified leasehold improvement property. Www h and r block com   Qualified property must also meet all of the following tests: You must have acquired qualified property by purchase after December 31, 2007. Www h and r block com If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. Www h and r block com Qualified property must be placed in service after December 31, 2007 and placed in service before January 1, 2014 (before January 1, 2015 for certain property with a long production period and for certain aircraft). Www h and r block com The original use of the property must begin with you after December 31, 2007. Www h and r block com For more information, see chapter 3 of Publication 946. Www h and r block com How Can You Elect Not To Claim the Allowance? You can elect, for any class of property, not to deduct the special depreciation allowance for all property in such class placed in service during the tax year. Www h and r block com To make the election, attach a statement to your return indicating the class of property for which you are making the election. Www h and r block 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 h and r block com However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Www h and r block com Attach the election statement to the amended return. Www h and r block com On the amended return, write “Filed pursuant to section 301. Www h and r block com 9100-2. Www h and r block com ” Once made, the election may not be revoked without IRS consent. Www h and r block com If you elect not to have the special depreciation allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. Www h and r block com 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. Www h and r block com For more information, see chapter 3 of Publication 946. Www h and r block com Figuring Depreciation Under MACRS The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. Www h and r block com MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Www h and r block com Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Www h and r block com To be sure you can use MACRS to figure depreciation for your property, see Can You Use MACRS To Depreciate Your Property, earlier. Www h and r block com This part explains how to determine which MACRS depreciation system applies to your property. Www h and r block com It also discusses the following information that you need to know before you can figure depreciation under MACRS. Www h and r block com Property's recovery class. Www h and r block com Placed-in-service date. Www h and r block com Basis for depreciation. Www h and r block com Recovery period. Www h and r block com Convention. Www h and r block com Depreciation method. Www h and r block com Finally, this part explains how to use this information to figure your depreciation deduction. Www h and r block com Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. Www h and r block com You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Www h and r block com Required use of ADS. Www h and r block com   You must use ADS for the following property. Www h and r block com All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. Www h and r block com Listed property used 50% or less in a qualified business use. Www h and r block com See Additional Rules for Listed Property , later. Www h and r block com Any tax-exempt use property. Www h and r block com Any tax-exempt bond-financed property. Www h and r block com Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. Www h and r block com Any tangible property used predominantly outside the United States during the year. Www h and r block com If you are required to use ADS to depreciate your property, you cannot claim the special depreciation allowance. Www h and r block com Electing ADS. Www h and r block com   Although your property may qualify for GDS, you can elect to use ADS. Www h and r block com The election generally must cover all property in the same property class you placed in service during the year. Www h and r block com However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Www h and r block com Once you make this election, you can never revoke it. Www h and r block com   You make the election by completing line 20 in Part III of Form 4562. Www h and r block com Which Property Class Applies Under GDS? The following is a list of the nine property classes under GDS. Www h and r block com 3-year property. Www h and r block com 5-year property. Www h and r block com 7-year property. Www h and r block com 10-year property. Www h and r block com 15-year property. Www h and r block com 20-year property. Www h and r block com 25-year property. Www h and r block com Residential rental property. Www h and r block com Nonresidential real property. Www h and r block com See Which Property Class Applies Under GDS in chapter 4 of Publication 946 for examples of the types of property included in each class. Www h and r block com What Is the Placed-in-Service Date? You begin to claim depreciation when your property is placed in service for use either in a trade or business or for the production of income. Www h and r block com The placed-in-service date for your property is the date the property is ready and available for a specific use. Www h and r block com It is therefore not necessarily the date it is first used. Www h and r block com If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. Www h and r block com See Placed in Service under When Does Depreciation Begin and End , earlier, for examples illustrating when property is placed in service. Www h and r block com What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. Www h and r block com Reduce that amount by any credits and deductions allocable to the property. Www h and r block com The following are examples of some of the credits and deductions that reduce basis. Www h and r block com Any deduction for section 179 property. Www h and r block com Any deduction for removal of barriers to the disabled and the elderly. Www h and r block com Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Www h and r block com Any special depreciation allowance. Www h and r block com Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Www h and r block com For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property , earlier. Www h and r block com Also, see chapter 6. Www h and r block com For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Www h and r block com Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Www h and r block com It is determined based on the depreciation system (GDS or ADS) used. Www h and r block com See Table 7-1 for recovery periods under both GDS and ADS for some commonly used assets. Www h and r block com For a complete list of recovery periods, see the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. Www h and r block com House trailers for farm laborers. Www h and r block com   To depreciate a house trailer you supply as housing for those who work on your farm, use one of the following recovery periods if the house trailer is mobile (it has wheels and a history of movement). Www h and r block com A 7-year recovery period under GDS. Www h and r block com A 10-year recovery period under ADS. Www h and r block com   However, if the house trailer is not mobile (its wheels have been removed and permanent utilities and pipes attached to it), use one of the following recovery periods. Www h and r block com A 20-year recovery period under GDS. Www h and r block com A 25-year recovery period under ADS. Www h and r block com Water wells. Www h and r block com   Water wells used to provide water for raising poultry and livestock are land improvements. Www h and r block com If they are depreciable, use one of the following recovery periods. Www h and r block com A 15-year recovery period under GDS. Www h and r block com A 20-year recovery period under ADS. Www h and r block com   The types of water wells that can be depreciated were discussed earlier in Irrigation systems and water wells under Property Having a Determinable Useful Life . Www h and r block com Table 7-1. Www h and r block com Farm Property Recovery Periods   Recovery Period in Years Assets GDS ADS Agricultural structures (single purpose) 10 15 Automobiles 5 5 Calculators and copiers 5 6 Cattle (dairy or breeding) 5 7 Communication equipment1 7 10 Computer and peripheral equipment 5 5 Drainage facilities 15 20 Farm buildings2 20 25 Farm machinery and equipment 7 10 Fences (agricultural) 7 10 Goats and sheep (breeding) 5 5 Grain bin 7 10 Hogs (breeding) 3 3 Horses (age when placed in service)     Breeding and working (12 years or less) 7 10 Breeding and working (more than 12 years) 3 10 Racing horses 3 12 Horticultural structures (single purpose) 10 15 Logging machinery and equipment3 5 6 Nonresidential real property 394 40 Office furniture, fixtures, and equipment (not calculators, copiers, or typewriters) 7 10 Paved lots 15 20 Residential rental property 27. Www h and r block com 5 40 Tractor units (over-the-road) 3 4 Trees or vines bearing fruit or nuts 10 20 Truck (heavy duty, unloaded weight 13,000 lbs. Www h and r block com or more) 5 6 Truck (actual weight less than 13,000 lbs) 5 5 Water wells 15 20 1 Not including communication equipment listed in other classes. Www h and r block com 2 Not including single purpose agricultural or horticultural structures. Www h and r block com 3 Used by logging and sawmill operators for cutting of timber. Www h and r block com 4 For property placed in service after May 12, 1993; for property placed in service before May 13, 1993,  the recovery period is 31. Www h and r block com 5 years. Www h and r block com Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Www h and r block com The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. Www h and r block com Use one of the following conventions. Www h and r block com The half-year convention. Www h and r block com The mid-month convention. Www h and r block com The mid-quarter convention. Www h and r block com For a detailed explanation of each convention, see Which Convention Applies in chapter 4 of Publication 946. Www h and r block com Also, see the Instructions for Form 4562. Www h and r block com Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Www h and r block com The 200% declining balance method over a GDS recovery period. Www h and r block com The 150% declining balance method over a GDS recovery period. Www h and r block com The straight line method over a GDS recovery period. Www h and r block com The straight line method over an ADS recovery period. Www h and r block com Depreciation Table. Www h and r block com   The following table lists the types of property you can depreciate under each method. Www h and r block com The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Www h and r block com Depreciation Table System/Method   Type of Property GDS using  150% DB • All property used in a farming business (except real property)   • All 15- and 20-year property   • Nonfarm 3-, 5-, 7-, and 10-year property1 GDS using SL • Nonresidential real property   • Residential rental property   • Trees or vines bearing fruit or nuts   • All 3-, 5-, 7-, 10-, 15-, and 20-year property1 ADS using SL • Property used predomi- nantly outside the United States   • Farm property used when an election not to apply the uniform capitalization rules is in effect   • Tax-exempt property   • Tax-exempt bond-financed property   • Imported property2   • Any property for which you elect to use this method1 GDS using  200% DB • Nonfarm 3-, 5-, 7-, and 10-year property 1Elective method 2See section 168(g)(6) of the Internal Revenue  Code Property used in farming business. Www h and r block com   For personal property placed in service after 1988 in a farming business, you must use the 150% declining balance method over a GDS recovery period or you can elect one of the following methods. Www h and r block com The straight line method over a GDS recovery period. Www h and r block com The straight line method over an ADS recovery period. Www h and r block com For property placed in service before 1999, you could have elected to use the 150% declining balance method using the ADS recovery periods for certain property classes. Www h and r block com If you made this election, continue to use the same method and recovery period for that property. Www h and r block com Real property. Www h and r block com   You can depreciate real property using the straight line method under either GDS or ADS. Www h and r block com Switching to straight line. Www h and r block com   If you use a declining balance method, you switch to the straight line method in the year it provides an equal or greater deduction. Www h and r block com If you use the MACRS percentage tables, discussed later under How Is the Depreciation Deduction Figured , you do not need to determine in which year your deduction is greater using the straight line method. Www h and r block com The tables have the switch to the straight line method built into their rates. Www h and r block com Fruit or nut trees and vines. Www h and r block com   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a 10-year recovery period. Www h and r block com ADS required for some farmers. Www h and r block com   If you elect not to apply the uniform capitalization rules to any plant shown in Table 6-1 of chapter 6 and produced in your farming business, you must use ADS for all property you place in service in any year the election is in effect. Www h and r block com See chapter 6 for a discussion of the application of the uniform capitalization rules to farm property. Www h and r block com Electing a different method. Www h and r block com   As shown in the Depreciation Table , you can elect a different method for depreciation for certain types of property. Www h and r block com You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Www h and r block 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 your return (excluding extensions). Www h and r block com Attach the election to the amended return and write “Filed pursuant to section 301. Www h and r block com 9100-2” on the election statement. Www h and r block com File the amended return at the same address you filed the original return. Www h and r block com Once you make the election, you cannot change it. Www h and r block com    If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. Www h and r block com However, you can make the election on a property-by-property basis for residential rental and nonresidential real property. Www h and r block com Straight line election. Www h and r block com   Instead of using the declining balance method, you can elect to use the straight line method over the GDS recovery period. Www h and r block com Make the election by entering “S/L” under column (f) in Part III of Form 4562. Www h and r block com ADS election. Www h and r block com   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. Www h and r block com ADS uses the straight line method of depreciation over the ADS recovery periods, which are generally longer than the GDS recovery periods. Www h and r block com The ADS recovery periods for many assets used in the business of farming are listed in Table 7–1. Www h and r block com Additional ADS recovery periods for other classes of property may be found in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. Www h and r block com How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed-in-service date, basis amount, recovery period, convention, and depreciation method that applies to your property. Www h and r block com Then you are ready to figure your depreciation deduction. Www h and r block com You can figure it in one of two ways. Www h and r block com You can use the percentage tables provided by the IRS. Www h and r block com You can figure your own deduction without using the tables. Www h and r block com Figuring your own MACRS deduction will generally result in a slightly different amount than using the tables. Www h and r block com Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. Www h and r block com These percentage tables are in Appendix A of Publication 946. Www h and r block com Rules for using the tables. Www h and r block com   The following rules cover the use of the percentage tables. Www h and r block com You must apply the rates in the percentage tables to your property's unadjusted basis. Www h and r block com Unadjusted basis is the same basis amount you would use to figure gain on a sale but figured without reducing your original basis by any MACRS depreciation taken in earlier years. Www h and r block com You cannot use the percentage tables for a short tax year. Www h and r block com See chapter 4 of Publication 946 for information on how to figure the deduction for a short tax year. Www h and r block com You generally must continue to use them for the entire recovery period of the property. Www h and r block com You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to the property, which is depreciated as a separate property. Www h and r block com Basis adjustment due to casualty loss. Www h and r block com   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Www h and r block com For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. Www h and r block com See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Www h and r block com Figuring depreciation using the 150% DB method and half-year convention. Www h and r block com    Table 7-2 has the percentages for 3-, 5-, 7-, and 20-year property. Www h and r block com The percentages are based on the 150% declining balance method with a change to the straight line method. Www h and r block com This table covers only the half-year convention and the first 8 years for 20-year property. Www h and r block com See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. Www h and r block com   The following examples show how to figure depreciation under MACRS using the percentages in Table 7-2 . Www h and r block com Example 1. Www h and r block com During the year, you bought an item of 7-year property for $10,000 and placed it in service. Www h and r block com You do not elect a section 179 expense deduction for this property. Www h and r block com In addition, the property is not qualified property for purposes of the special depreciation allowance. Www h and r block com The unadjusted basis of the property is $10,000. Www h and r block com You use the percentages in Table 7-2 to figure your deduction. Www h and r block com Since this is 7-year property, you multiply $10,000 by 10. Www h and r block com 71% to get this year's depreciation of $1,071. Www h and r block com For next year, your depreciation will be $1,913 ($10,000 × 19. Www h and r block com 13%). Www h and r block com Example 2. Www h and r block com You had a barn constructed on your farm at a cost of $20,000. Www h and r block com You placed the barn in service this year. Www h and r block com You elect not to claim the special depreciation allowance. Www h and r block com The barn is 20-year property and you use the table percentages to figure your deduction. Www h and r block com You figure this year's depreciation by multiplying $20,000 (unadjusted basis) by 3. Www h and r block com 75% to get $750. Www h and r block com For next year, your depreciation will be $1,443. Www h and r block com 80 ($20,000 × 7. Www h and r block com 219%). Www h and r block com Table 7-2. Www h and r block com 150% Declining Balance Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 25. Www h and r block com 0 % 15. Www h and r block com 00 % 10. Www h and r block com 71 % 3. Www h and r block com 750 % 2 37. Www h and r block com 5   25. Www h and r block com 50   19. Www h and r block com 13   7. Www h and r block com 219   3 25. Www h and r block com 0   17. Www h and r block com 85   15. Www h and r block com 03   6. Www h and r block com 677   4 12. Www h and r block com 5   16. Www h and r block com 66   12. Www h and r block com 25   6. Www h and r block com 177   5     16. Www h and r block com 66   12. Www h and r block com 25   5. Www h and r block com 713   6     8. Www h and r block com 33   12. Www h and r block com 25   5. Www h and r block com 285   7         12. Www h and r block com 25   4. Www h and r block com 888   8         6. Www h and r block com 13   4. Www h and r block com 522   Figuring depreciation using the straight line method and half-year convention. Www h and r block com   The following table has the straight line percentages for 3-, 5-, 7-, and 20-year property using the half-year convention. Www h and r block com The table covers only the first 8 years for 20-year property. Www h and r block com See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. Www h and r block com Table 7-3. Www h and r block com Straight Line Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 16. Www h and r block com 67 % 10 % 7. Www h and r block com 14 % 2. Www h and r block com 5 % 2 33. Www h and r block com 33   20   14. Www h and r block com 29   5. Www h and r block com 0   3 33. Www h and r block com 33   20   14. Www h and r block com 29   5. Www h and r block com 0   4 16. Www h and r block com 67   20   14. Www h and r block com 28   5. Www h and r block com 0   5     20   14. Www h and r block com 29   5. Www h and r block com 0   6     10   14. Www h and r block com 28   5. Www h and r block com 0   7         14. Www h and r block com 29   5. Www h and r block com 0   8         7. Www h and r block com 14   5. Www h and r block com 0    
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Understanding Your CP75A Notice

We’re auditing your tax return and need documentation to verify the Earned Income Credit (EIC), dependent exemption(s) and filing status you claimed.


What you need to do

  • Read the notice and the enclosed forms carefully. They explain the information you must send to us.
  • Provide copies of supporting documentation to verify the items we're auditing.
  • Complete the response form by indicating which items your supporting documentation addresses and return the form with the documents you are submitting.

You may want to

  • Review this notice with your tax preparer.
  • Call us for assistance at the toll-free telephone number listed in the top right corner of your notice.
  • Review the rules for claiming the Earned Income Credit and make sure that your child meets the four tests: the Relationship, Age, Residency and Joint Return tests, to qualify for EIC. Read more about the qualifying child rules.
  • Find out if you can claim the EIC if you don't have a qualifying child. Find the rules for those without a qualifying child here.

Answers to Common Questions

Why was my return selected for audit?
While most returns are accepted as filed, some are selected for examination. The IRS examines (or audits) some federal tax returns to determine if income, expenses, and credits are being reported accurately. The IRS selects returns for examination using various methods which include random sampling, computerized screening, and comparison of information received by the IRS such as Forms W-2 and 1099. Having your return selected for examination doesn't suggest that you made an error or were dishonest.

Can I claim the credit for my fiancé’s child?
No. You must be married to the child’s parent during the tax year in question to receive the earned income credit.

What do I need to send?
Refer to the Form 886-H you received with your notice. There is a separate form for each item being audited that explains what supporting documentation to send.

What if I can’t provide the requested documentation?
We'll disallow the items being audited and send you an examination report that shows the proposed changes to your tax return.

What if I did not file a tax return claiming the items you are questioning and someone else is using my name and social security number?
Contact us at the number listed on the top right corner of your notice. You can also refer to the IRS Identity Theft resource page for more information.

Can I file my tax return while I am being audited?
Yes, you should continue to file all required tax returns before the due date to avoid additional penalties and interest.


Tips for next year

Avoid errors that can delay your refund or result in the IRS denying your EITC claim. Find out the most common errors in claiming EITC here.

Page Last Reviewed or Updated: 07-Mar-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Www H And R Block Com

Www h and r block com Publication 225 - Introductory Material Table of Contents IntroductionOrdering forms and publications. Www h and r block com Tax questions. Www h and r block com Future Developments What's New for 2013 What's New for 2014 Reminders Introduction You are in the business of farming if you cultivate, operate, or manage a farm for profit, either as owner or tenant. Www h and r block com A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. Www h and r block com It also includes plantations, ranches, ranges, and orchards. Www h and r block com This publication explains how the federal tax laws apply to farming. Www h and r block com Use this publication as a guide to figure your taxes and complete your farm tax return. Www h and r block com If you need more information on a subject, get the specific IRS tax publication covering that subject. Www h and r block com We refer to many of these free publications throughout this publication. Www h and r block com See chapter 16 for information on ordering these publications. Www h and r block com The explanations and examples in this publication reflect the Internal Revenue Service's interpretation of tax laws enacted by Congress, Treasury regulations, and court decisions. Www h and r block com However, the information given does not cover every situation and is not intended to replace the law or change its meaning. Www h and r block com This publication covers subjects on which a court may have made a decision more favorable to taxpayers than the interpretation of the Service. Www h and r block com Until these differing interpretations are resolved by higher court decisions, or in some other way, this publication will continue to present the interpretation of the Service. Www h and r block com The IRS Mission. Www h and r block com   Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Www h and r block com Comments and suggestions. Www h and r block com   We welcome your comments about this publication and your suggestions for future editions. Www h and r block com   You can write to us at the following address: Internal Revenue Service Business Forms and Publications Branch SE:W:CAR:MP:T:B 1111 Constitution Ave. Www h and r block com NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Www h and r block com Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Www h and r block com   You can email us at taxforms@irs. Www h and r block com gov. Www h and r block com Please put “Publications Comment” on the subject line. Www h and r block com You can also send us comments from www. Www h and r block com irs. Www h and r block com gov/formspubs/, select “Comment on Tax Forms and Publications” under “More Information. Www h and r block com ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Www h and r block com Ordering forms and publications. Www h and r block com   Visit www. Www h and r block com irs. Www h and r block com gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Www h and r block com Internal Revenue Service 1201 N. Www h and r block com Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Www h and r block com   If you have a tax question, check the information available on IRS. Www h and r block com gov or call 1-800-829-1040. Www h and r block com We cannot answer tax questions sent to either of the above addresses. Www h and r block com Comments on IRS enforcement actions. Www h and r block com   The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were established to receive comments from small business about federal agency enforcement actions. Www h and r block com The Ombudsman will annually evaluate the enforcement activities of each agency and rate its responsiveness to small business. Www h and r block com If you wish to comment on the enforcement actions of the IRS, you can: Call 1-888-734-3247, Fax your comments to 202-481-5719, Write to Office of the National Ombudsman U. Www h and r block com S. Www h and r block com Small Business Administration 409 3rd Street, S. Www h and r block com W. Www h and r block com  Washington, DC 20416 Send an email to ombudsman@sba. Www h and r block com gov, or Download the appraisal form at  www. Www h and r block com sba. Www h and r block com gov/ombudsman. Www h and r block com Treasury Inspector General for Tax Administration. Www h and r block com   If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (1-800-877-8339 for TTY/TDD users). Www h and r block com You can remain anonymous. Www h and r block com Farm tax classes. Www h and r block com   Many state Cooperative Extension Services conduct farm tax workshops in conjunction with the IRS. Www h and r block com Contact your county extension office for more information. Www h and r block com Rural tax education website. Www h and r block com   The Rural Tax Education website is a source for information concerning agriculturally related income and deductions and self-employment tax. Www h and r block com The website is available for farmers and ranchers, other agricultural producers, Extension educators, and any one interested in learning about the tax side of the agricultural community. Www h and r block com Members of the National Farm Income Tax Extension Committee are contributors for the website and the website is hosted by Utah State University Cooperative Extension. Www h and r block com You can visit the website at www. Www h and r block com ruraltax. Www h and r block com org. Www h and r block com Future Developments The IRS has created a page on IRS. Www h and r block com gov for information about Publication 225, at  www. Www h and r block com irs. Www h and r block com gov/pub225. Www h and r block com Information about recent developments affecting Publication 225 will be posted on that page. Www h and r block com What's New for 2013 The following items highlight a number of administrative and tax law changes for 2013. Www h and r block com They are discussed in more detail throughout the publication. Www h and r block com Standard mileage rate. Www h and r block com  For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. Www h and r block com 5 cents. Www h and r block com See chapter 4. Www h and r block com Simplified method for business use of home deduction. Www h and r block com  The IRS now provides a simplified method to determine your expenses for business use of your home. Www h and r block com For more information, see Schedule C (Form 1040), Part II, and its instructions. Www h and r block com See chapter 4. Www h and r block com Increased section 179 expense deduction dollar limits. Www h and r block com  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. Www h and r block com This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. Www h and r block com See chapter 7. Www h and r block com Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. Www h and r block com  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Www h and r block com See chapter 7. Www h and r block com Expiration of the 3-year recovery period for certain race horses. Www h and r block com . Www h and r block com  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. Www h and r block com See chapter 7. Www h and r block com Tax rates. Www h and r block com  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. Www h and r block com 4% to 12. Www h and r block com 4%. Www h and r block com As a result, the self-employment tax is increased from 13. Www h and r block com 3% to 15. Www h and r block com 3%. Www h and r block com See chapter 12. Www h and r block com Maximum net earnings. Www h and r block com  The maximum net self-employment earnings subject to the social security part (12. Www h and r block com 4%) of the self-employment tax increased to $113,700 for 2013. Www h and r block com There is no maximum limit on earnings subject to the Medicare part (2. Www h and r block com 9%). Www h and r block com See chapter 12. Www h and r block com Net investment income tax. Www h and r block com  For tax years beginning in 2013, individuals, estates, and trusts may be subject to the net investment income tax (NIIT). Www h and r block com If you are a trader in financial instruments and commodities and required to file Schedule C (Form 1040), your investment income (for purposes of the NIIT) may be reduced by your interest and other investment expenses to the extent those expenses are not used to reduce your self-employment income. Www h and r block com For information about NIIT and the special rule for traders in financial instruments and commodities, see the Instructions for Form 8960. Www h and r block com Social Security and Medicare Tax for 2013. Www h and r block com  The employee tax rate for social security is 6. Www h and r block com 2%. Www h and r block com The employer tax rate for social security remains unchanged at 6. Www h and r block com 2%. Www h and r block com The social security wage base limit is $113,700. Www h and r block com The Medicare tax rate is 1. Www h and r block com 45% each for the employee and employer, unchanged from 2012. Www h and r block com There is no wage base limit for Medicare tax. Www h and r block com See chapter 13. Www h and r block com Additional Medicare Tax. Www h and r block com  For tax years beginning in 2013, a 0. Www h and r block com 9% Additional Medicare Tax applies to your Medicare wages, Railroad Tax Act (RRTA) compensation, and self-employment income above a threshold amount. Www h and r block com Use Form 8959, Additional Medicare Tax, to figure this tax. Www h and r block com For more information, see the Instructions for Form 8959 and the Instructions for Schedule SE (Form 1040). Www h and r block com In addition to withholding Medicare tax at 1. Www h and r block com 45%, you must withhold a 0. Www h and r block com 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Www h and r block com You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Www h and r block com Additional Medicare Tax is only imposed on the employee. Www h and r block com There is no employer share of Additional Medicare Tax. Www h and r block com All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. Www h and r block com For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E), Employer's Tax Guide. Www h and r block com For more information on Additional Medicare Tax, visit IRS. Www h and r block com gov and enter “Additional Medicare Tax” in the search box. Www h and r block com See chapter 13. Www h and r block com Leave-Based donation programs to aid victims of Hurricane Sandy. Www h and r block com  Under these programs, employees may donate their vacation, sick, or personal leave in exchange for employer cash payments made before January 1, 2014, to qualified tax-exempt organizations providing relief for the victims of Hurricane Sandy. Www h and r block com The donated leave will not be included in the income or wages of the employee. Www h and r block com The employer may deduct the cash payments as business expenses or charitable contributions. Www h and r block com See chapter 13. Www h and r block com Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans extended. Www h and r block com  The work opportunity tax credit is now available for eligible unemployed veterans who begin work before January 1, 2014. Www h and r block com Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. Www h and r block com For more information, visit IRS. Www h and r block com gov and enter “work opportunity credit” in the search box. Www h and r block com See chapter 13. Www h and r block com Estimated tax. Www h and r block com  For tax years beginning in 2013, the Net Investment Income Tax (NIIT) may need to be included when calculating your estimated tax. Www h and r block com Also, when figuring your estimated tax, you may need to include the 0. Www h and r block com 9% Additional Medicare Tax applicable to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above the threshold amount based on your filing status. Www h and r block com For more information, see Publication 505. Www h and r block com What's New for 2014 Maximum net earnings. Www h and r block com  The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2014 will be discussed in the 2013 Publication 334. Www h and r block com See chapter 12. Www h and r block com Social security and Medicare tax for 2014. Www h and r block com  The employee and employer tax rates for social security and the maximum amount of wages subject to social security tax for 2014 will be discussed in Publication 51 (Circular A), Agricultural Employer's Tax Guide (For use in 2014). Www h and r block com The Medicare tax rate for 2014 will also be discussed in Publication 51 (Circular A) (For use in 2014). Www h and r block com There is no limit on the amount of wages subject to Medicare tax. Www h and r block com See chapter 13. Www h and r block com Reminders The following reminders and other items may help you file your tax return. Www h and r block com   IRS e-file (Electronic Filing) You can file your tax returns electronically using an IRS e-file option. Www h and r block com The benefits of IRS e-file include faster refunds, increased accuracy, and acknowledgment of IRS receipt of your return. Www h and r block com You can use one of the following IRS e-file options. Www h and r block com Use an authorized IRS e-file provider. Www h and r block com Use a personal computer. Www h and r block com Visit a Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) site. Www h and r block com For details on these fast filing methods, see your income tax package. Www h and r block com Principal agricultural activity codes. Www h and r block com  You must enter on line B of Schedule F (Form 1040) a code that identifies your principal agricultural activity. Www h and r block com It is important to use the correct code because this information will identify market segments of the public for IRS Taxpayer Education programs. Www h and r block com The U. Www h and r block com S. Www h and r block com Census Bureau also uses this information for its economic census. Www h and r block com See the list of Principal Agricultural Activity Codes on page 2 of Schedule F (Form 1040). Www h and r block com Publication on employer identification numbers (EIN). Www h and r block com  Publication 1635, Understanding Your Employer Identification Number, provides general information on employer identification numbers. Www h and r block com Topics include how to apply for an EIN and how to complete Form SS-4. Www h and r block com Change of address. Www h and r block com  If you change your home address, you should use Form 8822, Change of Addres, to notify the IRS. Www h and r block com If you change your business address, you should use Form 8822-B, Change of Address or Responsible Party — Business, to notify the IRS. Www h and r block com Be sure to include your suite, room, or other unit number. Www h and r block com Reportable transactions. Www h and r block com  You must file Form 8886, Reportable Transaction Disclosure Statement, to report certain transactions. Www h and r block com You may have to pay a penalty if you are required to file Form 8886 but do not do so. Www h and r block com Reportable transactions include (1) transactions the same as or substantially similar to tax avoidance transactions identified by the IRS, (2) transactions offered to you under conditions of confidentiality and for which you paid an advisor a minimum fee, (3) transactions for which you have or a related party has a right to a full or partial refund of fees if all or part of the intended tax consequences from the transaction are not sustained, (4) transactions that result in losses of at least $2 million in any single year or $4 million in any combination of years, and (5) transactions with asset holding periods of 45 days or less and that result in a tax credit of more than $250,000. Www h and r block com For more information, see the Instructions for Form 8886. Www h and r block com Form W-4 for 2014. Www h and r block com  You should make new Forms W-4 available to your employees and encourage them to check their income tax withholding for 2014. Www h and r block com Those employees who owed a large amount of tax or received a large refund for 2013 may need to submit a new Form W-4. Www h and r block com See Publication 919, How Do I Adjust My Tax Withholding. Www h and r block com Form 1099-MISC. Www h and r block com  Generally, file Form 1099-MISC if you pay at least $600 in rents, services, and other miscellaneous payments in your farming business to an individual (for example, an accountant, an attorney, or a veterinarian) who is not your employee. Www h and r block com Limited Liability Company (LLC). Www h and r block com  For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law. Www h and r block com Unlike a partnership, all of the members of an LLC have limited personal liability for its debts. Www h and r block com An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301. Www h and r block com 7701-3. Www h and r block com See Publication 3402 for more details. Www h and r block com Photographs of missing children. Www h and r block com  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Www h and r block com Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Www h and r block com You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Www h and r block com Prev  Up  Next   Home   More Online Publications