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1040ez Tax Forms Downloads

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1040ez tax forms downloads 3. 1040ez tax forms downloads   Ordinary or Capital Gain or Loss for Business Property Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. 1040ez tax forms downloads Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sales Gifts Transfers at Death Like-Kind Exchanges and Involuntary Conversions Multiple Properties Introduction When you dispose of business property, your taxable gain or loss is usually a section 1231 gain or loss. 1040ez tax forms downloads Its treatment as ordinary or capital is determined under rules for section 1231 transactions. 1040ez tax forms downloads When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. 1040ez tax forms downloads Any remaining gain is a section 1231 gain. 1040ez tax forms downloads Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 537 Installment Sales 547 Casualties, Disasters and Thefts 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) 4797 Sales of Business Property See chapter 5 for information about getting publications and forms. 1040ez tax forms downloads Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (discussed below). 1040ez tax forms downloads Their treatment as ordinary or capital depends on whether you have a net gain or a net loss from all your section 1231 transactions. 1040ez tax forms downloads If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). 1040ez tax forms downloads Do not take that gain into account as section 1231 gain. 1040ez tax forms downloads Section 1231 transactions. 1040ez tax forms downloads   The following transactions result in gain or loss subject to section 1231 treatment. 1040ez tax forms downloads Sales or exchanges of real property or depreciable personal property. 1040ez tax forms downloads This property must be used in a trade or business and held longer than 1 year. 1040ez tax forms downloads Generally, property held for the production of rents or royalties is considered to be used in a trade or business. 1040ez tax forms downloads Depreciable personal property includes amortizable section 197 intangibles (described in chapter 2 under Other Dispositions). 1040ez tax forms downloads Sales or exchanges of leaseholds. 1040ez tax forms downloads The leasehold must be used in a trade or business and held longer than 1 year. 1040ez tax forms downloads Sales or exchanges of cattle and horses. 1040ez tax forms downloads The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 2 years or longer. 1040ez tax forms downloads Sales or exchanges of other livestock. 1040ez tax forms downloads This livestock does not include poultry. 1040ez tax forms downloads It must be held for draft, breeding, dairy, or sporting purposes and held for 1 year or longer. 1040ez tax forms downloads Sales or exchanges of unharvested crops. 1040ez tax forms downloads The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person and the land must be held longer than 1 year. 1040ez tax forms downloads You cannot keep any right or option to directly or indirectly reacquire the land (other than a right customarily incident to a mortgage or other security transaction). 1040ez tax forms downloads Growing crops sold with a lease on the land, though sold to the same person in the same transaction, are not included. 1040ez tax forms downloads Cutting of timber or disposal of timber, coal, or iron ore. 1040ez tax forms downloads The cutting or disposal must be treated as a sale, as described in chapter 2 under Timber and Coal and Iron Ore. 1040ez tax forms downloads Condemnations. 1040ez tax forms downloads The condemned property must have been held longer than 1 year. 1040ez tax forms downloads It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. 1040ez tax forms downloads It cannot be property held for personal use. 1040ez tax forms downloads Casualties and thefts. 1040ez tax forms downloads The casualty or theft must have affected business property, property held for the production of rents and royalties, or investment property (such as notes and bonds). 1040ez tax forms downloads You must have held the property longer than 1 year. 1040ez tax forms downloads However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. 1040ez tax forms downloads For more information on casualties and thefts, see Publication 547. 1040ez tax forms downloads Property for sale to customers. 1040ez tax forms downloads   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. 1040ez tax forms downloads If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. 1040ez tax forms downloads Example. 1040ez tax forms downloads You manufacture and sell steel cable, which you deliver on returnable reels that are depreciable property. 1040ez tax forms downloads Customers make deposits on the reels, which you refund if the reels are returned within a year. 1040ez tax forms downloads If they are not returned, you keep each deposit as the agreed-upon sales price. 1040ez tax forms downloads Most reels are returned within the 1-year period. 1040ez tax forms downloads You keep adequate records showing depreciation and other charges to the capitalized cost of the reels. 1040ez tax forms downloads Under these conditions, the reels are not property held for sale to customers in the ordinary course of your business. 1040ez tax forms downloads Any gain or loss resulting from their not being returned may be capital or ordinary, depending on your section 1231 transactions. 1040ez tax forms downloads Copyrights. 1040ez tax forms downloads    The sale of a copyright, a literary, musical, or artistic composition, or similar property is not a section 1231 transaction if your personal efforts created the property, or if you acquired the property in a way that entitled you to the basis of the previous owner whose personal efforts created it (for example, if you receive the property as a gift). 1040ez tax forms downloads The sale of such property results in ordinary income and generally is reported in Part II of Form 4797. 1040ez tax forms downloads Treatment as ordinary or capital. 1040ez tax forms downloads   To determine the treatment of section 1231 gains and losses, combine all your section 1231 gains and losses for the year. 1040ez tax forms downloads If you have a net section 1231 loss, it is ordinary loss. 1040ez tax forms downloads If you have a net section 1231 gain, it is ordinary income up to the amount of your nonrecaptured section 1231 losses from previous years. 1040ez tax forms downloads The rest, if any, is long-term capital gain. 1040ez tax forms downloads Nonrecaptured section 1231 losses. 1040ez tax forms downloads   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain. 1040ez tax forms downloads Therefore, if in any of your five preceding tax years you had section 1231 losses, a net gain for the current year from the sale of section 1231 assets is ordinary gain to the extent of your prior losses. 1040ez tax forms downloads These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. 1040ez tax forms downloads Example. 1040ez tax forms downloads In 2013, Ben has a $2,000 net section 1231 gain. 1040ez tax forms downloads To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. 1040ez tax forms downloads From 2008 through 2012 he had the following section 1231 gains and losses. 1040ez tax forms downloads Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800 Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. 1040ez tax forms downloads 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if otherwise nontaxable) as ordinary income. 1040ez tax forms downloads To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. 1040ez tax forms downloads This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis. 1040ez tax forms downloads On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information. 1040ez tax forms downloads Whether the adjusted basis was figured using depreciation or amortization you claimed on other property. 1040ez tax forms downloads Whether the adjusted basis was figured using depreciation or amortization another person claimed. 1040ez tax forms downloads Corporate distributions. 1040ez tax forms downloads   For information on property distributed by corporations, see Distributions to Shareholders in Publication 542, Corporations. 1040ez tax forms downloads General asset accounts. 1040ez tax forms downloads   Different rules apply to dispositions of property you depreciated using a general asset account. 1040ez tax forms downloads For information on these rules, see Publication 946. 1040ez tax forms downloads Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable on the property. 1040ez tax forms downloads See Gain Treated as Ordinary Income, later. 1040ez tax forms downloads Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain. 1040ez tax forms downloads See Treatment as ordinary or capital under Section 1231 Gains and Losses, earlier. 1040ez tax forms downloads Section 1245 property defined. 1040ez tax forms downloads   Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. 1040ez tax forms downloads Personal property (either tangible or intangible). 1040ez tax forms downloads Other tangible property (except buildings and their structural components) used as any of the following. 1040ez tax forms downloads See Buildings and structural components below. 1040ez tax forms downloads An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services. 1040ez tax forms downloads A research facility in any of the activities in (a). 1040ez tax forms downloads A facility in any of the activities in (a) for the bulk storage of fungible commodities (discussed on the next page). 1040ez tax forms downloads That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. 1040ez tax forms downloads Amortization of certified pollution control facilities. 1040ez tax forms downloads The section 179 expense deduction. 1040ez tax forms downloads Deduction for clean-fuel vehicles and certain refueling property. 1040ez tax forms downloads Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations. 1040ez tax forms downloads Deduction for certain qualified refinery property. 1040ez tax forms downloads Deduction for qualified energy efficient commercial building property. 1040ez tax forms downloads Amortization of railroad grading and tunnel bores, if in effect before the repeal by the Revenue Reconciliation Act of 1990. 1040ez tax forms downloads (Repealed by Public Law 99-514, Tax Reform Act of 1986, section 242(a). 1040ez tax forms downloads ) Certain expenditures for child care facilities if in effect before repeal by Public Law 101-58, Omnibus Budget Reconciliation Act of 1990, section 11801(a)(13) (except with regards to deductions made prior to November 5, 1990). 1040ez tax forms downloads Expenditures to remove architectural and transportation barriers to the handicapped and elderly. 1040ez tax forms downloads Deduction for qualified tertiary injectant expenses. 1040ez tax forms downloads Certain reforestation expenditures. 1040ez tax forms downloads Deduction for election to expense qualified advanced mine safety equipment property. 1040ez tax forms downloads Single purpose agricultural (livestock) or horticultural structures. 1040ez tax forms downloads Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. 1040ez tax forms downloads Any railroad grading or tunnel bore. 1040ez tax forms downloads Buildings and structural components. 1040ez tax forms downloads   Section 1245 property does not include buildings and structural components. 1040ez tax forms downloads The term building includes a house, barn, warehouse, or garage. 1040ez tax forms downloads The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. 1040ez tax forms downloads   Do not treat a structure that is essentially machinery or equipment as a building or structural component. 1040ez tax forms downloads Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. 1040ez tax forms downloads   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. 1040ez tax forms downloads Structures such as oil and gas storage tanks, grain storage bins, silos, fractionating towers, blast furnaces, basic oxygen furnaces, coke ovens, brick kilns, and coal tipples are not treated as buildings, but as section 1245 property. 1040ez tax forms downloads Facility for bulk storage of fungible commodities. 1040ez tax forms downloads   This term includes oil or gas storage tanks and grain storage bins. 1040ez tax forms downloads Bulk storage means the storage of a commodity in a large mass before it is used. 1040ez tax forms downloads For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. 1040ez tax forms downloads To be fungible, a commodity must be such that one part may be used in place of another. 1040ez tax forms downloads   Stored materials that vary in composition, size, and weight are not fungible. 1040ez tax forms downloads Materials are not fungible if one part cannot be used in place of another part and the materials cannot be estimated and replaced by simple reference to weight, measure, and number. 1040ez tax forms downloads For example, the storage of different grades and forms of aluminum scrap is not storage of fungible commodities. 1040ez tax forms downloads Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. 1040ez tax forms downloads The depreciation and amortization allowed or allowable on the property. 1040ez tax forms downloads The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). 1040ez tax forms downloads A limit on this amount for gain on like-kind exchanges and involuntary conversions is explained later. 1040ez tax forms downloads For any other disposition of section 1245 property, ordinary income is the lesser of (1) earlier or the amount by which its fair market value is more than its adjusted basis. 1040ez tax forms downloads See Gifts and Transfers at Death, later. 1040ez tax forms downloads Use Part III of Form 4797 to figure the ordinary income part of the gain. 1040ez tax forms downloads Depreciation taken on other property or taken by other taxpayers. 1040ez tax forms downloads   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. 1040ez tax forms downloads Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. 1040ez tax forms downloads Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift). 1040ez tax forms downloads Depreciation and amortization. 1040ez tax forms downloads   Depreciation and amortization that must be recaptured as ordinary income include (but are not limited to) the following items. 1040ez tax forms downloads Ordinary depreciation deductions. 1040ez tax forms downloads Any special depreciation allowance you claimed. 1040ez tax forms downloads Amortization deductions for all the following costs. 1040ez tax forms downloads Acquiring a lease. 1040ez tax forms downloads Lessee improvements. 1040ez tax forms downloads Certified pollution control facilities. 1040ez tax forms downloads Certain reforestation expenses. 1040ez tax forms downloads Section 197 intangibles. 1040ez tax forms downloads Childcare facility expenses made before 1982, if in effect before the repeal of IRC 188. 1040ez tax forms downloads Franchises, trademarks, and trade names acquired before August 11, 1993. 1040ez tax forms downloads The section 179 deduction. 1040ez tax forms downloads Deductions for all the following costs. 1040ez tax forms downloads Removing barriers to the disabled and the elderly. 1040ez tax forms downloads Tertiary injectant expenses. 1040ez tax forms downloads Depreciable clean-fuel vehicles and refueling property (minus the amount of any recaptured deduction). 1040ez tax forms downloads Environmental cleanup costs. 1040ez tax forms downloads Certain reforestation expenses. 1040ez tax forms downloads Qualified disaster expenses. 1040ez tax forms downloads Any basis reduction for the investment credit (minus any basis increase for credit recapture). 1040ez tax forms downloads Any basis reduction for the qualified electric vehicle credit (minus any basis increase for credit recapture). 1040ez tax forms downloads Example. 1040ez tax forms downloads You file your returns on a calendar year basis. 1040ez tax forms downloads In February 2011, you bought and placed in service for 100% use in your business a light-duty truck (5-year property) that cost $10,000. 1040ez tax forms downloads You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2011 and $3,200 in 2012. 1040ez tax forms downloads You did not take the section 179 deduction. 1040ez tax forms downloads You sold the truck in May 2013 for $7,000. 1040ez tax forms downloads The MACRS deduction in 2013, the year of sale, is $960 (½ of $1,920). 1040ez tax forms downloads Figure the gain treated as ordinary income as follows. 1040ez tax forms downloads 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $2,000 + $3,200 + $960) 6,160   4) Adjusted basis (subtract line 3 from line 2) $3,840 5) Gain realized (subtract line 4 from line 1) $3,160 6) Gain treated as ordinary income (lesser of line 3 or line 5) $3,160 Depreciation on other tangible property. 1040ez tax forms downloads   You must take into account depreciation during periods when the property was not used as an integral part of an activity or did not constitute a research or storage facility, as described earlier under Section 1245 property. 1040ez tax forms downloads   For example, if depreciation deductions taken on certain storage facilities amounted to $10,000, of which $6,000 is from the periods before their use in a prescribed business activity, you must use the entire $10,000 in determining ordinary income from depreciation. 1040ez tax forms downloads Depreciation allowed or allowable. 1040ez tax forms downloads   The greater of the depreciation allowed or allowable is generally the amount to use in figuring the part of gain to report as ordinary income. 1040ez tax forms downloads However, if in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. 1040ez tax forms downloads If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. 1040ez tax forms downloads   This treatment applies only when figuring what part of gain is treated as ordinary income under the rules for section 1245 depreciation recapture. 1040ez tax forms downloads Multiple asset accounts. 1040ez tax forms downloads   In figuring ordinary income from depreciation, you can treat any number of units of section 1245 property in a single depreciation account as one item if the total ordinary income from depreciation figured by using this method is not less than it would be if depreciation on each unit were figured separately. 1040ez tax forms downloads Example. 1040ez tax forms downloads In one transaction you sold 50 machines, 25 trucks, and certain other property that is not section 1245 property. 1040ez tax forms downloads All of the depreciation was recorded in a single depreciation account. 1040ez tax forms downloads After dividing the total received among the various assets sold, you figured that each unit of section 1245 property was sold at a gain. 1040ez tax forms downloads You can figure the ordinary income from depreciation as if the 50 machines and 25 trucks were one item. 1040ez tax forms downloads However, if five of the trucks had been sold at a loss, only the 50 machines and 20 of the trucks could be treated as one item in determining the ordinary income from depreciation. 1040ez tax forms downloads Normal retirement. 1040ez tax forms downloads   The normal retirement of section 1245 property in multiple asset accounts does not require recognition of gain as ordinary income from depreciation if your method of accounting for asset retirements does not require recognition of that gain. 1040ez tax forms downloads Section 1250 Property Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable on the property. 1040ez tax forms downloads To determine the additional depreciation on section 1250 property, see Additional Depreciation, below. 1040ez tax forms downloads Section 1250 property defined. 1040ez tax forms downloads   This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. 1040ez tax forms downloads It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. 1040ez tax forms downloads A fee simple interest in land is not included because it is not depreciable. 1040ez tax forms downloads   If your section 1250 property becomes section 1245 property because you change its use, you can never again treat it as section 1250 property. 1040ez tax forms downloads Additional Depreciation If you hold section 1250 property longer than 1 year, the additional depreciation is the actual depreciation adjustments that are more than the depreciation figured using the straight line method. 1040ez tax forms downloads For a list of items treated as depreciation adjustments, see Depreciation and amortization under Gain Treated as Ordinary Income, earlier. 1040ez tax forms downloads For the treatment of unrecaptured section 1250 gain, see Capital Gains Tax Rate, later. 1040ez tax forms downloads If you hold section 1250 property for 1 year or less, all the depreciation is additional depreciation. 1040ez tax forms downloads You will not have additional depreciation if any of the following conditions apply to the property disposed of. 1040ez tax forms downloads You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method; you held the property longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. 1040ez tax forms downloads In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction for property placed in service before January 1, 2010. 1040ez tax forms downloads The property was residential low-income rental property you held for 162/3 years or longer. 1040ez tax forms downloads For low-income rental housing on which the special 60-month depreciation for rehabilitation expenses was allowed, the 162/3 years start when the rehabilitated property is placed in service. 1040ez tax forms downloads You chose the alternate ACRS method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. 1040ez tax forms downloads The property was residential rental property or nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made); you held it longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. 1040ez tax forms downloads These properties are depreciated using the straight line method. 1040ez tax forms downloads In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction. 1040ez tax forms downloads Depreciation taken by other taxpayers or on other property. 1040ez tax forms downloads   Additional depreciation includes all depreciation adjustments to the basis of section 1250 property whether allowed to you or another person (as carryover basis property). 1040ez tax forms downloads Example. 1040ez tax forms downloads Larry Johnson gives his son section 1250 property on which he took $2,000 in depreciation deductions, of which $500 is additional depreciation. 1040ez tax forms downloads Immediately after the gift, the son's adjusted basis in the property is the same as his father's and reflects the $500 additional depreciation. 1040ez tax forms downloads On January 1 of the next year, after taking depreciation deductions of $1,000 on the property, of which $200 is additional depreciation, the son sells the property. 1040ez tax forms downloads At the time of sale, the additional depreciation is $700 ($500 allowed the father plus $200 allowed the son). 1040ez tax forms downloads Depreciation allowed or allowable. 1040ez tax forms downloads   The greater of depreciation allowed or allowable (to any person who held the property if the depreciation was used in figuring its adjusted basis in your hands) generally is the amount to use in figuring the part of the gain to be reported as ordinary income. 1040ez tax forms downloads If you can show that the deduction allowed for any tax year was less than the amount allowable, the lesser figure will be the depreciation adjustment for figuring additional depreciation. 1040ez tax forms downloads Retired or demolished property. 1040ez tax forms downloads   The adjustments reflected in adjusted basis generally do not include deductions for depreciation on retired or demolished parts of section 1250 property unless these deductions are reflected in the basis of replacement property that is section 1250 property. 1040ez tax forms downloads Example. 1040ez tax forms downloads A wing of your building is totally destroyed by fire. 1040ez tax forms downloads The depreciation adjustments figured in the adjusted basis of the building after the wing is destroyed do not include any deductions for depreciation on the destroyed wing unless it is replaced and the adjustments for depreciation on it are reflected in the basis of the replacement property. 1040ez tax forms downloads Figuring straight line depreciation. 1040ez tax forms downloads   The useful life and salvage value you would have used to figure straight line depreciation are the same as those used under the depreciation method you actually used. 1040ez tax forms downloads If you did not use a useful life under the depreciation method actually used (such as with the units-of-production method) or if you did not take salvage value into account (such as with the declining balance method), the useful life or salvage value for figuring what would have been the straight line depreciation is the useful life and salvage value you would have used under the straight line method. 1040ez tax forms downloads   Salvage value and useful life are not used for the ACRS method of depreciation. 1040ez tax forms downloads Figure straight line depreciation for ACRS real property by using its 15-, 18-, or 19-year recovery period as the property's useful life. 1040ez tax forms downloads   The straight line method is applied without any basis reduction for the investment credit. 1040ez tax forms downloads Property held by lessee. 1040ez tax forms downloads   If a lessee makes a leasehold improvement, the lease period for figuring what would have been the straight line depreciation adjustments includes all renewal periods. 1040ez tax forms downloads This inclusion of the renewal periods cannot extend the lease period taken into account to a period that is longer than the remaining useful life of the improvement. 1040ez tax forms downloads The same rule applies to the cost of acquiring a lease. 1040ez tax forms downloads   The term renewal period means any period for which the lease may be renewed, extended, or continued under an option exercisable by the lessee. 1040ez tax forms downloads However, the inclusion of renewal periods cannot extend the lease by more than two-thirds of the period that was the basis on which the actual depreciation adjustments were allowed. 1040ez tax forms downloads Applicable Percentage The applicable percentage used to figure the ordinary income because of additional depreciation depends on whether the real property you disposed of is nonresidential real property, residential rental property, or low-income housing. 1040ez tax forms downloads The percentages for these types of real property are as follows. 1040ez tax forms downloads Nonresidential real property. 1040ez tax forms downloads   For real property that is not residential rental property, the applicable percentage for periods after 1969 is 100%. 1040ez tax forms downloads For periods before 1970, the percentage is zero and no ordinary income because of additional depreciation before 1970 will result from its disposition. 1040ez tax forms downloads Residential rental property. 1040ez tax forms downloads   For residential rental property (80% or more of the gross income is from dwelling units) other than low-income housing, the applicable percentage for periods after 1975 is 100%. 1040ez tax forms downloads The percentage for periods before 1976 is zero. 1040ez tax forms downloads Therefore, no ordinary income because of additional depreciation before 1976 will result from a disposition of residential rental property. 1040ez tax forms downloads Low-income housing. 1040ez tax forms downloads    Low-income housing includes all the following types of residential rental property. 1040ez tax forms downloads Federally assisted housing projects if the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. 1040ez tax forms downloads Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed. 1040ez tax forms downloads Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under provisions of state or local laws that authorize similar subsidies for low-income families. 1040ez tax forms downloads Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. 1040ez tax forms downloads   The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. 1040ez tax forms downloads If you have held low-income housing at least 16 years and 8 months, the percentage is zero and no ordinary income will result from its disposition. 1040ez tax forms downloads Foreclosure. 1040ez tax forms downloads   If low-income housing is disposed of because of foreclosure or similar proceedings, the monthly applicable percentage reduction is figured as if you disposed of the property on the starting date of the proceedings. 1040ez tax forms downloads Example. 1040ez tax forms downloads On June 1, 2001, you acquired low-income housing property. 1040ez tax forms downloads On April 3, 2012 (130 months after the property was acquired), foreclosure proceedings were started on the property and on December 3, 2013 (150 months after the property was acquired), the property was disposed of as a result of the foreclosure proceedings. 1040ez tax forms downloads The property qualifies for a reduced applicable percentage because it was held more than 100 full months. 1040ez tax forms downloads The applicable percentage reduction is 30% (130 months minus 100 months) rather than 50% (150 months minus 100 months) because it does not apply after April 3, 2012, the starting date of the foreclosure proceedings. 1040ez tax forms downloads Therefore, 70% of the additional depreciation is treated as ordinary income. 1040ez tax forms downloads Holding period. 1040ez tax forms downloads   The holding period used to figure the applicable percentage for low-income housing generally starts on the day after you acquired it. 1040ez tax forms downloads For example, if you bought low-income housing on January 1, 1997, the holding period starts on January 2, 1997. 1040ez tax forms downloads If you sold it on January 2, 2013, the holding period is exactly 192 full months. 1040ez tax forms downloads The applicable percentage for additional depreciation is 8%, or 100% minus 1% for each full month the property was held over 100 full months. 1040ez tax forms downloads Holding period for constructed, reconstructed, or erected property. 1040ez tax forms downloads   The holding period used to figure the applicable percentage for low-income housing you constructed, reconstructed, or erected starts on the first day of the month it is placed in service in a trade or business, in an activity for the production of income, or in a personal activity. 1040ez tax forms downloads Property acquired by gift or received in a tax-free transfer. 1040ez tax forms downloads   For low-income housing you acquired by gift or in a tax-free transfer the basis of which is figured by reference to the basis in the hands of the transferor, the holding period for the applicable percentage includes the holding period of the transferor. 1040ez tax forms downloads   If the adjusted basis of the property in your hands just after acquiring it is more than its adjusted basis to the transferor just before transferring it, the holding period of the difference is figured as if it were a separate improvement. 1040ez tax forms downloads See Low-Income Housing With Two or More Elements, next. 1040ez tax forms downloads Low-Income Housing With Two or More Elements If you dispose of low-income housing property that has two or more separate elements, the applicable percentage used to figure ordinary income because of additional depreciation may be different for each element. 1040ez tax forms downloads The gain to be reported as ordinary income is the sum of the ordinary income figured for each element. 1040ez tax forms downloads The following are the types of separate elements. 1040ez tax forms downloads A separate improvement (defined below). 1040ez tax forms downloads The basic section 1250 property plus improvements not qualifying as separate improvements. 1040ez tax forms downloads The units placed in service at different times before all the section 1250 property is finished. 1040ez tax forms downloads For example, this happens when a taxpayer builds an apartment building of 100 units and places 30 units in service (available for renting) on January 4, 2011, 50 on July 18, 2011, and the remaining 20 on January 18, 2012. 1040ez tax forms downloads As a result, the apartment house consists of three separate elements. 1040ez tax forms downloads The 36-month test for separate improvements. 1040ez tax forms downloads   A separate improvement is any improvement (qualifying under The 1-year test, below) added to the capital account of the property, but only if the total of the improvements during the 36-month period ending on the last day of any tax year is more than the greatest of the following amounts. 1040ez tax forms downloads Twenty-five percent of the adjusted basis of the property at the start of the first day of the 36-month period, or the first day of the holding period of the property, whichever is later. 1040ez tax forms downloads Ten percent of the unadjusted basis (adjusted basis plus depreciation and amortization adjustments) of the property at the start of the period determined in (1). 1040ez tax forms downloads $5,000. 1040ez tax forms downloads The 1-year test. 1040ez tax forms downloads   An addition to the capital account for any tax year (including a short tax year) is treated as an improvement only if the sum of all additions for the year is more than the greater of $2,000 or 1% of the unadjusted basis of the property. 1040ez tax forms downloads The unadjusted basis is figured as of the start of that tax year or the holding period of the property, whichever is later. 1040ez tax forms downloads In applying the 36-month test, improvements in any one of the 3 years are omitted entirely if the total improvements in that year do not qualify under the 1-year test. 1040ez tax forms downloads Example. 1040ez tax forms downloads The unadjusted basis of a calendar year taxpayer's property was $300,000 on January 1 of this year. 1040ez tax forms downloads During the year, the taxpayer made improvements A, B, and C, which cost $1,000, $600, and $700, respectively. 1040ez tax forms downloads The sum of the improvements, $2,300, is less than 1% of the unadjusted basis ($3,000), so the improvements do not satisfy the 1-year test and are not treated as improvements for the 36-month test. 1040ez tax forms downloads However, if improvement C had cost $1,500, the sum of these improvements would have been $3,100. 1040ez tax forms downloads Then, it would be necessary to apply the 36-month test to figure if the improvements must be treated as separate improvements. 1040ez tax forms downloads Addition to the capital account. 1040ez tax forms downloads   Any addition to the capital account made after the initial acquisition or completion of the property by you or any person who held the property during a period included in your holding period is to be considered when figuring the total amount of separate improvements. 1040ez tax forms downloads   The addition to the capital account of depreciable real property is the gross addition not reduced by amounts attributable to replaced property. 1040ez tax forms downloads For example, if a roof with an adjusted basis of $20,000 is replaced by a new roof costing $50,000, the improvement is the gross addition to the account, $50,000, and not the net addition of $30,000. 1040ez tax forms downloads The $20,000 adjusted basis of the old roof is no longer reflected in the basis of the property. 1040ez tax forms downloads The status of an addition to the capital account is not affected by whether it is treated as a separate property for determining depreciation deductions. 1040ez tax forms downloads   Whether an expense is treated as an addition to the capital account may depend on the final disposition of the entire property. 1040ez tax forms downloads If the expense item property and the basic property are sold in two separate transactions, the entire section 1250 property is treated as consisting of two distinct properties. 1040ez tax forms downloads Unadjusted basis. 1040ez tax forms downloads   In figuring the unadjusted basis as of a certain date, include the actual cost of all previous additions to the capital account plus those that did not qualify as separate improvements. 1040ez tax forms downloads However, the cost of components retired before that date is not included in the unadjusted basis. 1040ez tax forms downloads Holding period. 1040ez tax forms downloads   Use the following guidelines for figuring the applicable percentage for property with two or more elements. 1040ez tax forms downloads The holding period of a separate element placed in service before the entire section 1250 property is finished starts on the first day of the month that the separate element is placed in service. 1040ez tax forms downloads The holding period for each separate improvement qualifying as a separate element starts on the day after the improvement is acquired or, for improvements constructed, reconstructed, or erected, the first day of the month that the improvement is placed in service. 1040ez tax forms downloads The holding period for each improvement not qualifying as a separate element takes the holding period of the basic property. 1040ez tax forms downloads   If an improvement by itself does not meet the 1-year test (greater of $2,000 or 1% of the unadjusted basis), but it does qualify as a separate improvement that is a separate element (when grouped with other improvements made during the tax year), determine the start of its holding period as follows. 1040ez tax forms downloads Use the first day of a calendar month that is closest to the middle of the tax year. 1040ez tax forms downloads If there are two first days of a month that are equally close to the middle of the year, use the earlier date. 1040ez tax forms downloads Figuring ordinary income attributable to each separate element. 1040ez tax forms downloads   Figure ordinary income attributable to each separate element as follows. 1040ez tax forms downloads   Step 1. 1040ez tax forms downloads Divide the element's additional depreciation after 1975 by the sum of all the elements' additional depreciation after 1975 to determine the percentage used in Step 2. 1040ez tax forms downloads   Step 2. 1040ez tax forms downloads Multiply the percentage figured in Step 1 by the lesser of the additional depreciation after 1975 for the entire property or the gain from disposition of the entire property (the difference between the fair market value or amount realized and the adjusted basis). 1040ez tax forms downloads   Step 3. 1040ez tax forms downloads Multiply the result in Step 2 by the applicable percentage for the element. 1040ez tax forms downloads Example. 1040ez tax forms downloads You sold at a gain of $25,000 low-income housing property subject to the ordinary income rules of section 1250. 1040ez tax forms downloads The property consisted of four elements (W, X, Y, and Z). 1040ez tax forms downloads Step 1. 1040ez tax forms downloads The additional depreciation for each element is: W-$12,000; X-None; Y-$6,000; and Z-$6,000. 1040ez tax forms downloads The sum of the additional depreciation for all the elements is $24,000. 1040ez tax forms downloads Step 2. 1040ez tax forms downloads The depreciation deducted on element X was $4,000 less than it would have been under the straight line method. 1040ez tax forms downloads Additional depreciation on the property as a whole is $20,000 ($24,000 − $4,000). 1040ez tax forms downloads $20,000 is lower than the $25,000 gain on the sale, so $20,000 is used in Step 2. 1040ez tax forms downloads Step 3. 1040ez tax forms downloads The applicable percentages to be used in Step 3 for the elements are: W-68%; X-85%; Y-92%; and Z-100%. 1040ez tax forms downloads From these facts, the sum of the ordinary income for each element is figured as follows. 1040ez tax forms downloads   Step 1 Step 2 Step 3 Ordinary Income W . 1040ez tax forms downloads 50 $10,000 68% $ 6,800 X -0- -0- 85% -0- Y . 1040ez tax forms downloads 25 5,000 92% 4,600 Z . 1040ez tax forms downloads 25 5,000 100% 5,000 Sum of ordinary income of separate elements $16,400 Gain Treated as Ordinary Income To find what part of the gain from the disposition of section 1250 property is treated as ordinary income, follow these steps. 1040ez tax forms downloads In a sale, exchange, or involuntary conversion of the property, figure the amount realized that is more than the adjusted basis of the property. 1040ez tax forms downloads In any other disposition of the property, figure the fair market value that is more than the adjusted basis. 1040ez tax forms downloads Figure the additional depreciation for the periods after 1975. 1040ez tax forms downloads Multiply the lesser of (1) or (2) by the applicable percentage, discussed earlier under Applicable Percentage. 1040ez tax forms downloads Stop here if this is residential rental property or if (2) is equal to or more than (1). 1040ez tax forms downloads This is the gain treated as ordinary income because of additional depreciation. 1040ez tax forms downloads Subtract (2) from (1). 1040ez tax forms downloads Figure the additional depreciation for periods after 1969 but before 1976. 1040ez tax forms downloads Add the lesser of (4) or (5) to the result in (3). 1040ez tax forms downloads This is the gain treated as ordinary income because of additional depreciation. 1040ez tax forms downloads A limit on the amount treated as ordinary income for gain on like-kind exchanges and involuntary conversions is explained later. 1040ez tax forms downloads Use Form 4797, Part III, to figure the ordinary income part of the gain. 1040ez tax forms downloads Corporations. 1040ez tax forms downloads   Corporations, other than S corporations, must recognize an additional amount as ordinary income on the sale or other disposition of section 1250 property. 1040ez tax forms downloads The additional amount treated as ordinary income is 20% of the excess of the amount that would have been ordinary income if the property were section 1245 property over the amount treated as ordinary income under section 1250. 1040ez tax forms downloads Report this additional ordinary income on Form 4797, Part III, line 26 (f). 1040ez tax forms downloads Installment Sales If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. 1040ez tax forms downloads This applies even if no payments are received in that year. 1040ez tax forms downloads If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. 1040ez tax forms downloads For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. 1040ez tax forms downloads If you dispose of more than one asset in a single transaction, you must figure the gain on each asset separately so that it may be properly reported. 1040ez tax forms downloads To do this, allocate the selling price and the payments you receive in the year of sale to each asset. 1040ez tax forms downloads Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. 1040ez tax forms downloads For a detailed discussion of installment sales, see Publication 537. 1040ez tax forms downloads Gifts If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. 1040ez tax forms downloads However, if the person who receives it (donee) sells or otherwise disposes of the property in a disposition subject to recapture, the donee must take into account the depreciation you deducted in figuring the gain to be reported as ordinary income. 1040ez tax forms downloads For low-income housing, the donee must take into account the donor's holding period to figure the applicable percentage. 1040ez tax forms downloads See Applicable Percentage and its discussion Holding period under Section 1250 Property, earlier. 1040ez tax forms downloads Part gift and part sale or exchange. 1040ez tax forms downloads   If you transfer depreciable personal property or real property for less than its fair market value in a transaction considered to be partly a gift and partly a sale or exchange and you have a gain because the amount realized is more than your adjusted basis, you must report ordinary income (up to the amount of gain) to recapture depreciation. 1040ez tax forms downloads If the depreciation (additional depreciation, if section 1250 property) is more than the gain, the balance is carried over to the transferee to be taken into account on any later disposition of the property. 1040ez tax forms downloads However, see Bargain sale to charity, later. 1040ez tax forms downloads Example. 1040ez tax forms downloads You transferred depreciable personal property to your son for $20,000. 1040ez tax forms downloads When transferred, the property had an adjusted basis to you of $10,000 and a fair market value of $40,000. 1040ez tax forms downloads You took depreciation of $30,000. 1040ez tax forms downloads You are considered to have made a gift of $20,000, the difference between the $40,000 fair market value and the $20,000 sale price to your son. 1040ez tax forms downloads You have a taxable gain on the transfer of $10,000 ($20,000 sale price minus $10,000 adjusted basis) that must be reported as ordinary income from depreciation. 1040ez tax forms downloads You report $10,000 of your $30,000 depreciation as ordinary income on the transfer of the property, so the remaining $20,000 depreciation is carried over to your son for him to take into account on any later disposition of the property. 1040ez tax forms downloads Gift to charitable organization. 1040ez tax forms downloads   If you give property to a charitable organization, you figure your deduction for your charitable contribution by reducing the fair market value of the property by the ordinary income and short-term capital gain that would have resulted had you sold the property at its fair market value at the time of the contribution. 1040ez tax forms downloads Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation. 1040ez tax forms downloads   You also may have to reduce the fair market value of the contributed property by the long-term capital gain (including any section 1231 gain) that would have resulted had the property been sold. 1040ez tax forms downloads For more information, see Giving Property That Has Increased in Value in Publication 526. 1040ez tax forms downloads Bargain sale to charity. 1040ez tax forms downloads   If you transfer section 1245 or section 1250 property to a charitable organization for less than its fair market value and a deduction for the contribution part of the transfer is allowable, your ordinary income from depreciation is figured under different rules. 1040ez tax forms downloads First, figure the ordinary income as if you had sold the property at its fair market value. 1040ez tax forms downloads Then, allocate that amount between the sale and the contribution parts of the transfer in the same proportion that you allocated your adjusted basis in the property to figure your gain. 1040ez tax forms downloads See Bargain Sale under Gain or Loss From Sales and Exchanges in chapter 1. 1040ez tax forms downloads Report as ordinary income the lesser of the ordinary income allocated to the sale or your gain from the sale. 1040ez tax forms downloads Example. 1040ez tax forms downloads You sold section 1245 property in a bargain sale to a charitable organization and are allowed a deduction for your contribution. 1040ez tax forms downloads Your gain on the sale was $1,200, figured by allocating 20% of your adjusted basis in the property to the part sold. 1040ez tax forms downloads If you had sold the property at its fair market value, your ordinary income would have been $5,000. 1040ez tax forms downloads Your ordinary income is $1,000 ($5,000 × 20%) and your section 1231 gain is $200 ($1,200 – $1,000). 1040ez tax forms downloads Transfers at Death When a taxpayer dies, no gain is reported on depreciable personal property or real property transferred to his or her estate or beneficiary. 1040ez tax forms downloads For information on the tax liability of a decedent, see Publication 559, Survivors, Executors, and Administrators. 1040ez tax forms downloads However, if the decedent disposed of the property while alive and, because of his or her method of accounting or for any other reason, the gain from the disposition is reportable by the estate or beneficiary, it must be reported in the same way the decedent would have had to report it if he or she were still alive. 1040ez tax forms downloads Ordinary income due to depreciation must be reported on a transfer from an executor, administrator, or trustee to an heir, beneficiary, or other individual if the transfer is a sale or exchange on which gain is realized. 1040ez tax forms downloads Example 1. 1040ez tax forms downloads Janet Smith owned depreciable property that, upon her death, was inherited by her son. 1040ez tax forms downloads No ordinary income from depreciation is reportable on the transfer, even though the value used for estate tax purposes is more than the adjusted basis of the property to Janet when she died. 1040ez tax forms downloads However, if she sold the property before her death and realized a gain and if, because of her method of accounting, the proceeds from the sale are income in respect of a decedent reportable by her son, he must report ordinary income from depreciation. 1040ez tax forms downloads Example 2. 1040ez tax forms downloads The trustee of a trust created by a will transfers depreciable property to a beneficiary in satisfaction of a specific bequest of $10,000. 1040ez tax forms downloads If the property had a value of $9,000 at the date used for estate tax valuation purposes, the $1,000 increase in value to the date of distribution is a gain realized by the trust. 1040ez tax forms downloads Ordinary income from depreciation must be reported by the trust on the transfer. 1040ez tax forms downloads Like-Kind Exchanges and Involuntary Conversions A like-kind exchange of your depreciable property or an involuntary conversion of the property into similar or related property will not result in your having to report ordinary income from depreciation unless money or property other than like-kind, similar, or related property is also received in the transaction. 1040ez tax forms downloads For information on like-kind exchanges and involuntary conversions, see chapter 1. 1040ez tax forms downloads Depreciable personal property. 1040ez tax forms downloads   If you have a gain from either a like-kind exchange or an involuntary conversion of your depreciable personal property, the amount to be reported as ordinary income from depreciation is the amount figured under the rules explained earlier (see Section 1245 Property), limited to the sum of the following amounts. 1040ez tax forms downloads The gain that must be included in income under the rules for like-kind exchanges or involuntary conversions. 1040ez tax forms downloads The fair market value of the like-kind, similar, or related property other than depreciable personal property acquired in the transaction. 1040ez tax forms downloads Example 1. 1040ez tax forms downloads You bought a new machine for $4,300 cash plus your old machine for which you were allowed a $1,360 trade-in. 1040ez tax forms downloads The old machine cost you $5,000 two years ago. 1040ez tax forms downloads You took depreciation deductions of $3,950. 1040ez tax forms downloads Even though you deducted depreciation of $3,950, the $310 gain ($1,360 trade-in allowance minus $1,050 adjusted basis) is not reported because it is postponed under the rules for like-kind exchanges and you received only depreciable personal property in the exchange. 1040ez tax forms downloads Example 2. 1040ez tax forms downloads You bought office machinery for $1,500 two years ago and deducted $780 depreciation. 1040ez tax forms downloads This year a fire destroyed the machinery and you received $1,200 from your fire insurance, realizing a gain of $480 ($1,200 − $720 adjusted basis). 1040ez tax forms downloads You choose to postpone reporting gain, but replacement machinery cost you only $1,000. 1040ez tax forms downloads Your taxable gain under the rules for involuntary conversions is limited to the remaining $200 insurance payment. 1040ez tax forms downloads All your replacement property is depreciable personal property, so your ordinary income from depreciation is limited to $200. 1040ez tax forms downloads Example 3. 1040ez tax forms downloads A fire destroyed office machinery you bought for $116,000. 1040ez tax forms downloads The depreciation deductions were $91,640 and the machinery had an adjusted basis of $24,360. 1040ez tax forms downloads You received a $117,000 insurance payment, realizing a gain of $92,640. 1040ez tax forms downloads You immediately spent $105,000 of the insurance payment for replacement machinery and $9,000 for stock that qualifies as replacement property and you choose to postpone reporting the gain. 1040ez tax forms downloads $114,000 of the $117,000 insurance payment was used to buy replacement property, so the gain that must be included in income under the rules for involuntary conversions is the part not spent, or $3,000. 1040ez tax forms downloads The part of the insurance payment ($9,000) used to buy the nondepreciable property (the stock) also must be included in figuring the gain from depreciation. 1040ez tax forms downloads The amount you must report as ordinary income on the transaction is $12,000, figured as follows. 1040ez tax forms downloads 1) Gain realized on the transaction ($92,640) limited to depreciation ($91,640) $91,640 2) Gain includible in income (amount not spent) 3,000     Plus: fair market value of property other than depreciable personal property (the stock) 9,000 12,000 Amount reportable as ordinary income (lesser of (1) or (2)) $12,000   If, instead of buying $9,000 in stock, you bought $9,000 worth of depreciable personal property similar or related in use to the destroyed property, you would only report $3,000 as ordinary income. 1040ez tax forms downloads Depreciable real property. 1040ez tax forms downloads   If you have a gain from either a like-kind exchange or involuntary conversion of your depreciable real property, ordinary income from additional depreciation is figured under the rules explained earlier (see Section 1250 Property), limited to the greater of the following amounts. 1040ez tax forms downloads The gain that must be reported under the rules for like-kind exchanges or involuntary conversions plus the fair market value of stock bought as replacement property in acquiring control of a corporation. 1040ez tax forms downloads The gain you would have had to report as ordinary income from additional depreciation had the transaction been a cash sale minus the cost (or fair market value in an exchange) of the depreciable real property acquired. 1040ez tax forms downloads   The ordinary income not reported for the year of the disposition is carried over to the depreciable real property acquired in the like-kind exchange or involuntary conversion as additional depreciation from the property disposed of. 1040ez tax forms downloads Further, to figure the applicable percentage of additional depreciation to be treated as ordinary income, the holding period starts over for the new property. 1040ez tax forms downloads Example. 1040ez tax forms downloads The state paid you $116,000 when it condemned your depreciable real property for public use. 1040ez tax forms downloads You bought other real property similar in use to the property condemned for $110,000 ($15,000 for depreciable real property and $95,000 for land). 1040ez tax forms downloads You also bought stock for $5,000 to get control of a corporation owning property similar in use to the property condemned. 1040ez tax forms downloads You choose to postpone reporting the gain. 1040ez tax forms downloads If the transaction had been a sale for cash only, under the rules described earlier, $20,000 would have been reportable as ordinary income because of additional depreciation. 1040ez tax forms downloads The ordinary income to be reported is $6,000, which is the greater of the following amounts. 1040ez tax forms downloads The gain that must be reported under the rules for involuntary conversions, $1,000 ($116,000 − $115,000) plus the fair market value of stock bought as qualified replacement property, $5,000, for a total of $6,000. 1040ez tax forms downloads The gain you would have had to report as ordinary income from additional depreciation ($20,000) had this transaction been a cash sale minus the cost of the depreciable real property bought ($15,000), or $5,000. 1040ez tax forms downloads   The ordinary income not reported, $14,000 ($20,000 − $6,000), is carried over to the depreciable real property you bought as additional depreciation. 1040ez tax forms downloads Basis of property acquired. 1040ez tax forms downloads   If the ordinary income you have to report because of additional depreciation is limited, the total basis of the property you acquired is its fair market value (its cost, if bought to replace property involuntarily converted into money) minus the gain postponed. 1040ez tax forms downloads   If you acquired more than one item of property, allocate the total basis among the properties in proportion to their fair market value (their cost, in an involuntary conversion into money). 1040ez tax forms downloads However, if you acquired both depreciable real property and other property, allocate the total basis as follows. 1040ez tax forms downloads Subtract the ordinary income because of additional depreciation that you do not have to report from the fair market value (or cost) of the depreciable real property acquired. 1040ez tax forms downloads Add the fair market value (or cost) of the other property acquired to the result in (1). 1040ez tax forms downloads Divide the result in (1) by the result in (2). 1040ez tax forms downloads Multiply the total basis by the result in (3). 1040ez tax forms downloads This is the basis of the depreciable real property acquired. 1040ez tax forms downloads If you acquired more than one item of depreciable real property, allocate this basis amount among the properties in proportion to their fair market value (or cost). 1040ez tax forms downloads Subtract the result in (4) from the total basis. 1040ez tax forms downloads This is the basis of the other property acquired. 1040ez tax forms downloads If you acquired more than one item of other property, allocate this basis amount among the properties in proportion to their fair market value (or cost). 1040ez tax forms downloads Example 1. 1040ez tax forms downloads In 1988, low-income housing property that you acquired and placed in service in 1983 was destroyed by fire and you received a $90,000 insurance payment. 1040ez tax forms downloads The property's adjusted basis was $38,400, with additional depreciation of $14,932. 1040ez tax forms downloads On December 1, 1988, you used the insurance payment to acquire and place in service replacement low-income housing property. 1040ez tax forms downloads Your realized gain from the involuntary conversion was $51,600 ($90,000 − $38,400). 1040ez tax forms downloads You chose to postpone reporting the gain under the involuntary conversion rules. 1040ez tax forms downloads Under the rules for depreciation recapture on real property, the ordinary gain was $14,932, but you did not have to report any of it because of the limit for involuntary conversions. 1040ez tax forms downloads The basis of the replacement low-income housing property was its $90,000 cost minus the $51,600 gain you postponed, or $38,400. 1040ez tax forms downloads The $14,932 ordinary gain you did not report is treated as additional depreciation on the replacement property. 1040ez tax forms downloads If you sold the property in 2013, your holding period for figuring the applicable percentage of additional depreciation to report as ordinary income will have begun December 2, 1988, the day after you acquired the property. 1040ez tax forms downloads Example 2. 1040ez tax forms downloads John Adams received a $90,000 fire insurance payment for depreciable real property (office building) with an adjusted basis of $30,000. 1040ez tax forms downloads He uses the whole payment to buy property similar in use, spending $42,000 for depreciable real property and $48,000 for land. 1040ez tax forms downloads He chooses to postpone reporting the $60,000 gain realized on the involuntary conversion. 1040ez tax forms downloads Of this gain, $10,000 is ordinary income from additional depreciation but is not reported because of the limit for involuntary conversions of depreciable real property. 1040ez tax forms downloads The basis of the property bought is $30,000 ($90,000 − $60,000), allocated as follows. 1040ez tax forms downloads The $42,000 cost of depreciable real property minus $10,000 ordinary income not reported is $32,000. 1040ez tax forms downloads The $48,000 cost of other property (land) plus the $32,000 figured in (1) is $80,000. 1040ez tax forms downloads The $32,000 figured in (1) divided by the $80,000 figured in (2) is 0. 1040ez tax forms downloads 4. 1040ez tax forms downloads The basis of the depreciable real property is $12,000. 1040ez tax forms downloads This is the $30,000 total basis multiplied by the 0. 1040ez tax forms downloads 4 figured in (3). 1040ez tax forms downloads The basis of the other property (land) is $18,000. 1040ez tax forms downloads This is the $30,000 total basis minus the $12,000 figured in (4). 1040ez tax forms downloads The ordinary income that is not reported ($10,000) is carried over as additional depreciation to the depreciable real property that was bought and may be taxed as ordinary income on a later disposition. 1040ez tax forms downloads Multiple Properties If you dispose of depreciable property and other property in one transaction and realize a gain, you must allocate the amount realized between the two types of property in proportion to their respective fair market values to figure the part of your gain to be reported as ordinary income from depreciation. 1040ez tax forms downloads Different rules may apply to the allocation of the amount realized on the sale of a business that includes a group of assets. 1040ez tax forms downloads See chapter 2. 1040ez tax forms downloads In general, if a buyer and seller have adverse interests as to the allocation of the amount realized between the depreciable property and other property, any arm's length agreement between them will establish the allocation. 1040ez tax forms downloads In the absence of an agreement, the allocation should be made by taking into account the appropriate facts and circumstances. 1040ez tax forms downloads These include, but are not limited to, a comparison between the depreciable property and all the other property being disposed of in the transaction. 1040ez tax forms downloads The comparison should take into account all the following facts and circumstances. 1040ez tax forms downloads The original cost and reproduction cost of construction, erection, or production. 1040ez tax forms downloads The remaining economic useful life. 1040ez tax forms downloads The state of obsolescence. 1040ez tax forms downloads The anticipated expenditures required to maintain, renovate, or modernize the properties. 1040ez tax forms downloads Like-kind exchanges and involuntary conversions. 1040ez tax forms downloads   If you dispose of and acquire depreciable personal property and other property (other than depreciable real property) in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. 1040ez tax forms downloads The amount allocated to the depreciable personal property disposed of is treated as consisting of, first, the fair market value of the depreciable personal property acquired and, second (to the extent of any remaining balance), the fair market value of the other property acquired. 1040ez tax forms downloads The amount allocated to the other property disposed of is treated as consisting of the fair market value of all property acquired that has not already been taken into account. 1040ez tax forms downloads   If you dispose of and acquire depreciable real property and other property in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. 1040ez tax forms downloads The amount allocated to each of the three types of property (depreciable real property, depreciable personal property, or other property) disposed of is treated as consisting of, first, the fair market value of that type of property acquired and, second (to the extent of any remaining balance), any excess fair market value of the other types of property acquired. 1040ez tax forms downloads If the excess fair market value is more than the remaining balance of the amount realized and is from both of the other two types of property, you can apply the unallocated amount in any manner you choose. 1040ez tax forms downloads Example. 1040ez tax forms downloads A fire destroyed your property with a total fair market value of $50,000. 1040ez tax forms downloads It consisted of machinery worth $30,000 and nondepreciable property worth $20,000. 1040ez tax forms downloads You received an insurance payment of $40,000 and immediately used it with $10,000 of your own funds (for a total of $50,000) to buy machinery with a fair market value of $15,000 and nondepreciable property with a fair market value of $35,000. 1040ez tax forms downloads The adjusted basis of the destroyed machinery was $5,000 and your depreciation on it was $35,000. 1040ez tax forms downloads You choose to postpone reporting your gain from the involuntary conversion. 1040ez tax forms downloads You must report $9,000 as ordinary income from depreciation arising from this transaction, figured as follows. 1040ez tax forms downloads The $40,000 insurance payment must be allocated between the machinery and the other property destroyed in proportion to the fair market value of each. 1040ez tax forms downloads The amount allocated to the machinery is 30,000/50,000 × $40,000, or $24,000. 1040ez tax forms downloads The amount allocated to the other property is 20,000/50,000 × $40,000, or $16,000. 1040ez tax forms downloads Your gain on the involuntary conversion of the machinery is $24,000 minus $5,000 adjusted basis, or $19,000. 1040ez tax forms downloads The $24,000 allocated to the machinery disposed of is treated as consisting of the $15,000 fair market value of the replacement machinery bought and $9,000 of the fair market value of other property bought in the transaction. 1040ez tax forms downloads All $16,000 allocated to the other property disposed of is treated as consisting of the fair market value of the other property that was bought. 1040ez tax forms downloads Your potential ordinary income from depreciation is $19,000, the gain on the machinery, because it is less than the $35,000 depreciation. 1040ez tax forms downloads However, the amount you must report as ordinary income is limited to the $9,000 included in the amount realized for the machinery that represents the fair market value of property other than the depreciable property you bought. 1040ez tax forms downloads Prev  Up  Next   Home   More Online Publications
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1040ez tax forms downloads 1. 1040ez tax forms downloads   Travel Table of Contents Traveling Away From HomeTax Home Tax Home Different From Family Home Temporary Assignment or Job What Travel Expenses Are Deductible?Employee. 1040ez tax forms downloads Business associate. 1040ez tax forms downloads Bona fide business purpose. 1040ez tax forms downloads Meals Travel in the United States Travel Outside the United States Luxury Water Travel Conventions If you temporarily travel away from your tax home, you can use this chapter to determine if you have deductible travel expenses. 1040ez tax forms downloads This chapter discusses: Traveling away from home, Temporary assignment or job, and What travel expenses are deductible. 1040ez tax forms downloads It also discusses the standard meal allowance, rules for travel inside and outside the United States, luxury water travel, and deductible convention expenses. 1040ez tax forms downloads Travel expenses defined. 1040ez tax forms downloads   For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. 1040ez tax forms downloads   An ordinary expense is one that is common and accepted in your trade or business. 1040ez tax forms downloads A necessary expense is one that is helpful and appropriate for your business. 1040ez tax forms downloads An expense does not have to be required to be considered necessary. 1040ez tax forms downloads   You will find examples of deductible travel expenses in Table 1-1 , later. 1040ez tax forms downloads Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. 1040ez tax forms downloads This rest requirement is not satisfied by merely napping in your car. 1040ez tax forms downloads You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. 1040ez tax forms downloads Example 1. 1040ez tax forms downloads You are a railroad conductor. 1040ez tax forms downloads You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. 1040ez tax forms downloads During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. 1040ez tax forms downloads You are considered to be away from home. 1040ez tax forms downloads Example 2. 1040ez tax forms downloads You are a truck driver. 1040ez tax forms downloads You leave your terminal and return to it later the same day. 1040ez tax forms downloads You get an hour off at your turnaround point to eat. 1040ez tax forms downloads Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. 1040ez tax forms downloads Members of the Armed Forces. 1040ez tax forms downloads   If you are a member of the U. 1040ez tax forms downloads S. 1040ez tax forms downloads Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. 1040ez tax forms downloads You cannot deduct your expenses for meals and lodging. 1040ez tax forms downloads You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. 1040ez tax forms downloads If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. 1040ez tax forms downloads   A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home (explained next) aboard the ship for travel expense purposes. 1040ez tax forms downloads Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. 1040ez tax forms downloads Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. 1040ez tax forms downloads It includes the entire city or general area in which your business or work is located. 1040ez tax forms downloads If you have more than one regular place of business, your tax home is your main place of business. 1040ez tax forms downloads See Main place of business or work , later. 1040ez tax forms downloads If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. 1040ez tax forms downloads See No main place of business or work , later. 1040ez tax forms downloads If you do not have a regular or main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. 1040ez tax forms downloads As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. 1040ez tax forms downloads Main place of business or work. 1040ez tax forms downloads   If you have more than one place of work, consider the following when determining which one is your main place of business or work. 1040ez tax forms downloads The total time you ordinarily spend in each place. 1040ez tax forms downloads The level of your business activity in each place. 1040ez tax forms downloads Whether your income from each place is significant or insignificant. 1040ez tax forms downloads Example. 1040ez tax forms downloads You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. 1040ez tax forms downloads You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. 1040ez tax forms downloads Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. 1040ez tax forms downloads No main place of business or work. 1040ez tax forms downloads   You may have a tax home even if you do not have a regular or main place of work. 1040ez tax forms downloads Your tax home may be the home where you regularly live. 1040ez tax forms downloads Factors used to determine tax home. 1040ez tax forms downloads   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. 1040ez tax forms downloads You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. 1040ez tax forms downloads You have living expenses at your main home that you duplicate because your business requires you to be away from that home. 1040ez tax forms downloads You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. 1040ez tax forms downloads   If you satisfy all three factors, your tax home is the home where you regularly live. 1040ez tax forms downloads If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. 1040ez tax forms downloads If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. 1040ez tax forms downloads Example 1. 1040ez tax forms downloads You are single and live in Boston in an apartment you rent. 1040ez tax forms downloads You have worked for your employer in Boston for a number of years. 1040ez tax forms downloads Your employer enrolls you in a 12-month executive training program. 1040ez tax forms downloads You do not expect to return to work in Boston after you complete your training. 1040ez tax forms downloads During your training, you do not do any work in Boston. 1040ez tax forms downloads Instead, you receive classroom and on-the-job training throughout the United States. 1040ez tax forms downloads You keep your apartment in Boston and return to it frequently. 1040ez tax forms downloads You use your apartment to conduct your personal business. 1040ez tax forms downloads You also keep up your community contacts in Boston. 1040ez tax forms downloads When you complete your training, you are transferred to Los Angeles. 1040ez tax forms downloads You do not satisfy factor (1) because you did not work in Boston. 1040ez tax forms downloads You satisfy factor (2) because you had duplicate living expenses. 1040ez tax forms downloads You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. 1040ez tax forms downloads Therefore, you have a tax home in Boston. 1040ez tax forms downloads Example 2. 1040ez tax forms downloads You are an outside salesperson with a sales territory covering several states. 1040ez tax forms downloads Your employer's main office is in Newark, but you do not conduct any business there. 1040ez tax forms downloads Your work assignments are temporary, and you have no way of knowing where your future assignments will be located. 1040ez tax forms downloads You have a room in your married sister's house in Dayton. 1040ez tax forms downloads You stay there for one or two weekends a year, but you do no work in the area. 1040ez tax forms downloads You do not pay your sister for the use of the room. 1040ez tax forms downloads You do not satisfy any of the three factors listed earlier. 1040ez tax forms downloads You are an itinerant and have no tax home. 1040ez tax forms downloads Tax Home Different From Family Home If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. 1040ez tax forms downloads You also cannot deduct the cost of meals and lodging while at your tax home. 1040ez tax forms downloads See Example 1 , later. 1040ez tax forms downloads If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. 1040ez tax forms downloads See Example 2 , later. 1040ez tax forms downloads Example 1. 1040ez tax forms downloads You are a truck driver and you and your family live in Tucson. 1040ez tax forms downloads You are employed by a trucking firm that has its terminal in Phoenix. 1040ez tax forms downloads At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. 1040ez tax forms downloads You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. 1040ez tax forms downloads This is because Phoenix is your tax home. 1040ez tax forms downloads Example 2. 1040ez tax forms downloads Your family home is in Pittsburgh, where you work 12 weeks a year. 1040ez tax forms downloads The rest of the year you work for the same employer in Baltimore. 1040ez tax forms downloads In Baltimore, you eat in restaurants and sleep in a rooming house. 1040ez tax forms downloads Your salary is the same whether you are in Pittsburgh or Baltimore. 1040ez tax forms downloads Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. 1040ez tax forms downloads You cannot deduct any expenses you have for meals and lodging there. 1040ez tax forms downloads However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. 1040ez tax forms downloads You can deduct the cost of your round trip between Baltimore and Pittsburgh. 1040ez tax forms downloads You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. 1040ez tax forms downloads Temporary Assignment or Job You may regularly work at your tax home and also work at another location. 1040ez tax forms downloads It may not be practical to return to your tax home from this other location at the end of each work day. 1040ez tax forms downloads Temporary assignment vs. 1040ez tax forms downloads indefinite assignment. 1040ez tax forms downloads   If your assignment or job away from your main place of work is temporary, your tax home does not change. 1040ez tax forms downloads You are considered to be away from home for the whole period you are away from your main place of work. 1040ez tax forms downloads You can deduct your travel expenses if they otherwise qualify for deduction. 1040ez tax forms downloads Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. 1040ez tax forms downloads    However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. 1040ez tax forms downloads An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. 1040ez tax forms downloads   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. 1040ez tax forms downloads You may be able to deduct the cost of relocating to your new tax home as a moving expense. 1040ez tax forms downloads See Publication 521 for more information. 1040ez tax forms downloads Exception for federal crime investigations or prosecutions. 1040ez tax forms downloads   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. 1040ez tax forms downloads This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year provided you meet the other requirements for deductibility. 1040ez tax forms downloads   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime. 1040ez tax forms downloads Determining temporary or indefinite. 1040ez tax forms downloads   You must determine whether your assignment is temporary or indefinite when you start work. 1040ez tax forms downloads If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. 1040ez tax forms downloads An assignment or job that is initially temporary may become indefinite due to changed circumstances. 1040ez tax forms downloads A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. 1040ez tax forms downloads   The following examples illustrate whether an assignment or job is temporary or indefinite. 1040ez tax forms downloads Example 1. 1040ez tax forms downloads You are a construction worker. 1040ez tax forms downloads You live and regularly work in Los Angeles. 1040ez tax forms downloads You are a member of a trade union in Los Angeles that helps you get work in the Los Angeles area. 1040ez tax forms downloads Your tax home is Los Angeles. 1040ez tax forms downloads Because of a shortage of work, you took a job on a construction project in Fresno. 1040ez tax forms downloads Your job was scheduled to end in 8 months. 1040ez tax forms downloads The job actually lasted 10 months. 1040ez tax forms downloads You realistically expected the job in Fresno to last 8 months. 1040ez tax forms downloads The job actually did last less than 1 year. 1040ez tax forms downloads The job is temporary and your tax home is still in Los Angeles. 1040ez tax forms downloads Example 2. 1040ez tax forms downloads The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 18 months. 1040ez tax forms downloads The job actually was completed in 10 months. 1040ez tax forms downloads Your job in Fresno is indefinite because you realistically expected the work to last longer than 1 year, even though it actually lasted less than 1 year. 1040ez tax forms downloads You cannot deduct any travel expenses you had in Fresno because Fresno became your tax home. 1040ez tax forms downloads Example 3. 1040ez tax forms downloads The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 9 months. 1040ez tax forms downloads After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months). 1040ez tax forms downloads Initially, you realistically expected the job in Fresno to last for only 9 months. 1040ez tax forms downloads However, due to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for 1 year or less. 1040ez tax forms downloads You can only deduct your travel expenses for the first 8 months. 1040ez tax forms downloads You cannot deduct any travel expenses you had after that time because Fresno became your tax home when the job became indefinite. 1040ez tax forms downloads Going home on days off. 1040ez tax forms downloads   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. 1040ez tax forms downloads You cannot deduct the cost of your meals and lodging there. 1040ez tax forms downloads However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. 1040ez tax forms downloads You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. 1040ez tax forms downloads   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. 1040ez tax forms downloads In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. 1040ez tax forms downloads Probationary work period. 1040ez tax forms downloads   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. 1040ez tax forms downloads You cannot deduct any of your expenses for meals and lodging during the probationary period. 1040ez tax forms downloads What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. 1040ez tax forms downloads You can deduct ordinary and necessary expenses you have when you travel away from home on business. 1040ez tax forms downloads The type of expense you can deduct depends on the facts and your circumstances. 1040ez tax forms downloads Table 1-1 summarizes travel expenses you may be able to deduct. 1040ez tax forms downloads You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. 1040ez tax forms downloads When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. 1040ez tax forms downloads You can use a log, diary, notebook, or any other written record to keep track of your expenses. 1040ez tax forms downloads The types of expenses you need to record, along with supporting documentation, are described in Table 5-1 (see chapter 5). 1040ez tax forms downloads Separating costs. 1040ez tax forms downloads   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. 1040ez tax forms downloads You must have a reasonable basis for making this allocation. 1040ez tax forms downloads For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. 1040ez tax forms downloads Travel expenses for another individual. 1040ez tax forms downloads    If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. 1040ez tax forms downloads Employee. 1040ez tax forms downloads   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. 1040ez tax forms downloads Business associate. 1040ez tax forms downloads   If a business associate travels with you and meets the conditions in (2) and (3), earlier, you can deduct the travel expenses you have for that person. 1040ez tax forms downloads A business associate is someone with whom you could reasonably expect to actively conduct business. 1040ez tax forms downloads A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. 1040ez tax forms downloads Bona fide business purpose. 1040ez tax forms downloads   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. 1040ez tax forms downloads Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. 1040ez tax forms downloads Table 1-1. 1040ez tax forms downloads Travel Expenses You Can Deduct   This chart summarizes expenses you can deduct when you travel away from home for business purposes. 1040ez tax forms downloads IF you have expenses for. 1040ez tax forms downloads . 1040ez tax forms downloads . 1040ez tax forms downloads THEN you can deduct the cost of. 1040ez tax forms downloads . 1040ez tax forms downloads . 1040ez tax forms downloads transportation travel by airplane, train, bus, or car between your home and your business destination. 1040ez tax forms downloads If you were provided with a free ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. 1040ez tax forms downloads If you travel by ship, see Luxury Water Travel and Cruise Ships (under Conventions) for additional rules and limits. 1040ez tax forms downloads taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. 1040ez tax forms downloads baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. 1040ez tax forms downloads car operating and maintaining your car when traveling away from home on business. 1040ez tax forms downloads You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. 1040ez tax forms downloads If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. 1040ez tax forms downloads lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. 1040ez tax forms downloads Meals include amounts spent for food, beverages, taxes, and related tips. 1040ez tax forms downloads See Meals for additional rules and limits. 1040ez tax forms downloads cleaning dry cleaning and laundry. 1040ez tax forms downloads telephone business calls while on your business trip. 1040ez tax forms downloads This includes business communication by fax machine or other communication devices. 1040ez tax forms downloads tips tips you pay for any expenses in this chart. 1040ez tax forms downloads other other similar ordinary and necessary expenses related to your business travel. 1040ez tax forms downloads These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. 1040ez tax forms downloads Example. 1040ez tax forms downloads Jerry drives to Chicago on business and takes his wife, Linda, with him. 1040ez tax forms downloads Linda is not Jerry's employee. 1040ez tax forms downloads Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. 1040ez tax forms downloads The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. 1040ez tax forms downloads Her expenses are not deductible. 1040ez tax forms downloads Jerry pays $199 a day for a double room. 1040ez tax forms downloads A single room costs $149 a day. 1040ez tax forms downloads He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. 1040ez tax forms downloads If he uses public transportation, he can deduct only his fare. 1040ez tax forms downloads Meals You can deduct the cost of meals in either of the following situations. 1040ez tax forms downloads It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. 1040ez tax forms downloads The meal is business-related entertainment. 1040ez tax forms downloads Business-related entertainment is discussed in chapter 2 . 1040ez tax forms downloads The following discussion deals only with meals that are not business-related entertainment. 1040ez tax forms downloads Lavish or extravagant. 1040ez tax forms downloads   You cannot deduct expenses for meals that are lavish or extravagant. 1040ez tax forms downloads An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. 1040ez tax forms downloads Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. 1040ez tax forms downloads 50% limit on meals. 1040ez tax forms downloads   You can figure your meals expense using either of the following methods. 1040ez tax forms downloads Actual cost. 1040ez tax forms downloads The standard meal allowance. 1040ez tax forms downloads Both of these methods are explained below. 1040ez tax forms downloads But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. 1040ez tax forms downloads   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. 1040ez tax forms downloads If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. 1040ez tax forms downloads Chapter 2 discusses the 50% Limit in more detail, and chapter 6 discusses accountable and nonaccountable plans. 1040ez tax forms downloads Actual Cost You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. 1040ez tax forms downloads If you use this method, you must keep records of your actual cost. 1040ez tax forms downloads Standard Meal Allowance Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. 1040ez tax forms downloads It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. 1040ez tax forms downloads The set amount varies depending on where and when you travel. 1040ez tax forms downloads In this publication, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . 1040ez tax forms downloads If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. 1040ez tax forms downloads See the recordkeeping rules for travel in chapter 5 . 1040ez tax forms downloads Incidental expenses. 1040ez tax forms downloads   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. 1040ez tax forms downloads   Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. 1040ez tax forms downloads Incidental-expenses-only method. 1040ez tax forms downloads   You can use an optional method (instead of actual cost) for deducting incidental expenses only. 1040ez tax forms downloads The amount of the deduction is $5 a day. 1040ez tax forms downloads You can use this method only if you did not pay or incur any meal expenses. 1040ez tax forms downloads You cannot use this method on any day that you use the standard meal allowance. 1040ez tax forms downloads This method is subject to the proration rules for partial days. 1040ez tax forms downloads See Travel for days you depart and return , later in this chapter. 1040ez tax forms downloads Note. 1040ez tax forms downloads The incidental-expenses-only method is not subject to the 50% limit discussed below. 1040ez tax forms downloads Federal employees should refer to the Federal Travel Regulations at www. 1040ez tax forms downloads gsa. 1040ez tax forms downloads gov. 1040ez tax forms downloads Find the “Most Requested Links” on the upper left and click on “Regulations: FAR, FMR, FTR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. 1040ez tax forms downloads 50% limit may apply. 1040ez tax forms downloads   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. 1040ez tax forms downloads If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. 1040ez tax forms downloads The 50% limit is discussed in more detail in chapter 2, and accountable and nonaccountable plans are discussed in chapter 6. 1040ez tax forms downloads There is no optional standard lodging amount similar to the standard meal allowance. 1040ez tax forms downloads Your allowable lodging expense deduction is your actual cost. 1040ez tax forms downloads Who can use the standard meal allowance. 1040ez tax forms downloads   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. 1040ez tax forms downloads Use of the standard meal allowance for other travel. 1040ez tax forms downloads   You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. 1040ez tax forms downloads You can also use it to figure your meal expenses when you travel for qualifying educational purposes. 1040ez tax forms downloads You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. 1040ez tax forms downloads Amount of standard meal allowance. 1040ez tax forms downloads   The standard meal allowance is the federal M&IE rate. 1040ez tax forms downloads For travel in 2013, the rate for most small localities in the United States is $46 a day. 1040ez tax forms downloads    Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. 1040ez tax forms downloads    You can find this information (organized by state) on the Internet at www. 1040ez tax forms downloads gsa. 1040ez tax forms downloads gov/perdiem. 1040ez tax forms downloads Enter a zip code or select a city and state for the per diem rates for the current fiscal year. 1040ez tax forms downloads Per diem rates for prior fiscal years are available by using the drop down menu under “Search by State. 1040ez tax forms downloads ”   Per diem rates are listed by the Federal government's fiscal year which runs from October 1 to September 30. 1040ez tax forms downloads You can choose to use the rates from the 2013 fiscal year per diem tables or the rates from the 2014 fiscal year tables, but you must consistently use the same tables for all travel you are reporting on your income tax return for the year. 1040ez tax forms downloads   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. 1040ez tax forms downloads If you work in the transportation industry, however, see Special rate for transportation workers , later. 1040ez tax forms downloads Standard meal allowance for areas outside the continental United States. 1040ez tax forms downloads   The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. 1040ez tax forms downloads The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. 1040ez tax forms downloads S. 1040ez tax forms downloads Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. 1040ez tax forms downloads The Department of State establishes per diem rates for all other foreign areas. 1040ez tax forms downloads    You can access per diem rates for non-foreign areas outside the continental United States at: www. 1040ez tax forms downloads defensetravel. 1040ez tax forms downloads dod. 1040ez tax forms downloads mil/site/perdiemCalc. 1040ez tax forms downloads cfm. 1040ez tax forms downloads You can access all other foreign per diem rates at: www. 1040ez tax forms downloads state. 1040ez tax forms downloads gov/travel/. 1040ez tax forms downloads Click on “Travel Per Diem Allowances for Foreign Areas,” under “Foreign Per Diem Rates” to obtain the latest foreign per diem rates. 1040ez tax forms downloads Special rate for transportation workers. 1040ez tax forms downloads   You can use a special standard meal allowance if you work in the transportation industry. 1040ez tax forms downloads You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. 1040ez tax forms downloads If this applies to you, you can claim a standard meal allowance of $59 a day ($65 for travel outside the continental United States). 1040ez tax forms downloads   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. 1040ez tax forms downloads If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. 1040ez tax forms downloads Travel for days you depart and return. 1040ez tax forms downloads   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). 1040ez tax forms downloads You can do so by one of two methods. 1040ez tax forms downloads Method 1: You can claim 3/4 of the standard meal allowance. 1040ez tax forms downloads Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. 1040ez tax forms downloads Example. 1040ez tax forms downloads Jen is employed in New Orleans as a convention planner. 1040ez tax forms downloads In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. 1040ez tax forms downloads She left her home in New Orleans at 10 a. 1040ez tax forms downloads m. 1040ez tax forms downloads on Wednesday and arrived in Washington, DC, at 5:30 p. 1040ez tax forms downloads m. 1040ez tax forms downloads After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. 1040ez tax forms downloads m. 1040ez tax forms downloads Jen's employer gave her a flat amount to cover her expenses and included it with her wages. 1040ez tax forms downloads Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. 1040ez tax forms downloads Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. 1040ez tax forms downloads For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. 1040ez tax forms downloads Travel in the United States The following discussion applies to travel in the United States. 1040ez tax forms downloads For this purpose, the United States includes the 50 states and the District of Columbia. 1040ez tax forms downloads The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. 1040ez tax forms downloads See Part of Trip Outside the United States , later. 1040ez tax forms downloads Trip Primarily for Business You can deduct all of your travel expenses if your trip was entirely business related. 1040ez tax forms downloads If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. 1040ez tax forms downloads These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. 1040ez tax forms downloads Example. 1040ez tax forms downloads You work in Atlanta and take a business trip to New Orleans in May. 1040ez tax forms downloads Your business travel totals 850 miles round trip. 1040ez tax forms downloads On your way, you stop in Mobile to visit your parents. 1040ez tax forms downloads You spend $2,120 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. 1040ez tax forms downloads If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,820. 1040ez tax forms downloads You can deduct $1,820 for your trip, including the cost of round-trip transportation to and from New Orleans. 1040ez tax forms downloads The deduction for your meals is subject to the 50% limit on meals mentioned earlier. 1040ez tax forms downloads Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. 1040ez tax forms downloads However, you can deduct any expenses you have while at your destination that are directly related to your business. 1040ez tax forms downloads A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. 1040ez tax forms downloads The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. 1040ez tax forms downloads Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later in this chapter under Travel Outside the United States for that part of the trip. 1040ez tax forms downloads For the part of your trip that is inside the United States, use the rules for travel in the United States. 1040ez tax forms downloads Travel outside the United States does not include travel from one point in the United States to another point in the United States. 1040ez tax forms downloads The following discussion can help you determine whether your trip was entirely within the United States. 1040ez tax forms downloads Public transportation. 1040ez tax forms downloads   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. 1040ez tax forms downloads Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . 1040ez tax forms downloads Example. 1040ez tax forms downloads You fly from New York to Puerto Rico with a scheduled stop in Miami. 1040ez tax forms downloads You return to New York nonstop. 1040ez tax forms downloads The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. 1040ez tax forms downloads Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. 1040ez tax forms downloads Private car. 1040ez tax forms downloads   Travel by private car in the United States is travel between points in the United States, even though you are on your way to a destination outside the United States. 1040ez tax forms downloads Example. 1040ez tax forms downloads You travel by car from Denver to Mexico City and return. 1040ez tax forms downloads Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. 1040ez tax forms downloads The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. 1040ez tax forms downloads Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. 1040ez tax forms downloads For this purpose, the United States includes the 50 states and the District of Columbia. 1040ez tax forms downloads How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. 1040ez tax forms downloads Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. 1040ez tax forms downloads Travel entirely for business. 1040ez tax forms downloads   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. 1040ez tax forms downloads Travel considered entirely for business. 1040ez tax forms downloads   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. 1040ez tax forms downloads Exception 1 - No substantial control. 1040ez tax forms downloads   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. 1040ez tax forms downloads The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. 1040ez tax forms downloads   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, and Are not related to your employer, or Are not a managing executive. 1040ez tax forms downloads    “Related to your employer” is defined later in chapter 6 under Per Diem and Car Allowances . 1040ez tax forms downloads   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. 1040ez tax forms downloads   A self-employed person generally has substantial control over arranging business trips. 1040ez tax forms downloads Exception 2 - Outside United States no more than a week. 1040ez tax forms downloads   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. 1040ez tax forms downloads One week means 7 consecutive days. 1040ez tax forms downloads In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. 1040ez tax forms downloads Example. 1040ez tax forms downloads You traveled to Brussels primarily for business. 1040ez tax forms downloads You left Denver on Tuesday and flew to New York. 1040ez tax forms downloads On Wednesday, you flew from New York to Brussels, arriving the next morning. 1040ez tax forms downloads On Thursday and Friday, you had business discussions, and from Saturday until Tuesday, you were sightseeing. 1040ez tax forms downloads You flew back to New York, arriving Wednesday afternoon. 1040ez tax forms downloads On Thursday, you flew back to Denver. 1040ez tax forms downloads Although you were away from your home in Denver for more than a week, you were not outside the United States for more than a week. 1040ez tax forms downloads This is because the day you depart does not count as a day outside the United States. 1040ez tax forms downloads You can deduct your cost of the round-trip flight between Denver and Brussels. 1040ez tax forms downloads You can also deduct the cost of your stay in Brussels for Thursday and Friday while you conducted business. 1040ez tax forms downloads However, you cannot deduct the cost of your stay in Brussels from Saturday through Tuesday because those days were spent on nonbusiness activities. 1040ez tax forms downloads Exception 3 - Less than 25% of time on personal activities. 1040ez tax forms downloads   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. 1040ez tax forms downloads For this purpose, count both the day your trip began and the day it ended. 1040ez tax forms downloads Example. 1040ez tax forms downloads You flew from Seattle to Tokyo, where you spent 14 days on business and 5 days on personal matters. 1040ez tax forms downloads You then flew back to Seattle. 1040ez tax forms downloads You spent 1 day flying in each direction. 1040ez tax forms downloads Because only 5/21 (less than 25%) of your total time abroad was for nonbusiness activities, you can deduct as travel expenses what it would have cost you to make the trip if you had not engaged in any nonbusiness activity. 1040ez tax forms downloads The amount you can deduct is the cost of the round-trip plane fare and 16 days of meals (subject to the 50% limit), lodging, and other related expenses. 1040ez tax forms downloads Exception 4 - Vacation not a major consideration. 1040ez tax forms downloads   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. 1040ez tax forms downloads Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on other activities, you generally cannot deduct all of your travel expenses. 1040ez tax forms downloads You can only deduct the business portion of your cost of getting to and from your destination. 1040ez tax forms downloads You must allocate the costs between your business and other activities to determine your deductible amount. 1040ez tax forms downloads See Travel allocation rules , later. 1040ez tax forms downloads You do not have to allocate your travel expenses if you meet one of the four exceptions listed earlier under Travel considered entirely for business . 1040ez tax forms downloads In those cases, you can deduct the total cost of getting to and from your destination. 1040ez tax forms downloads Travel allocation rules. 1040ez tax forms downloads   If your trip outside the United States was primarily for business, you must allocate your travel time on a day-to-day basis between business days and nonbusiness days. 1040ez tax forms downloads The days you depart from and return to the United States are both counted as days outside the United States. 1040ez tax forms downloads   To figure the deductible amount of your round-trip travel expenses, use the following fraction. 1040ez tax forms downloads The numerator (top number) is the total number of business days outside the United States. 1040ez tax forms downloads The denominator (bottom number) is the total number of business and nonbusiness days of travel. 1040ez tax forms downloads Counting business days. 1040ez tax forms downloads   Your business days include transportation days, days your presence was required, days you spent on business, and certain weekends and holidays. 1040ez tax forms downloads Transportation day. 1040ez tax forms downloads   Count as a business day any day you spend traveling to or from a business destination. 1040ez tax forms downloads However, if because of a nonbusiness activity you do not travel by a direct route, your business days are the days it would take you to travel a reasonably direct route to your business destination. 1040ez tax forms downloads Extra days for side trips or nonbusiness activities cannot be counted as business days. 1040ez tax forms downloads Presence required. 1040ez tax forms downloads   Count as a business day any day your presence is required at a particular place for a specific business purpose. 1040ez tax forms downloads Count it as a business day even if you spend most of the day on nonbusiness activities. 1040ez tax forms downloads Day spent on business. 1040ez tax forms downloads   If your principal activity during working hours is the pursuit of your trade or business, count the day as a business day. 1040ez tax forms downloads Also, count as a business day any day you are prevented from working because of circumstances beyond your control. 1040ez tax forms downloads Certain weekends and holidays. 1040ez tax forms downloads   Count weekends, holidays, and other necessary standby days as business days if they fall between business days. 1040ez tax forms downloads But if they follow your business meetings or activity and you remain at your business destination for nonbusiness or personal reasons, do not count them as business days. 1040ez tax forms downloads Example 1. 1040ez tax forms downloads Your tax home is New York City. 1040ez tax forms downloads You travel to Quebec, where you have a business appointment on Friday. 1040ez tax forms downloads You have another appointment on the following Monday. 1040ez tax forms downloads Because your presence was required on both Friday and Monday, they are business days. 1040ez tax forms downloads Because the weekend is between business days, Saturday and Sunday are counted as business days. 1040ez tax forms downloads This is true even though you use the weekend for sightseeing, visiting friends, or other nonbusiness activity. 1040ez tax forms downloads Example 2. 1040ez tax forms downloads If, in Example 1, you had no business in Quebec after Friday, but stayed until Monday before starting home, Saturday and Sunday would be nonbusiness days. 1040ez tax forms downloads Nonbusiness activity on the way to or from your business destination. 1040ez tax forms downloads   If you stopped for a vacation or other nonbusiness activity either on the way from the United States to your business destination, or on the way back to the United States from your business destination, you must allocate part of your travel expenses to the nonbusiness activity. 1040ez tax forms downloads   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your nonbusiness destination and a return to the point where travel outside the United States ends. 1040ez tax forms downloads   You determine the nonbusiness portion of that expense by multiplying it by a fraction. 1040ez tax forms downloads The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. 1040ez tax forms downloads Example. 1040ez tax forms downloads You live in New York. 1040ez tax forms downloads On May 4 you flew to Paris to attend a business conference that began on May 5. 1040ez tax forms downloads The conference ended at noon on May 14. 1040ez tax forms downloads That evening you flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly home to New York. 1040ez tax forms downloads The primary purpose for the trip was to attend the conference. 1040ez tax forms downloads If you had not stopped in Dublin, you would have arrived home the evening of May 14. 1040ez tax forms downloads You do not meet any of the exceptions that would allow you to consider your travel entirely for business. 1040ez tax forms downloads May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 days) are nonbusiness days. 1040ez tax forms downloads You can deduct the cost of your meals (subject to the 50% limit), lodging, and other business-related travel expenses while in Paris. 1040ez tax forms downloads You cannot deduct your expenses while in Dublin. 1040ez tax forms downloads You also cannot deduct 7/18 of what it would have cost you to travel round-trip between New York and Dublin. 1040ez tax forms downloads You paid $750 to fly from New York to Paris, $400 to fly from Paris to Dublin, and $700 to fly from Dublin back to New York. 1040ez tax forms downloads Round-trip airfare from New York to Dublin would have been $1,250. 1040ez tax forms downloads You figure the deductible part of your air travel expenses by subtracting 7/18 of the round-trip fare and other expenses you would have had in traveling directly between New York and Dublin ($1,250 × 7/18 = $486) from your total expenses in traveling from New York to Paris to Dublin and back to New York ($750 + $400 + $700 = $1,850). 1040ez tax forms downloads Your deductible air travel expense is $1,364 ($1,850 − $486). 1040ez tax forms downloads Nonbusiness activity at, near, or beyond business destination. 1040ez tax forms downloads   If you had a vacation or other nonbusiness activity at, near, or beyond your business destination, you must allocate part of your travel expenses to the nonbusiness activity. 1040ez tax forms downloads   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your business destination and a return to the point where travel outside the United States ends. 1040ez tax forms downloads   You determine the nonbusiness portion of that expense by multiplying it by a fraction. 1040ez tax forms downloads The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. 1040ez tax forms downloads   None of your travel expenses for nonbusiness activities at, near, or beyond your business destination are deductible. 1040ez tax forms downloads Example. 1040ez tax forms downloads Assume that the dates are the same as in the previous example but that instead of going to Dublin for your vacation, you fly to Venice, Italy, for a vacation. 1040ez tax forms downloads You cannot deduct any part of the cost of your trip from Paris to Venice and return to Paris. 1040ez tax forms downloads In addition, you cannot deduct 7/18 of the airfare and other expenses from New York to Paris and back to New York. 1040ez tax forms downloads You can deduct 11/18 of the round-trip plane fare and other travel expenses from New York to Paris, plus your meals (subject to the 50% limit), lodging, and any other business expenses you had in Paris. 1040ez tax forms downloads (Assume these expenses total $4,939. 1040ez tax forms downloads ) If the round-trip plane fare and other travel-related expenses (such as food during the trip) are $1,750, you can deduct travel costs of $1,069 (11/18 × $1,750), plus the full $4,939 for the expenses you had in Paris. 1040ez tax forms downloads Other methods. 1040ez tax forms downloads   You can use another method of counting business days if you establish that it more clearly reflects the time spent on other than business activities outside the United States. 1040ez tax forms downloads Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. 1040ez tax forms downloads However, if you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. 1040ez tax forms downloads Example. 1040ez tax forms downloads The university from which you graduated has a continuing education program for members of its alumni association. 1040ez tax forms downloads This program consists of trips to various foreign countries where academic exercises and conferences are set up to acquaint individuals in most occupations with selected facilities in several regions of the world. 1040ez tax forms downloads However, none of the conferences are directed toward specific occupations or professions. 1040ez tax forms downloads It is up to each participant to seek out specialists and organizational settings appropriate to his or her occupational interests. 1040ez tax forms downloads Three-hour sessions are held each day over a 5-day period at each of the selected overseas facilities where participants can meet with individual practitioners. 1040ez tax forms downloads These sessions are composed of a variety of activities including workshops, mini-lectures, role playing, skill development, and exercises. 1040ez tax forms downloads Professional conference directors schedule and conduct the sessions. 1040ez tax forms downloads Participants can choose those sessions they wish to attend. 1040ez tax forms downloads You can participate in this program since you are a member of the alumni association. 1040ez tax forms downloads You and your family take one of the trips. 1040ez tax forms downloads You spend about 2 hours at each of the planned sessions. 1040ez tax forms downloads The rest of the time you go touring and sightseeing with your family. 1040ez tax forms downloads The trip lasts less than 1 week. 1040ez tax forms downloads Your travel expenses for the trip are not deductible since the trip was primarily a vacation. 1040ez tax forms downloads However, registration fees and any other incidental expenses you have for the five planned sessions you attended that are directly related and beneficial to your business are deductible business expenses. 1040ez tax forms downloads These expenses should be specifically stated in your records to ensure proper allocation of your deductible business expenses. 1040ez tax forms downloads Luxury Water Travel If you travel by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount you can deduct. 1040ez tax forms downloads The limit is twice the highest federal per diem rate allowable at the time of your travel. 1040ez tax forms downloads (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home, but in the United States, for business purposes. 1040ez tax forms downloads ) Daily limit on luxury water travel. 1040ez tax forms downloads   The highest federal per diem rate allowed and the daily limit for luxury water travel in 2013 is shown in the following table. 1040ez tax forms downloads   2013 Dates Highest Federal Per Diem Daily Limit on Luxury Water Travel   Jan. 1040ez tax forms downloads 1 – Mar. 1040ez tax forms downloads 31 $367 $734   Apr. 1040ez tax forms downloads 1 – June 30 312 624   July 1 – Aug. 1040ez tax forms downloads 31 310 620   Sept. 1040ez tax forms downloads 1 – Sept. 1040ez tax forms downloads 30 366 732   Oct. 1040ez tax forms downloads 1 – Dec. 1040ez tax forms downloads 31 374 748 Example. 1040ez tax forms downloads Caroline, a travel agent, traveled by ocean liner from New York to London, England, on business in May. 1040ez tax forms downloads Her expense for the 6-day cruise was $5,200. 1040ez tax forms downloads Caroline's deduction for the cruise cannot exceed $3,744 (6 days × $624 daily limit). 1040ez tax forms downloads Meals and entertainment. 1040ez tax forms downloads   If your expenses for luxury water travel include separately stated amounts for meals or entertainment, those amounts are subject to the 50% limit on meals and entertainment before you apply the daily limit. 1040ez tax forms downloads For a discussion of the 50% Limit , see chapter 2. 1040ez tax forms downloads Example. 1040ez tax forms downloads In the previous example, Caroline's luxury water travel had a total cost of $5,200. 1040ez tax forms downloads Of that amount, $3,700 was separately stated as meals and entertainment. 1040ez tax forms downloads Caroline, who is self-employed, is not reimbursed for any of her travel expenses. 1040ez tax forms downloads Caroline figures her deductible travel expenses as follows. 1040ez tax forms downloads Meals and entertainment $3,700   50% limit × . 1040ez tax forms downloads 50   Allowable meals &     entertainment $1,850   Other travel expenses + 1,800   Allowable cost before the daily limit $3,650 Daily limit for May 2013 $624   Times number of days × 6   Maximum luxury water travel     deduction $3,744 Amount of allowable deduction $3,650 Caroline's deduction for her cruise is limited to $3,650, even though the limit on luxury water travel is slightly higher. 1040ez tax forms downloads Not separately stated. 1040ez tax forms downloads   If your meal or entertainment charges are not separately stated or are not clearly identifiable, you do not have to allocate any portion of the total charge to meals or entertainment. 1040ez tax forms downloads Exceptions The daily limit on luxury water travel (discussed earlier) does not apply to expenses you have to attend a convention, seminar, or meeting on board a cruise ship. 1040ez tax forms downloads See Cruise Ships under Conventions. 1040ez tax forms downloads Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. 1040ez tax forms downloads You cannot deduct the travel expenses for your family. 1040ez tax forms downloads If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. 1040ez tax forms downloads Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. 1040ez tax forms downloads You can deduct your travel expenses only if your attendance is connected to your own trade or business. 1040ez tax forms downloads Convention agenda. 1040ez tax forms downloads   The convention agenda or program generally shows the purpose of the convention. 1040ez tax forms downloads You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. 1040ez tax forms downloads The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. 1040ez tax forms downloads Conventions Held Outside the North American Area You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless: The meeting is directly related to your trade or business, and It is reasonable to hold the meeting outside the North American area. 1040ez tax forms downloads See Reasonableness test , later. 1040ez tax forms downloads If the meeting meets these requirements, you also must satisfy the rules for deducting expenses for business trips in general, discussed earlier under Travel Outside the United States . 1040ez tax forms downloads North American area. 1040ez tax forms downloads   The North American area includes the following locations. 1040ez tax forms downloads American Samoa Johnston Island Antigua and Barbuda Kingman Reef Aruba Marshall Islands Bahamas Mexico Baker Island Micronesia Barbados Midway Islands Bermuda Netherlands Antilles Canada Northern Mariana Costa Rica Islands Dominica Palau Dominican Republic Palmyra Atoll Grenada Panama Guam Puerto Rico Guyana Trinidad and Tobago Honduras USA Howland Island U. 1040ez tax forms downloads S. 1040ez tax forms downloads Virgin Islands Jamaica Wake Island Jarvis Island   The North American area also includes U. 1040ez tax forms downloads S. 1040ez tax forms downloads islands, cays, and reefs that are possessions of the United States and not part of the fifty states or the District of Columbia. 1040ez tax forms downloads Reasonableness test. 1040ez tax forms downloads   The following factors are taken into account to determine if it was reasonable to hold the meeting outside the North American area. 1040ez tax forms downloads The purpose of the meeting and the activities taking place at the meeting. 1040ez tax forms downloads The purposes and activities of the sponsoring organizations or groups. 1040ez tax forms downloads The homes of the active members of the sponsoring organizations and the places at which other meetings of the sponsoring organizations or groups have been or will be held. 1040ez tax forms downloads Other relevant factors you may present. 1040ez tax forms downloads Cruise Ships You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. 1040ez tax forms downloads All ships that sail are considered cruise ships. 1040ez tax forms downloads You can deduct these expenses only if all of the following requirements are met. 1040ez tax forms downloads The convention, seminar, or meeting is directly related to your trade or business. 1040ez tax forms downloads The cruise ship is a vessel registered in the United States. 1040ez tax forms downloads All of the cruise ship's ports of call are in the United States or in possessions of the United States. 1040ez tax forms downloads You attach to your return a written statement signed by you that includes information about: The total days of the trip (not including the days of transportation to and from the cruise ship port), The number of hours each day that you devoted to scheduled business activities, and A program of the scheduled business activities of the meeting. 1040ez tax forms downloads You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes: A schedule of the business activities of each day of the meeting, and The number of hours you attended the scheduled business activities. 1040ez tax forms downloads Prev  Up  Next   Home   More Online Publications