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2012 1040x

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2012 1040x

2012 1040x 1. 2012 1040x   Nonresident Alien or Resident Alien? Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Nonresident Aliens Resident AliensGreen Card Test Substantial Presence Test Effect of Tax Treaties Dual-Status AliensFirst Year of Residency Choosing Resident Alien Status Last Year of Residency Nonresident Spouse Treated as a ResidentHow To Make the Choice Aliens From American Samoa or Puerto Rico Introduction You should first determine whether, for income tax purposes, you are a nonresident alien or a resident alien. 2012 1040x If you are both a nonresident and resident in the same year, you have a dual status. 2012 1040x Dual status is explained later. 2012 1040x Also explained later are a choice to treat your nonresident spouse as a resident and some other special situations. 2012 1040x Topics - This chapter discusses: How to determine if you are a nonresident, resident, or dual-status alien, and How to treat a nonresident spouse as a resident alien. 2012 1040x Useful Items - You may want to see: Form (and Instructions) 1040 U. 2012 1040x S. 2012 1040x Individual Income Tax Return 1040A U. 2012 1040x S. 2012 1040x Individual Income Tax Return 1040NR U. 2012 1040x S. 2012 1040x Nonresident Alien Income Tax Return 8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) 8840 Closer Connection Exception Statement for Aliens 8843 Statement for Exempt Individuals and Individuals With a Medical Condition See chapter 12 for information about getting these forms. 2012 1040x Nonresident Aliens If you are an alien (not a U. 2012 1040x S. 2012 1040x citizen), you are considered a nonresident alien unless you meet one of the two tests described next under Resident Aliens. 2012 1040x Resident Aliens You are a resident alien of the United States for tax purposes if you meet either the green card test or the substantial presence test for calendar year 2013 (January 1–December 31). 2012 1040x Even if you do not meet either of these tests, you may be able to choose to be treated as a U. 2012 1040x S. 2012 1040x resident for part of the year. 2012 1040x See First-Year Choice under Dual-Status Aliens, later. 2012 1040x Green Card Test You are a resident for tax purposes if you are a lawful permanent resident of the United States at any time during calendar year 2013. 2012 1040x (However, see Dual-Status Aliens , later. 2012 1040x ) This is known as the “green card” test. 2012 1040x You are a lawful permanent resident of the United States at any time if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. 2012 1040x You generally have this status if the U. 2012 1040x S. 2012 1040x Citizenship and Immigration Services (USCIS) (or its predecessor organization) has issued you an alien registration card, also known as a “green card. 2012 1040x ” You continue to have resident status under this test unless the status is taken away from you or is administratively or judicially determined to have been abandoned. 2012 1040x Resident status taken away. 2012 1040x   Resident status is considered to have been taken away from you if the U. 2012 1040x S. 2012 1040x government issues you a final administrative or judicial order of exclusion or deportation. 2012 1040x A final judicial order is an order that you may no longer appeal to a higher court of competent jurisdiction. 2012 1040x Resident status abandoned. 2012 1040x   An administrative or judicial determination of abandonment of resident status may be initiated by you, the USCIS, or a U. 2012 1040x S. 2012 1040x consular officer. 2012 1040x    If you initiate the determination, your resident status is considered to be abandoned when you file either of the following with the USCIS or U. 2012 1040x S. 2012 1040x consular officer. 2012 1040x Your application for abandonment. 2012 1040x Your Alien Registration Receipt Card attached to a letter stating your intent to abandon your resident status. 2012 1040x You must file the letter by certified mail, return receipt requested. 2012 1040x You must keep a copy of the letter and proof that it was mailed and received. 2012 1040x    Until you have proof your letter was received, you remain a resident alien for tax purposes even if the USCIS would not recognize the validity of your green card because it is more than ten years old or because you have been absent from the United States for a period of time. 2012 1040x   If the USCIS or U. 2012 1040x S. 2012 1040x consular officer initiates this determination, your resident status will be considered to be abandoned when the final administrative order of abandonment is issued. 2012 1040x If you are granted an appeal to a federal court of competent jurisdiction, a final judicial order is required. 2012 1040x   Under U. 2012 1040x S. 2012 1040x immigration law, a lawful permanent resident who is required to file a tax return as a resident and fails to do so may be regarded as having abandoned status and may lose permanent resident status. 2012 1040x    A long-term resident who ceases to be a lawful permanent resident may be subject to special reporting requirements and tax provisions. 2012 1040x See Expatriation Tax in chapter 4. 2012 1040x Termination of residency after June 3, 2004, and before June 17, 2008. 2012 1040x   If you terminated your residency after June 3, 2004, and before June 17, 2008, you will still be considered a U. 2012 1040x S. 2012 1040x resident for tax purposes until you notify the Secretary of Homeland Security and file Form 8854, Initial and Annual Expatriation Statement. 2012 1040x Termination of residency after June 16, 2008. 2012 1040x   For information on your residency termination date, see Former long-term resident under Expatriation After June 16, 2008, in chapter 4. 2012 1040x Substantial Presence Test You will be considered a U. 2012 1040x S. 2012 1040x resident for tax purposes if you meet the substantial presence test for calendar year 2013. 2012 1040x To meet this test, you must be physically present in the United States on at least: 31 days during 2013, and 183 days during the 3-year period that includes 2013, 2012, and 2011, counting: All the days you were present in 2013, and 1/3 of the days you were present in 2012, and 1/6 of the days you were present in 2011. 2012 1040x Example. 2012 1040x You were physically present in the United States on 120 days in each of the years 2011, 2012, and 2013. 2012 1040x To determine if you meet the substantial presence test for 2013, count the full 120 days of presence in 2013, 40 days in 2012 (1/3 of 120), and 20 days in 2011 (1/6 of 120). 2012 1040x Because the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2013. 2012 1040x The term United States includes the following areas. 2012 1040x All 50 states and the District of Columbia. 2012 1040x The territorial waters of the United States. 2012 1040x The seabed and subsoil of those submarine areas that are adjacent to U. 2012 1040x S. 2012 1040x territorial waters and over which the United States has exclusive rights under international law to explore and exploit natural resources. 2012 1040x The term does not include U. 2012 1040x S. 2012 1040x possessions and territories or U. 2012 1040x S. 2012 1040x airspace. 2012 1040x Days of Presence in the United States You are treated as present in the United States on any day you are physically present in the country at any time during the day. 2012 1040x However, there are exceptions to this rule. 2012 1040x Do not count the following as days of presence in the United States for the substantial presence test. 2012 1040x Days you commute to work in the United States from a residence in Canada or Mexico if you regularly commute from Canada or Mexico. 2012 1040x Days you are in the United States for less than 24 hours when you are in transit between two places outside the United States. 2012 1040x Days you are in the United States as a crew member of a foreign vessel. 2012 1040x Days you are unable to leave the United States because of a medical condition that arose while you are in the United States. 2012 1040x Days you are an exempt individual. 2012 1040x The specific rules that apply to each of these categories are discussed next. 2012 1040x Regular commuters from Canada or Mexico. 2012 1040x   Do not count the days on which you commute to work in the United States from your residence in Canada or Mexico if you regularly commute from Canada or Mexico. 2012 1040x You are considered to commute regularly if you commute to work in the United States on more than 75% of the workdays during your working period. 2012 1040x   For this purpose, “commute” means to travel to work and return to your residence within a 24-hour period. 2012 1040x “Workdays” are the days on which you work in the United States or Canada or Mexico. 2012 1040x “Working period” means the period beginning with the first day in the current year on which you are physically present in the United States to work and ending on the last day in the current year on which you are physically present in the United States to work. 2012 1040x If your work requires you to be present in the United States only on a seasonal or cyclical basis, your working period begins on the first day of the season or cycle on which you are present in the United States to work and ends on the last day of the season or cycle on which you are present in the United States to work. 2012 1040x You can have more than one working period in a calendar year, and your working period can begin in one calendar year and end in the following calendar year. 2012 1040x Example. 2012 1040x Maria Perez lives in Mexico and works for Compañía ABC in its office in Mexico. 2012 1040x She was assigned to her firm's office in the United States from February 1 through June 1. 2012 1040x On June 2, she resumed her employment in Mexico. 2012 1040x On 69 days, Maria commuted each morning from her home in Mexico to work in Compañía ABC's U. 2012 1040x S. 2012 1040x office. 2012 1040x She returned to her home in Mexico on each of those evenings. 2012 1040x On 7 days, she worked in her firm's Mexico office. 2012 1040x For purposes of the substantial presence test, Maria does not count the days she commuted to work in the United States because those days equal more than 75% of the workdays during the working period (69 workdays in the United States divided by 76 workdays in the working period equals 90. 2012 1040x 8%). 2012 1040x Days in transit. 2012 1040x   Do not count the days you are in the United States for less than 24 hours and you are in transit between two places outside the United States. 2012 1040x You are considered to be in transit if you engage in activities that are substantially related to completing travel to your foreign destination. 2012 1040x For example, if you travel between airports in the United States to change planes en route to your foreign destination, you are considered to be in transit. 2012 1040x However, you are not considered to be in transit if you attend a business meeting while in the United States. 2012 1040x This is true even if the meeting is held at the airport. 2012 1040x Crew members. 2012 1040x   Do not count the days you are temporarily present in the United States as a regular crew member of a foreign vessel (boat or ship) engaged in transportation between the United States and a foreign country or a U. 2012 1040x S. 2012 1040x possession. 2012 1040x However, this exception does not apply if you otherwise engage in any trade or business in the United States on those days. 2012 1040x Medical condition. 2012 1040x   Do not count the days you intended to leave, but could not leave the United States because of a medical condition or problem that arose while you were in the United States. 2012 1040x Whether you intended to leave the United States on a particular day is determined based on all the facts and circumstances. 2012 1040x For example, you may be able to establish that you intended to leave if your purpose for visiting the United States could be accomplished during a period that is not long enough to qualify you for the substantial presence test. 2012 1040x However, if you need an extended period of time to accomplish the purpose of your visit and that period would qualify you for the substantial presence test, you would not be able to establish an intent to leave the United States before the end of that extended period. 2012 1040x   In the case of an individual who is judged mentally incompetent, proof of intent to leave the United States can be determined by analyzing the individual's pattern of behavior before he or she was judged mentally incompetent. 2012 1040x   If you qualify to exclude days of presence because of a medical condition, you must file a fully completed Form 8843 with the IRS. 2012 1040x See Form 8843 , later. 2012 1040x   You cannot exclude any days of presence in the United States under the following circumstances. 2012 1040x You were initially prevented from leaving, were then able to leave, but remained in the United States beyond a reasonable period for making arrangements to leave. 2012 1040x You returned to the United States for treatment of a medical condition that arose during a prior stay. 2012 1040x The condition existed before your arrival in the United States and you were aware of the condition. 2012 1040x It does not matter whether you needed treatment for the condition when you entered the United States. 2012 1040x Exempt individual. 2012 1040x   Do not count days for which you are an exempt individual. 2012 1040x The term “exempt individual” does not refer to someone exempt from U. 2012 1040x S. 2012 1040x tax, but to anyone in the following categories. 2012 1040x An individual temporarily present in the United States as a foreign government-related individual under an “A” or “G” visa. 2012 1040x A teacher or trainee temporarily present in the United States under a “J” or “Q” visa, who substantially complies with the requirements of the visa. 2012 1040x A student temporarily present in the United States under an “F,” “J,” “M,” or “Q” visa, who substantially complies with the requirements of the visa. 2012 1040x A professional athlete temporarily in the United States to compete in a charitable sports event. 2012 1040x   The specific rules for each of these four categories (including any rules on the length of time you will be an exempt individual) are discussed next. 2012 1040x Foreign government-related individuals. 2012 1040x   A foreign government-related individual is an individual (or a member of the individual's immediate family) who is temporarily present in the United States: As a full-time employee of an international organization, By reason of diplomatic status, or By reason of a visa (other than a visa that grants lawful permanent residence) that the Secretary of the Treasury determines represents full-time diplomatic or consular status. 2012 1040x Note. 2012 1040x You are considered temporarily present in the United States regardless of the actual amount of time you are present in the United States. 2012 1040x    An international organization is any public international organization that the President of the United States has designated by Executive Order as being entitled to the privileges, exemptions, and immunities provided for in the International Organizations Act. 2012 1040x An individual is a full-time employee if his or her work schedule meets the organization's standard full-time work schedule. 2012 1040x   An individual is considered to have full-time diplomatic or consular status if he or she: Has been accredited by a foreign government that is recognized by the United States, Intends to engage primarily in official activities for that foreign government while in the United States, and Has been recognized by the President, Secretary of State, or a consular officer as being entitled to that status. 2012 1040x Note. 2012 1040x If you are present in the United States under an “A” or “G” visa you are considered a foreign government-related individual (with full-time diplomatic or consular status). 2012 1040x None of your days count for purposes of the substantial presence test. 2012 1040x   Members of the immediate family include the individual's spouse and unmarried children (whether by blood or adoption) but only if the spouse's or unmarried children's visa statuses are derived from and dependent on the exempt individual's visa classification. 2012 1040x Unmarried children are included only if they: Are under 21 years of age, Reside regularly in the exempt individual's household, and Are not members of another household. 2012 1040x Teachers and trainees. 2012 1040x   A teacher or trainee is an individual, other than a student, who is temporarily in the United States under a “J” or “Q” visa and substantially complies with the requirements of that visa. 2012 1040x You are considered to have substantially complied with the visa requirements if you have not engaged in activities that are prohibited by U. 2012 1040x S. 2012 1040x immigration laws and could result in the loss of your visa status. 2012 1040x   Also included are immediate family members of exempt teachers and trainees. 2012 1040x See the definition of immediate family, earlier, under Foreign government-related individuals . 2012 1040x   You will not be an exempt individual as a teacher or trainee in 2013 if you were exempt as a teacher, trainee, or student for any part of 2 of the 6 preceding calendar years. 2012 1040x However, you will be an exempt individual if all of the following conditions are met. 2012 1040x You were exempt as a teacher, trainee, or student for any part of 3 (or fewer) of the 6 preceding calendar years, A foreign employer paid all of your compensation during 2013, and A foreign employer paid all of your compensation during each of the preceding 6 years you were present in the United States as a teacher or trainee. 2012 1040x A foreign employer includes an office or place of business of an American entity in a foreign country or a U. 2012 1040x S. 2012 1040x possession. 2012 1040x   If you qualify to exclude days of presence as a teacher or trainee, you must file a fully completed Form 8843 with the IRS. 2012 1040x See Form 8843 , later. 2012 1040x Example. 2012 1040x Carla was temporarily in the United States during the year as a teacher on a “J” visa. 2012 1040x Her compensation for the year was paid by a foreign employer. 2012 1040x Carla was treated as an exempt teacher for the previous 2 years but her compensation was not paid by a foreign employer. 2012 1040x She will not be considered an exempt individual for the current year because she was exempt as a teacher for at least 2 of the past 6 years. 2012 1040x If her compensation for the past 2 years had been paid by a foreign employer, she would be an exempt individual for the current year. 2012 1040x Students. 2012 1040x   A student is any individual who is temporarily in the United States on an “F,” “J,” “M,” or “Q” visa and who substantially complies with the requirements of that visa. 2012 1040x You are considered to have substantially complied with the visa requirements if you have not engaged in activities that are prohibited by U. 2012 1040x S. 2012 1040x immigration laws and could result in the loss of your visa status. 2012 1040x   Also included are immediate family members of exempt students. 2012 1040x See the definition of immediate family, earlier, under Foreign government-related individuals . 2012 1040x   You will not be an exempt individual as a student in 2013 if you have been exempt as a teacher, trainee, or student for any part of more than 5 calendar years unless you meet both of the following requirements. 2012 1040x You establish that you do not intend to reside permanently in the United States. 2012 1040x You have substantially complied with the requirements of your visa. 2012 1040x The facts and circumstances to be considered in determining if you have demonstrated an intent to reside permanently in the United States include, but are not limited to, the following. 2012 1040x Whether you have maintained a closer connection to a foreign country (discussed later). 2012 1040x Whether you have taken affirmative steps to change your status from nonimmigrant to lawful permanent resident as discussed later under Closer Connection to a Foreign Country . 2012 1040x   If you qualify to exclude days of presence as a student, you must file a fully completed Form 8843 with the IRS. 2012 1040x See Form 8843 , later. 2012 1040x Professional athletes. 2012 1040x   A professional athlete who is temporarily in the United States to compete in a charitable sports event is an exempt individual. 2012 1040x A charitable sports event is one that meets the following conditions. 2012 1040x The main purpose is to benefit a qualified charitable organization. 2012 1040x The entire net proceeds go to charity. 2012 1040x Volunteers perform substantially all the work. 2012 1040x   In figuring the days of presence in the United States, you can exclude only the days on which you actually competed in a sports event. 2012 1040x You cannot exclude the days on which you were in the United States to practice for the event, to perform promotional or other activities related to the event, or to travel between events. 2012 1040x   If you qualify to exclude days of presence as a professional athlete, you must file a fully completed Form 8843 with the IRS. 2012 1040x See Form 8843 , next. 2012 1040x Form 8843. 2012 1040x   If you exclude days of presence in the United States because you fall into any of the following categories, you must file a fully completed Form 8843. 2012 1040x You were unable to leave the United States as planned because of a medical condition or problem. 2012 1040x You were temporarily in the United States as a teacher or trainee on a “J” or “Q” visa. 2012 1040x You were temporarily in the United States as a student on an “F,” “J,” “M,” or “Q” visa. 2012 1040x You were a professional athlete competing in a charitable sports event. 2012 1040x Attach Form 8843 to your 2013 income tax return. 2012 1040x If you do not have to file a return, send Form 8843 to the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215, by the due date for filing Form 1040NR or Form 1040NR-EZ. 2012 1040x The due date for filing is discussed in chapter 7. 2012 1040x If you do not timely file Form 8843, you cannot exclude the days you were present in the United States as a professional athlete or because of a medical condition that arose while you were in the United States. 2012 1040x This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing requirements and significant steps to comply with those requirements. 2012 1040x Closer Connection to a Foreign Country Even if you meet the substantial presence test, you can be treated as a nonresident alien if you: Are present in the United States for less than 183 days during the year, Maintain a tax home in a foreign country during the year, and Have a closer connection during the year to one foreign country in which you have a tax home than to the United States (unless you have a closer connection to two foreign countries, discussed next). 2012 1040x Closer connection to two foreign countries. 2012 1040x   You can demonstrate that you have a closer connection to two foreign countries (but not more than two) if you meet all of the following conditions. 2012 1040x You maintained a tax home beginning on the first day of the year in one foreign country. 2012 1040x You changed your tax home during the year to a second foreign country. 2012 1040x You continued to maintain your tax home in the second foreign country for the rest of the year. 2012 1040x You had a closer connection to each foreign country than to the United States for the period during which you maintained a tax home in that foreign country. 2012 1040x You are subject to tax as a resident under the tax laws of either foreign country for the entire year or subject to tax as a resident in both foreign countries for the period during which you maintained a tax home in each foreign country. 2012 1040x Tax home. 2012 1040x   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. 2012 1040x Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. 2012 1040x If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. 2012 1040x If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. 2012 1040x   For determining whether you have a closer connection to a foreign country, your tax home must also be in existence for the entire current year, and must be located in the same foreign country to which you are claiming to have a closer connection. 2012 1040x Foreign country. 2012 1040x   In determining whether you have a closer connection to a foreign country, the term “foreign country” means: Any territory under the sovereignty of the United Nations or a government other than that of the United States, The territorial waters of the foreign country (determined under U. 2012 1040x S. 2012 1040x law), The seabed and subsoil of those submarine areas which are adjacent to the territorial waters of the foreign country and over which the foreign country has exclusive rights under international law to explore and exploit natural resources, and Possessions and territories of the United States. 2012 1040x Establishing a closer connection. 2012 1040x   You will be considered to have a closer connection to a foreign country than the United States if you or the IRS establishes that you have maintained more significant contacts with the foreign country than with the United States. 2012 1040x In determining whether you have maintained more significant contacts with the foreign country than with the United States, the facts and circumstances to be considered include, but are not limited to, the following. 2012 1040x The country of residence you designate on forms and documents. 2012 1040x The types of official forms and documents you file, such as Form W-9, Form W-8BEN, or Form W-8ECI. 2012 1040x The location of: Your permanent home, Your family, Your personal belongings, such as cars, furniture, clothing, and jewelry, Your current social, political, cultural, professional, or religious affiliations, Your business activities (other than those that constitute your tax home), The jurisdiction in which you hold a driver's license, The jurisdiction in which you vote, and Charitable organizations to which you contribute. 2012 1040x It does not matter whether your permanent home is a house, an apartment, or a furnished room. 2012 1040x It also does not matter whether you rent or own it. 2012 1040x It is important, however, that your home be available at all times, continuously, and not solely for short stays. 2012 1040x When you cannot have a closer connection. 2012 1040x   You cannot claim you have a closer connection to a foreign country if either of the following applies: You personally applied, or took other steps during the year, to change your status to that of a permanent resident, or You had an application pending for adjustment of status during the current year. 2012 1040x Steps to change your status to that of a permanent resident include, but are not limited to, the filing of the following forms. 2012 1040x Form I-508, Waiver of Rights, Privileges, Exemptions and Immunities Form I-485, Application to Register Permanent Residence or Adjust Status Form I-130, Petition for Alien Relative, on your behalf Form I-140, Immigrant Petition for Alien Worker, on your behalf Form ETA-750, Application for Alien Employment Certification, on your behalf Form DS-230, Application for Immigrant Visa and Alien Registration Form 8840. 2012 1040x   You must attach a fully completed Form 8840 to your income tax return to claim you have a closer connection to a foreign country or countries. 2012 1040x   If you do not have to file a return, send the form to the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215, by the due date for filing Form 1040NR or Form 1040NR-EZ. 2012 1040x The due date for filing is discussed later in chapter 7. 2012 1040x   If you do not timely file Form 8840, you cannot claim a closer connection to a foreign country or countries. 2012 1040x This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing requirements and significant steps to comply with those requirements. 2012 1040x Effect of Tax Treaties The rules given here to determine if you are a U. 2012 1040x S. 2012 1040x resident do not override tax treaty definitions of residency. 2012 1040x If you are a dual-resident taxpayer, you can still claim the benefits under an income tax treaty. 2012 1040x A dual-resident taxpayer is one who is a resident of both the United States and another country under each country's tax laws. 2012 1040x The income tax treaty between the two countries must contain a provision that provides for resolution of conflicting claims of residence (tie-breaker rule). 2012 1040x If you are treated as a resident of a foreign country under a tax treaty, you are treated as a nonresident alien in figuring your U. 2012 1040x S. 2012 1040x income tax. 2012 1040x For purposes other than figuring your tax, you will be treated as a U. 2012 1040x S. 2012 1040x resident. 2012 1040x For example, the rules discussed here do not affect your residency time periods as discussed later under Dual-Status Aliens . 2012 1040x Information to be reported. 2012 1040x   If you are a dual-resident taxpayer and you claim treaty benefits, you must file a return by the due date (including extensions) using Form 1040NR or Form 1040NR-EZ, and compute your tax as a nonresident alien. 2012 1040x You must also attach a fully completed Form 8833 if you determine your residency under a tax treaty and receive payments or income items totaling more than $100,000. 2012 1040x You may also have to attach Form 8938 (discussed in chapter 7). 2012 1040x See Reporting Treaty Benefits Claimed in chapter 9 for more information on reporting treaty benefits. 2012 1040x Dual-Status Aliens You can be both a nonresident alien and a resident alien during the same tax year. 2012 1040x This usually occurs in the year you arrive in or depart from the United States. 2012 1040x Aliens who have dual status should see chapter 6 for information on filing a return for a dual-status tax year. 2012 1040x First Year of Residency If you are a U. 2012 1040x S. 2012 1040x resident for the calendar year, but you were not a U. 2012 1040x S. 2012 1040x resident at any time during the preceding calendar year, you are a U. 2012 1040x S. 2012 1040x resident only for the part of the calendar year that begins on the residency starting date. 2012 1040x You are a nonresident alien for the part of the year before that date. 2012 1040x Residency starting date under substantial presence test. 2012 1040x   If you meet the substantial presence test for a calendar year, your residency starting date is generally the first day you are present in the United States during that calendar year. 2012 1040x However, you do not have to count up to 10 days of actual presence in the United States if on those days you establish that: You had a closer connection to a foreign country than to the United States, and Your tax home was in that foreign country. 2012 1040x See Closer Connection to a Foreign Country , earlier. 2012 1040x   In determining whether you can exclude up to 10 days, the following rules apply. 2012 1040x You can exclude days from more than one period of presence as long as the total days in all periods are not more than 10. 2012 1040x You cannot exclude any days in a period of consecutive days of presence if all the days in that period cannot be excluded. 2012 1040x Although you can exclude up to 10 days of presence in determining your residency starting date, you must include those days when determining whether you meet the substantial presence test. 2012 1040x Example. 2012 1040x Ivan Ivanovich is a citizen of Russia. 2012 1040x He came to the United States for the first time on January 6, 2013, to attend a business meeting and returned to Russia on January 10, 2013. 2012 1040x His tax home remained in Russia. 2012 1040x On March 1, 2013, he moved to the United States and resided here for the rest of the year. 2012 1040x Ivan is able to establish a closer connection to Russia for the period January 6–10. 2012 1040x Thus, his residency starting date is March 1. 2012 1040x Statement required to exclude up to 10 days of presence. 2012 1040x   You must file a statement with the IRS if you are excluding up to 10 days of presence in the United States for purposes of your residency starting date. 2012 1040x You must sign and date this statement and include a declaration that it is made under penalties of perjury. 2012 1040x The statement must contain the following information (as applicable). 2012 1040x Your name, address, U. 2012 1040x S. 2012 1040x taxpayer identification number (if any), and U. 2012 1040x S. 2012 1040x visa number (if any). 2012 1040x Your passport number and the name of the country that issued your passport. 2012 1040x The tax year for which the statement applies. 2012 1040x The first day that you were present in the United States during the year. 2012 1040x The dates of the days you are excluding in figuring your first day of residency. 2012 1040x Sufficient facts to establish that you have maintained your tax home in and a closer connection to a foreign country during the period you are excluding. 2012 1040x   Attach the required statement to your income tax return. 2012 1040x If you are not required to file a return, send the statement to the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215, on or before the due date for filing Form 1040NR or Form 1040NR-EZ. 2012 1040x The due date for filing is discussed in chapter 7. 2012 1040x   If you do not file the required statement as explained above, you cannot claim that you have a closer connection to a foreign country or countries. 2012 1040x Therefore, your first day of residency will be the first day you are present in the United States. 2012 1040x This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the requirements for filing the statement and significant steps to comply with those requirements. 2012 1040x Residency starting date under green card test. 2012 1040x   If you meet the green card test at any time during a calendar year, but do not meet the substantial presence test for that year, your residency starting date is the first day in the calendar year on which you are present in the United States as a lawful permanent resident. 2012 1040x   If you meet both the substantial presence test and the green card test, your residency starting date is the earlier of the first day during the year you are present in the United States under the substantial presence test or as a lawful permanent resident. 2012 1040x Residency during the preceding year. 2012 1040x   If you were a U. 2012 1040x S. 2012 1040x resident during any part of the preceding calendar year and you are a U. 2012 1040x S. 2012 1040x resident for any part of the current year, you will be considered a U. 2012 1040x S. 2012 1040x resident at the beginning of the current year. 2012 1040x This applies whether you are a resident under the substantial presence test or green card test. 2012 1040x Example. 2012 1040x Robert Bach is a citizen of Switzerland. 2012 1040x He came to the United States as a U. 2012 1040x S. 2012 1040x resident for the first time on May 1, 2012, and remained until November 5, 2012, when he returned to Switzerland. 2012 1040x Robert came back to the United States on March 5, 2013, as a lawful permanent resident and still resides here. 2012 1040x In calendar year 2013, Robert's U. 2012 1040x S. 2012 1040x residency is deemed to begin on January 1, 2013, because he qualified as a resident in calendar year 2012. 2012 1040x First-Year Choice If you do not meet either the green card test or the substantial presence test for 2012 or 2013 and you did not choose to be treated as a resident for part of 2012, but you meet the substantial presence test for 2014, you can choose to be treated as a U. 2012 1040x S. 2012 1040x resident for part of 2013. 2012 1040x To make this choice, you must: Be present in the United States for at least 31 days in a row in 2013, and Be present in the United States for at least 75% of the number of days beginning with the first day of the 31-day period and ending with the last day of 2013. 2012 1040x For purposes of this 75% requirement, you can treat up to 5 days of absence from the United States as days of presence in the United States. 2012 1040x When counting the days of presence in (1) and (2) above, do not count the days you were in the United States under any of the exceptions discussed earlier under Days of Presence in the United States. 2012 1040x If you make the first-year choice, your residency starting date for 2013 is the first day of the earliest 31-day period (described in (1) above) that you use to qualify for the choice. 2012 1040x You are treated as a U. 2012 1040x S. 2012 1040x resident for the rest of the year. 2012 1040x If you are present for more than one 31-day period and you satisfy condition (2) above for each of those periods, your residency starting date is the first day of the first 31-day period. 2012 1040x If you are present for more than one 31-day period but you satisfy condition (2) above only for a later 31-day period, your residency starting date is the first day of the later 31-day period. 2012 1040x Note. 2012 1040x You do not have to be married to make this choice. 2012 1040x Example 1. 2012 1040x Juan DaSilva is a citizen of the Philippines. 2012 1040x He came to the United States for the first time on November 1, 2013, and was here on 31 consecutive days (from November 1 through December 1, 2013). 2012 1040x Juan returned to the Philippines on December 1 and came back to the United States on December 17, 2013. 2012 1040x He stayed in the United States for the rest of the year. 2012 1040x During 2014, Juan was a resident of the United States under the substantial presence test. 2012 1040x Juan can make the first-year choice for 2013 because he was in the United States in 2013 for a period of 31 days in a row (November 1 through December 1) and for at least 75% of the days following (and including) the first day of his 31-day period (46 total days of presence in the United States divided by 61 days in the period from November 1 through December 31 equals 75. 2012 1040x 4%). 2012 1040x If Juan makes the first-year choice, his residency starting date will be November 1, 2013. 2012 1040x Example 2. 2012 1040x The facts are the same as in Example 1, except that Juan was also absent from the United States on December 24, 25, 29, 30, and 31. 2012 1040x He can make the first-year choice for 2013 because up to 5 days of absence are considered days of presence for purposes of the 75% requirement. 2012 1040x Statement required to make the first-year choice for 2013. 2012 1040x   You must attach a statement to Form 1040 to make the first-year choice for 2013. 2012 1040x The statement must contain your name and address and specify the following. 2012 1040x That you are making the first-year choice for 2013. 2012 1040x That you were not a resident in 2012. 2012 1040x That you are a resident under the substantial presence test in 2014. 2012 1040x The number of days of presence in the United States during 2014. 2012 1040x The date or dates of your 31-day period of presence and the period of continuous presence in the United States during 2013. 2012 1040x The date or dates of absence from the United States during 2013 that you are treating as days of presence. 2012 1040x You cannot file Form 1040 or the statement until you meet the substantial presence test for 2014. 2012 1040x If you have not met the test for 2014 as of April 15, 2014, you can request an extension of time for filing your 2013 Form 1040 until a reasonable period after you have met that test. 2012 1040x To request an extension to file until October 15, 2014, use Form 4868, Application for Automatic Extension of Time To File U. 2012 1040x S. 2012 1040x Individual Income Tax Return. 2012 1040x You can file the paper form or use one of the electronic filing options explained in the Form 4868 instructions. 2012 1040x You should pay with this extension the amount of tax you expect to owe for 2013 figured as if you were a nonresident alien the entire year. 2012 1040x You can use Form 1040NR or Form 1040NR-EZ to figure the tax. 2012 1040x Enter the tax on Form 4868. 2012 1040x If you do not pay the tax due, you will be charged interest on any tax not paid by the regular due date of your return, and you may be charged a penalty on the late payment. 2012 1040x   Once you make the first-year choice, you may not revoke it without the approval of the Internal Revenue Service. 2012 1040x   If you do not follow the procedures discussed here for making the first-year choice, you will be treated as a nonresident alien for all of 2013. 2012 1040x However, this does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing procedures and significant steps to comply with the procedures. 2012 1040x Choosing Resident Alien Status If you are a dual-status alien, you can choose to be treated as a U. 2012 1040x S. 2012 1040x resident for the entire year if all of the following apply. 2012 1040x You were a nonresident alien at the beginning of the year. 2012 1040x You are a resident alien or U. 2012 1040x S. 2012 1040x citizen at the end of the year. 2012 1040x You are married to a U. 2012 1040x S. 2012 1040x citizen or resident alien at the end of the year. 2012 1040x Your spouse joins you in making the choice. 2012 1040x This includes situations in which both you and your spouse were nonresident aliens at the beginning of the tax year and both of you are resident aliens at the end of the tax year. 2012 1040x Note. 2012 1040x If you are single at the end of the year, you cannot make this choice. 2012 1040x If you make this choice, the following rules apply. 2012 1040x You and your spouse are treated as U. 2012 1040x S. 2012 1040x residents for the entire year for income tax purposes. 2012 1040x You and your spouse are taxed on worldwide income. 2012 1040x You and your spouse must file a joint return for the year of the choice. 2012 1040x Neither you nor your spouse can make this choice for any later tax year, even if you are separated, divorced, or remarried. 2012 1040x The special instructions and restrictions for dual-status taxpayers in chapter 6 do not apply to you. 2012 1040x Note. 2012 1040x A similar choice is available if, at the end of the tax year, one spouse is a nonresident alien and the other spouse is a U. 2012 1040x S. 2012 1040x citizen or resident. 2012 1040x See Nonresident Spouse Treated as a Resident , later. 2012 1040x If you previously made that choice and it is still in effect, you do not need to make the choice explained here. 2012 1040x Making the choice. 2012 1040x   You should attach a statement signed by both spouses to your joint return for the year of the choice. 2012 1040x The statement must contain the following information. 2012 1040x A declaration that you both qualify to make the choice and that you choose to be treated as U. 2012 1040x S. 2012 1040x residents for the entire tax year. 2012 1040x The name, address, and taxpayer identification number (SSN or ITIN) of each spouse. 2012 1040x (If one spouse died, include the name and address of the person who makes the choice for the deceased spouse. 2012 1040x )   You generally make this choice when you file your joint return. 2012 1040x However, you also can make the choice by filing Form 1040X, Amended U. 2012 1040x S. 2012 1040x Individual Income Tax Return. 2012 1040x Attach Form 1040, Form 1040A, or Form 1040EZ and print “Amended” across the top of the corrected return. 2012 1040x If you make the choice with an amended return, you and your spouse must also amend any returns that you may have filed after the year for which you made the choice. 2012 1040x   You generally must file the amended joint return within 3 years from the date you filed your original U. 2012 1040x S. 2012 1040x income tax return or 2 years from the date you paid your income tax for that year, whichever is later. 2012 1040x Last Year of Residency If you were a U. 2012 1040x S. 2012 1040x resident in 2013 but are not a U. 2012 1040x S. 2012 1040x resident during any part of 2014, you cease to be a U. 2012 1040x S. 2012 1040x resident on your residency termination date. 2012 1040x Your residency termination date is December 31, 2013, unless you qualify for an earlier date as discussed next. 2012 1040x Earlier residency termination date. 2012 1040x   You may qualify for a residency termination date that is earlier than December 31. 2012 1040x This date is: The last day in 2013 that you are physically present in the United States, if you met the substantial presence test, The first day in 2013 that you are no longer a lawful permanent resident of the United States, if you met the green card test, or The later of (1) or (2), if you met both tests. 2012 1040x You can use this date only if, for the remainder of 2013, your tax home was in a foreign country and you had a closer connection to that foreign country. 2012 1040x See Closer Connection to a Foreign Country , earlier. 2012 1040x    A long-term resident who ceases to be a lawful permanent resident may be subject to special reporting requirements and tax provisions. 2012 1040x See Expatriation Tax in chapter 4. 2012 1040x Termination of residency. 2012 1040x   For information on your residency termination date, see Former long-term resident under Expatriation After June 16, 2008, in chapter 4. 2012 1040x De minimis presence. 2012 1040x   If you are a U. 2012 1040x S. 2012 1040x resident because of the substantial presence test and you qualify to use the earlier residency termination date, you can exclude up to 10 days of actual presence in the United States in determining your residency termination date. 2012 1040x In determining whether you can exclude up to 10 days, the following rules apply. 2012 1040x You can exclude days from more than one period of presence as long as the total days in all periods are not more than 10. 2012 1040x You cannot exclude any days in a period of consecutive days of presence if all the days in that period cannot be excluded. 2012 1040x Although you can exclude up to 10 days of presence in determining your residency termination date, you must include those days when determining whether you meet the substantial presence test. 2012 1040x Example. 2012 1040x Lola Bovary is a citizen of Malta. 2012 1040x She came to the United States for the first time on March 1, 2013, and resided here until August 25, 2013. 2012 1040x On December 12, 2013, Lola came to the United States for vacation and stayed here until December 16, 2013, when she returned to Malta. 2012 1040x She is able to establish a closer connection to Malta for the period December 12–16. 2012 1040x Lola is not a U. 2012 1040x S. 2012 1040x resident for tax purposes during 2014 and can establish a closer connection to Malta for the rest of calendar year 2013. 2012 1040x Lola is a U. 2012 1040x S. 2012 1040x resident under the substantial presence test for 2013 because she was present in the United States for 183 days (178 days for the period March 1 to August 25 plus 5 days in December). 2012 1040x Lola's residency termination date is August 25, 2013. 2012 1040x Residency during the next year. 2012 1040x   If you are a U. 2012 1040x S. 2012 1040x resident during any part of 2014 and you are a resident during any part of 2013, you will be treated as a resident through the end of 2013. 2012 1040x This applies whether you have a closer connection to a foreign country than the United States during 2013, and whether you are a resident under the substantial presence test or green card test. 2012 1040x Statement required to establish your residency termination date. 2012 1040x   You must file a statement with the IRS to establish your residency termination date. 2012 1040x You must sign and date this statement and include a declaration that it is made under penalties of perjury. 2012 1040x The statement must contain the following information (as applicable). 2012 1040x Your name, address, U. 2012 1040x S. 2012 1040x taxpayer identification number (if any), and U. 2012 1040x S. 2012 1040x visa number (if any). 2012 1040x Your passport number and the name of the country that issued your passport. 2012 1040x The tax year for which the statement applies. 2012 1040x The last day that you were present in the United States during the year. 2012 1040x Sufficient facts to establish that you have maintained your tax home in, and that you have a closer connection to, a foreign country following your last day of presence in the United States during the year or following the abandonment or rescission of your status as a lawful permanent resident during the year. 2012 1040x The date that your status as a lawful permanent resident was abandoned or rescinded. 2012 1040x Sufficient facts (including copies of relevant documents) to establish that your status as a lawful permanent resident has been abandoned or rescinded. 2012 1040x If you can exclude days under the de minimis presence rule, discussed earlier, include the dates of the days you are excluding and sufficient facts to establish that you have maintained your tax home in and that you have a closer connection to a foreign country during the period you are excluding. 2012 1040x   Attach the required statement to your income tax return. 2012 1040x If you are not required to file a return, send the statement to the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215, on or before the due date for filing Form 1040NR or Form 1040NR-EZ. 2012 1040x The due date for filing is discussed in chapter 7. 2012 1040x   If you do not file the required statement as explained above, you cannot claim that you have a closer connection to a foreign country or countries. 2012 1040x This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the requirements for filing the statement and significant steps to comply with those requirements. 2012 1040x Nonresident Spouse Treated as a Resident If, at the end of your tax year, you are married and one spouse is a U. 2012 1040x S. 2012 1040x citizen or a resident alien and the other spouse is a nonresident alien, you can choose to treat the nonresident spouse as a U. 2012 1040x S. 2012 1040x resident. 2012 1040x This includes situations in which one spouse is a nonresident alien at the beginning of the tax year, but a resident alien at the end of the year, and the other spouse is a nonresident alien at the end of the year. 2012 1040x If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire tax year. 2012 1040x Neither you nor your spouse can claim under any tax treaty not to be a U. 2012 1040x S. 2012 1040x resident. 2012 1040x You are both taxed on worldwide income. 2012 1040x You must file a joint income tax return for the year you make the choice, but you and your spouse can file joint or separate returns in later years. 2012 1040x If you file a joint return under this provision, the special instructions and restrictions for dual-status taxpayers in chapter 6 do not apply to you. 2012 1040x Example. 2012 1040x Bob and Sharon Williams are married and both are nonresident aliens at the beginning of the year. 2012 1040x In June, Bob became a resident alien and remained a resident for the rest of the year. 2012 1040x Bob and Sharon both choose to be treated as resident aliens by attaching a statement to their joint return. 2012 1040x Bob and Sharon must file a joint return for the year they make the choice, but they can file either joint or separate returns for later years. 2012 1040x How To Make the Choice Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. 2012 1040x It should contain the following information. 2012 1040x A declaration that one spouse was a nonresident alien and the other spouse a U. 2012 1040x S. 2012 1040x citizen or resident alien on the last day of your tax year, and that you choose to be treated as U. 2012 1040x S. 2012 1040x residents for the entire tax year. 2012 1040x The name, address, and identification number of each spouse. 2012 1040x (If one spouse died, include the name and address of the person making the choice for the deceased spouse. 2012 1040x ) Amended return. 2012 1040x   You generally make this choice when you file your joint return. 2012 1040x However, you can also make the choice by filing a joint amended return on Form 1040X. 2012 1040x Attach Form 1040, Form 1040A, or Form 1040EZ and print “Amended” across the top of the corrected return. 2012 1040x If you make the choice with an amended return, you and your spouse must also amend any returns that you may have filed after the year for which you made the choice. 2012 1040x   You generally must file the amended joint return within 3 years from the date you filed your original U. 2012 1040x S. 2012 1040x income tax return or 2 years from the date you paid your income tax for that year, whichever is later. 2012 1040x Suspending the Choice The choice to be treated as a resident alien is suspended for any tax year (after the tax year you made the choice) if neither spouse is a U. 2012 1040x S. 2012 1040x citizen or resident alien at any time during the tax year. 2012 1040x This means each spouse must file a separate return as a nonresident alien for that year if either meets the filing requirements for nonresident aliens discussed in chapter 7. 2012 1040x Example. 2012 1040x Dick Brown was a resident alien on December 31, 2010, and married to Judy, a nonresident alien. 2012 1040x They chose to treat Judy as a resident alien and filed joint 2010 and 2011 income tax returns. 2012 1040x On January 10, 2012, Dick became a nonresident alien. 2012 1040x Judy had remained a nonresident alien throughout the period. 2012 1040x Dick and Judy could have filed joint or separate returns for 2012 because Dick was a resident alien for part of that year. 2012 1040x However, because neither Dick nor Judy is a resident alien at any time during 2013, their choice is suspended for that year. 2012 1040x If either meets the filing requirements for nonresident aliens discussed in chapter 7, they must file separate returns as nonresident aliens for 2013. 2012 1040x If Dick becomes a resident alien again in 2014, their choice is no longer suspended. 2012 1040x Ending the Choice Once made, the choice to be treated as a resident applies to all later years unless suspended (as explained earlier under Suspending the Choice ) or ended in one of the following ways. 2012 1040x If the choice is ended in one of the following ways, neither spouse can make this choice in any later tax year. 2012 1040x Revocation. 2012 1040x Either spouse can revoke the choice for any tax year, provided he or she makes the revocation by the due date for filing the tax return for that tax year. 2012 1040x The spouse who revokes the choice must attach a signed statement declaring that the choice is being revoked. 2012 1040x The statement must include the name, address, and identification number of each spouse. 2012 1040x (If one spouse dies, include the name and address of the person who is revoking the choice for the deceased spouse. 2012 1040x ) The statement also must include a list of any states, foreign countries, and possessions that have community property laws in which either spouse is domiciled or where real property is located from which either spouse receives income. 2012 1040x File the statement as follows. 2012 1040x If the spouse revoking the choice must file a return, attach the statement to the return for the first year the revocation applies. 2012 1040x If the spouse revoking the choice does not have to file a return, but does file a return (for example, to obtain a refund), attach the statement to the return. 2012 1040x If the spouse revoking the choice does not have to file a return and does not file a claim for refund, send the statement to the Internal Revenue Service Center where you filed the last joint return. 2012 1040x Death. 2012 1040x The death of either spouse ends the choice, beginning with the first tax year following the year the spouse died. 2012 1040x However, if the surviving spouse is a U. 2012 1040x S. 2012 1040x citizen or resident and is entitled to the joint tax rates as a surviving spouse, the choice will not end until the close of the last year for which these joint rates may be used. 2012 1040x If both spouses die in the same tax year, the choice ends on the first day after the close of the tax year in which the spouses died. 2012 1040x Legal separation. 2012 1040x A legal separation under a decree of divorce or separate maintenance ends the choice as of the beginning of the tax year in which the legal separation occurs. 2012 1040x Inadequate records. 2012 1040x The Internal Revenue Service can end the choice for any tax year that either spouse has failed to keep adequate books, records, and other information necessary to determine the correct income tax liability, or to provide adequate access to those records. 2012 1040x Aliens From American Samoa or Puerto Rico If you are a nonresident alien in the United States and a bona fide resident of American Samoa or Puerto Rico during the entire tax year, you are taxed, with certain exceptions, according to the rules for resident aliens of the United States. 2012 1040x For more information, see Bona Fide Residents of American Samoa or Puerto Rico in chapter 5. 2012 1040x If you are a nonresident alien from American Samoa or Puerto Rico who does not qualify as a bona fide resident of American Samoa or Puerto Rico for the entire tax year, you are taxed as a nonresident alien. 2012 1040x Resident aliens who formerly were bona fide residents of American Samoa or Puerto Rico are taxed according to the rules for resident aliens. 2012 1040x Prev  Up  Next   Home   More Online Publications
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Tax Counseling for the Elderly

The Tax Counseling for the Elderly (TCE) program offers FREE tax help to individuals who are age 60 or older. Cooperative grant agreements are entered into between IRS and eligible organizations to provide tax assistance to elderly taxpayers. The funds provided by the IRS are used by organizations to reimburse volunteers for their out-of-pocket expenses; including transportation, meals and other expenses incurred by them in providing tax counseling assistance at locations convenient to the taxpayers.  

Tax return preparation assistance is provided to elderly taxpayers during the normal period for filing Federal income tax returns, which is from January 1 to April 15 each year. However, the program activities required to make sure elderly taxpayers receive efficient and quality tax assistance can be conducted year-round.

A sponsor awarded a grant is responsible for all aspects of operating the TCE program including, but not limited to publicity, recruitment, training, site selection and management of volunteers.  

Section 163 of the Revenue Act of 1978, Public Law No. 95-600, 92 Stat. 2810, November 6, 1978, authorizes IRS to enter into cooperative agreements.

This web page serves as a resource for organizations interested in applying for a TCE grant as well as for organizations who have been awarded a grant.

Select from the following categories to get started:

 

Contact the TCE Grant Program at tce.grant.office@irs.gov

Page Last Reviewed or Updated: 11-Sep-2013

The 2012 1040x

2012 1040x 5. 2012 1040x   Additional Rules for Listed Property Table of Contents Introduction Useful Items - You may want to see: What Is Listed Property?Passenger Automobiles Other Property Used for Transportation Computers and Related Peripheral Equipment Can Employees Claim a Deduction? What Is the Business-Use Requirement?How To Allocate Use Qualified Business Use Recapture of Excess Depreciation Lessee's Inclusion Amount Do the Passenger Automobile Limits Apply?Maximum Depreciation Deduction Deductions After the Recovery Period Deductions For Passenger Automobiles Acquired in a Trade-in What Records Must Be Kept?Adequate Records How Is Listed Property Information Reported? Introduction This chapter discusses the deduction limits and other special rules that apply to certain listed property. 2012 1040x Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers. 2012 1040x Deductions for listed property (other than certain leased property) are subject to the following special rules and limits. 2012 1040x Deduction for employees. 2012 1040x If your use of the property is not for your employer's convenience or is not required as a condition of your employment, you cannot deduct depreciation or rent expenses for your use of the property as an employee. 2012 1040x Business-use requirement. 2012 1040x If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance. 2012 1040x In addition, you must figure any depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS) using the straight line method over the ADS recovery period. 2012 1040x You may also have to recapture (include in income) any excess depreciation claimed in previous years. 2012 1040x A similar inclusion amount applies to certain leased property. 2012 1040x Passenger automobile limits and rules. 2012 1040x Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. 2012 1040x You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period. 2012 1040x This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. 2012 1040x It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return. 2012 1040x Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. 2012 1040x What Is Listed Property? Listed property is any of the following. 2012 1040x Passenger automobiles (as defined later). 2012 1040x Any other property used for transportation, unless it is an excepted vehicle. 2012 1040x Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment). 2012 1040x Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. 2012 1040x A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business as discussed in Publication 587. 2012 1040x Improvements to listed property. 2012 1040x   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. 2012 1040x The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. 2012 1040x For example, if you must depreciate the listed property using the straight line method, you also must depreciate the improvement using the straight line method. 2012 1040x Passenger Automobiles A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). 2012 1040x It includes any part, component, or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile. 2012 1040x The following vehicles are not considered passenger automobiles for these purposes. 2012 1040x An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business. 2012 1040x A vehicle used directly in the trade or business of transporting persons or property for pay or hire. 2012 1040x A truck or van that is a qualified nonpersonal use vehicle. 2012 1040x Qualified nonpersonal use vehicles. 2012 1040x   Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. 2012 1040x They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation , next. 2012 1040x They also include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. 2012 1040x For a detailed discussion of passenger automobiles, including leased passenger automobiles, see  Publication 463. 2012 1040x Other Property Used for Transportation Although vehicles used to transport persons or property for pay or hire and vehicles rated at more than the 6,000-pound threshold are not passenger automobiles, they are still “other property used for transportation” and are subject to the special rules for listed property. 2012 1040x Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods. 2012 1040x Excepted vehicles. 2012 1040x   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ). 2012 1040x Clearly marked police and fire vehicles. 2012 1040x Unmarked vehicles used by law enforcement officers if the use is officially authorized. 2012 1040x Ambulances used as such and hearses used as such. 2012 1040x Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo. 2012 1040x Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks. 2012 1040x Combines, cranes and derricks, and forklifts. 2012 1040x Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat. 2012 1040x Qualified moving vans. 2012 1040x Qualified specialized utility repair trucks. 2012 1040x School buses used in transporting students and employees of schools. 2012 1040x Other buses with a capacity of at least 20 passengers that are used as passenger buses. 2012 1040x Tractors and other special purpose farm vehicles. 2012 1040x Clearly marked police and fire vehicle. 2012 1040x   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements. 2012 1040x It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit. 2012 1040x It is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times. 2012 1040x It is prohibited from being used for personal use (other than commuting) outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency. 2012 1040x It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. 2012 1040x A marking on a license plate is not a clear marking for these purposes. 2012 1040x Qualified moving van. 2012 1040x   A qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met. 2012 1040x No personal use of the van is allowed other than for travel to and from a move site or for minor personal use, such as a stop for lunch on the way from one move site to another. 2012 1040x Personal use for travel to and from a move site happens no more than five times a month on average. 2012 1040x Personal use is limited to situations in which it is more convenient to the employer, because of the location of the employee's residence in relation to the location of the move site, for the van not to be returned to the employer's business location. 2012 1040x Qualified specialized utility repair truck. 2012 1040x   A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply. 2012 1040x The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts. 2012 1040x Shelves, racks, or other permanent interior construction has been installed to carry and store the tools, equipment, or parts and would make it unlikely that the truck would be used, other than minimally, for personal purposes. 2012 1040x The employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity, gas, telephone, water, sewer, or steam utility services. 2012 1040x Computers and Related Peripheral Equipment A computer is a programmable, electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention. 2012 1040x It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. 2012 1040x Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. 2012 1040x The following are neither computers nor related peripheral equipment. 2012 1040x Any equipment that is an integral part of other property that is not a computer. 2012 1040x Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment. 2012 1040x Equipment of a kind used primarily for the user's amusement or entertainment, such as video games. 2012 1040x Can Employees Claim a Deduction? If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. 2012 1040x The use of your property in performing services as an employee is a business use only if both the following requirements are met. 2012 1040x The use is for your employer's convenience. 2012 1040x The use is required as a condition of your employment. 2012 1040x If these requirements are not met, you cannot deduct depreciation (including the section 179 deduction) or rent expenses for your use of the property as an employee. 2012 1040x Employer's convenience. 2012 1040x   Whether the use of listed property is for your employer's convenience must be determined from all the facts. 2012 1040x The use is for your employer's convenience if it is for a substantial business reason of the employer. 2012 1040x The use of listed property during your regular working hours to carry on your employer's business generally is for the employer's convenience. 2012 1040x Condition of employment. 2012 1040x   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. 2012 1040x The use of property must be required for you to perform your duties properly. 2012 1040x Your employer does not have to require explicitly that you use the property. 2012 1040x However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient. 2012 1040x Example 1. 2012 1040x Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. 2012 1040x She owns and uses a motorcycle to deliver packages to downtown offices. 2012 1040x We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. 2012 1040x Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. 2012 1040x Example 2. 2012 1040x Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. 2012 1040x He must travel to these sites on a regular basis. 2012 1040x Uplift does not furnish an automobile or explicitly require him to use his own automobile. 2012 1040x However, it pays him for any costs he incurs in traveling to the various sites. 2012 1040x The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. 2012 1040x Example 3. 2012 1040x Assume the same facts as in Example 2 except that Uplift furnishes a car to Bill, who chooses to use his own car and receive payment for using it. 2012 1040x The use of his own car is neither for the convenience of Uplift nor required as a condition of employment. 2012 1040x Example 4. 2012 1040x Marilyn Lee is a pilot for Y Company, a small charter airline. 2012 1040x Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. 2012 1040x Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. 2012 1040x Marilyn owns her own airplane. 2012 1040x The use of her airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment. 2012 1040x Example 5. 2012 1040x David Rule is employed as an engineer with Zip, an engineering contracting firm. 2012 1040x He occasionally takes work home at night rather than work late in the office. 2012 1040x He owns and uses a home computer which is virtually identical to the office model. 2012 1040x His use of the computer is neither for the convenience of his employer nor required as a condition of employment. 2012 1040x What Is the Business-Use Requirement? You can claim the section 179 deduction and a special depreciation allowance for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. 2012 1040x To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. 2012 1040x If this requirement is not met, the following rules apply. 2012 1040x Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction. 2012 1040x Property not used predominantly for qualified business use during the year it is placed in service does not qualify for a special depreciation allowance. 2012 1040x Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. 2012 1040x This rule applies each year of the recovery period. 2012 1040x Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use. 2012 1040x A lessee must add an inclusion amount to income in the first year in which the leased property is not used predominantly for qualified business use. 2012 1040x Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as electing the straight line method. 2012 1040x It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. 2012 1040x Exception for leased property. 2012 1040x   The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. 2012 1040x   You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. 2012 1040x This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. 2012 1040x Occasional or incidental leasing activity is insufficient. 2012 1040x For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. 2012 1040x An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. 2012 1040x How To Allocate Use To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses. 2012 1040x For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. 2012 1040x You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year. 2012 1040x For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). 2012 1040x For example, you can determine the percentage of business use of a computer by dividing the number of hours you used the computer for business purposes during the year by the total number of hours you used the computer for all purposes (including business use) during the year. 2012 1040x Entertainment use. 2012 1040x   Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense. 2012 1040x Commuting use. 2012 1040x   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. 2012 1040x For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. 2012 1040x This is also true for a business meeting held in a car while commuting to work. 2012 1040x Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. 2012 1040x The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use. 2012 1040x Use of your automobile by another person. 2012 1040x   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies. 2012 1040x That use is directly connected with your business. 2012 1040x You properly report the value of the use as income to the other person and withhold tax on the income where required. 2012 1040x You are paid a fair market rent. 2012 1040x Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3). 2012 1040x Employee deductions. 2012 1040x   If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. 2012 1040x See Can Employees Claim a Deduction , earlier. 2012 1040x Qualified Business Use Qualified business use of listed property is any use of the property in your trade or business. 2012 1040x However, it does not include the following uses. 2012 1040x The leasing of property to any 5% owner or related person (to the extent the property is used by a 5% owner or person related to the owner or lessee of the property). 2012 1040x The use of property as pay for the services of a 5% owner or related person. 2012 1040x The use of property as pay for services of any person (other than a 5% owner or related person), unless the value of the use is included in that person's gross income and income tax is withheld on that amount where required. 2012 1040x Property does not stop being used predominantly for qualified business use because of a transfer at death. 2012 1040x Exception for leasing or compensatory use of aircraft. 2012 1040x   Treat the leasing of any aircraft by a 5% owner or related person, or the compensatory use of any aircraft, as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use. 2012 1040x 5% owner. 2012 1040x   For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business. 2012 1040x   For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following. 2012 1040x More than 5% of the outstanding stock of the corporation. 2012 1040x Stock possessing more than 5% of the total combined voting power of all stock in the corporation. 2012 1040x Related persons. 2012 1040x   For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 . 2012 1040x For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. 2012 1040x Examples. 2012 1040x   The following examples illustrate whether the use of business property is qualified business use. 2012 1040x Example 1. 2012 1040x John Maple is the sole proprietor of a plumbing contracting business. 2012 1040x John employs his brother, Richard, in the business. 2012 1040x As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. 2012 1040x The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. 2012 1040x The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use. 2012 1040x Example 2. 2012 1040x John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. 2012 1040x He does not include the value of the personal use of the company automobiles as part of their compensation and he does not withhold tax on the value of the use of the automobiles. 2012 1040x This use of company automobiles by employees is not a qualified business use. 2012 1040x Example 3. 2012 1040x James Company Inc. 2012 1040x owns several automobiles that its employees use for business purposes. 2012 1040x The employees also are allowed to take the automobiles home at night. 2012 1040x The fair market value of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. 2012 1040x This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company. 2012 1040x Investment Use The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. 2012 1040x However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year. 2012 1040x Example 1. 2012 1040x Sarah Bradley uses a home computer 50% of the time to manage her investments. 2012 1040x She also uses the computer 40% of the time in her part-time consumer research business. 2012 1040x Sarah's home computer is listed property because it is not used at a regular business establishment. 2012 1040x She does not use the computer predominantly for qualified business use. 2012 1040x Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. 2012 1040x She must depreciate it using the straight line method over the ADS recovery period. 2012 1040x Her combined business/investment use for determining her depreciation deduction is 90%. 2012 1040x Example 2. 2012 1040x If Sarah uses her computer 30% of the time to manage her investments and 60% of the time in her consumer research business, it is used predominantly for qualified business use. 2012 1040x She can elect a section 179 deduction and, if she does not deduct all the computer's cost, she can claim a special depreciation allowance and depreciate the computer using the 200% declining balance method over the GDS recovery period. 2012 1040x Her combined business/investment use for determining her depreciation deduction is 90%. 2012 1040x Recapture of Excess Depreciation If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. 2012 1040x You also increase the adjusted basis of your property by the same amount. 2012 1040x Excess depreciation is: The depreciation allowable for the property (including any section 179 deduction and special depreciation allowance claimed) for years before the first year you do not use the property predominantly for qualified business use, minus The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service. 2012 1040x To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period. 2012 1040x Example. 2012 1040x In June 2009, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. 2012 1040x She used it only for qualified business use for 2009 through 2012. 2012 1040x Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. 2012 1040x She began depreciating it using the 200% DB method over a 5-year GDS recovery period. 2012 1040x The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply. 2012 1040x During 2013, she used the truck 50% for business and 50% for personal purposes. 2012 1040x She includes $4,018 excess depreciation in her gross income for 2013. 2012 1040x The excess depreciation is determined as follows. 2012 1040x Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2009 through 2012. 2012 1040x (Depreciation is from Table A-1. 2012 1040x ) $16,618 Minus: Depreciation allowable (Table A-8):     2009 – 10% of $18,000 $1,800   2010 – 20% of $18,000 3,600   2011 – 20% of $18,000 3,600   2012 – 20% of $18,000 3,600 12,600 Excess depreciation $4,018 If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2015, there will be no excess depreciation. 2012 1040x The total depreciation allowable using Table A-8 through 2015 will be $18,000, which equals the total of the section 179 deduction and depreciation she will have claimed. 2012 1040x Where to figure and report recapture. 2012 1040x   Use Form 4797, Part IV, to figure the recapture amount. 2012 1040x Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. 2012 1040x For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. 2012 1040x If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21. 2012 1040x Lessee's Inclusion Amount If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. 2012 1040x Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). 2012 1040x For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463. 2012 1040x The inclusion amount is the sum of Amount A and Amount B, described next. 2012 1040x However, see the special rules for the inclusion amount, later, if your lease begins in the last 9 months of your tax year or is for less than one year. 2012 1040x Amount A. 2012 1040x   Amount A is: The fair market value of the property, multiplied by The business/investment use for the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A-19 in Appendix A . 2012 1040x   The fair market value of the property is the value on the first day of the lease term. 2012 1040x If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the fair market value. 2012 1040x Amount B. 2012 1040x   Amount B is: The fair market value of the property, multiplied by The average of the business/investment use for all tax years the property was leased that precede the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A–20 in Appendix A . 2012 1040x Maximum inclusion amount. 2012 1040x   The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income. 2012 1040x Inclusion amount worksheet. 2012 1040x   The following worksheet is provided to help you figure the inclusion amount for leased listed property. 2012 1040x Inclusion Amount Worksheet for Leased Listed Property 1. 2012 1040x Fair market value   2. 2012 1040x Business/investment use for first year business use is 50% or less   3. 2012 1040x Multiply line 1 by line 2. 2012 1040x   4. 2012 1040x Rate (%) from Table A-19   5. 2012 1040x Multiply line 3 by line 4. 2012 1040x This is Amount A. 2012 1040x   6. 2012 1040x Fair market value   7. 2012 1040x Average business/investment use for years property leased before the first year business use is 50% or less . 2012 1040x . 2012 1040x . 2012 1040x . 2012 1040x . 2012 1040x . 2012 1040x . 2012 1040x . 2012 1040x . 2012 1040x . 2012 1040x . 2012 1040x . 2012 1040x . 2012 1040x   8. 2012 1040x Multiply line 6 by line 7   9. 2012 1040x Rate (%) from Table A-20   10. 2012 1040x Multiply line 8 by line 9. 2012 1040x This is Amount B. 2012 1040x   11. 2012 1040x Add line 5 and line 10. 2012 1040x This is your inclusion amount. 2012 1040x Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. 2012 1040x )         Example. 2012 1040x On February 1, 2011, Larry House, a calendar year taxpayer, leased and placed in service a computer with a fair market value of $3,000. 2012 1040x The lease is for a period of 5 years. 2012 1040x Larry does not use the computer at a regular business establishment, so it is listed property. 2012 1040x His business use of the property (all of which is qualified business use) is 80% in 2011, 60% in 2012, and 40% in 2013. 2012 1040x He must add an inclusion amount to gross income for 2013, the first tax year his qualified business-use percentage is 50% or less. 2012 1040x The computer has a 5-year recovery period under both GDS and ADS. 2012 1040x 2013 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19. 2012 1040x 8%. 2012 1040x The applicable percentage from Table A-20 is 22. 2012 1040x 0%. 2012 1040x Larry's deductible rent for the computer for 2013 is $800. 2012 1040x Larry uses the Inclusion amount worksheet. 2012 1040x to figure the amount he must include in income for 2013. 2012 1040x His inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B). 2012 1040x Inclusion Amount Worksheet for Leased Listed Property 1. 2012 1040x Fair market value $3,000   2. 2012 1040x Business/investment use for first year business use is 50% or less 40 % 3. 2012 1040x Multiply line 1 by line 2. 2012 1040x 1,200   4. 2012 1040x Rate (%) from Table A-19 −19. 2012 1040x 8 % 5. 2012 1040x Multiply line 3 by line 4. 2012 1040x This is Amount A. 2012 1040x −238   6. 2012 1040x Fair market value 3,000   7. 2012 1040x Average business/investment use for years property leased before the first year business use is 50% or less 70 % 8. 2012 1040x Multiply line 6 by line 7 2,100   9. 2012 1040x Rate (%) from Table A-20 22. 2012 1040x 0 % 10. 2012 1040x Multiply line 8 by line 9. 2012 1040x This is Amount B. 2012 1040x 462   11. 2012 1040x Add line 5 and line 10. 2012 1040x This is your inclusion amount. 2012 1040x Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. 2012 1040x ) $224           Lease beginning in the last 9 months of your tax year. 2012 1040x    The inclusion amount is subject to a special rule if all the following apply. 2012 1040x The lease term begins within 9 months before the close of your tax year. 2012 1040x You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year. 2012 1040x The lease term continues into your next tax year. 2012 1040x Under this special rule, add the inclusion amount to income in the next tax year. 2012 1040x Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. 2012 1040x Skip lines 6 through 9 of the worksheet and enter zero on line 10. 2012 1040x Example 1. 2012 1040x On August 1, 2012, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. 2012 1040x The property is 5-year property with a fair market value of $10,000. 2012 1040x Her property has a recovery period of 5 years under ADS. 2012 1040x The lease is for 5 years. 2012 1040x Her business use of the property was 50% in 2012 and 90% in 2013. 2012 1040x She paid rent of $3,600 for 2012, of which $3,240 is deductible. 2012 1040x She must include $147 in income in 2013. 2012 1040x The $147 is the sum of Amount A and Amount B. 2012 1040x Amount A is $147 ($10,000 × 70% × 2. 2012 1040x 1%), the product of the fair market value, the average business use for 2012 and 2013, and the applicable percentage for year one from Table A-19 . 2012 1040x Amount B is zero. 2012 1040x Lease for less than one year. 2012 1040x   A special rule for the inclusion amount applies if the lease term is less than one year and you do not use the property predominantly (more than 50%) for qualified business use. 2012 1040x The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. 2012 1040x The numerator of the fraction is the number of days in the lease term and the denominator is 365 (or 366 for leap years). 2012 1040x   The lease term for listed property other than residential rental or nonresidential real property includes options to renew. 2012 1040x If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease. 2012 1040x Example 2. 2012 1040x On October 1, 2012, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. 2012 1040x This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. 2012 1040x The lease term was 6 months (ending on March 31, 2013), during which he used the property 45% in business. 2012 1040x He must include $71 in income in 2013. 2012 1040x The $71 is the sum of Amount A and Amount B. 2012 1040x Amount A is $71 ($15,000 × 45% × 2. 2012 1040x 1% × 183/365), the product of the fair market value, the average business use for both years, and the applicable percentage for year one from Table A-19 , prorated for the length of the lease. 2012 1040x Amount B is zero. 2012 1040x Where to report inclusion amount. 2012 1040x   Report the inclusion amount figured as described in the preceding discussions as other income on the same form or schedule on which you took the deduction for your rental costs. 2012 1040x For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. 2012 1040x If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21. 2012 1040x Do the Passenger Automobile Limits Apply? The depreciation deduction, including the section 179 deduction and special depreciation allowance, you can claim for a passenger automobile (defined earlier) each year is limited. 2012 1040x This section describes the maximum depreciation deduction amounts for 2013 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit. 2012 1040x Exception for leased cars. 2012 1040x   The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. 2012 1040x For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property , earlier, under What Is the Business-Use Requirement . 2012 1040x Maximum Depreciation Deduction The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. 2012 1040x They are based on the date you placed the automobile in service. 2012 1040x Passenger Automobiles The maximum deduction amounts for most passenger automobiles are shown in the following table. 2012 1040x Maximum Depreciation Deduction for Passenger Automobiles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,1601 $5,100 $3,050 $1,875 2012 11,1601 5,100 3,050 1,875 2011 11,0602 4,900 2,950 1,775 2010 11,0602  4,900 2,950 1,775 2009 10,9603 4,800 2,850 1,775 2008 10,9603  4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6104 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7105 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6606 4,900 2,950 1,775 1If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. 2012 1040x 2If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. 2012 1040x 3If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $2,960. 2012 1040x 4If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $2,960. 2012 1040x 5If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. 2012 1040x If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. 2012 1040x 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. 2012 1040x If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year. 2012 1040x If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. 2012 1040x The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12. 2012 1040x Example. 2012 1040x On April 15, 2013, Virginia Hart bought and placed in service a new car for $14,500. 2012 1040x She used the car only in her business. 2012 1040x She files her tax return based on the calendar year. 2012 1040x She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. 2012 1040x Under MACRS, a car is 5-year property. 2012 1040x Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. 2012 1040x Virginia multiplies the $14,500 unadjusted basis of her car by 0. 2012 1040x 20 to get her MACRS depreciation of $2,900 for 2013. 2012 1040x This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2013. 2012 1040x She can deduct the full $2,900. 2012 1040x Electric Vehicles The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. 2012 1040x The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. 2012 1040x Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts later for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts for trucks and vans later, for electric vehicles classified as trucks and vans. 2012 1040x Maximum Depreciation Deduction For Electric Vehicles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2006 $8,980 $14,400 $8,650 $5,225 2005 8,880 14,200 8,450 5,125 2004 31,8301 14,300 8,550 5,125 5/06/2003– 12/31/2003 32,0302 14,600 8,750 5,225 1/01/2003– 5/05/2003 22,8803 14,600 8,750 5,225 1If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880. 2012 1040x 2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. 2012 1040x If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. 2012 1040x 3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. 2012 1040x Trucks and Vans The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. 2012 1040x The maximum deduction amounts for trucks and vans are shown in the following table. 2012 1040x Maximum Depreciation Deduction For Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 11,3601 5,300 3,150 1,875 2011 11,2602 5,200 3,150 1,875 2010 11,1603 5,100 3,050 1,875 2009 11,0604 4,900 2,950 1,775 2008 11,1605 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2006 3,260 5,200 3,150 1,875 2005 3,260 5,200 3,150 1,875 2004 10,9106 5,300 3,150 1,875 5/06/2003– 12/31/2003 11,0107 5,400 3,250 1,975 1/01/2003– 5/05/2003 7,9608 5,400 3,250 1,975 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,360. 2012 1040x 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,260. 2012 1040x 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. 2012 1040x 4 If you elect not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,060. 2012 1040x 5If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,160. 2012 1040x 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, or the maximum deduction is $3,260. 2012 1040x 7 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. 2012 1040x If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. 2012 1040x 8 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. 2012 1040x Depreciation Worksheet for Passenger Automobiles You can use the following worksheet to figure your depreciation deduction using the percentage tables. 2012 1040x Then use the information from this worksheet to prepare Form 4562. 2012 1040x Depreciation Worksheet for Passenger Automobiles   Part I   1. 2012 1040x MACRS system (GDS or ADS)     2. 2012 1040x Property class     3. 2012 1040x Date placed in service     4. 2012 1040x Recovery period     5. 2012 1040x Method and convention     6. 2012 1040x Depreciation rate (from tables)     7. 2012 1040x Maximum depreciation deduction for this year from the appropriate table       8. 2012 1040x Business/investment-use percentage       9. 2012 1040x Multiply line 7 by line 8. 2012 1040x This is your adjusted maximum depreciation deduction       10. 2012 1040x Section 179 deduction claimed this year (not more than line 9). 2012 1040x Enter -0- if this is not the year you placed the car in service. 2012 1040x         Note. 2012 1040x  1) If line 10 is equal to line 9, stop here. 2012 1040x Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. 2012 1040x  2) If line 10 is less than line 9, complete Part II. 2012 1040x   Part II   11. 2012 1040x Subtract line 10 from line 9. 2012 1040x This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance )       12. 2012 1040x Cost or other basis (reduced by any alternative motor vehicle credit 1or credit for electric vehicles 2)       13. 2012 1040x Multiply line 12 by line 8. 2012 1040x This is your business/investment cost       14. 2012 1040x Section 179 deduction claimed in the year you placed the car in service       15. 2012 1040x Subtract line 14 from line 13. 2012 1040x This is your tentative basis for depreciation       16. 2012 1040x Multiply line 15 by . 2012 1040x 50 if the 50% special depreciation allowance applies. 2012 1040x This is your special depreciation allowance. 2012 1040x Enter -0- if this is not the year you placed the car in service, the car is not qualified property, or you elected not to claim a special depreciation allowance       Note 1) If line 16 is equal to line 11, stop here. 2012 1040x Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. 2012 1040x  2) If line 16 is less than line 11, complete Part III. 2012 1040x   Part III   17. 2012 1040x Subtract line 16 from 11. 2012 1040x This is the limit on the amount you can deduct for MACRS depreciation       18. 2012 1040x Subtract line 16 from line 15. 2012 1040x This is your basis for depreciation. 2012 1040x       19. 2012 1040x Multiply line 18 by line 6. 2012 1040x This is your tentative MACRS depreciation deduction. 2012 1040x       20. 2012 1040x Enter the lesser of line 17 or line 19. 2012 1040x This is your MACRS depreciation deduction. 2012 1040x     1 When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. 2012 1040x 2 Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount. 2012 1040x             Deductions After the Recovery Period If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. 2012 1040x If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. 2012 1040x You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. 2012 1040x The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. 2012 1040x See Maximum Depreciation Deduction , earlier. 2012 1040x Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied. 2012 1040x You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. 2012 1040x There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period. 2012 1040x Example. 2012 1040x In May 2007, you bought and placed in service a car costing $31,500. 2012 1040x The car was 5-year property under GDS (MACRS). 2012 1040x You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. 2012 1040x You used the car exclusively for business during the recovery period (2007 through 2012). 2012 1040x You figured your depreciation as shown below. 2012 1040x Year Percentage Amount Limit   Allowed 2007 20. 2012 1040x 0% $6,300 $2,960   $2,960 2008 32. 2012 1040x 0 10,080 4,800   4,800 2009 19. 2012 1040x 2 6,048 2,850   2,850 2010 11. 2012 1040x 52 3,629 1,675   1,675 2011 11. 2012 1040x 52 3,629 1,675   1,675 2012 5. 2012 1040x 76 1,814 1,675   1,675 Total   $15,635 At the end of 2012, you had an unrecovered basis of $15,865 ($31,500 − $15,635). 2012 1040x If in 2013 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,675 or your remaining unrecovered basis. 2012 1040x If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. 2012 1040x However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. 2012 1040x For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,519 ($15,865 × 60%), but you still would have to reduce your basis by $15,865 to determine your unrecovered basis. 2012 1040x Deductions For Passenger Automobiles Acquired in a Trade-in If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. 2012 1040x Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. 2012 1040x This excess basis is the additional cash paid for the new automobile in the trade-in. 2012 1040x The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. 2012 1040x Special rules apply in determining the passenger automobile limits. 2012 1040x These rules and examples are discussed in section 1. 2012 1040x 168(i)-6(d)(3) of the regulations. 2012 1040x Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. 2012 1040x For more information, including how to make this election, see Election out under Property Acquired in a Like-kind Exchange or Involuntary Conversion in chapter 4 and sections 1. 2012 1040x 168(i)-6(i) and 1. 2012 1040x 168(i)-6(j) of the regulations. 2012 1040x What Records Must Be Kept? You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. 2012 1040x For listed property, you must keep records for as long as any recapture can still occur. 2012 1040x Recapture can occur in any tax year of the recovery period. 2012 1040x Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. 2012 1040x You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. 2012 1040x However, your records should back up your receipts in an orderly manner. 2012 1040x Elements of expenditure or use. 2012 1040x   Your records or other documentary evidence must support all the following. 2012 1040x The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses. 2012 1040x The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year. 2012 1040x The date of the expenditure or use. 2012 1040x The business or investment purpose for the expenditure or use. 2012 1040x   Written documents of your expenditure or use are generally better evidence than oral statements alone. 2012 1040x You do not have to keep a daily log. 2012 1040x However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time of the expenditure or use and backed up by other documents is preferable to a statement you prepare later. 2012 1040x Timeliness. 2012 1040x   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. 2012 1040x An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use generally is considered a timely record if, in the regular course of business: The statement is given by an employee to the employer, or The statement is given by an independent contractor to the client or customer. 2012 1040x   For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use. 2012 1040x Business purpose supported. 2012 1040x   Generally, an adequate record of business purpose must be in the form of a written statement. 2012 1040x However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. 2012 1040x A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. 2012 1040x For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. 2012 1040x Business use supported. 2012 1040x   An adequate record contains enough information on each element of every business or investment use. 2012 1040x The amount of detail required to support the use depends on the facts and circumstances. 2012 1040x For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. 2012 1040x   Although you generally must prepare an adequate written record, you can prepare a record of the business use of listed property in a computer memory device that uses a logging program. 2012 1040x Separate or combined expenditures or uses. 2012 1040x   Each use by you normally is considered a separate use. 2012 1040x However, you can combine repeated uses as a single item. 2012 1040x   Record each expenditure as a separate item. 2012 1040x Do not combine it with other expenditures. 2012 1040x If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. 2012 1040x If you combine these expenses, you do not need to support the business purpose of each expense. 2012 1040x Instead, you can divide the expenses based on the total business use of the listed property. 2012 1040x   You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. 2012 1040x For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. 2012 1040x You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. 2012 1040x Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. 2012 1040x Confidential information. 2012 1040x   If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. 2012 1040x You must keep it elsewhere and make it available as support to the IRS director for your area on request. 2012 1040x Substantial compliance. 2012 1040x   If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate. 2012 1040x   If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows. 2012 1040x By your own oral or written statement containing detailed information as to the element. 2012 1040x By other evidence sufficient to establish the element. 2012 1040x   If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct evidence, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. 2012 1040x If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. 2012 1040x Sampling. 2012 1040x   You can maintain an adequate record for part of a tax year and use that record to support your business and investment use of listed property for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of the use throughout the year. 2012 1040x Example 1. 2012 1040x Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. 2012 1040x She uses her automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. 2012 1040x There is no other business use of the automobile, but she and family members also use it for personal purposes. 2012 1040x She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. 2012 1040x Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. 2012 1040x If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. 2012 1040x Example 2. 2012 1040x Assume the same facts as in Example 1, except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business. 2012 1040x Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile's business use throughout the month. 2012 1040x The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. 2012 1040x Example 3. 2012 1040x Bill Baker, a sole proprietor and calendar year taxpayer, is a salesman in a large metropolitan area for a company that manufactures household products. 2012 1040x For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. 2012 1040x During these weeks, his business use of the automobile does not follow a consistent pattern. 2012 1040x During the fourth week of each month, he delivers all business orders taken during the previous month. 2012 1040x The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. 2012 1040x The determination based on the record maintained during the fourth week of the month that his business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because his use during that week is not representative of use during other periods. 2012 1040x Loss of records. 2012 1040x   When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. 2012 1040x How Is Listed Property Information Reported? You must provide the information about your listed property requested in Part V of Form 4562, Section A, if you claim either of the following deductions. 2012 1040x Any deduction for a vehicle. 2012 1040x A depreciation deduction for any other listed property. 2012 1040x If you claim any deduction for a vehicle, you also must provide the information requested in Section B. 2012 1040x If you provide the vehicle for your employee's use, the employee must give you this information. 2012 1040x If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle. 2012 1040x Vehicles used by your employees. 2012 1040x   You do not have to complete Section B, Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements. 2012 1040x You maintain a written policy statement that prohibits one of the following uses of the vehicles. 2012 1040x All personal use including commuting. 2012 1040x Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners. 2012 1040x You treat all use of the vehicles by your employees as personal use. 2012 1040x You provide more than five vehicles for use by your employees, and you keep in your records the information on their use given to you by the employees. 2012 1040x For demonstrator automobiles provided to full-time salespersons, you maintain a written policy statement that limits the total mileage outside the salesperson's normal working hours and prohibits use of the automobile by anyone else, for vacation trips, or to store personal possessions. 2012 1040x Exceptions. 2012 1040x   If you file Form 2106, 2106-EZ, or Schedule C-EZ (Form 1040), and you are not required to file Form 4562, report information about listed property on that form and not on Form 4562. 2012 1040x Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562. 2012 1040x Prev  Up  Next   Home   More Online Publications