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File taxes past years 8. File taxes past years   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. File taxes past years Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. File taxes past years It is similar to the straight line method of depreciation. File taxes past years The various amortizable costs covered in this chapter are included in the list below. File taxes past years However, this chapter does not discuss amortization of bond premium. File taxes past years For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. File taxes past years Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. File taxes past years How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. File taxes past years To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. File taxes past years For example, in 2012, you began to amortize a lease. File taxes past years In 2013, you began to amortize a second lease. File taxes past years Report amortization from the new lease on line 42 of your 2013 Form 4562. File taxes past years Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. File taxes past years If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). File taxes past years Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. File taxes past years Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. File taxes past years Generally, you recover costs for particular assets through depreciation deductions. File taxes past years However, you generally cannot recover other costs until you sell the business or otherwise go out of business. File taxes past years For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. File taxes past years For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. File taxes past years The costs that are not deducted currently can be amortized ratably over a 180-month period. File taxes past years The amortization period starts with the month you begin operating your active trade or business. File taxes past years You are not required to attach a statement to make this election. File taxes past years You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. File taxes past years Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. File taxes past years See Regulations sections 1. File taxes past years 195-1, 1. File taxes past years 248-1, and 1. File taxes past years 709-1. File taxes past years For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. File taxes past years Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. File taxes past years If the election is made, you must attach any statement required by Regulations sections 1. File taxes past years 195-1(b), 1. File taxes past years 248-1(c), and 1. File taxes past years 709-1(c), as in effect before September 9, 2008. File taxes past years Note. File taxes past years You can apply the provisions of Regulations sections 1. File taxes past years 195-1, 1. File taxes past years 248-1, and 1. File taxes past years 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. File taxes past years Otherwise, the provisions under Regulations sections 1. File taxes past years 195-1(b), 1. File taxes past years 248-1(c), and 1. File taxes past years 709-1(c), as in effect before September 9, 2008, will apply. File taxes past years For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. File taxes past years See How To Make the Election , later. File taxes past years The cost must qualify as one of the following. File taxes past years A business start-up cost. File taxes past years An organizational cost for a corporation. File taxes past years An organizational cost for a partnership. File taxes past years Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. File taxes past years Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. File taxes past years Qualifying costs. File taxes past years   A start-up cost is amortizable if it meets both of the following tests. File taxes past years It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). File taxes past years It is a cost you pay or incur before the day your active trade or business begins. File taxes past years   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. File taxes past years Advertisements for the opening of the business. File taxes past years Salaries and wages for employees who are being trained and their instructors. File taxes past years Travel and other necessary costs for securing prospective distributors, suppliers, or customers. File taxes past years Salaries and fees for executives and consultants, or for similar professional services. File taxes past years Nonqualifying costs. File taxes past years   Start-up costs do not include deductible interest, taxes, or research and experimental costs. File taxes past years See Research and Experimental Costs , later. File taxes past years Purchasing an active trade or business. File taxes past years   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. File taxes past years These are costs that help you decide whether to purchase a business. File taxes past years Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. File taxes past years Example. File taxes past years On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. File taxes past years They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. File taxes past years In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. File taxes past years The letter stated that a binding commitment would result only after a purchase agreement was signed. File taxes past years The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. File taxes past years On October 22nd, you signed a purchase agreement with XYZ, Inc. File taxes past years All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. File taxes past years Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. File taxes past years Disposition of business. File taxes past years   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. File taxes past years However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. File taxes past years Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. File taxes past years Qualifying costs. File taxes past years   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. File taxes past years   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. File taxes past years   Examples of organizational costs include: The cost of temporary directors. File taxes past years The cost of organizational meetings. File taxes past years State incorporation fees. File taxes past years The cost of legal services. File taxes past years Nonqualifying costs. File taxes past years   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. File taxes past years Costs associated with the transfer of assets to the corporation. File taxes past years Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. File taxes past years Qualifying costs. File taxes past years   A partnership can amortize an organizational cost only if it meets all the following tests. File taxes past years It is for the creation of the partnership and not for starting or operating the partnership trade or business. File taxes past years It is chargeable to a capital account (see chapter 1). File taxes past years It could be amortized over the life of the partnership if the partnership had a fixed life. File taxes past years It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. File taxes past years However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. File taxes past years It is for a type of item normally expected to benefit the partnership throughout its entire life. File taxes past years   Organizational costs include the following fees. File taxes past years Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. File taxes past years Accounting fees for services incident to the organization of the partnership. File taxes past years Filing fees. File taxes past years Nonqualifying costs. File taxes past years   The following costs cannot be amortized. File taxes past years The cost of acquiring assets for the partnership or transferring assets to the partnership. File taxes past years The cost of admitting or removing partners, other than at the time the partnership is first organized. File taxes past years The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. File taxes past years The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. File taxes past years These “syndication fees” are capital expenses that cannot be depreciated or amortized. File taxes past years Liquidation of partnership. File taxes past years   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. File taxes past years However, these costs can be deducted only to the extent they qualify as a loss from a business. File taxes past years How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). File taxes past years You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. File taxes past years Once you choose an amortization period, you cannot change it. File taxes past years To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. File taxes past years The result is the amount you can deduct for each month. File taxes past years Cash method partnership. File taxes past years   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. File taxes past years However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. File taxes past years How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. File taxes past years You may also be required to attach an accompanying statement (described later) to your return. File taxes past years For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. File taxes past years Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. File taxes past years 195-1, 1. File taxes past years 248-1, and 1. File taxes past years 709-1, you must also attach an accompanying statement to elect to amortize the costs. File taxes past years If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. File taxes past years See Starting a Business , earlier, for more information. File taxes past years Generally, you must file the return by the due date (including any extensions). File taxes past years However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). File taxes past years For more information, see the instructions for Part VI of Form 4562. File taxes past years You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. File taxes past years Note. File taxes past years The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. File taxes past years If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. File taxes past years A shareholder or partner cannot make this election. File taxes past years You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. File taxes past years Only the corporation or partnership can amortize these costs. File taxes past years However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. File taxes past years These costs qualify as business start-up costs if you acquire the partnership interest. File taxes past years Start-up costs election statement. File taxes past years   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. File taxes past years A description of the business to which the start-up costs relate. File taxes past years A description of each start-up cost incurred. File taxes past years The month your active business began (or was acquired). File taxes past years The number of months in your amortization period (which is generally 180 months). File taxes past years Filing the statement early. File taxes past years   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. File taxes past years If you file the statement early, the election becomes effective in the month of the tax year your active business begins. File taxes past years Revised statement. File taxes past years   You can file a revised statement to include any start-up costs not included in your original statement. File taxes past years However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. File taxes past years You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. File taxes past years Organizational costs election statement. File taxes past years   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. File taxes past years A description of each cost. File taxes past years The amount of each cost. File taxes past years The date each cost was incurred. File taxes past years The month your corporation or partnership began active business (or acquired the business). File taxes past years The number of months in your amortization period (which is generally 180 months). File taxes past years Partnerships. File taxes past years   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. File taxes past years   You do not need to separately list any partnership organizational cost that is less than $10. File taxes past years Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. File taxes past years   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. File taxes past years Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. File taxes past years The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). File taxes past years However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). File taxes past years For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. File taxes past years How to amortize. File taxes past years   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. File taxes past years Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. File taxes past years You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. File taxes past years You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. File taxes past years See Anti-Churning Rules, later. File taxes past years Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). File taxes past years The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. File taxes past years You cannot deduct amortization for the month you dispose of the intangible. File taxes past years If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. File taxes past years You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. File taxes past years Tax-exempt use property subject to a lease. File taxes past years   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. File taxes past years Cost attributable to other property. File taxes past years   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. File taxes past years For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. File taxes past years Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. File taxes past years Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. File taxes past years You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. File taxes past years Goodwill. File taxes past years   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. File taxes past years Going concern value. File taxes past years   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. File taxes past years It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). File taxes past years It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. File taxes past years Workforce in place, etc. File taxes past years   This includes the composition of a workforce (for example, its experience, education, or training). File taxes past years It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. File taxes past years   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. File taxes past years Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. File taxes past years Business books and records, etc. File taxes past years   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. File taxes past years It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. File taxes past years Patents, copyrights, etc. File taxes past years   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . File taxes past years Customer-based intangible. File taxes past years   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. File taxes past years For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. File taxes past years A customer base. File taxes past years A circulation base. File taxes past years An undeveloped market or market growth. File taxes past years Insurance in force. File taxes past years A mortgage servicing contract. File taxes past years An investment management contract. File taxes past years Any other relationship with customers involving the future provision of goods or services. File taxes past years   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. File taxes past years Supplier-based intangible. File taxes past years   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. File taxes past years The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. File taxes past years Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. File taxes past years Also, see Assets That Are Not Section 197 Intangibles below. File taxes past years Government-granted license, permit, etc. File taxes past years   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. File taxes past years For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. File taxes past years Covenant not to compete. File taxes past years   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. File taxes past years An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. File taxes past years   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. File taxes past years Franchise, trademark, or trade name. File taxes past years   A franchise, trademark, or trade name is a section 197 intangible. File taxes past years You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. File taxes past years For information on currently deductible contingent payments, see chapter 11. File taxes past years Professional sports franchise. File taxes past years   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. File taxes past years Contract for the use of, or a term interest in, a section 197 intangible. File taxes past years   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. File taxes past years It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. File taxes past years Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. File taxes past years Any interest in a corporation, partnership, trust, or estate. File taxes past years Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. File taxes past years Any interest in land. File taxes past years Most computer software. File taxes past years (See Computer software , later. File taxes past years ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. File taxes past years An interest in a film, sound recording, video tape, book, or similar property. File taxes past years A right to receive tangible property or services under a contract or from a governmental agency. File taxes past years An interest in a patent or copyright. File taxes past years Certain rights that have a fixed duration or amount. File taxes past years (See Rights of fixed duration or amount , later. File taxes past years ) An interest under either of the following. File taxes past years An existing lease or sublease of tangible property. File taxes past years A debt that was in existence when the interest was acquired. File taxes past years A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. File taxes past years Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. File taxes past years Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. File taxes past years You generally must use the straight line method over its useful life. File taxes past years For certain intangibles, the depreciation period is specified in the law and regulations. File taxes past years For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. File taxes past years For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. File taxes past years Computer software. File taxes past years   Section 197 intangibles do not include the following types of computer software. File taxes past years Software that meets all the following requirements. File taxes past years It is, or has been, readily available for purchase by the general public. File taxes past years It is subject to a nonexclusive license. File taxes past years It has not been substantially modified. File taxes past years This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. File taxes past years Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. File taxes past years Computer software defined. File taxes past years   Computer software includes all programs designed to cause a computer to perform a desired function. File taxes past years It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. File taxes past years Rights of fixed duration or amount. File taxes past years   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. File taxes past years However, this does not apply to the following intangibles. File taxes past years Goodwill. File taxes past years Going concern value. File taxes past years A covenant not to compete. File taxes past years A franchise, trademark, or trade name. File taxes past years A customer-related information base, customer-based intangible, or similar item. File taxes past years Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. File taxes past years You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. File taxes past years If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. File taxes past years Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. File taxes past years Amortize these costs using the rules of Revenue Procedure 2004-36. File taxes past years For more information, see Revenue Procedure 2004-36, 2004-24 I. File taxes past years R. File taxes past years B. File taxes past years 1063, available at  www. File taxes past years irs. File taxes past years gov/irb/2004-24_IRB/ar16. File taxes past years html. File taxes past years A change in the treatment of creative property costs is a change in method of accounting. File taxes past years Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. File taxes past years These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. File taxes past years Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. File taxes past years You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. File taxes past years You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. File taxes past years You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). File taxes past years This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. File taxes past years See Related person , later, for more information. File taxes past years Exceptions. File taxes past years   The anti-churning rules do not apply in the following situations. File taxes past years You acquired the intangible from a decedent and its basis was stepped up to its fair market value. File taxes past years The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. File taxes past years This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. File taxes past years The gain-recognition exception, discussed later, applies. File taxes past years Related person. File taxes past years   For purposes of the anti-churning rules, the following are related persons. File taxes past years An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. File taxes past years ), and lineal descendants (children, grandchildren, etc. File taxes past years ). File taxes past years A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. File taxes past years Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. File taxes past years (For an exception, see section 1. File taxes past years 197-2(h)(6)(iv) of the regulations. File taxes past years ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. File taxes past years The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. File taxes past years The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. File taxes past years The executor and beneficiary of an estate. File taxes past years A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). File taxes past years A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. File taxes past years Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. File taxes past years Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. File taxes past years A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. File taxes past years Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). File taxes past years When to determine relationship. File taxes past years   Persons are treated as related if the relationship existed at the following time. File taxes past years In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. File taxes past years In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. File taxes past years Ownership of stock. File taxes past years   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. File taxes past years Rule 1. File taxes past years   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. File taxes past years Rule 2. File taxes past years   An individual is considered to own the stock directly or indirectly owned by or for his or her family. File taxes past years Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. File taxes past years Rule 3. File taxes past years   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. File taxes past years Rule 4. File taxes past years   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. File taxes past years Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. File taxes past years Gain-recognition exception. File taxes past years   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. File taxes past years That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. File taxes past years That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. File taxes past years See chapter 2 in Publication 544 for information on making this choice. File taxes past years   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. File taxes past years Notification. File taxes past years   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. File taxes past years Anti-abuse rule. File taxes past years   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. File taxes past years To avoid the requirement that the intangible be acquired after August 10, 1993. File taxes past years To avoid any of the anti-churning rules. File taxes past years More information. File taxes past years   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. File taxes past years 197-2(h). File taxes past years Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. File taxes past years See Amended Return , next. File taxes past years If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. File taxes past years See Changing Your Accounting Method , later. File taxes past years Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. File taxes past years A mathematical error made in any year. File taxes past years A posting error made in any year. File taxes past years An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. File taxes past years When to file. File taxes past years   If an amended return is allowed, you must file it by the later of the following dates. File taxes past years 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. File taxes past years (A return filed early is considered filed on the due date. File taxes past years ) 2 years from the time you paid your tax for that year. File taxes past years Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. File taxes past years File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. File taxes past years The following are examples of a change in method of accounting for amortization. File taxes past years A change in the amortization method, period of recovery, or convention of an amortizable asset. File taxes past years A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. File taxes past years A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. File taxes past years Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. File taxes past years An adjustment in the useful life of an amortizable asset. File taxes past years Generally, the making of a late amortization election or the revocation of a timely valid amortization election. File taxes past years Any change in the placed-in-service date of an amortizable asset. File taxes past years See Regulations section 1. File taxes past years 446-1(e)(2)(ii)(a) for more information and examples. File taxes past years Automatic approval. File taxes past years   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. File taxes past years For a list of automatic accounting method changes, see the Instructions for Form 3115. File taxes past years Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. File taxes past years For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. File taxes past years See Revenue Procedure 2006-12, 2006-3 I. File taxes past years R. File taxes past years B. File taxes past years 310, available at  www. File taxes past years irs. File taxes past years gov/irb/2006-03_IRB/ar14. File taxes past years html. File taxes past years  See Revenue Procedure 2006-37, 2006-38 I. File taxes past years R. File taxes past years B. File taxes past years 499, available at  www. File taxes past years irs. File taxes past years gov/irb/2006-38_IRB/ar10. File taxes past years html. File taxes past years  See Revenue Procedure 2008-52, 2008-36 I. File taxes past years R. File taxes past years B. File taxes past years 587, available at www. File taxes past years irs. File taxes past years gov/irb/2008-36_IRB/ar09. File taxes past years html. File taxes past years  See Revenue Procedure 2009-39, 2009-38 I. File taxes past years R. File taxes past years B. File taxes past years 371, available at  www. File taxes past years irs. File taxes past years gov/irb/2009-38_IRB/ar08. File taxes past years html. File taxes past years  See Revenue Procedure 2011-14, 2011-4 I. File taxes past years R. File taxes past years B. File taxes past years 330, available at  www. File taxes past years irs. File taxes past years gov/irb/2011-04_IRB/ar08. File taxes past years html. File taxes past years  See Revenue Procedure 2011-22, 2011-18 I. File taxes past years R. File taxes past years B. File taxes past years 737, available at  www. File taxes past years irs. File taxes past years gov/irb/2011-18_IRB/ar08. File taxes past years html. File taxes past years Also, see Revenue Procedure 2012-39, 2012-41 I. File taxes past years R. File taxes past years B. File taxes past years 470 available at www. File taxes past years irs. File taxes past years gov/irb/2012-41_IRB/index. File taxes past years html. File taxes past years Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. File taxes past years If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). File taxes past years If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. File taxes past years Any remaining gain, or any loss, is a section 1231 gain or loss. File taxes past years If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. File taxes past years For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. File taxes past years Nondeductible loss. File taxes past years   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. File taxes past years Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. File taxes past years Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. File taxes past years The numerator is the adjusted basis of each remaining intangible on the date of the disposition. File taxes past years The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. File taxes past years Covenant not to compete. File taxes past years   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. File taxes past years Nonrecognition transfers. File taxes past years   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. File taxes past years You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. File taxes past years Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. File taxes past years   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. File taxes past years Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. File taxes past years Example. File taxes past years You own a section 197 intangible you have amortized for 4 full years. File taxes past years It has a remaining unamortized basis of $30,000. File taxes past years You exchange the asset plus $10,000 for a like-kind section 197 intangible. File taxes past years The nonrecognition provisions of like-kind exchanges apply. File taxes past years You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. File taxes past years You amortize the other $10,000 of adjusted basis over a new 15-year period. File taxes past years For more information, see Regulations section 1. File taxes past years 197-2(g). File taxes past years Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. File taxes past years See Reforestation Costs in chapter 7. File taxes past years You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. File taxes past years There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. File taxes past years The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. File taxes past years A partner, shareholder, or beneficiary cannot make that election. File taxes past years A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. File taxes past years , of a partnership or S corporation. File taxes past years The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. File taxes past years Qualifying costs. File taxes past years   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. File taxes past years Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. File taxes past years They include costs for the following items. File taxes past years Site preparation. File taxes past years Seeds or seedlings. File taxes past years Labor. File taxes past years Tools. File taxes past years Depreciation on equipment used in planting and seeding. File taxes past years Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. File taxes past years Qualified timber property. File taxes past years   Qualified timber property is property that contains trees in significant commercial quantities. File taxes past years It can be a woodlot or other site that you own or lease. File taxes past years The property qualifies only if it meets all of the following requirements. File taxes past years It is located in the United States. File taxes past years It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. File taxes past years It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. File taxes past years Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. File taxes past years Amortization period. File taxes past years   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. File taxes past years You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. File taxes past years Life tenant and remainderman. File taxes past years   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. File taxes past years Any remainder interest in the property is ignored for amortization purposes. File taxes past years Recapture. File taxes past years   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. File taxes past years See chapter 3 of Publication 544 for more information. File taxes past years How to make the election. File taxes past years   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. File taxes past years A description of the costs and the dates you incurred them. File taxes past years A description of the type of timber being grown and the purpose for which it is grown. File taxes past years Attach a separate statement for each property for which you amortize reforestation costs. File taxes past years   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. File taxes past years However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). File taxes past years Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. File taxes past years 9100-2” on Form 4562. File taxes past years File the amended return at the same address you filed the original return. File taxes past years Revoking the election. File taxes past years   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. File taxes past years Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. File taxes past years Please provide your daytime telephone number (optional), in case we need to contact you. File taxes past years You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. File taxes past years    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. File taxes past years NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. File taxes past years These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. File taxes past years For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). File taxes past years If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. File taxes past years Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. File taxes past years However, see Atmospheric pollution control facilities for an exception. File taxes past years The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. File taxes past years Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. File taxes past years You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. File taxes past years See chapter 3 of Publication 946. File taxes past years A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. File taxes past years The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. File taxes past years The facility must be certified by state and federal certifying authorities. File taxes past years The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. File taxes past years Also, it must not significantly change the nature of the manufacturing or production process or facility. File taxes past years The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). File taxes past years The federal certifying authority will describe the nature of the potential cost recovery. File taxes past years You must then reduce the amortizable basis of the facility by this potential recovery. File taxes past years New identifiable treatment facility. File taxes past years   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. File taxes past years It does not include a building and its structural components unless the building is exclusively a treatment facility. File taxes past years Atmospheric pollution control facilities. File taxes past years   Certain atmospheric pollution control facilities can be amortized over 84 months. File taxes past years To qualify, the following must apply. File taxes past years The facility must be acquired and placed in service after April 11, 2005. File taxes past years If acquired, the original use must begin with you after April 11, 2005. File taxes past years The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. File taxes past years If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. File taxes past years Basis reduction for corporations. File taxes past years   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. File taxes past years More information. File taxes past years   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. File taxes past years Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). File taxes past years If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. File taxes past years The amortization period begins the month you first receive an economic benefit from the costs. File taxes past years For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. File taxes past years Optional write-off method. File taxes past years   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. File taxes past years For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. File taxes past years Costs you can amortize. File taxes past years   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. File taxes past years You paid or incurred the costs in your trade or business. File taxes past years You are not deducting the costs currently. File taxes past years How to make the election. File taxes past years   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. File taxes past years Generally, you must file the return by the due date (including extensions). File taxes past years However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). File taxes past years Attach Form 4562 to the amended return and write “Filed pursuant to section 301. File taxes past years 9100-2” on Form 4562. File taxes past years File the amended return at the same address you filed the original return. File taxes past years   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. File taxes past years Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. File taxes past years If you make this election, there is no AMT adjustment. File taxes past years The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. File taxes past years How to make the election. File taxes past years   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. File taxes past years   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. File taxes past years However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). File taxes past years Attach Form 4562 to the amended return and write “Filed pursuant to section 301. File taxes past years 9100-2” on Form 4562. File taxes past years File the amended return at the same address you filed the original return. File taxes past years Revoking the election. File taxes past years   You must obtain consent from the IRS to revoke your election. File taxes past years Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. File taxes past years The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. File taxes past years If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. File taxes past years Prev  Up  Next   Home   More Online Publications
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The File Taxes Past Years

File taxes past years Depreciation Table of Contents Introduction Special Depreciation AllowanceQualified Property Election Not To Claim the Allowance Rules for Returns Filed Before June 1, 2002 Passenger Automobiles New York Liberty Zone BenefitsSpecial Liberty Zone Depreciation Allowance Increased Section 179 Deduction Liberty Zone Leasehold Improvement Property If you depreciate business property that you acquired and placed in service after September 10, 2001, new law contains provisions that may affect your depreciation deduction for that property. File taxes past years Publication 946, How To Depreciate Property, contains information on depreciation. File taxes past years However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. File taxes past years The new provisions are in the Supplement to Publication 946, which is reprinted below. File taxes past years Supplement to Publication 946 How To Depreciate Property   Introduction After Publication 946 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. File taxes past years The new law made several changes in the tax rules explained in the publication. File taxes past years Some of the changes apply to property placed in service during 2001. File taxes past years This supplemental publication describes those changes and explains what you should do if you are affected by them. File taxes past years The situations and examples in Publication 946 do not reflect any of the changes made by the Job Creation and Worker Assistance Act of 2002. File taxes past years The new law contains the following provisions. File taxes past years 30% depreciation deductions (special depreciation allowance and special New York Liberty Zone (Liberty Zone) depreciation allowance) for the year qualified property is placed in service after September 10, 2001. File taxes past years An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. File taxes past years A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. File taxes past years An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. File taxes past years If you believe you qualify for an increased deduction under any of these new rules, you must file the revised 2001 Form 4562 (dated March 2002) for 2001 calendar or fiscal years and 2000 fiscal years ending after September 10, 2001. File taxes past years If you have already filed a tax return, this supplemental publication explains how to claim these benefits and how to elect not to claim the special depreciation allowance or special Liberty Zone depreciation allowance. File taxes past years See Table 2 at the end of the supplement for an overview of the rules that apply if you filed your return before June 1, 2002. File taxes past years Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. File taxes past years The allowance is an additional deduction of 30% of the property's depreciable basis. File taxes past years To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. File taxes past years See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. File taxes past years The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. File taxes past years There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. File taxes past years In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. File taxes past years Example 1. File taxes past years On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. File taxes past years You did not elect to claim a section 179 deduction. File taxes past years You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. File taxes past years You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. File taxes past years Example 2. File taxes past years The facts are the same as in Example 1, except that you choose to deduct $24,000 of the property's cost as a section 179 deduction. File taxes past years You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). File taxes past years You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. File taxes past years Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. File taxes past years It is new property of one of the following types. File taxes past years Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. File taxes past years See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. File taxes past years Water utility property. File taxes past years See 25-year property on page 22 in Publication 946. File taxes past years Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. File taxes past years (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. File taxes past years ) Qualified leasehold improvement property (defined later). File taxes past years It meets the following tests (explained later under Tests To Be Met). File taxes past years Acquisition date test. File taxes past years Placed in service date test. File taxes past years Original use test. File taxes past years It is not excepted property (explained later under Excepted Property). File taxes past years Qualified leasehold improvement property. File taxes past years    Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the following requirements are met. File taxes past years The improvement is made under or pursuant to a lease by the lessee (or any sublessee) or the lessor of that part of the building. File taxes past years That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. File taxes past years The improvement is placed in service more than 3 years after the date the building was first placed in service. File taxes past years   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. File taxes past years The enlargement of the building. File taxes past years Any elevator or escalator. File taxes past years Any structural component benefiting a common area. File taxes past years The internal structural framework of the building. File taxes past years   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. File taxes past years However, a binding commitment between related persons is not treated as a lease. File taxes past years Related persons. File taxes past years   For this purpose, the following are related persons. File taxes past years Members of an affiliated group. File taxes past years The persons listed in items (1) through (9) under Related persons on page 8 of Publication 946 (except that “80% or more” should be substituted for “more than 10%” each place it appears). File taxes past years An executor and a beneficiary of the same estate. File taxes past years Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. File taxes past years Acquisition date test. File taxes past years    Generally, you must have acquired the property either: After September 10, 2001, and before September 11, 2004, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or Pursuant to a written binding contract entered into after September 10, 2001, and before September 11, 2004. File taxes past years   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001, and before September 11, 2004. File taxes past years Placed in service date test. File taxes past years   Generally, the property must be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. File taxes past years   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. File taxes past years Original use test. File taxes past years   The original use of the property must have begun with you after September 10, 2001. File taxes past years “Original use” means the first use to which the property is put, whether or not by you. File taxes past years Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. File taxes past years Excepted Property The following property does not qualify for the special depreciation allowance. File taxes past years Property used by any person before September 11, 2001. File taxes past years Property required to be depreciated using ADS. File taxes past years This includes listed property used 50% or less in a qualified business use. File taxes past years Qualified New York Liberty Zone leasehold improvement property (defined next). File taxes past years Qualified New York Liberty Zone leasehold improvement property. File taxes past years   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. File taxes past years The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). File taxes past years The improvement is placed in service after September 10, 2001, and before January 1, 2007. File taxes past years No written binding contract for the improvement was in effect before September 11, 2001. File taxes past years Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. File taxes past years If you make this election for any property, it applies to all property in the same property class placed in service during the year. File taxes past years To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. File taxes past years When to make election. File taxes past years   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. File taxes past years   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). File taxes past years Attach the election statement to the amended return. File taxes past years At the top of the election statement, write “Filed pursuant to section 301. File taxes past years 9100–2. File taxes past years ” Revoking an election. File taxes past years   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. File taxes past years A request to revoke the election is subject to a user fee. File taxes past years Rules for Returns Filed Before June 1, 2002 The following rules apply if you placed qualified property in service after September 10, 2001, and filed your return before June 1, 2002. File taxes past years The rules apply to returns for the following years. File taxes past years 2000 fiscal years that end after September 10, 2001. File taxes past years 2001 calendar and fiscal years. File taxes past years Claiming the allowance. File taxes past years   If you did not claim the allowance on your return and did not make the election not to claim the allowance, you can do either of the following to claim the allowance. File taxes past years File an amended return by the due date (not including extensions) of your return for the year following the year the property was placed in service. File taxes past years Write “Filed Pursuant to Rev. File taxes past years Proc. File taxes past years 2002–33” at the top of the amended return. File taxes past years File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. File taxes past years Your return must be filed by the due date (including extensions). File taxes past years Write “Automatic Change Filed Under Rev. File taxes past years Proc. File taxes past years 2002–33” on the appropriate line of Form 3115. File taxes past years You must also file a copy (with signature) of the completed Form 3115 with the IRS National Office no later than when you file the original with your return. File taxes past years For more information about filing Form 3115, including the address to send it to, see Revenue Procedure 2002–9, Revenue Procedure 2002–19, and Revenue Procedure 2002–33. File taxes past years Example 1. File taxes past years You are an individual and you use the calendar year. File taxes past years You placed qualified property in service for your business in December 2001. File taxes past years You filed your 2001 income tax return before April 15, 2002. File taxes past years You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. File taxes past years You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. File taxes past years Proc. File taxes past years 2002–33” at the top of the amended return. File taxes past years You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. File taxes past years Example 2. File taxes past years The facts concerning your 2001 return are the same as in Example 1. File taxes past years In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. File taxes past years You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. File taxes past years Proc. File taxes past years 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. File taxes past years You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. File taxes past years Electing not to claim the allowance. File taxes past years   Generally, you have elected not to claim the special depreciation allowance for a class of property if you: Filed your return timely (including extensions) for the year you placed qualified property in service and indicated on a statement with the return that you are not claiming the allowance, or Filed your return timely and filed an amended return within 6 months of the due date of the original return (not including extensions) and indicated on a statement with the amended return that you are not claiming the allowance. File taxes past years The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. File taxes past years The statement can be either attached to or written on the return. File taxes past years You can, for example, write “not deducting 30%” on Form 4562. File taxes past years Deemed election. File taxes past years   If you have not followed either of the procedures described above to elect not to claim the allowance, you may still be treated as making the election. File taxes past years You will be treated as making the election if you meet both of the following conditions. File taxes past years You filed your return for the year you placed the property in service and claimed depreciation, but not the special allowance, for any class of property. File taxes past years You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. File taxes past years See Claiming the allowance, earlier. File taxes past years Passenger Automobiles The limit on your depreciation deduction (including any section 179 deduction) for any passenger automobile that is qualified property (defined earlier) placed in service after September 10, 2001, and for which you claim the special depreciation allowance is increased. File taxes past years Generally, the limit is increased from $3,060 to $7,660. File taxes past years However, if the automobile is a qualified electric car, the limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002). File taxes past years Table 1 shows the maximum deduction amounts for 2001. File taxes past years Table 1. File taxes past years Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. File taxes past years 11 Placed in Service After Sept. File taxes past years 10 Passenger automobile $3,060 $7,660 Electric car 9,280 23,080 1 1$22,980 if you place an electric car in service in 2002. File taxes past years Election not to claim the allowance. File taxes past years   The increased maximum depreciation deduction does not apply if you elected not to claim the special depreciation allowance as explained earlier under Election Not To Claim the Allowance and Rules for Returns Filed Before June 1, 2002. File taxes past years New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). File taxes past years They include a special depreciation allowance for the year you place the property in service, an increased section 179 deduction, and the classification of certain leasehold improvement property as 5-year property. File taxes past years Area defined. File taxes past years   The New York Liberty Zone is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York. File taxes past years Special Liberty Zone Depreciation Allowance You can take a special depreciation allowance for qualified Liberty Zone property you place in service after September 10, 2001. File taxes past years The allowance is an additional deduction of 30% of the property's depreciable basis. File taxes past years To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. File taxes past years See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. File taxes past years The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. File taxes past years There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. File taxes past years In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. File taxes past years You cannot claim the special Liberty Zone depreciation allowance for property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. File taxes past years Qualified property is eligible for only one special depreciation allowance. File taxes past years Example 1. File taxes past years On November 1, 2001, you bought and placed in service in your business, which is in the Liberty Zone, qualified Liberty Zone property that cost $200,000. File taxes past years You did not elect to claim a section 179 deduction. File taxes past years You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. File taxes past years You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. File taxes past years Example 2. File taxes past years The facts are the same as in Example 1, except that you choose to deduct $59,000 of the property's cost as a section 179 deduction. File taxes past years (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). File taxes past years You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). File taxes past years You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. File taxes past years Qualified Liberty Zone Property For a 2001 calendar or fiscal year and a 2000 fiscal year that ends after September 10, 2001, property qualifies for the special Liberty Zone depreciation allowance if it meets the following requirements. File taxes past years It is one of the following types of property. File taxes past years Used property depreciated under MACRS with a recovery period of 20 years or less. File taxes past years See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. File taxes past years Used water utility property. File taxes past years See 25-year property on page 22 in Publication 946. File taxes past years Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. File taxes past years (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. File taxes past years ) Certain nonresidential real property and residential rental property (defined later). File taxes past years It meets the following tests (explained later under Tests to be met). File taxes past years Acquisition date test. File taxes past years Placed in service date test. File taxes past years Substantial use test. File taxes past years Original use test. File taxes past years It is not excepted property (explained later under Excepted property). File taxes past years Nonresidential real property and residential rental property. File taxes past years   This property is qualifying property only to the extent it rehabilitates real property damaged, or replaces real property destroyed or condemned, as a result of the terrorist attack of September 11, 2001. File taxes past years Property is treated as replacing destroyed or condemned property if, as part of an integrated plan, such property replaces real property included in a continuous area that includes real property destroyed or condemned. File taxes past years   For these purposes, real property is considered destroyed (or condemned) only if an entire building or structure was destroyed (or condemned) as a result of the terrorist attack. File taxes past years Otherwise, the property is considered damaged real property. File taxes past years For example, if certain structural components of a building (such as walls, floors, or plumbing fixtures) are damaged or destroyed as a result of the terrorist attack, but the building is not destroyed (or condemned), then only costs related to replacing the damaged or destroyed structural components qualify for the special Liberty Zone depreciation allowance. File taxes past years Tests to be met. File taxes past years   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. File taxes past years Acquisition date test. File taxes past years   You must have acquired the property by purchase after September 10, 2001, and there must not have been a binding written contract for the acquisition in effect before September 11, 2001. File taxes past years   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. File taxes past years   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001. File taxes past years Placed in service date test. File taxes past years   Generally, the property must be placed in service for use in your trade or business or for the production of income before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property). File taxes past years   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. File taxes past years Substantial use test. File taxes past years   Substantially all use of the property must be in the Liberty Zone and in the active conduct of your trade or business in the Liberty Zone. File taxes past years Original use test. File taxes past years   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. File taxes past years   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. File taxes past years Also, additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test if the original use of the property in the Liberty Zone began with you. File taxes past years Excepted property. File taxes past years   The following property does not qualify for the special Liberty Zone depreciation allowance. File taxes past years Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. File taxes past years Property required to be depreciated using ADS. File taxes past years This includes listed property used 50% or less in a qualified business use. File taxes past years Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). File taxes past years Example. File taxes past years In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. File taxes past years New office furniture with a MACRS recovery period of 7 years. File taxes past years A used computer with a MACRS recovery period of 5 years. File taxes past years The computer had not previously been used within the Liberty Zone. File taxes past years Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. File taxes past years Because the computer is used property that had not previously been used in the Liberty Zone, it qualifies for the special Liberty Zone depreciation allowance, but not the special depreciation allowance. File taxes past years Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. File taxes past years If you make this election for any property, it applies to all property in the same property class placed in service during the year. File taxes past years To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. File taxes past years When to make the election. File taxes past years   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. File taxes past years   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). File taxes past years Attach the election statement to the amended return. File taxes past years At the top of the election statement, write “Filed pursuant to section 301. File taxes past years 9100–2. File taxes past years ” Revoking an election. File taxes past years   Once you elect not to deduct the special Liberty Zone depreciation allowance for a class of property, you cannot revoke the election without IRS consent. File taxes past years A request to revoke the election is subject to a user fee. File taxes past years Returns filed before June 1, 2002. File taxes past years   The rules that apply to the special depreciation allowance discussed earlier in Rules for Returns Filed Before June 1, 2002 under Special Depreciation Allowance also apply to the special Liberty Zone depreciation allowance. File taxes past years Increased Section 179 Deduction Under section 179 of the Internal Revenue Code, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. File taxes past years For tax years beginning in 2000, that limit was $20,000. File taxes past years For tax years beginning in 2001 and 2002, that limit is generally $24,000. File taxes past years If the cost of qualifying section 179 property placed in service in a year is over $200,000, you must reduce the dollar limit (but not below zero) by the amount of the cost over $200,000. File taxes past years Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. File taxes past years The increase is the smaller of the following amounts. File taxes past years $35,000. File taxes past years The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. File taxes past years If you use the revised 2001 Form 4562 (dated March 2002) for a tax year beginning in 2000, you must reduce the section 179 dollar limit to $20,000 before adding the additional amount for qualified property. File taxes past years Qualified property. File taxes past years   To qualify for the increased section 179 deduction, your property must be section 179 property that is either: Qualified Liberty Zone property, or Property that would be qualified Liberty Zone property except that it is eligible for the special depreciation allowance. File taxes past years Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. File taxes past years Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. File taxes past years For information on the requirements that must be met for property to qualify for the section 179 deduction, see What Property Qualifies? on page 14 of Publication 946. File taxes past years Example 1. File taxes past years In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. File taxes past years Because this cost is less than $35,000, the dollar limit on the section 179 deduction is increased by $25,000 to $49,000 ($24,000 + $25,000). File taxes past years Example 2. File taxes past years In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. File taxes past years Because $35,000 is less than the cost of the property you place in service, the dollar limit on the section 179 deduction you can claim is increased by $35,000 to $59,000 ($24,000 + $35,000). File taxes past years Reduced Dollar Limit Generally, you must reduce the dollar limit for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. File taxes past years However, if the cost of your Liberty Zone property exceeds $200,000, you take into account only 50% (instead of 100%) of the cost of qualified property placed in service in a year. File taxes past years Example. File taxes past years In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. File taxes past years Your increased dollar limit is $59,000 ($35,000 + $24,000). File taxes past years Because 50% of the cost of the property you place in service ($230,000) is $30,000 more than $200,000, you must reduce your $59,000 dollar limit to $29,000 ($59,000 - $30,000). File taxes past years Recapture Rules Rules similar to those explained on page 20 of Publication 946 under When Must You Recapture the Deduction? apply with respect to any qualified property you stop using in the Liberty Zone. File taxes past years Returns Filed Before June 1, 2002 If you filed a return before June 1, 2002, and did not deduct the increased section 179 amount for qualified property placed in service after September 10, 2001, you can deduct the increased amount by filing an amended return by the due date (not including extensions) of the return for the year after the year the property was placed in service. File taxes past years This rule applies to returns for the following years. File taxes past years 2000 fiscal years that end after September 10, 2001. File taxes past years 2001 calendar and fiscal years. File taxes past years On the amended return, write “Filed Pursuant to Rev. File taxes past years Proc. File taxes past years 2002–33. File taxes past years ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. File taxes past years This means that it is depreciated over a recovery period of 5 years. File taxes past years For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. File taxes past years The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. File taxes past years Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. File taxes past years Returns Filed Before June 1, 2002 If you filed either of the following returns before June 1, 2002, and did not depreciate qualified Liberty Zone leasehold improvement property placed in service during the tax year as 5-year property using the straight line method, you should file an amended return before you file your return for the year after the year the property was placed in service. File taxes past years Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). File taxes past years Your 2001 calendar or fiscal year return. File taxes past years On the amended return, write “Filed Pursuant to Rev. File taxes past years Proc. File taxes past years 2002–33. File taxes past years ” Table 2. File taxes past years Rules for Returns Filed Before June 1, 2002 Note:This chart highlights the rules for returns affected by the Job Creation and Worker Assistance Act of 2002 that were filed before June 1, 2002, without accounting for any of the new benefits under the law. File taxes past years See the text for definitions and examples. File taxes past years Do not rely on this chart alone. File taxes past years IF you want to. File taxes past years . File taxes past years . File taxes past years THEN you. File taxes past years . File taxes past years . File taxes past years BY. File taxes past years . File taxes past years . File taxes past years claim the special depreciation allowance or special Liberty Zone depreciation allowance • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service, or • must file Form 3115, Application for Change in Accounting Method, with your return for the year after the year the property was placed in service • the due date (including extensions) of your return for the year after the year the property was placed in service, and • must file a copy of your completed Form 3115 with the IRS National Office • the date you file the original Form 3115 with your return for the year after the year the property was placed in service. File taxes past years elect not to claim the special depreciation allowance or the special Liberty Zone depreciation allowance 1 • must have filed your return timely for the year the property was placed in service, and   • must file an amended return stating you are not claiming the allowance • the date that is 6 months after the due date of the original return (not including extensions). File taxes past years deduct the increased section 179 amount • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service. File taxes past years use a 5-year recovery period for depreciating qualified Liberty Zone leasehold improvement property • should file an amended return • the date you file your return for the year after the year the property was placed in service. File taxes past years 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. 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