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Free 1040ez

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Free 1040ez

Free 1040ez 9. Free 1040ez   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. Free 1040ez Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. Free 1040ez Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. Free 1040ez Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) Introduction This chapter discusses rental income and expenses. Free 1040ez It also covers the following topics. Free 1040ez Personal use of dwelling unit (including vacation home). Free 1040ez Depreciation. Free 1040ez Limits on rental losses. Free 1040ez How to report your rental income and expenses. Free 1040ez If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. Free 1040ez If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. Free 1040ez If you rent a condominium or a cooperative apartment, some special rules apply to you even though you receive the same tax treatment as other owners of rental property. Free 1040ez See Publication 527, Residential Rental Property, for more information. Free 1040ez Useful Items - You may want to see: Publication 527 Residential Rental Property 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 6251 Alternative Minimum Tax—Individuals 8582 Passive Activity Loss Limitations Schedule E (Form 1040) Supplemental Income and Loss Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Free 1040ez Rental income is any payment you receive for the use or occupation of property. Free 1040ez In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. Free 1040ez When to report. Free 1040ez   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. Free 1040ez You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. Free 1040ez You constructively receive income when it is made available to you, for example, by being credited to your bank account. Free 1040ez   For more information about when you constructively receive income, see Accounting Methods in chapter 1. Free 1040ez Advance rent. Free 1040ez   Advance rent is any amount you receive before the period that it covers. Free 1040ez Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Free 1040ez Example. Free 1040ez You sign a 10-year lease to rent your property. Free 1040ez In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. Free 1040ez You must include $10,000 in your income in the first year. Free 1040ez Canceling a lease. Free 1040ez   If your tenant pays you to cancel a lease, the amount you receive is rent. Free 1040ez Include the payment in your income in the year you receive it regardless of your method of accounting. Free 1040ez Expenses paid by tenant. Free 1040ez   If your tenant pays any of your expenses, the payments are rental income. Free 1040ez Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. Free 1040ez See Rental Expenses , later, for more information. Free 1040ez Property or services. Free 1040ez   If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. Free 1040ez   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Free 1040ez Security deposits. Free 1040ez   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Free 1040ez But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Free 1040ez   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Free 1040ez Include it in your income when you receive it. Free 1040ez Part interest. Free 1040ez   If you own a part interest in rental property, you must report your part of the rental income from the property. Free 1040ez Rental of property also used as your home. Free 1040ez   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Free 1040ez However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Free 1040ez See Personal Use of Dwelling Unit (Including Vacation Home) , later. Free 1040ez Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. Free 1040ez It includes information on the expenses you can deduct if you rent part of your property, or if you change your property to rental use. Free 1040ez Depreciation , which you can also deduct from your rental income, is discussed later. Free 1040ez Personal use of rental property. Free 1040ez   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Free 1040ez Also, your rental expense deductions may be limited. Free 1040ez See Personal Use of Dwelling Unit (Including Vacation Home) , later. Free 1040ez Part interest. Free 1040ez   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. Free 1040ez When to deduct. Free 1040ez   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. Free 1040ez Depreciation. Free 1040ez   You can begin to depreciate rental property when it is ready and available for rent. Free 1040ez See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. Free 1040ez Pre-rental expenses. Free 1040ez   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Free 1040ez Uncollected rent. Free 1040ez   If you are a cash-basis taxpayer, do not deduct uncollected rent. Free 1040ez Because you have not included it in your income, it is not deductible. Free 1040ez Vacant rental property. Free 1040ez   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Free 1040ez However, you cannot deduct any loss of rental income for the period the property is vacant. Free 1040ez Vacant while listed for sale. Free 1040ez   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Free 1040ez If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Free 1040ez Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Free 1040ez Improvements. Free 1040ez   You must capitalize any expense you pay to improve your rental property. Free 1040ez An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Free 1040ez Betterments. Free 1040ez   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Free 1040ez Restoration. Free 1040ez   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Free 1040ez Adaptation. Free 1040ez   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Free 1040ez Separate the costs of repairs and improvements, and keep accurate records. Free 1040ez You will need to know the cost of improvements when you sell or depreciate your property. Free 1040ez The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Free 1040ez Other Expenses Other expenses you can deduct from your rental income include advertising, cleaning and maintenance, utilities, fire and liability insurance, taxes, interest, commissions for the collection of rent, ordinary and necessary travel and transportation, and other expenses, discussed next. Free 1040ez Insurance premiums paid in advance. Free 1040ez   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Free 1040ez You cannot deduct the total premium in the year you pay it. Free 1040ez Legal and other professional fees. Free 1040ez   You can deduct, as a rental expense, legal and other professional expenses, such as tax return preparation fees you paid to prepare Schedule E (Form 1040), Part I. Free 1040ez For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. Free 1040ez You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Free 1040ez Local benefit taxes. Free 1040ez   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Free 1040ez These charges are nondepreciable capital expenditures, and must be added to the basis of your property. Free 1040ez However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Free 1040ez Local transportation expenses. Free 1040ez    You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Free 1040ez However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Free 1040ez See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Free 1040ez   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Free 1040ez For 2013, the standard mileage rate for business use is 56. Free 1040ez 5 cents per mile. Free 1040ez For more information, see chapter 26. Free 1040ez    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. Free 1040ez In addition, you must complete Form 4562, Part V, and attach it to your tax return. Free 1040ez Rental of equipment. Free 1040ez   You can deduct the rent you pay for equipment that you use for rental purposes. Free 1040ez However, in some cases, lease contracts are actually purchase contracts. Free 1040ez If so, you cannot deduct these payments. Free 1040ez You can recover the cost of purchased equipment through depreciation. Free 1040ez Rental of property. Free 1040ez   You can deduct the rent you pay for property that you use for rental purposes. Free 1040ez If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Free 1040ez Travel expenses. Free 1040ez   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Free 1040ez You must properly allocate your expenses between rental and nonrental activities. Free 1040ez You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. Free 1040ez You recover the cost of improvements by taking depreciation. Free 1040ez For information on travel expenses, see chapter 26. Free 1040ez    To deduct travel expenses, you must keep records that follow the rules in chapter 26. Free 1040ez   See Rental Expenses in Publication 527 for more information. Free 1040ez Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Free 1040ez You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Free 1040ez You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Free 1040ez However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Free 1040ez Example. Free 1040ez Your tax year is the calendar year. Free 1040ez You moved from your home in May and started renting it out on June 1. Free 1040ez You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Free 1040ez Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Free 1040ez Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Free 1040ez You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Free 1040ez You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity or painting the outside of your house. Free 1040ez There is no change in the types of expenses deductible for the personal-use part of your property. Free 1040ez Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Free 1040ez You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Free 1040ez You do not have to divide the expenses that belong only to the rental part of your property. Free 1040ez For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Free 1040ez If you install a second phone line strictly for your tenants' use, all of the cost of the second line is deductible as a rental expense. Free 1040ez You can deduct depreciation, discussed later, on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Free 1040ez How to divide expenses. Free 1040ez   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between the rental use and the personal use. Free 1040ez You can use any reasonable method for dividing the expense. Free 1040ez It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Free 1040ez The two most common methods for dividing an expense are based on (1) the number of rooms in your home, and (2) the square footage of your home. Free 1040ez Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Free 1040ez You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Free 1040ez For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Free 1040ez Where to report. Free 1040ez   Report your not-for-profit rental income on Form 1040, line 21. Free 1040ez For example, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Free 1040ez   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 23. Free 1040ez You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Free 1040ez Personal Use of Dwelling Unit (Including Vacation Home) If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. Free 1040ez In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. Free 1040ez Only your rental expenses may be deducted on Schedule E (Form 1040). Free 1040ez Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Free 1040ez You must also determine if the dwelling unit is considered a home. Free 1040ez The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Free 1040ez Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Free 1040ez There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. Free 1040ez Dwelling unit. Free 1040ez   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Free 1040ez It also includes all structures or other property belonging to the dwelling unit. Free 1040ez A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Free 1040ez   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. Free 1040ez Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. Free 1040ez Example. Free 1040ez   You rent a room in your home that is always available for short-term occupancy by paying customers. Free 1040ez You do not use the room yourself, and you allow only paying customers to use the room. Free 1040ez The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Free 1040ez Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. Free 1040ez When dividing your expenses, follow these rules. Free 1040ez Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. Free 1040ez This rule does not apply when determining whether you used the unit as a home. Free 1040ez Any day that the unit is available for rent but not actually rented is not a day of rental use. Free 1040ez Example. Free 1040ez Your beach cottage was available for rent from June 1 through August 31 (92 days). Free 1040ez During that time, except for the first week in August (7 days) when you were unable to find a renter, you rented the cottage at a fair rental price. Free 1040ez The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. Free 1040ez Your family also used the cottage during the last 2 weeks of May (14 days). Free 1040ez The cottage was not used at all before May 17 or after August 31. Free 1040ez You figure the part of the cottage expenses to treat as rental expenses as follows. Free 1040ez The cottage was used for rental a total of 85 days (92 − 7). Free 1040ez The days it was available for rent but not rented (7 days) are not days of rental use. Free 1040ez The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Free 1040ez You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Free 1040ez The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Free 1040ez Your rental expenses are 85/99 (86%) of the cottage expenses. Free 1040ez Note. Free 1040ez When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. Free 1040ez Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Free 1040ez Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. Free 1040ez If you have a net loss, you may not be able to deduct all of the rental expenses. Free 1040ez See Dwelling Unit Used as a Home, next. Free 1040ez Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. Free 1040ez You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. Free 1040ez See What is a day of personal use , later. Free 1040ez Fair rental price. Free 1040ez   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. Free 1040ez The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. Free 1040ez   If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price, do not count that day as a day of rental use in applying (2) above. Free 1040ez Instead, count it as a day of personal use in applying both (1) and (2) above. Free 1040ez What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. Free 1040ez You or any other person who has an interest in the unit, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). Free 1040ez However, see Days used as a main home before or after renting , later. Free 1040ez A member of your family or a member of the family of any other person who owns an interest in the unit, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Free 1040ez Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Free 1040ez ), and lineal descendants (children, grandchildren, etc. Free 1040ez ). Free 1040ez Anyone under an arrangement that lets you use some other dwelling unit. Free 1040ez Anyone at less than a fair rental price. Free 1040ez Main home. Free 1040ez   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. Free 1040ez Shared equity financing agreement. Free 1040ez   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. Free 1040ez Donation of use of property. Free 1040ez   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. Free 1040ez Examples. Free 1040ez   The following examples show how to determine days of personal use. Free 1040ez Example 1. Free 1040ez You and your neighbor are co-owners of a condominium at the beach. Free 1040ez Last year, you rented the unit to vacationers whenever possible. Free 1040ez The unit was not used as a main home by anyone. Free 1040ez Your neighbor used the unit for 2 weeks last year; you did not use it at all. Free 1040ez Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. Free 1040ez Example 2. Free 1040ez You and your neighbors are co-owners of a house under a shared equity financing agreement. Free 1040ez Your neighbors live in the house and pay you a fair rental price. Free 1040ez Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. Free 1040ez This is because your neighbors rent the house as their main home under a shared equity financing agreement. Free 1040ez Example 3. Free 1040ez You own a rental property that you rent to your son. Free 1040ez Your son does not own any interest in this property. Free 1040ez He uses it as his main home and pays you a fair rental price. Free 1040ez Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. Free 1040ez Example 4. Free 1040ez You rent your beach house to Joshua. Free 1040ez Joshua rents his cabin in the mountains to you. Free 1040ez You each pay a fair rental price. Free 1040ez You are using your house for personal purposes on the days that Joshua uses it because your house is used by Joshua under an arrangement that allows you to use his house. Free 1040ez Days used for repairs and maintenance. Free 1040ez   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Free 1040ez Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. Free 1040ez Days used as a main home before or after renting. Free 1040ez   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. Free 1040ez Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Free 1040ez You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. Free 1040ez However, this special rule does not apply when dividing expenses between rental and personal use. Free 1040ez Examples. Free 1040ez   The following examples show how to determine whether you used your rental property as a home. Free 1040ez Example 1. Free 1040ez You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Free 1040ez You rented the basement apartment at a fair rental price to college students during the regular school year. Free 1040ez You rented to them on a 9-month lease (273 days). Free 1040ez You figured 10% of the total days rented to others at a fair rental price is 27 days. Free 1040ez During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Free 1040ez Your basement apartment was used as a home because you used it for personal purposes for 30 days. Free 1040ez Rent-free use by your brothers is considered personal use. Free 1040ez Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Free 1040ez Example 2. Free 1040ez You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). Free 1040ez Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Free 1040ez You figured 10% of the total days rented to others at a fair rental price is 3 days. Free 1040ez The room was used as a home because you used it for personal purposes for 21 days. Free 1040ez That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Free 1040ez Example 3. Free 1040ez You own a condominium apartment in a resort area. Free 1040ez You rented it at a fair rental price for a total of 170 days during the year. Free 1040ez For 12 of those days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. Free 1040ez Your family actually used the apartment for 10 of those days. Free 1040ez Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. Free 1040ez You figured 10% of the total days rented to others at a fair rental price is 16 days. Free 1040ez Your family also used the apartment for 7 other days during the year. Free 1040ez You used the apartment as a home because you used it for personal purposes for 17 days. Free 1040ez That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Free 1040ez Minimal rental use. Free 1040ez   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. Free 1040ez See Used as a home but rented less than 15 days , later, for more information. Free 1040ez Limit on deductions. Free 1040ez   Renting a dwelling unit that is considered a home is not a passive activity. Free 1040ez Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. Free 1040ez The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. Free 1040ez Any expenses carried forward to the next year will be subject to any limits that apply for that year. Free 1040ez This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. Free 1040ez   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. Free 1040ez Reporting Income and Deductions Property not used for personal purposes. Free 1040ez   If you do not use a dwelling unit for personal purposes, see How To Report Rental Income and Expenses , later, for how to report your rental income and expenses. Free 1040ez Property used for personal purposes. Free 1040ez   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. Free 1040ez Not used as a home. Free 1040ez   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Free 1040ez Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Free 1040ez The expenses for personal use are not deductible as rental expenses. Free 1040ez   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. Free 1040ez Used as a home but rented less than 15 days. Free 1040ez   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). Free 1040ez You are not required to report the rental income and rental expenses from this activity. Free 1040ez The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Free 1040ez See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Free 1040ez Used as a home and rented 15 days or more. Free 1040ez   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. Free 1040ez Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Free 1040ez The expenses for personal use are not deductible as rental expenses. Free 1040ez   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. Free 1040ez You do not need to use Worksheet 9-1. Free 1040ez   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Free 1040ez To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. Free 1040ez Depreciation You recover the cost of income-producing property through yearly tax deductions. Free 1040ez You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Free 1040ez Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Free 1040ez You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. Free 1040ez You can deduct depreciation only on the part of your property used for rental purposes. Free 1040ez Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Free 1040ez You may have to use Form 4562 to figure and report your depreciation. Free 1040ez See How To Report Rental Income and Expenses , later. Free 1040ez Alternative minimum tax (AMT). Free 1040ez    If you use accelerated depreciation, you may be subject to the AMT. Free 1040ez Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Free 1040ez Claiming the correct amount of depreciation. Free 1040ez   You should claim the correct amount of depreciation each tax year. Free 1040ez If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Free 1040ez   If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Free 1040ez S Individual Income Tax Return. Free 1040ez If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Free 1040ez See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. Free 1040ez Changing your accounting method to deduct unclaimed depreciation. Free 1040ez   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Free 1040ez In some instances, that consent is automatic. Free 1040ez For more information, see chapter 1 of Publication 946. Free 1040ez Land. Free 1040ez   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Free 1040ez The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Free 1040ez More information. Free 1040ez   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. Free 1040ez Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. Free 1040ez You must consider these rules in the order shown below. Free 1040ez At-risk rules. Free 1040ez These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Free 1040ez This applies only if the real property was placed in service after 1986. Free 1040ez Passive activity limits. Free 1040ez Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. Free 1040ez However, there are exceptions. Free 1040ez At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. Free 1040ez Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Free 1040ez In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. Free 1040ez You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. Free 1040ez See Publication 925 for more information. Free 1040ez Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Free 1040ez For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. Free 1040ez Limits on passive activity deductions and credits. Free 1040ez    Deductions or losses from passive activities are limited. Free 1040ez You generally cannot offset income, other than passive income, with losses from passive activities. Free 1040ez Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Free 1040ez Any excess loss or credit is carried forward to the next tax year. Free 1040ez   For a detailed discussion of these rules, see Publication 925. Free 1040ez    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. Free 1040ez Real estate professionals. Free 1040ez   Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. Free 1040ez For a detailed discussion of the requirements, see Publication 527. Free 1040ez For a detailed discussion of material participation, see Publication 925. Free 1040ez Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. Free 1040ez Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. Free 1040ez Exception for Rental Real Estate Activities With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. Free 1040ez This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Free 1040ez Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. Free 1040ez Active participation. Free 1040ez   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Free 1040ez Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. Free 1040ez Maximum special allowance. Free 1040ez   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. Free 1040ez   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. Free 1040ez If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Free 1040ez   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Free 1040ez More information. Free 1040ez   See Publication 925 for more information on the passive loss limits, including information on the treatment of unused disallowed passive losses and credits and the treatment of gains and losses realized on the disposition of a passive activity. Free 1040ez How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Free 1040ez However, do not use that schedule to report a not-for-profit activity. Free 1040ez See Not Rented for Profit, earlier. Free 1040ez Providing substantial services. Free 1040ez   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship). Free 1040ez Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Free 1040ez For information, see Publication 334, Tax Guide for Small Business. Free 1040ez You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Free 1040ez   Use Form 1065, U. Free 1040ez S. Free 1040ez Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Free 1040ez Qualified joint venture. Free 1040ez   If you and your spouse each materially participate as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Free 1040ez This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. Free 1040ez For more information, see Publication 527. Free 1040ez Form 1098, Mortgage Interest Statement. Free 1040ez    If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098, or similar statement showing the interest you paid for the year. Free 1040ez If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Free 1040ez Attach a statement to your return showing the name and address of the other person. Free 1040ez In the left margin of Schedule E, next to line 13, enter “See attached. Free 1040ez ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Free 1040ez , you normally report your rental income and expenses on Schedule E, Part I. Free 1040ez List your total income, expenses, and depreciation for each rental property. Free 1040ez Be sure to enter the number of fair rental and personal use days on line 2. Free 1040ez If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Free 1040ez Complete lines 1 and 2 for each property. Free 1040ez However, fill in lines 23a through 26 on only one Schedule E. Free 1040ez On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Free 1040ez To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. Free 1040ez If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Free 1040ez Form 6198, At-Risk Limitations. Free 1040ez See At-Risk Rules , earlier. Free 1040ez Also see Publication 925. Free 1040ez Form 8582, Passive Activity Loss Limitations. Free 1040ez See Passive Activity Limits , earlier. Free 1040ez Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Free 1040ez If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. Free 1040ez Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Free 1040ez Worksheet 9-1. Free 1040ez Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. Free 1040ez Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Free 1040ez ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. Free 1040ez Rental Use Percentage A. Free 1040ez Total days available for rent at fair rental price A. Free 1040ez       B. Free 1040ez Total days available for rent (line A) but not rented B. Free 1040ez       C. Free 1040ez Total days of rental use. Free 1040ez Subtract line B from line A C. Free 1040ez       D. Free 1040ez Total days of personal use (including days rented at less than fair rental price) D. Free 1040ez       E. Free 1040ez Total days of rental and personal use. Free 1040ez Add lines C and D E. Free 1040ez       F. Free 1040ez Percentage of expenses allowed for rental. Free 1040ez Divide line C by line E     F. Free 1040ez   PART II. Free 1040ez Allowable Rental Expenses 1. Free 1040ez Enter rents received 1. Free 1040ez   2a. Free 1040ez Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Free 1040ez       b. Free 1040ez Enter the rental portion of real estate taxes b. Free 1040ez       c. Free 1040ez Enter the rental portion of deductible casualty and theft losses (see instructions) c. Free 1040ez       d. Free 1040ez Enter direct rental expenses (see instructions) d. Free 1040ez       e. Free 1040ez Fully deductible rental expenses. Free 1040ez Add lines 2a–2d. Free 1040ez Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Free 1040ez   3. Free 1040ez Subtract line 2e from line 1. Free 1040ez If zero or less, enter -0- 3. Free 1040ez   4a. Free 1040ez Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Free 1040ez       b. Free 1040ez Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Free 1040ez       c. Free 1040ez Carryover of operating expenses from 2012 worksheet c. Free 1040ez       d. Free 1040ez Add lines 4a–4c d. Free 1040ez       e. Free 1040ez Allowable expenses. Free 1040ez Enter the smaller of line 3 or line 4d (see instructions) 4e. Free 1040ez   5. Free 1040ez Subtract line 4e from line 3. Free 1040ez If zero or less, enter -0- 5. Free 1040ez   6a. Free 1040ez Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Free 1040ez       b. Free 1040ez Enter the rental portion of depreciation of the dwelling unit b. Free 1040ez       c. Free 1040ez Carryover of excess casualty losses and depreciation from 2012 worksheet c. Free 1040ez       d. Free 1040ez Add lines 6a–6c d. Free 1040ez       e. Free 1040ez Allowable excess casualty and theft losses and depreciation. Free 1040ez Enter the smaller of  line 5 or line 6d (see instructions) 6e. Free 1040ez   PART III. Free 1040ez Carryover of Unallowed Expenses to Next Year 7a. Free 1040ez Operating expenses to be carried over to next year. Free 1040ez Subtract line 4e from line 4d 7a. Free 1040ez   b. Free 1040ez Excess casualty and theft losses and depreciation to be carried over to next year. Free 1040ez  Subtract line 6e from line 6d b. Free 1040ez   Worksheet 9-1 Instructions. Free 1040ez Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Free 1040ez Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. Free 1040ez Line 2a. Free 1040ez Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Free 1040ez Do not include interest on a loan that did not benefit the dwelling unit. Free 1040ez For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. Free 1040ez Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Free 1040ez Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Free 1040ez   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. Free 1040ez See the Schedule A instructions. Free 1040ez However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Free 1040ez See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Free 1040ez Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Free 1040ez   Note. Free 1040ez Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Free 1040ez Instead, figure the personal portion on a separate Schedule A. Free 1040ez If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. Free 1040ez           Line 2c. Free 1040ez Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. Free 1040ez To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Free 1040ez If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Free 1040ez On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Free 1040ez Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Free 1040ez   Note. Free 1040ez Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Free 1040ez Instead, figure the personal portion on a separate Form 4684. Free 1040ez           Line 2d. Free 1040ez Enter the total of your rental expenses that are directly related only to the rental activity. Free 1040ez These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Free 1040ez Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Free 1040ez           Line 2e. Free 1040ez You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. Free 1040ez Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Free 1040ez           Line 4b. Free 1040ez On line 2a, you entered the rental portion of the mortgage interest and qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. Free 1040ez If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. Free 1040ez Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). Free 1040ez           Line 4e. Free 1040ez You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. Free 1040ez *           Line 6a. Free 1040ez To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Free 1040ez   A. Free 1040ez Enter the amount from Form 4684, line 10       B. Free 1040ez Enter the rental portion of line A       C. Free 1040ez Enter the amount from line 2c of this worksheet       D. Free 1040ez Subtract line C from line B. Free 1040ez Enter the result here and on line 6a of this worksheet               Line 6e. Free 1040ez You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. Free 1040ez * *Allocating the limited deduction. Free 1040ez If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. Free 1040ez Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Free 1040ez Prev  Up  Next   Home   More Online Publications
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Free 1040ez 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. Free 1040ez Publication 946, How To Depreciate Property, contains information on depreciation. Free 1040ez However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. Free 1040ez The new provisions are in the Supplement to Publication 946, which is reprinted below. Free 1040ez 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. Free 1040ez The new law made several changes in the tax rules explained in the publication. Free 1040ez Some of the changes apply to property placed in service during 2001. Free 1040ez This supplemental publication describes those changes and explains what you should do if you are affected by them. Free 1040ez 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. Free 1040ez The new law contains the following provisions. Free 1040ez 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. Free 1040ez An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. Free 1040ez A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. Free 1040ez An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. Free 1040ez 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. Free 1040ez 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. Free 1040ez 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. Free 1040ez Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. Free 1040ez The allowance is an additional deduction of 30% of the property's depreciable basis. Free 1040ez 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. Free 1040ez See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Free 1040ez The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Free 1040ez There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Free 1040ez 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. Free 1040ez Example 1. Free 1040ez On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. Free 1040ez You did not elect to claim a section 179 deduction. Free 1040ez You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. Free 1040ez You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. Free 1040ez Example 2. Free 1040ez 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. Free 1040ez You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). Free 1040ez You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. Free 1040ez Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. Free 1040ez It is new property of one of the following types. Free 1040ez Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Free 1040ez See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Free 1040ez Water utility property. Free 1040ez See 25-year property on page 22 in Publication 946. Free 1040ez Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Free 1040ez (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Free 1040ez ) Qualified leasehold improvement property (defined later). Free 1040ez It meets the following tests (explained later under Tests To Be Met). Free 1040ez Acquisition date test. Free 1040ez Placed in service date test. Free 1040ez Original use test. Free 1040ez It is not excepted property (explained later under Excepted Property). Free 1040ez Qualified leasehold improvement property. Free 1040ez    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. Free 1040ez 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. Free 1040ez That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. Free 1040ez The improvement is placed in service more than 3 years after the date the building was first placed in service. Free 1040ez   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. Free 1040ez The enlargement of the building. Free 1040ez Any elevator or escalator. Free 1040ez Any structural component benefiting a common area. Free 1040ez The internal structural framework of the building. Free 1040ez   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. Free 1040ez However, a binding commitment between related persons is not treated as a lease. Free 1040ez Related persons. Free 1040ez   For this purpose, the following are related persons. Free 1040ez Members of an affiliated group. Free 1040ez 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). Free 1040ez An executor and a beneficiary of the same estate. Free 1040ez Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. Free 1040ez Acquisition date test. Free 1040ez    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. Free 1040ez   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. Free 1040ez Placed in service date test. Free 1040ez   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. Free 1040ez   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. Free 1040ez Original use test. Free 1040ez   The original use of the property must have begun with you after September 10, 2001. Free 1040ez “Original use” means the first use to which the property is put, whether or not by you. Free 1040ez Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. Free 1040ez Excepted Property The following property does not qualify for the special depreciation allowance. Free 1040ez Property used by any person before September 11, 2001. Free 1040ez Property required to be depreciated using ADS. Free 1040ez This includes listed property used 50% or less in a qualified business use. Free 1040ez Qualified New York Liberty Zone leasehold improvement property (defined next). Free 1040ez Qualified New York Liberty Zone leasehold improvement property. Free 1040ez   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. Free 1040ez The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). Free 1040ez The improvement is placed in service after September 10, 2001, and before January 1, 2007. Free 1040ez No written binding contract for the improvement was in effect before September 11, 2001. Free 1040ez Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. Free 1040ez If you make this election for any property, it applies to all property in the same property class placed in service during the year. Free 1040ez 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. Free 1040ez When to make election. Free 1040ez   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. Free 1040ez   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). Free 1040ez Attach the election statement to the amended return. Free 1040ez At the top of the election statement, write “Filed pursuant to section 301. Free 1040ez 9100–2. Free 1040ez ” Revoking an election. Free 1040ez   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Free 1040ez A request to revoke the election is subject to a user fee. Free 1040ez 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. Free 1040ez The rules apply to returns for the following years. Free 1040ez 2000 fiscal years that end after September 10, 2001. Free 1040ez 2001 calendar and fiscal years. Free 1040ez Claiming the allowance. Free 1040ez   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. Free 1040ez 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. Free 1040ez Write “Filed Pursuant to Rev. Free 1040ez Proc. Free 1040ez 2002–33” at the top of the amended return. Free 1040ez File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. Free 1040ez Your return must be filed by the due date (including extensions). Free 1040ez Write “Automatic Change Filed Under Rev. Free 1040ez Proc. Free 1040ez 2002–33” on the appropriate line of Form 3115. Free 1040ez 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. Free 1040ez 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. Free 1040ez Example 1. Free 1040ez You are an individual and you use the calendar year. Free 1040ez You placed qualified property in service for your business in December 2001. Free 1040ez You filed your 2001 income tax return before April 15, 2002. Free 1040ez You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. Free 1040ez You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. Free 1040ez Proc. Free 1040ez 2002–33” at the top of the amended return. Free 1040ez You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. Free 1040ez Example 2. Free 1040ez The facts concerning your 2001 return are the same as in Example 1. Free 1040ez In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. Free 1040ez You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. Free 1040ez Proc. Free 1040ez 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. Free 1040ez You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. Free 1040ez Electing not to claim the allowance. Free 1040ez   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. Free 1040ez The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. Free 1040ez The statement can be either attached to or written on the return. Free 1040ez You can, for example, write “not deducting 30%” on Form 4562. Free 1040ez Deemed election. Free 1040ez   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. Free 1040ez You will be treated as making the election if you meet both of the following conditions. Free 1040ez 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. Free 1040ez You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. Free 1040ez See Claiming the allowance, earlier. Free 1040ez 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. Free 1040ez Generally, the limit is increased from $3,060 to $7,660. Free 1040ez 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). Free 1040ez Table 1 shows the maximum deduction amounts for 2001. Free 1040ez Table 1. Free 1040ez Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. Free 1040ez 11 Placed in Service After Sept. Free 1040ez 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. Free 1040ez Election not to claim the allowance. Free 1040ez   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. Free 1040ez New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). Free 1040ez 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. Free 1040ez Area defined. Free 1040ez   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. Free 1040ez 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. Free 1040ez The allowance is an additional deduction of 30% of the property's depreciable basis. Free 1040ez 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. Free 1040ez See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Free 1040ez The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Free 1040ez There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Free 1040ez 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. Free 1040ez 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. Free 1040ez Qualified property is eligible for only one special depreciation allowance. Free 1040ez Example 1. Free 1040ez 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. Free 1040ez You did not elect to claim a section 179 deduction. Free 1040ez You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. Free 1040ez You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. Free 1040ez Example 2. Free 1040ez 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. Free 1040ez (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). Free 1040ez You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). Free 1040ez You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. Free 1040ez 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. Free 1040ez It is one of the following types of property. Free 1040ez Used property depreciated under MACRS with a recovery period of 20 years or less. Free 1040ez See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Free 1040ez Used water utility property. Free 1040ez See 25-year property on page 22 in Publication 946. Free 1040ez Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Free 1040ez (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Free 1040ez ) Certain nonresidential real property and residential rental property (defined later). Free 1040ez It meets the following tests (explained later under Tests to be met). Free 1040ez Acquisition date test. Free 1040ez Placed in service date test. Free 1040ez Substantial use test. Free 1040ez Original use test. Free 1040ez It is not excepted property (explained later under Excepted property). Free 1040ez Nonresidential real property and residential rental property. Free 1040ez   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. Free 1040ez 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. Free 1040ez   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. Free 1040ez Otherwise, the property is considered damaged real property. Free 1040ez 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. Free 1040ez Tests to be met. Free 1040ez   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. Free 1040ez Acquisition date test. Free 1040ez   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. Free 1040ez   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. Free 1040ez   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. Free 1040ez Placed in service date test. Free 1040ez   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). Free 1040ez   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. Free 1040ez Substantial use test. Free 1040ez   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. Free 1040ez Original use test. Free 1040ez   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. Free 1040ez   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. Free 1040ez 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. Free 1040ez Excepted property. Free 1040ez   The following property does not qualify for the special Liberty Zone depreciation allowance. Free 1040ez Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Free 1040ez Property required to be depreciated using ADS. Free 1040ez This includes listed property used 50% or less in a qualified business use. Free 1040ez Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). Free 1040ez Example. Free 1040ez In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. Free 1040ez New office furniture with a MACRS recovery period of 7 years. Free 1040ez A used computer with a MACRS recovery period of 5 years. Free 1040ez The computer had not previously been used within the Liberty Zone. Free 1040ez Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. Free 1040ez 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. Free 1040ez Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. Free 1040ez If you make this election for any property, it applies to all property in the same property class placed in service during the year. Free 1040ez 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. Free 1040ez When to make the election. Free 1040ez   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. Free 1040ez   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). Free 1040ez Attach the election statement to the amended return. Free 1040ez At the top of the election statement, write “Filed pursuant to section 301. Free 1040ez 9100–2. Free 1040ez ” Revoking an election. Free 1040ez   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. Free 1040ez A request to revoke the election is subject to a user fee. Free 1040ez Returns filed before June 1, 2002. Free 1040ez   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. Free 1040ez 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. Free 1040ez For tax years beginning in 2000, that limit was $20,000. Free 1040ez For tax years beginning in 2001 and 2002, that limit is generally $24,000. Free 1040ez 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. Free 1040ez Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. Free 1040ez The increase is the smaller of the following amounts. Free 1040ez $35,000. Free 1040ez The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. Free 1040ez 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. Free 1040ez Qualified property. Free 1040ez   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. Free 1040ez Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. Free 1040ez Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. Free 1040ez 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. Free 1040ez Example 1. Free 1040ez In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. Free 1040ez 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). Free 1040ez Example 2. Free 1040ez In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. Free 1040ez 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). Free 1040ez 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. Free 1040ez 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. Free 1040ez Example. Free 1040ez In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. Free 1040ez Your increased dollar limit is $59,000 ($35,000 + $24,000). Free 1040ez 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). Free 1040ez 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. Free 1040ez 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. Free 1040ez This rule applies to returns for the following years. Free 1040ez 2000 fiscal years that end after September 10, 2001. Free 1040ez 2001 calendar and fiscal years. Free 1040ez On the amended return, write “Filed Pursuant to Rev. Free 1040ez Proc. Free 1040ez 2002–33. Free 1040ez ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. Free 1040ez This means that it is depreciated over a recovery period of 5 years. Free 1040ez For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. Free 1040ez The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. Free 1040ez Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. Free 1040ez 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. Free 1040ez Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). Free 1040ez Your 2001 calendar or fiscal year return. Free 1040ez On the amended return, write “Filed Pursuant to Rev. Free 1040ez Proc. Free 1040ez 2002–33. Free 1040ez ” Table 2. Free 1040ez 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. Free 1040ez See the text for definitions and examples. Free 1040ez Do not rely on this chart alone. Free 1040ez IF you want to. Free 1040ez . Free 1040ez . Free 1040ez THEN you. Free 1040ez . Free 1040ez . Free 1040ez BY. Free 1040ez . Free 1040ez . Free 1040ez 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. Free 1040ez 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). Free 1040ez 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. Free 1040ez 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. Free 1040ez 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. Free 1040ez Prev  Up  Next   Home   More Online Publications