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Free 2006 Tax Software

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Free 2006 Tax Software

Free 2006 tax software Publication 504 - Main Content Table of Contents Filing StatusUnmarried persons. Free 2006 tax software Married persons. Free 2006 tax software Same-sex marriage. Free 2006 tax software Exception. Free 2006 tax software Married Filing Jointly Married Filing Separately Head of Household ExemptionsPersonal Exemptions Exemptions for Dependents Phaseout of Exemptions AlimonyInvalid decree. Free 2006 tax software Amended instrument. Free 2006 tax software General Rules Instruments Executed After 1984 Instruments Executed Before 1985 Qualified Domestic Relations OrderRollovers. Free 2006 tax software Individual Retirement Arrangements Property SettlementsTransfer Between Spouses Gift Tax on Property Settlements Sale of Jointly-Owned Property Costs of Getting a Divorce Tax Withholding and Estimated Tax Community PropertyCommunity Income Alimony (Community Income) How To Get Tax Help Filing Status Your filing status is used in determining whether you must file a return, your standard deduction, and the correct tax. Free 2006 tax software It may also be used in determining whether you can claim certain other deductions and credits. Free 2006 tax software The filing status you can choose depends partly on your marital status on the last day of your tax year. Free 2006 tax software Marital status. Free 2006 tax software   If you are unmarried, your filing status is single or, if you meet certain requirements, head of household or qualifying widow(er). Free 2006 tax software If you are married, your filing status is either married filing a joint return or married filing a separate return. Free 2006 tax software For information about the single and qualifying widow(er) filing statuses, see Publication 501. Free 2006 tax software Unmarried persons. Free 2006 tax software   You are unmarried for the whole year if either of the following applies. Free 2006 tax software You have obtained a final decree of divorce or separate maintenance by the last day of your tax year. Free 2006 tax software You must follow your state law to determine if you are divorced or legally separated. Free 2006 tax software Exception. Free 2006 tax software If you and your spouse obtain a divorce in one year for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to remarry each other and do so in the next tax year, you and your spouse must file as married individuals. Free 2006 tax software You have obtained a decree of annulment, which holds that no valid marriage ever existed. Free 2006 tax software You must file amended returns (Form 1040X, Amended U. Free 2006 tax software S. Free 2006 tax software Individual Income Tax Return) for all tax years affected by the annulment that are not closed by the statute of limitations. Free 2006 tax software The statute of limitations generally does not end until 3 years (including extensions) after the date you file your original return or within 2 years after the date you pay the tax. Free 2006 tax software On the amended return you will change your filing status to single or, if you meet certain requirements, head of household. Free 2006 tax software Married persons. Free 2006 tax software   You are married for the whole year if you are separated but you have not obtained a final decree of divorce or separate maintenance by the last day of your tax year. Free 2006 tax software An interlocutory decree is not a final decree. Free 2006 tax software Same-sex marriage. Free 2006 tax software   For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Free 2006 tax software The term "spouse" includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. Free 2006 tax software However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage under state (or foreign) law are not considered married for federal tax purposes. Free 2006 tax software For more details, see Publication 501. Free 2006 tax software Exception. Free 2006 tax software   If you live apart from your spouse, under certain circumstances, you may be considered unmarried and can file as head of household. Free 2006 tax software See Head of Household , later. Free 2006 tax software Married Filing Jointly If you are married, you and your spouse can choose to file a joint return. Free 2006 tax software If you file jointly, you both must include all your income, exemptions, deductions, and credits on that return. Free 2006 tax software You can file a joint return even if one of you had no income or deductions. Free 2006 tax software If both you and your spouse have income, you should usually figure your tax on both a joint return and separate returns (using the filing status of married filing separately) to see which gives the two of you the lower combined tax. Free 2006 tax software Nonresident alien. Free 2006 tax software   To file a joint return, at least one of you must be a U. Free 2006 tax software S. Free 2006 tax software citizen or resident alien at the end of the tax year. Free 2006 tax software If either of you was a nonresident alien at any time during the tax year, you can file a joint return only if you agree to treat the nonresident spouse as a resident of the United States. Free 2006 tax software This means that your combined worldwide incomes are subject to U. Free 2006 tax software S. Free 2006 tax software income tax. Free 2006 tax software These rules are explained in Publication 519, U. Free 2006 tax software S. Free 2006 tax software Tax Guide for Aliens. Free 2006 tax software Signing a joint return. Free 2006 tax software   Both you and your spouse generally must sign the return, or it will not be considered a joint return. Free 2006 tax software Joint and individual liability. Free 2006 tax software   Both you and your spouse may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. Free 2006 tax software This means that one spouse may be held liable for all the tax due even if all the income was earned by the other spouse. Free 2006 tax software Divorced taxpayers. Free 2006 tax software   If you are divorced, you are jointly and individually responsible for any tax, interest, and penalties due on a joint return for a tax year ending before your divorce. Free 2006 tax software This responsibility applies even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. Free 2006 tax software Relief from joint liability. Free 2006 tax software   In some cases, a spouse may be relieved of the tax, interest, and penalties on a joint return. Free 2006 tax software You can ask for relief no matter how small the liability. Free 2006 tax software   There are three types of relief available. Free 2006 tax software Innocent spouse relief. Free 2006 tax software Separation of liability, which applies to joint filers who are divorced, widowed, legally separated, or who have not lived together for the 12 months ending on the date election of this relief is filed. Free 2006 tax software Equitable relief. Free 2006 tax software   Married persons who live in community property states, but who did not file joint returns, may also qualify for relief from liability arising from community property law or for equitable relief. Free 2006 tax software See Relief from liability arising from community property law , later, under Community Property. Free 2006 tax software    Each kind of relief has different requirements. Free 2006 tax software You must file Form 8857 to request relief under any of these categories. Free 2006 tax software Publication 971 explains these kinds of relief and who may qualify for them. Free 2006 tax software You can also find information on our website at IRS. Free 2006 tax software gov. Free 2006 tax software Tax refund applied to spouse's debts. Free 2006 tax software   The overpayment shown on your joint return may be used to pay the past-due amount of your spouse's debts. Free 2006 tax software This includes your spouse's federal tax, state income tax, child or spousal support payments, or a federal nontax debt, such as a student loan. Free 2006 tax software You can get a refund of your share of the overpayment if you qualify as an injured spouse. Free 2006 tax software Injured spouse. Free 2006 tax software   You are an injured spouse if you file a joint return and all or part of your share of the overpayment was, or is expected to be, applied against your spouse's past-due debts. Free 2006 tax software An injured spouse can get a refund for his or her share of the overpayment that would otherwise be used to pay the past-due amount. Free 2006 tax software   To be considered an injured spouse, you must: Have made and reported tax payments (such as federal income tax withheld from wages or estimated tax payments), or claimed a refundable tax credit, such as the earned income credit or additional child tax credit on the joint return, and Not be legally obligated to pay the past-due amount. Free 2006 tax software Note. Free 2006 tax software If the injured spouse's permanent home is in a community property state, then the injured spouse must only meet (2). Free 2006 tax software For more information, see Publication 555. Free 2006 tax software    Refunds that involve community property states must be divided according to local law. Free 2006 tax software If you live in a community property state in which all community property is subject to the debts of either spouse, your entire refund is generally used to pay those debts. Free 2006 tax software   If you are an injured spouse, you must file Form 8379 to have your portion of the overpayment refunded to you. Free 2006 tax software Follow the instructions for the form. Free 2006 tax software   If you have not filed your joint return and you know that your joint refund will be offset, file Form 8379 with your return. Free 2006 tax software You should receive your refund within 14 weeks from the date the paper return is filed or within 11 weeks from the date the return is filed electronically. Free 2006 tax software   If you filed your joint return and your joint refund was offset, file Form 8379 by itself. Free 2006 tax software When filed after offset, it can take up to 8 weeks to receive your refund. Free 2006 tax software Do not attach the previously filed tax return, but do include copies of all Forms W-2, Wage and Tax Statement, and W-2G, Certain Gambling Winnings, for both spouses and any Forms 1099 that show income tax withheld. Free 2006 tax software    An injured spouse claim is different from an innocent spouse relief request. Free 2006 tax software An injured spouse uses Form 8379 to request an allocation of the tax overpayment attributed to each spouse. Free 2006 tax software An innocent spouse uses Form 8857 to request relief from joint liability for tax, interest, and penalties on a joint return for items of the other spouse (or former spouse) that were incorrectly reported on or omitted from the joint return. Free 2006 tax software For information on innocent spouses, see Relief from joint liability, earlier. Free 2006 tax software Married Filing Separately If you and your spouse file separate returns, you should each report only your own income, exemptions, deductions, and credits on your individual return. Free 2006 tax software You can file a separate return even if only one of you had income. Free 2006 tax software For information on exemptions you can claim on your separate return, see Exemptions , later. Free 2006 tax software Community or separate income. Free 2006 tax software   If you live in a community property state and file a separate return, your income may be separate income or community income for income tax purposes. Free 2006 tax software For more information, see Community Income under Community Property, later. Free 2006 tax software Separate liability. Free 2006 tax software   If you and your spouse file separately, you each are responsible only for the tax due on your own return. Free 2006 tax software Itemized deductions. Free 2006 tax software   If you and your spouse file separate returns and one of you itemizes deductions, the other spouse cannot use the standard deduction and should also itemize deductions. Free 2006 tax software Table 1. Free 2006 tax software Itemized Deductions on Separate Returns This table shows itemized deductions you can claim on your married filing separate return whether you paid the expenses separately with your own funds or jointly with your spouse. Free 2006 tax software  Caution: If you live in a community property state, these rules do not apply. Free 2006 tax software See Community Property. Free 2006 tax software IF you paid . Free 2006 tax software . Free 2006 tax software . Free 2006 tax software AND you . Free 2006 tax software . Free 2006 tax software . Free 2006 tax software THEN you can deduct on your separate federal return. Free 2006 tax software . Free 2006 tax software . Free 2006 tax software   medical expenses   paid with funds deposited in a joint checking account in which you and your spouse have an equal interest     half of the total medical expenses, subject to certain limits, unless you can show that you alone paid the expenses. Free 2006 tax software     state income tax   file a separate state income tax return     the state income tax you alone paid during the year. Free 2006 tax software         file a joint state income tax return and you and your spouse are jointly and individually liable for the full amount of the state income tax     the state income tax you alone paid during the year. Free 2006 tax software         file a joint state income tax return and you  are liable for only your own share of state  income tax     the smaller of: the state income tax you alone paid during the year, or the total state income tax you and your spouse paid during the year multiplied by the following fraction. Free 2006 tax software The numerator is your gross income and the denominator  is your combined gross income. Free 2006 tax software     property tax   paid the tax on property held as tenants by the entirety     the property tax you alone paid. Free 2006 tax software     mortgage interest   paid the interest on a qualified home1 held  as tenants by the entirety     the mortgage interest you alone paid. Free 2006 tax software     casualty loss   have a casualty loss on a home you own  as tenants by the entirety     half of the loss, subject to the deduction limits. Free 2006 tax software Neither spouse may report the total casualty loss. Free 2006 tax software 1 For more information on a qualified home and deductible mortgage interest, see Publication 936, Home Mortgage Interest Deduction. Free 2006 tax software Dividing itemized deductions. Free 2006 tax software   You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. Free 2006 tax software See Table 1, later. Free 2006 tax software Separate returns may give you a higher tax. Free 2006 tax software   Some married couples file separate returns because each wants to be responsible only for his or her own tax. Free 2006 tax software There is no joint liability. Free 2006 tax software But in almost all instances, if you file separate returns, you will pay more combined federal tax than you would with a joint return. Free 2006 tax software This is because the following special rules apply if you file a separate return. Free 2006 tax software Your tax rate generally will be higher than it would be on a joint return. Free 2006 tax software Your exemption amount for figuring the alternative minimum tax will be half of that allowed a joint return filer. Free 2006 tax software You cannot take the credit for child and dependent care expenses in most cases. Free 2006 tax software You cannot take the earned income credit. Free 2006 tax software You cannot take the exclusion or credit for adoption expenses in most cases. Free 2006 tax software You cannot take the credit for higher education expenses (American opportunity and lifetime learning credits), the deduction for student loan interest, or the tuition and fees deduction. Free 2006 tax software You cannot exclude the interest from qualified savings bonds that you used for higher education expenses. Free 2006 tax software If you lived with your spouse at any time during the tax year: You cannot claim the credit for the elderly or the disabled, and You will have to include in income more (up to 85%) of any social security or equivalent railroad retirement benefits you received. Free 2006 tax software Your income limits that reduce the child tax credit, the retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are half of the limits for a joint return filer. Free 2006 tax software Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). Free 2006 tax software Your basic standard deduction, if allowable, is half of that allowed a joint return filer. Free 2006 tax software See Itemized deductions , earlier. Free 2006 tax software Joint return after separate returns. Free 2006 tax software   If either you or your spouse (or both of you) file a separate return, you generally can change to a joint return within 3 years from the due date (not including extensions) of the separate return or returns. Free 2006 tax software This applies to a return either of you filed claiming married filing separately, single, or head of household filing status. Free 2006 tax software Use Form 1040X to change your filing status. Free 2006 tax software Separate returns after joint return. Free 2006 tax software   After the due date of your return, you and your spouse cannot file separate returns if you previously filed a joint return. Free 2006 tax software Exception. Free 2006 tax software   A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. Free 2006 tax software The personal representative has 1 year from the due date (including extensions) of the joint return to make the change. Free 2006 tax software Head of Household Filing as head of household has the following advantages. Free 2006 tax software You can claim the standard deduction even if your spouse files a separate return and itemizes deductions. Free 2006 tax software Your standard deduction is higher than is allowed if you claim a filing status of single or married filing separately. Free 2006 tax software Your tax rate usually will be lower than it is if you claim a filing status of single or married filing separately. Free 2006 tax software You may be able to claim certain credits (such as the dependent care credit and the earned income credit) you cannot claim if your filing status is married filing separately. Free 2006 tax software Income limits that reduce your child tax credit, retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are higher than the income limits if you claim a filing status of married filing separately. Free 2006 tax software Requirements. Free 2006 tax software   You may be able to file as head of household if you meet all the following requirements. Free 2006 tax software You are unmarried or “considered unmarried” on the last day of the year. Free 2006 tax software You paid more than half the cost of keeping up a home for the year. Free 2006 tax software A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). Free 2006 tax software However, if the “qualifying person” is your dependent parent, he or she does not have to live with you. Free 2006 tax software See Special rule for parent , later, under Qualifying person. Free 2006 tax software Considered unmarried. Free 2006 tax software   You are considered unmarried on the last day of the tax year if you meet all the following tests. Free 2006 tax software You file a separate return. Free 2006 tax software A separate return includes a return claiming married filing separately, single, or head of household filing status. Free 2006 tax software You paid more than half the cost of keeping up your home for the tax year. Free 2006 tax software Your spouse did not live in your home during the last 6 months of the tax year. Free 2006 tax software Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. Free 2006 tax software See Temporary absences , later. Free 2006 tax software Your home was the main home of your child, stepchild, or foster child for more than half the year. Free 2006 tax software (See Qualifying person , later, for rules applying to a child's birth, death, or temporary absence during the year. Free 2006 tax software ) You must be able to claim an exemption for the child. Free 2006 tax software However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rule described later in Special rule for divorced or separated parents (or parents who live apart) under Exemptions for Dependents. Free 2006 tax software The general rules for claiming an exemption for a dependent are shown later in Table 3. Free 2006 tax software    If you were considered married for part of the year and lived in a community property state (one of the states listed later under Community Property), special rules may apply in determining your income and expenses. Free 2006 tax software See Publication 555 for more information. Free 2006 tax software Nonresident alien spouse. Free 2006 tax software   If your spouse was a nonresident alien at any time during the tax year, and you have not chosen to treat your spouse as a resident alien, you are considered unmarried for head of household purposes. Free 2006 tax software However, your spouse is not a qualifying person for head of household purposes. Free 2006 tax software You must have another qualifying person and meet the other requirements to file as head of household. Free 2006 tax software Keeping up a home. Free 2006 tax software   You are keeping up a home only if you pay more than half the cost of its upkeep for the year. Free 2006 tax software This includes rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. Free 2006 tax software This does not include the cost of clothing, education, medical treatment, vacations, life insurance, or transportation for any member of the household. Free 2006 tax software Qualifying person. Free 2006 tax software    Table 2, later, shows who can be a qualifying person. Free 2006 tax software Any person not described in Table 2 is not a qualifying person. Free 2006 tax software   Generally, the qualifying person must live with you for more than half of the year. Free 2006 tax software Table 2. Free 2006 tax software Who Is a Qualifying Person Qualifying You To File as Head of Household?1 Caution. Free 2006 tax software See the text of this publication for the other requirements you must meet to claim head of household filing status. Free 2006 tax software IF the person is your . Free 2006 tax software . Free 2006 tax software . Free 2006 tax software AND . Free 2006 tax software . Free 2006 tax software . Free 2006 tax software THEN that person is . Free 2006 tax software . Free 2006 tax software . Free 2006 tax software   qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2 he or she is single a qualifying person, whether or not you can claim an exemption for the person. Free 2006 tax software     he or she is married and you can claim an exemption for him or her a qualifying person. Free 2006 tax software     he or she is married and you cannot claim an exemption for him or her not a qualifying person. Free 2006 tax software 3     qualifying relative4 who is your father or mother you can claim an exemption for him or her5 a qualifying person. Free 2006 tax software 6     you cannot claim an exemption for him or her not a qualifying person. Free 2006 tax software     qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests) he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 and you can claim an exemption for him or her5 a qualifying person. Free 2006 tax software     he or she did not live with you more than half the year not a qualifying person. Free 2006 tax software     he or she is not related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 and is your qualifying relative only because he or she lived with you all year as a member of your household not a qualifying person. Free 2006 tax software     you cannot claim an exemption for him or her not a qualifying person. Free 2006 tax software   1 A person cannot qualify more than one taxpayer to use the head of household filing status for the year. Free 2006 tax software 2 See Table 3, later, for the tests that must be met to be a qualifying child. Free 2006 tax software Note. Free 2006 tax software If you are a noncustodial parent, the term “qualifying child” for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of Divorced or Separated Parents (or Parents Who Live Apart) under Exemptions for Dependents, later. Free 2006 tax software If you are the custodial parent and those rules apply, the child is generally your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption. Free 2006 tax software 3 This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return. Free 2006 tax software 4 See Table 3, later, for the tests that must be met to be a qualifying relative. Free 2006 tax software 5 If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. Free 2006 tax software See Multiple Support Agreement in Publication 501. Free 2006 tax software 6 See Special rule for parent . Free 2006 tax software Special rule for parent. Free 2006 tax software   If your qualifying person is your father or mother, you may be eligible to file as head of household even if your father or mother does not live with you. Free 2006 tax software However, you must be able to claim an exemption for your father or mother. Free 2006 tax software Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. Free 2006 tax software You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly. Free 2006 tax software Death or birth. Free 2006 tax software   If the person for whom you kept up a home was born or died in 2013, you still may be able to file as head of household. Free 2006 tax software If the person is your qualifying child, the child must have lived with you for more than half the part of the year he or she was alive. Free 2006 tax software If the person is anyone else, see Publication 501. Free 2006 tax software Temporary absences. Free 2006 tax software   You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. Free 2006 tax software It must be reasonable to assume that the absent person will return to the home after the temporary absence. Free 2006 tax software You must continue to keep up the home during the absence. Free 2006 tax software Kidnapped child. Free 2006 tax software   You may be eligible to file as head of household even if the child who is your qualifying person has been kidnapped. Free 2006 tax software You can claim head of household filing status if all the following statements are true. Free 2006 tax software The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. Free 2006 tax software In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping. Free 2006 tax software You would have qualified for head of household filing status if the child had not been kidnapped. Free 2006 tax software   This treatment applies for all years until the earlier of: The year the child is returned, The year there is a determination that the child is dead, or The year the child would have reached age 18. Free 2006 tax software More information. Free 2006 tax software   For more information on filing as head of household, see Publication 501. Free 2006 tax software Exemptions You can deduct $3,900 for each exemption you claim in 2013. Free 2006 tax software However, if your adjusted gross income is more than $150,000, see Phaseout of Exemptions , later. Free 2006 tax software There are two types of exemptions: personal exemptions and exemptions for dependents. Free 2006 tax software If you are entitled to claim an exemption for a dependent (such as your child), that dependent cannot claim his or her personal exemption on his or her own tax return. Free 2006 tax software Personal Exemptions You can claim your own exemption unless someone else can claim it. Free 2006 tax software If you are married, you may be able to take an exemption for your spouse. Free 2006 tax software These are called personal exemptions. Free 2006 tax software Exemption for Your Spouse Your spouse is never considered your dependent. Free 2006 tax software Joint return. Free 2006 tax software   On a joint return, you can claim one exemption for yourself and one for your spouse. Free 2006 tax software   If your spouse had any gross income, you can claim his or her exemption only if you file a joint return. Free 2006 tax software Separate return. Free 2006 tax software   If you file a separate return, you can take an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. Free 2006 tax software If your spouse is the dependent of another taxpayer, you cannot claim an exemption for your spouse even if the other taxpayer does not actually claim your spouse's exemption. Free 2006 tax software Alimony paid. Free 2006 tax software   If you paid alimony to your spouse, you cannot take an exemption for your spouse. Free 2006 tax software This is because alimony is gross income to the spouse who received it. Free 2006 tax software Divorced or separated spouse. Free 2006 tax software   If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. Free 2006 tax software This rule applies even if you provided all of your former spouse's support. Free 2006 tax software Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. Free 2006 tax software You can claim an exemption for a dependent even if your dependent files a return. Free 2006 tax software The term “dependent” means: A qualifying child, or A qualifying relative. Free 2006 tax software Table 3 shows the tests that must be met to be either a qualifying child or qualifying relative, plus the additional requirements for claiming an exemption for a dependent. Free 2006 tax software For detailed information, see Publication 501. Free 2006 tax software   Dependent not allowed a personal exemption. Free 2006 tax software If you can claim an exemption for your dependent, the dependent cannot claim his or her own exemption on his or her own tax return. Free 2006 tax software This is true even if you do not claim the dependent's exemption on your return. Free 2006 tax software It is also true if the decedent's exemption on your return is reduced or eliminated under the phaseout rule described under Phaseout of Exemptions, later. Free 2006 tax software Table 3. Free 2006 tax software Overview of the Rules for Claiming an Exemption for a Dependent Caution. Free 2006 tax software This table is only an overview of the rules. Free 2006 tax software For details, see Publication 501. Free 2006 tax software • You cannot claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer. Free 2006 tax software • You cannot claim a married person who files a joint return as a dependent unless that joint return is only a claim for refund and there would be no tax liability for either spouse on separate returns. Free 2006 tax software • You cannot claim a person as a dependent unless that person is a U. Free 2006 tax software S. Free 2006 tax software citizen, U. Free 2006 tax software S. Free 2006 tax software resident alien, U. Free 2006 tax software S. Free 2006 tax software national, or a resident of Canada or Mexico. Free 2006 tax software 1 • You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. Free 2006 tax software   Tests To Be a Qualifying Child   Tests To Be a Qualifying Relative 1. Free 2006 tax software     2. Free 2006 tax software       3. Free 2006 tax software    4. Free 2006 tax software    5. Free 2006 tax software    The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Free 2006 tax software   The child must be (a) under age 19 at the end of the year and younger than you (or your spouse if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse if filing jointly), or (c) any age if permanently and totally disabled. Free 2006 tax software   The child must have lived with you for more than half of the year. Free 2006 tax software 2   The child must not have provided more than half of his or her own support for the year. Free 2006 tax software   The child is not filing a joint return for the year (unless that joint return is filed only as a claim for refund of withheld income tax or estimated tax paid). Free 2006 tax software   1. Free 2006 tax software    2. Free 2006 tax software       3. Free 2006 tax software    4. Free 2006 tax software The person cannot be your qualifying child or the qualifying child of anyone else. Free 2006 tax software   The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 or (b) must live with you all year as a member of your household 2 (and your relationship must not violate local law). Free 2006 tax software   The person's gross income for the year must be less than $3,900. Free 2006 tax software 3   You must provide more than half of the person's total support for the year. Free 2006 tax software 4 If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child. Free 2006 tax software See Special Rule for Qualifying Child of More Than One Person , later, to find out which person is the person entitled to claim the child as a qualifying child. Free 2006 tax software     1 Exception exists for certain adopted children. Free 2006 tax software 2 Exceptions exist for temporary absences, children who were born or died during the year, children of divorced or separated parents (or parents who live apart), and kidnapped children. Free 2006 tax software 3 Exception exists for persons who are disabled and have income from a sheltered workshop. Free 2006 tax software 4 Exceptions exist for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. Free 2006 tax software See Publication 501. Free 2006 tax software You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. Free 2006 tax software For more information, see the instructions for your tax return if you file Form 1040A or 1040. Free 2006 tax software Children of Divorced or Separated Parents (or Parents Who Live Apart) In most cases, because of the residency test (see item 3 under Tests To Be a Qualifying Child in Table 3), a child of divorced or separated parents is the qualifying child of the custodial parent. Free 2006 tax software However, the child will be treated as the qualifying child of the noncustodial parent if the special rule (discussed next) applies. Free 2006 tax software Special rule for divorced or separated parents (or parents who live apart). Free 2006 tax software   A child will be treated as the qualifying child of his or her noncustodial parent if all four of the following statements are true. Free 2006 tax software The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of the year, whether or not they are or were married. Free 2006 tax software The child received over half of his or her support for the year from the parents. Free 2006 tax software The child is in the custody of one or both parents for more than half of the year. Free 2006 tax software Either of the following applies. Free 2006 tax software The custodial parent signs a written declaration, discussed later, that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return. Free 2006 tax software (If the decree or agreement went into effect after 1984, see Divorce decree or separation agreement that went into effect after 1984 and before 2009 , later. Free 2006 tax software A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 states that the noncustodial parent can claim the child as a dependent, the decree or agreement was not changed after 1984 to say the noncustodial parent cannot claim the child as a dependent, and the noncustodial parent provides at least $600 for the child's support during 2013. Free 2006 tax software See Child support under pre-1985 agreement , later. Free 2006 tax software Custodial parent and noncustodial parent. Free 2006 tax software   The custodial parent is the parent with whom the child lived for the greater number of nights during the year. Free 2006 tax software The other parent is the noncustodial parent. Free 2006 tax software   If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year. Free 2006 tax software   A child is treated as living with a parent for a night if the child sleeps: At that parent's home, whether or not the parent is present, or In the company of the parent, when the child does not sleep at a parent's home (for example, the parent and child are on vacation together). Free 2006 tax software Equal number of nights. Free 2006 tax software   If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income. Free 2006 tax software December 31. Free 2006 tax software   The night of December 31 is treated as part of the year in which it begins. Free 2006 tax software For example, December 31, 2013, is treated as part of 2013. Free 2006 tax software Emancipated child. Free 2006 tax software   If a child is emancipated under state law, the child is treated as not living with either parent. Free 2006 tax software See Examples 5 and 6 . Free 2006 tax software Absences. Free 2006 tax software    If a child was not with either parent on a particular night (because, for example, the child was staying at a friend's house), the child is treated as living with the parent with whom the child normally would have lived for that night, except for the absence. Free 2006 tax software But if it cannot be determined with which parent the child normally would have lived or if the child would not have lived with either parent that night, the child is treated as not living with either parent that night. Free 2006 tax software Parent works at night. Free 2006 tax software   If, due to a parent's nighttime work schedule, a child lives for a greater number of days but not nights with the parent who works at night, that parent is treated as the custodial parent. Free 2006 tax software On a school day, the child is treated as living at the primary residence registered with the school. Free 2006 tax software Example 1 – child lived with one parent greater number of nights. Free 2006 tax software You and your child’s other parent are divorced. Free 2006 tax software In 2013, your child lived with you 210 nights and with the other parent 156 nights. Free 2006 tax software You are the custodial parent. Free 2006 tax software Example 2 – child is away at camp. Free 2006 tax software In 2013, your daughter lives with each parent for alternate weeks. Free 2006 tax software In the summer, she spends 6 weeks at summer camp. Free 2006 tax software During the time she is at camp, she is treated as living with you for 3 weeks and with her other parent, your ex-spouse, for 3 weeks because this is how long she would have lived with each parent if she had not attended summer camp. Free 2006 tax software Example 3 – child lived same number of days with each parent. Free 2006 tax software Your son lived with you 180 nights during the year and lived the same number of nights with his other parent, your ex-spouse. Free 2006 tax software Your adjusted gross income is $40,000. Free 2006 tax software Your ex-spouse's adjusted gross income is $25,000. Free 2006 tax software You are treated as your son's custodial parent because you have the higher adjusted gross income. Free 2006 tax software Example 4 – child is at parent’s home but with other parent. Free 2006 tax software Your son normally lives with you during the week and with his other parent, your ex-spouse, every other weekend. Free 2006 tax software You become ill and are hospitalized. Free 2006 tax software The other parent lives in your home with your son for 10 consecutive days while you are in the hospital. Free 2006 tax software Your son is treated as living with you during this 10-day period because he was living in your home. Free 2006 tax software Example 5 – child emancipated in May. Free 2006 tax software When your son turned age 18 in May 2013, he became emancipated under the law of the state where he lives. Free 2006 tax software As a result, he is not considered in the custody of his parents for more than half of the year. Free 2006 tax software The special rule for children of divorced or separated parents (or parents who live apart) does not apply. Free 2006 tax software Example 6 – child emancipated in August. Free 2006 tax software Your daughter lives with you from January 1, 2013, until May 31, 2013, and lives with her other parent, your ex-spouse, from June 1, 2013, through the end of the year. Free 2006 tax software She turns 18 and is emancipated under state law on August 1, 2013. Free 2006 tax software Because she is treated as not living with either parent beginning on August 1, she is treated as living with you the greater number of nights in 2013. Free 2006 tax software You are the custodial parent. Free 2006 tax software Written declaration. Free 2006 tax software    The custodial parent must use either Form 8332 or a similar statement (containing the same information required by the form) to make the written declaration to release the exemption to the noncustodial parent. Free 2006 tax software The noncustodial parent must attach a copy of the form or statement to his or her tax return. Free 2006 tax software   The exemption can be released for 1 year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration. Free 2006 tax software Divorce decree or separation agreement that went into effect after 1984 and before 2009. Free 2006 tax software   If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. Free 2006 tax software To be able to do this, the decree or agreement must state all three of the following. Free 2006 tax software The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support. Free 2006 tax software The custodial parent will not claim the child as a dependent for the year. Free 2006 tax software The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent. Free 2006 tax software   The noncustodial parent must attach all of the following pages of the decree or agreement to his or her return. Free 2006 tax software The cover page (write the other parent's social security number on this page). Free 2006 tax software The pages that include all of the information identified in items (1) through (3) above. Free 2006 tax software The signature page with the other parent's signature and the date of the agreement. Free 2006 tax software Post-2008 divorce decree or separation agreement. Free 2006 tax software   If the decree or agreement went into effect after 2008, a noncustodial parent claiming an exemption for a child cannot attach pages from a divorce decree or separation agreement instead of Form 8332. Free 2006 tax software The custodial parent must sign either a Form 8332 or a similar statement. Free 2006 tax software The only purpose of this statement must be to release the custodial parent's claim to the child's exemption. Free 2006 tax software The noncustodial parent must attach a copy to his or her return. Free 2006 tax software The form or statement must release the custodial parent's claim to the child without any conditions. Free 2006 tax software For example, the release must not depend on the noncustodial parent paying support. Free 2006 tax software    The noncustodial parent must attach the required information even if it was filed with a return in an earlier year. Free 2006 tax software Revocation of release of claim to an exemption. Free 2006 tax software   The custodial parent can revoke a release of claim to exemption that he or she previously released to the noncustodial parent on Form 8332 or a similar statement. Free 2006 tax software In order for the revocation to be effective for 2013, the custodial parent must have given (or made reasonable efforts to give) written notice of the revocation to the noncustodial parent in 2012 or earlier. Free 2006 tax software The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to his or her return for each tax year he or she claims the child as a dependent as a result of the revocation. Free 2006 tax software Remarried parent. Free 2006 tax software   If you remarry, the support provided by your new spouse is treated as provided by you. Free 2006 tax software Child support under pre-1985 agreement. Free 2006 tax software   All child support payments actually received from the noncustodial parent under a pre-1985 agreement are considered used for the support of the child, even if such amounts are not actually spent for child support. Free 2006 tax software Example. Free 2006 tax software Under a pre-1985 agreement, the noncustodial parent provides $1,200 for the child's support. Free 2006 tax software This amount is considered support provided by the noncustodial parent even if the $1,200 was actually spent on things other than support. Free 2006 tax software Parents who never married. Free 2006 tax software   The special rule for divorced or separated parents also applies to parents who never married and lived apart at all times during the last 6 months of the year. Free 2006 tax software Alimony. Free 2006 tax software   Payments to your spouse that are includible in his or her gross income as either alimony, separate maintenance payments, or similar payments from an estate or trust, are not treated as a payment for the support of a dependent. Free 2006 tax software Special Rule for Qualifying Child of More Than One Person If your qualifying child is not a qualifying child of anyone else, this special rule does not apply to you and you do not need to read about it. Free 2006 tax software This is also true if your qualifying child is not a qualifying child of anyone else except your spouse with whom you file a joint return. Free 2006 tax software If a child is treated as the qualifying child of the noncustodial parent under the Special rule for divorced or separated parents (or parents who live apart), earlier, see Applying this special rule to divorced or separated parents (or parents who live apart), later. Free 2006 tax software Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. Free 2006 tax software (For a description of these tests, see list items 1 through 5 under Tests To Be a Qualifying Child in Table 3). Free 2006 tax software Although the child meets the conditions to be a qualifying child of each of these persons, only one person can actually use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). Free 2006 tax software The exemption for the child. Free 2006 tax software The child tax credit. Free 2006 tax software Head of household filing status. Free 2006 tax software The credit for child and dependent care expenses. Free 2006 tax software The exclusion from income for dependent care benefits. Free 2006 tax software The earned income credit. Free 2006 tax software The other person cannot take any of these benefits based on this qualifying child. Free 2006 tax software In other words, you and the other person cannot agree to divide these tax benefits between you. Free 2006 tax software The other person cannot take any of these tax benefits unless he or she has a different qualifying child. Free 2006 tax software Tiebreaker rules. Free 2006 tax software   To determine which person can treat the child as a qualifying child to claim these six tax benefits, the following tiebreaker rules apply. Free 2006 tax software If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. Free 2006 tax software If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. Free 2006 tax software If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. Free 2006 tax software If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. Free 2006 tax software If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. Free 2006 tax software If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' total AGI evenly between them; see Publication 501 for details. Free 2006 tax software   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. Free 2006 tax software Example 1—separated parents. Free 2006 tax software You, your husband, and your 10-year-old son lived together until August 1, 2013, when your husband moved out of the household. Free 2006 tax software In August and September, your son lived with you. Free 2006 tax software For the rest of the year, your son lived with your husband, the boy's father. Free 2006 tax software Your son is a qualifying child of both you and your husband because your son lived with each of you for more than half the year and because he met the relationship, age, support, and joint return tests for both of you. Free 2006 tax software At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) does not apply. Free 2006 tax software You and your husband will file separate returns. Free 2006 tax software Your husband agrees to let you treat your son as a qualifying child. Free 2006 tax software This means, if your husband does not claim your son as a qualifying child, you can claim your son as a dependent and treat him as a qualifying child for the child tax credit and exclusion for dependent care benefits, if you qualify for each of those tax benefits. Free 2006 tax software However, you cannot claim head of household filing status because you and your husband did not live apart the last 6 months of the year. Free 2006 tax software And, as a result of your filing status being married filing separately, you cannot claim the earned income credit or the credit for child and dependent care expenses. Free 2006 tax software Example 2—separated parents claim same child. Free 2006 tax software The facts are the same as in Example 1 except that you and your husband both claim your son as a qualifying child. Free 2006 tax software In this case, only your husband will be allowed to treat your son as a qualifying child. Free 2006 tax software This is because, during 2013, the boy lived with him longer than with you. Free 2006 tax software If you claimed an exemption, the child tax credit, or the exclusion for dependent care benefits for your son, the IRS will disallow your claim to all these tax benefits, unless you have another qualifying child. Free 2006 tax software In addition, because you and your husband did not live apart the last 6 months of the year, your husband cannot claim head of household filing status. Free 2006 tax software And, as a result of his filing status being married filing separately, he cannot claim the earned income credit or the credit for child and dependent care expenses. Free 2006 tax software Applying this special rule to divorced or separated parents (or parents who live apart). Free 2006 tax software   If a child is treated as the qualifying child of the noncustodial parent under the special rule for divorced or separated parents (or parents who live apart) described earlier, only the noncustodial parent can claim an exemption and the child tax credit for the child. Free 2006 tax software However, the noncustodial parent cannot claim the child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. Free 2006 tax software Only the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for those four tax benefits. Free 2006 tax software If the child is the qualifying child of more than one person for those tax benefits, the tiebreaker rules determine which person can treat the child as a qualifying child. Free 2006 tax software Example 1. Free 2006 tax software You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. Free 2006 tax software Your AGI is $10,000. Free 2006 tax software Your mother's AGI is $25,000. Free 2006 tax software Your son's father does not live with you or your son. Free 2006 tax software Under the rules for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child if he meets all the requirements to do so. Free 2006 tax software Because of this, you cannot claim an exemption or the child tax credit for your son. Free 2006 tax software However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the earned income credit. Free 2006 tax software You and your mother did not have any child care expenses or dependent care benefits, but the boy is a qualifying child of both you and your mother for head of household filing status and the earned income credit because he meets the relationship, age, residency, support, and joint return tests for both you and your mother. Free 2006 tax software (Note: The support test does not apply for the earned income credit. Free 2006 tax software ) However, you agree to let your mother claim your son. Free 2006 tax software This means she can claim him for head of household filing status and the earned income credit if she qualifies for each and if you do not claim him as a qualifying child for the earned income credit. Free 2006 tax software (You cannot claim head of household filing status because your mother paid the entire cost of keeping up the home. Free 2006 tax software ) Example 2. Free 2006 tax software The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. Free 2006 tax software Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. Free 2006 tax software Example 3. Free 2006 tax software The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the earned income credit. Free 2006 tax software Your mother also claims him as a qualifying child for head of household filing status. Free 2006 tax software You, as the child's parent, will be the only one allowed to claim your son as a qualifying child for the earned income credit. Free 2006 tax software The IRS will disallow your mother's claim to the earned income credit and head of household filing status unless she has another qualifying child. Free 2006 tax software Phaseout of Exemptions The amount you can claim as a deduction for exemptions is reduced once your adjusted gross income (AGI) goes above a certain level for your filing status. Free 2006 tax software These levels are as follows:    Filing Status AGI Level That Reduces Exemption Amount Married filing separately $150,000 Single 250,000 Head of household 275,000 Married filing jointly 300,000 Qualifying widow(er) 300,000 You must reduce the dollar amount of your exemptions by 2% for each $2,500, or part of $2,500 ($1,250 if you are married filing separately), that your AGI exceeds the amount shown above for your filing status. Free 2006 tax software If your AGI exceeds the amount shown above by more than $122,500 ($61,250 if married filing separately), the amount of your deduction for exemptions is reduced to zero. Free 2006 tax software If your AGI exceeds the level for your filing status, use the Deduction for Exemptions Worksheet found in the instructions for Form 1040 or Form 1040NR to figure the amount of your deduction for exemptions. Free 2006 tax software Alimony Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. Free 2006 tax software It does not include voluntary payments that are not made under a divorce or separation instrument. Free 2006 tax software Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. Free 2006 tax software Although this discussion is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony. Free 2006 tax software To be alimony, a payment must meet certain requirements. Free 2006 tax software There are some differences between the requirements that apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. Free 2006 tax software The general requirements that apply to payments regardless of when the divorce or separation instrument was executed and the specific requirements that apply to post-1984 instruments (and, in certain cases, some pre-1985 instruments) are discussed in this publication. Free 2006 tax software See, Instruments Executed Before 1985 , later, if you are looking for information on where to find the specific requirements that apply to pre-1985 instruments. Free 2006 tax software Spouse or former spouse. Free 2006 tax software   Unless otherwise stated, the term “spouse” includes former spouse. Free 2006 tax software Divorce or separation instrument. Free 2006 tax software   The term “divorce or separation instrument” means: A decree of divorce or separate maintenance or a written instrument incident to that decree, A written separation agreement, or A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. Free 2006 tax software This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement). Free 2006 tax software Invalid decree. Free 2006 tax software   Payments under a divorce decree can be alimony even if the decree's validity is in question. Free 2006 tax software A divorce decree is valid for tax purposes until a court having proper jurisdiction holds it invalid. Free 2006 tax software Amended instrument. Free 2006 tax software   An amendment to a divorce decree may change the nature of your payments. Free 2006 tax software Amendments are not ordinarily retroactive for federal tax purposes. Free 2006 tax software However, a retroactive amendment to a divorce decree correcting a clerical error to reflect the original intent of the court will generally be effective retroactively for federal tax purposes. Free 2006 tax software Example 1. Free 2006 tax software A court order retroactively corrected a mathematical error under your divorce decree to express the original intent to spread the payments over more than 10 years. Free 2006 tax software This change also is effective retroactively for federal tax purposes. Free 2006 tax software Example 2. Free 2006 tax software Your original divorce decree did not fix any part of the payment as child support. Free 2006 tax software To reflect the true intention of the court, a court order retroactively corrected the error by designating a part of the payment as child support. Free 2006 tax software The amended order is effective retroactively for federal tax purposes. Free 2006 tax software Deducting alimony paid. Free 2006 tax software   You can deduct alimony you paid, whether or not you itemize deductions on your return. Free 2006 tax software You must file Form 1040. Free 2006 tax software You cannot use Form 1040A, 1040EZ, or 1040NR. Free 2006 tax software Enter the amount of alimony you paid on Form 1040, line 31a. Free 2006 tax software In the space provided on line 31b, enter your spouse's social security number (SSN) or IRS individual taxpayer identification number (ITIN). Free 2006 tax software If you paid alimony to more than one person, enter the SSN or ITIN of one of the recipients. Free 2006 tax software Show the SSN or ITIN and amount paid to each other recipient on an attached statement. Free 2006 tax software Enter your total payments on line 31a. Free 2006 tax software If you do not provide your spouse's SSN or ITIN, you may have to pay a $50 penalty and your deduction may be disallowed. Free 2006 tax software Reporting alimony received. Free 2006 tax software   Report alimony you received as income on Form 1040, line 11, or on Schedule NEC (Form 1040NR), line 12. Free 2006 tax software You cannot use Form 1040A, 1040EZ, or 1040NR-EZ. Free 2006 tax software    You must give the person who paid the alimony your SSN or ITIN. Free 2006 tax software If you do not, you may have to pay a $50 penalty. Free 2006 tax software Withholding on nonresident aliens. Free 2006 tax software   If you are a U. Free 2006 tax software S. Free 2006 tax software citizen or resident alien and you pay alimony to a nonresident alien spouse, you may have to withhold income tax at a rate of 30% on each payment. Free 2006 tax software However, many tax treaties provide for an exemption from withholding for alimony payments. Free 2006 tax software For more information, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Free 2006 tax software General Rules The following rules apply to alimony regardless of when the divorce or separation instrument was executed. Free 2006 tax software Payments not alimony. Free 2006 tax software   Not all payments under a divorce or separation instrument are alimony. Free 2006 tax software Alimony does not include: Child support, Noncash property settlements, Payments that are your spouse's part of community income, as explained later under Community Property , Payments to keep up the payer's property, or Use of the payer's property. Free 2006 tax software Example. Free 2006 tax software Under your written separation agreement, your spouse lives rent-free in a home you own and you must pay the mortgage, real estate taxes, insurance, repairs, and utilities for the home. Free 2006 tax software Because you own the home and the debts are yours, your payments for the mortgage, real estate taxes, insurance, and repairs are not alimony. Free 2006 tax software Neither is the value of your spouse's use of the home. Free 2006 tax software If they otherwise qualify, you can deduct the payments for utilities as alimony. Free 2006 tax software Your spouse must report them as income. Free 2006 tax software If you itemize deductions, you can deduct the real estate taxes and, if the home is a qualified home, you can also include the interest on the mortgage in figuring your deductible interest. Free 2006 tax software However, if your spouse owned the home, see Example 2 under Payments to a third party, later. Free 2006 tax software If you owned the home jointly with your spouse, see Table 4. Free 2006 tax software For more information on a qualified home and deductible mortgage interest, see Publication 936, Home Mortgage Interest Deduction. Free 2006 tax software Child support. Free 2006 tax software   To determine whether a payment is child support, see the discussion under Instruments Executed After 1984 , later. Free 2006 tax software If your divorce or separation agreement was executed before 1985, see the 2004 revision of Publication 504 available at www. Free 2006 tax software irs. Free 2006 tax software gov/formspubs. Free 2006 tax software Underpayment. Free 2006 tax software   If both alimony and child support payments are called for by your divorce or separation instrument, and you pay less than the total required, the payments apply first to child support and then to alimony. Free 2006 tax software Example. Free 2006 tax software Your divorce decree calls for you to pay your former spouse $200 a month ($2,400 ($200 x 12) a year) as child support and $150 a month ($1,800 ($150 x 12) a year) as alimony. Free 2006 tax software If you pay the full amount of $4,200 ($2,400 + $1,800) during the year, you can deduct $1,800 as alimony and your former spouse must report $1,800 as alimony received. Free 2006 tax software If you pay only $3,600 during the year, $2,400 is child support. Free 2006 tax software You can deduct only $1,200 ($3,600 – $2,400) as alimony and your former spouse must report $1,200 as alimony received. Free 2006 tax software Payments to a third party. Free 2006 tax software   Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. Free 2006 tax software These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc. Free 2006 tax software ), taxes, tuition, etc. Free 2006 tax software The payments are treated as received by your spouse and then paid to the third party. Free 2006 tax software Example 1. Free 2006 tax software Under your divorce decree, you must pay your former spouse's medical and dental expenses. Free 2006 tax software If the payments otherwise qualify, you can deduct them as alimony on your return. Free 2006 tax software Your former spouse must report them as alimony received and can include them in figuring deductible medical expenses. Free 2006 tax software Example 2. Free 2006 tax software Under your separation agreement, you must pay the real estate taxes, mortgage payments, and insurance premiums on a home owned by your spouse. Free 2006 tax software If they otherwise qualify, you can deduct the payments as alimony on your return, and your spouse must report them as alimony received. Free 2006 tax software If itemizing deductions, your spouse can deduct the real estate taxes and, if the home is a qualified home, also include the interest on the mortgage in figuring deductible interest. Free 2006 tax software However, if you owned the home, see the example under Payments not alimony , earlier. Free 2006 tax software If you owned the home jointly with your spouse, see Table 4. Free 2006 tax software Life insurance premiums. Free 2006 tax software   Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy. Free 2006 tax software Payments for jointly-owned home. Free 2006 tax software   If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse or former spouse, some of your payments may be alimony. Free 2006 tax software See Table 4. Free 2006 tax software   However, if your spouse owned the home, see Example 2 under Payments to a third party, earlier. Free 2006 tax software If you owned the home, see the example under Payments not alimony , earlier. Free 2006 tax software Table 4. Free 2006 tax software Expenses for a Jointly-Owned Home Use the table below to find how much of your payment is alimony and how much you can claim as an itemized deduction. Free 2006 tax software IF you must pay all of the . Free 2006 tax software . Free 2006 tax software . Free 2006 tax software AND your home is . Free 2006 tax software . Free 2006 tax software . Free 2006 tax software THEN you can deduct and your spouse (or former spouse) must include as alimony . Free 2006 tax software . Free 2006 tax software . Free 2006 tax software AND you can claim as an itemized deduction . Free 2006 tax software . Free 2006 tax software . Free 2006 tax software   mortgage payments (principal and interest) jointly owned half of the total payments half of the interest as interest expense (if the home is a qualified home). Free 2006 tax software 1   real estate taxes and home insurance held as tenants in common half of the total payments half of the real estate taxes2 and none of the home insurance. Free 2006 tax software     held as tenants by the entirety or in joint tenancy none of the payments all of the real estate taxes and none of the home insurance. Free 2006 tax software 1 Your spouse (or former spouse) can deduct the other half of the interest if the home is a qualified home. Free 2006 tax software  2 Your spouse (or former spouse) can deduct the other half of the real estate taxes. Free 2006 tax software Instruments Executed After 1984 The following rules for alimony apply to payments under divorce or separation instruments executed after 1984. Free 2006 tax software Exception for instruments executed before 1985. Free 2006 tax software   There are two situations where the rules for instruments executed after 1984 apply to instruments executed before 1985. Free 2006 tax software A divorce or separation instrument executed before 1985 and then modified after 1984 to specify that the after-1984 rules will apply. Free 2006 tax software A temporary divorce or separation instrument executed before 1985 and incorporated into, or adopted by, a final decree executed after 1984 that: Changes the amount or period of payment, or Adds or deletes any contingency or condition. Free 2006 tax software   For the rules for alimony payments under pre-1985 instruments not meeting these exceptions, see the 2004 revision of Publication 504 available at www. Free 2006 tax software irs. Free 2006 tax software gov/formspubs. Free 2006 tax software Example 1. Free 2006 tax software In November 1984, you and your former spouse executed a written separation agreement. Free 2006 tax software In February 1985, a decree of divorce was substituted for the written separation agreement. Free 2006 tax software The decree of divorce did not change the terms for the alimony you pay your former spouse. Free 2006 tax software The decree of divorce is treated as executed before 1985. Free 2006 tax software Alimony payments under this decree are not subject to the rules for payments under instruments executed after 1984. Free 2006 tax software Example 2. Free 2006 tax software The facts are the same as in Example 1 except that the decree of divorce changed the amount of the alimony. Free 2006 tax software In this example, the decree of divorce is not treated as executed before 1985. Free 2006 tax software The alimony payments are subject to the rules for payments under instruments executed after 1984. Free 2006 tax software Alimony Requirements A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met. Free 2006 tax software The payment is in cash. Free 2006 tax software The instrument does not designate the payment as not alimony. Free 2006 tax software The spouses are not members of the same household at the time the payments are made. Free 2006 tax software This requirement applies only if the spouses are legally separated under a decree of divorce or separate maintenance. Free 2006 tax software There is no liability to make any payment (in cash or property) after the death of the recipient spouse. Free 2006 tax software The payment is not treated as child support. Free 2006 tax software Each of these requirements is discussed next. Free 2006 tax software Cash payment requirement. Free 2006 tax software   Only cash payments, including checks and money orders, qualify as alimony. Free 2006 tax software The following do not qualify as alimony. Free 2006 tax software Transfers of services or property (including a debt instrument of a third party or an annuity contract). Free 2006 tax software Execution of a debt instrument by the payer. Free 2006 tax software The use of the payer's property. Free 2006 tax software Payments to a third party. Free 2006 tax software   Cash payments to a third party under the terms of your divorce or separation instrument can qualify as cash payments to your spouse. Free 2006 tax software See Payments to a third party under General Rules, earlier. Free 2006 tax software   Also, cash payments made to a third party at the written request of your spouse may qualify as alimony if all the following requirements are met. Free 2006 tax software The payments are in lieu of payments of alimony directly to your spouse. Free 2006 tax software The written request states that both spouses intend the payments to be treated as alimony. Free 2006 tax software You receive the written request from your spouse before you file your return for the year you made the payments. Free 2006 tax software Payments designated as not alimony. Free 2006 tax software   You and your spouse can designate that otherwise qualifying payments are not alimony. Free 2006 tax software You do this by including a provision in your divorce or separation instrument that states the payments are not deductible as alimony by you and are excludable from your spouse's income. Free 2006 tax software For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). Free 2006 tax software If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order. Free 2006 tax software   Your spouse can exclude the payments from income only if he or she attaches a copy of the instrument designating them as not alimony to his or her return. Free 2006 tax software The copy must be attached each year the designation applies. Free 2006 tax software Spouses cannot be members of the same household. Free 2006 tax software   Payments to your spouse while you are members of the same household are not alimony if you are legally separated under a decree of divorce or separate maintenance. Free 2006 tax software A home you formerly shared is considered one household, even if you physically separate yourselves in the home. Free 2006 tax software   You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment. Free 2006 tax software Exception. Free 2006 tax software   If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if you are members of the same household when the payment is made. Free 2006 tax software Liability for payments after death of recipient spouse. Free 2006 tax software   If any part of payments you make must continue to be made for any period after your spouse's death, that part of your payments is not alimony whether made before or after the death. Free 2006 tax software If all of the payments would continue, then none of the payments made before or after the death are alimony. Free 2006 tax software   The divorce or separation instrument does not have to expressly state that the payments cease upon the
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The Internet gives you easy access to information, entertainment, financial offers and countless other services. The flip-side, however, is that it can leave you vulnerable to online scammers, identity thieves, and criminals. To guard against Internet fraud, follow the tips below:

Know your seller. If you don't, do some research.

  • Company websites often provide information in a section called "About Us". Some online sellers participate in programs, such as BBBOnLine, that help resolve problems. Look for a logo or endorsement seal on the company website. This is an indication, but not a guarantee, of the seller's reliability.
  • Check with state and/or local consumer offices.
  • Another way to check online sellers is to look for other consumers' comments. Visit Bizrate, where consumers rate online stores. Some Internet auction sites post ratings of sellers based on comments by buyers. This information may give you some idea of how you'll be treated, but beware of too many glowing stories that might have ben placed by sellers themselves.

Protect your personal information. Don't provide it in response to an e-mail, a pop-up, or a website you've linked to from an e-mail or web page.

  • Take your time and resist any urge to "act now" to keep your account open or take advantage of a special offer.
  • Use anti-virus and anti-spyware software, as well as a firewall, and update them all regularly. Make sure your operating system and web browser are set up properly and update them regularly as well.
  • Protect your passwords. Don't share your passwords with anyone. Memorize them.
  • Back up important files. Copy them onto another computer or a removable hard drive such as a flash memory stick. When you spill coffee on your laptop or if your computer stops working, you'll be glad you did.

Learn who to contact if something goes wrong online. Report suspected fraud to your bank, credit card company or relevant authority.

The FTC provides tips to help secure your computer, guard against Internet fraud, and protect your personal information. Visit OnGuardOnline for more information. To keep up to date with the latest computer threats, signup for alerts from the Department of Homeland Security.

Social Networking Privacy

Social networking sites such as Facebook, Twitter, LinkedIn, craigslist, and others continue to gain popularity. These sites make it easy to re-connect, stay in touch, and even do business. But recent reports involving privacy concerns and crimes should make you more careful about the information they share. Some tips to consider to protect your privacy and safety include:

  • Make your contact information private.
  • Limit who can search for your profile on Internet search engines.
  • Manage who can view your images; untag photos if necessary.
  • Create seperate lists to manage who can see information you've posted.
  • Be careful about who can see your status updates.
  • Refrain from telling people where you are at any specific time.
  • Be cautious about arranging meetings in person with online acquaintances.

For more information go to:

Beware: Scareware

If you’ve ever received a “security alert” stating that malicious software was found on your computer it may have been scareware. These messages will persuade you that your computer is infected with a virus that you can only eliminate by purchasing and installing specific software. Don’t follow that advice; shut down your browser without clicking in the message. If you believe that your computer is infected, you should run a scan using a known anti-virus software. For more information about scareware and protecting your computer, visit Onguard Online.

The Free 2006 Tax Software

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