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Online Turbotax 2011

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Online Turbotax 2011

Online turbotax 2011 5. Online turbotax 2011   Student Loan Cancellations and Repayment Assistance Table of Contents Introduction Student Loan CancellationQualifying Loans Student Loan Repayment Assistance Introduction Generally, if you are responsible for making loan payments, and the loan is canceled (forgiven), you must include the amount that was forgiven in your gross income for tax purposes. Online turbotax 2011 However, if you fulfill certain requirements, two types of student loan assistance may be tax free. Online turbotax 2011 The types of assistance discussed in this chapter are: Student loan cancellation, and Student loan repayment assistance. Online turbotax 2011 Student Loan Cancellation If your student loan is canceled, you may not have to include any amount in income. Online turbotax 2011 This section describes the requirements for tax-free treatment of canceled student loans. Online turbotax 2011 Qualifying Loans To qualify for tax-free treatment, for the cancellation of your loan, your loan must have been made by a qualified lender to assist you in attending an eligible educational institution and contain a provision that all or part of the debt will be canceled if you work: For a certain period of time, In certain professions, and For any of a broad class of employers. Online turbotax 2011 The cancellation of your loan will not qualify for tax-free treatment if it is cancelled because of services you performed for the educational institution that made the loan or other organization that provided the funds. Online turbotax 2011 See Exception, later. Online turbotax 2011 Eligible educational institution. Online turbotax 2011   This is an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Online turbotax 2011 Qualified lenders. Online turbotax 2011   These include the following. Online turbotax 2011 The United States, or an instrumentality thereof. Online turbotax 2011 A state, territory, or possession of the United States, or the District of Columbia, or any political subdivision thereof. Online turbotax 2011 A public benefit corporation that is tax-exempt under section 501(c)(3); and that has assumed control of a state, county, or municipal hospital; and whose employees are considered public employees under state law. Online turbotax 2011 An eligible educational institution, if the loan is made: As part of an agreement with an entity described in (1), (2), (3) under which the funds to make the loan were provided to the educational institution, or Under a program of the educational institution that is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs where the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt section 501(c)(3) organization. Online turbotax 2011   Occupations with unmet needs include medicine, nursing, teaching, and law. Online turbotax 2011 Section 501(c)(3) organization. Online turbotax 2011   This is any corporation, community chest, fund, or foundation organized and operated exclusively for one or more of the following purposes. Online turbotax 2011 Charitable. Online turbotax 2011 Religious. Online turbotax 2011 Educational. Online turbotax 2011 Scientific. Online turbotax 2011 Literary. Online turbotax 2011 Testing for public safety. Online turbotax 2011 Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment). Online turbotax 2011 The prevention of cruelty to children or animals. Online turbotax 2011 Exception. Online turbotax 2011   The cancellation of your loan does not qualify as tax-free student loan cancellation if your student loan was made by an educational institution and is canceled because of services you performed for the educational institution or other organization that provided the funds. Online turbotax 2011 Refinanced Loan If you refinanced a student loan with another loan from an eligible educational institution or a tax-exempt organization, that loan may also be considered as made by a qualified lender. Online turbotax 2011 The refinanced loan is considered made by a qualified lender if it is made under a program of the refinancing organization that is designed to encourage students to serve in occupations with unmet needs or in areas with unmet needs where the services required of the students are for or under the direction of a governmental unit or a tax-exempt section 501(c)(3) organization. Online turbotax 2011 Student Loan Repayment Assistance Student loan repayments made to you are tax free if you received them for any of the following: The National Health Service Corps (NHSC) Loan Repayment Program (NHSC Loan Repayment Program). Online turbotax 2011 A state education loan repayment program eligible for funds under the Public Health Service Act. Online turbotax 2011 Any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in under served or health professional shortage areas (as determined by such state). Online turbotax 2011 You cannot deduct the interest you paid on a student loan to the extent payments were made through your participation in the above programs. Online turbotax 2011 Prev  Up  Next   Home   More Online Publications
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The Online Turbotax 2011

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