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Tax Deductions

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Tax Deductions

Tax deductions Part Three -   Quarterly Filing Information Table of Contents 12. Tax deductions   Filing Form 720Attachments to Form 720. Tax deductions Conditions to allowance. Tax deductions 13. Tax deductions   Payment of TaxesHow To Make Deposits When To Make Deposits Amount of DepositsSafe Harbor Rule 14. Tax deductions   Penalties and Interest 15. Tax deductions   Examination and Appeal Procedures 16. Tax deductions   Rulings Program 17. Tax deductions   How To Get Tax Help 18. Tax deductions   Appendix Prev  Up  Next   Home   More Online Publications
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Tax deductions Depreciation Table of Contents Introduction Special Depreciation AllowanceQualified Property Election Not To Claim the Allowance Rules for Returns Filed Before June 1, 2002 Passenger Automobiles New York Liberty Zone BenefitsSpecial Liberty Zone Depreciation Allowance Increased Section 179 Deduction Liberty Zone Leasehold Improvement Property If you depreciate business property that you acquired and placed in service after September 10, 2001, new law contains provisions that may affect your depreciation deduction for that property. Tax deductions Publication 946, How To Depreciate Property, contains information on depreciation. Tax deductions However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. Tax deductions The new provisions are in the Supplement to Publication 946, which is reprinted below. Tax deductions Supplement to Publication 946 How To Depreciate Property   Introduction After Publication 946 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. Tax deductions The new law made several changes in the tax rules explained in the publication. Tax deductions Some of the changes apply to property placed in service during 2001. Tax deductions This supplemental publication describes those changes and explains what you should do if you are affected by them. Tax deductions The situations and examples in Publication 946 do not reflect any of the changes made by the Job Creation and Worker Assistance Act of 2002. Tax deductions The new law contains the following provisions. Tax deductions 30% depreciation deductions (special depreciation allowance and special New York Liberty Zone (Liberty Zone) depreciation allowance) for the year qualified property is placed in service after September 10, 2001. Tax deductions An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. Tax deductions A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. Tax deductions An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. Tax deductions If you believe you qualify for an increased deduction under any of these new rules, you must file the revised 2001 Form 4562 (dated March 2002) for 2001 calendar or fiscal years and 2000 fiscal years ending after September 10, 2001. Tax deductions If you have already filed a tax return, this supplemental publication explains how to claim these benefits and how to elect not to claim the special depreciation allowance or special Liberty Zone depreciation allowance. Tax deductions See Table 2 at the end of the supplement for an overview of the rules that apply if you filed your return before June 1, 2002. Tax deductions Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. Tax deductions The allowance is an additional deduction of 30% of the property's depreciable basis. Tax deductions To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Tax deductions See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Tax deductions The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Tax deductions There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Tax deductions In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Tax deductions Example 1. Tax deductions On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. Tax deductions You did not elect to claim a section 179 deduction. Tax deductions You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. Tax deductions You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. Tax deductions Example 2. Tax deductions The facts are the same as in Example 1, except that you choose to deduct $24,000 of the property's cost as a section 179 deduction. Tax deductions You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). Tax deductions You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. Tax deductions Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. Tax deductions It is new property of one of the following types. Tax deductions Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Tax deductions See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Tax deductions Water utility property. Tax deductions See 25-year property on page 22 in Publication 946. Tax deductions Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Tax deductions (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Tax deductions ) Qualified leasehold improvement property (defined later). Tax deductions It meets the following tests (explained later under Tests To Be Met). Tax deductions Acquisition date test. Tax deductions Placed in service date test. Tax deductions Original use test. Tax deductions It is not excepted property (explained later under Excepted Property). Tax deductions Qualified leasehold improvement property. Tax deductions    Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the following requirements are met. Tax deductions The improvement is made under or pursuant to a lease by the lessee (or any sublessee) or the lessor of that part of the building. Tax deductions That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. Tax deductions The improvement is placed in service more than 3 years after the date the building was first placed in service. Tax deductions   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. Tax deductions The enlargement of the building. Tax deductions Any elevator or escalator. Tax deductions Any structural component benefiting a common area. Tax deductions The internal structural framework of the building. Tax deductions   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. Tax deductions However, a binding commitment between related persons is not treated as a lease. Tax deductions Related persons. Tax deductions   For this purpose, the following are related persons. Tax deductions Members of an affiliated group. Tax deductions The persons listed in items (1) through (9) under Related persons on page 8 of Publication 946 (except that “80% or more” should be substituted for “more than 10%” each place it appears). Tax deductions An executor and a beneficiary of the same estate. Tax deductions Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. Tax deductions Acquisition date test. Tax deductions    Generally, you must have acquired the property either: After September 10, 2001, and before September 11, 2004, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or Pursuant to a written binding contract entered into after September 10, 2001, and before September 11, 2004. Tax deductions   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001, and before September 11, 2004. Tax deductions Placed in service date test. Tax deductions   Generally, the property must be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. Tax deductions   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Tax deductions Original use test. Tax deductions   The original use of the property must have begun with you after September 10, 2001. Tax deductions “Original use” means the first use to which the property is put, whether or not by you. Tax deductions Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. Tax deductions Excepted Property The following property does not qualify for the special depreciation allowance. Tax deductions Property used by any person before September 11, 2001. Tax deductions Property required to be depreciated using ADS. Tax deductions This includes listed property used 50% or less in a qualified business use. Tax deductions Qualified New York Liberty Zone leasehold improvement property (defined next). Tax deductions Qualified New York Liberty Zone leasehold improvement property. Tax deductions   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. Tax deductions The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). Tax deductions The improvement is placed in service after September 10, 2001, and before January 1, 2007. Tax deductions No written binding contract for the improvement was in effect before September 11, 2001. Tax deductions Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. Tax deductions If you make this election for any property, it applies to all property in the same property class placed in service during the year. Tax deductions To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Tax deductions When to make election. Tax deductions   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Tax deductions   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Tax deductions Attach the election statement to the amended return. Tax deductions At the top of the election statement, write “Filed pursuant to section 301. Tax deductions 9100–2. Tax deductions ” Revoking an election. Tax deductions   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Tax deductions A request to revoke the election is subject to a user fee. Tax deductions Rules for Returns Filed Before June 1, 2002 The following rules apply if you placed qualified property in service after September 10, 2001, and filed your return before June 1, 2002. Tax deductions The rules apply to returns for the following years. Tax deductions 2000 fiscal years that end after September 10, 2001. Tax deductions 2001 calendar and fiscal years. Tax deductions Claiming the allowance. Tax deductions   If you did not claim the allowance on your return and did not make the election not to claim the allowance, you can do either of the following to claim the allowance. Tax deductions File an amended return by the due date (not including extensions) of your return for the year following the year the property was placed in service. Tax deductions Write “Filed Pursuant to Rev. Tax deductions Proc. Tax deductions 2002–33” at the top of the amended return. Tax deductions File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. Tax deductions Your return must be filed by the due date (including extensions). Tax deductions Write “Automatic Change Filed Under Rev. Tax deductions Proc. Tax deductions 2002–33” on the appropriate line of Form 3115. Tax deductions You must also file a copy (with signature) of the completed Form 3115 with the IRS National Office no later than when you file the original with your return. Tax deductions For more information about filing Form 3115, including the address to send it to, see Revenue Procedure 2002–9, Revenue Procedure 2002–19, and Revenue Procedure 2002–33. Tax deductions Example 1. Tax deductions You are an individual and you use the calendar year. Tax deductions You placed qualified property in service for your business in December 2001. Tax deductions You filed your 2001 income tax return before April 15, 2002. Tax deductions You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. Tax deductions You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. Tax deductions Proc. Tax deductions 2002–33” at the top of the amended return. Tax deductions You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. Tax deductions Example 2. Tax deductions The facts concerning your 2001 return are the same as in Example 1. Tax deductions In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. Tax deductions You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. Tax deductions Proc. Tax deductions 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. Tax deductions You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. Tax deductions Electing not to claim the allowance. Tax deductions   Generally, you have elected not to claim the special depreciation allowance for a class of property if you: Filed your return timely (including extensions) for the year you placed qualified property in service and indicated on a statement with the return that you are not claiming the allowance, or Filed your return timely and filed an amended return within 6 months of the due date of the original return (not including extensions) and indicated on a statement with the amended return that you are not claiming the allowance. Tax deductions The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. Tax deductions The statement can be either attached to or written on the return. Tax deductions You can, for example, write “not deducting 30%” on Form 4562. Tax deductions Deemed election. Tax deductions   If you have not followed either of the procedures described above to elect not to claim the allowance, you may still be treated as making the election. Tax deductions You will be treated as making the election if you meet both of the following conditions. Tax deductions You filed your return for the year you placed the property in service and claimed depreciation, but not the special allowance, for any class of property. Tax deductions You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. Tax deductions See Claiming the allowance, earlier. Tax deductions Passenger Automobiles The limit on your depreciation deduction (including any section 179 deduction) for any passenger automobile that is qualified property (defined earlier) placed in service after September 10, 2001, and for which you claim the special depreciation allowance is increased. Tax deductions Generally, the limit is increased from $3,060 to $7,660. Tax deductions However, if the automobile is a qualified electric car, the limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002). Tax deductions Table 1 shows the maximum deduction amounts for 2001. Tax deductions Table 1. Tax deductions Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. Tax deductions 11 Placed in Service After Sept. Tax deductions 10 Passenger automobile $3,060 $7,660 Electric car 9,280 23,080 1 1$22,980 if you place an electric car in service in 2002. Tax deductions Election not to claim the allowance. Tax deductions   The increased maximum depreciation deduction does not apply if you elected not to claim the special depreciation allowance as explained earlier under Election Not To Claim the Allowance and Rules for Returns Filed Before June 1, 2002. Tax deductions New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). Tax deductions They include a special depreciation allowance for the year you place the property in service, an increased section 179 deduction, and the classification of certain leasehold improvement property as 5-year property. Tax deductions Area defined. Tax deductions   The New York Liberty Zone is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York. Tax deductions Special Liberty Zone Depreciation Allowance You can take a special depreciation allowance for qualified Liberty Zone property you place in service after September 10, 2001. Tax deductions The allowance is an additional deduction of 30% of the property's depreciable basis. Tax deductions To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Tax deductions See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Tax deductions The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Tax deductions There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Tax deductions In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Tax deductions You cannot claim the special Liberty Zone depreciation allowance for property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Tax deductions Qualified property is eligible for only one special depreciation allowance. Tax deductions Example 1. Tax deductions On November 1, 2001, you bought and placed in service in your business, which is in the Liberty Zone, qualified Liberty Zone property that cost $200,000. Tax deductions You did not elect to claim a section 179 deduction. Tax deductions You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. Tax deductions You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. Tax deductions Example 2. Tax deductions The facts are the same as in Example 1, except that you choose to deduct $59,000 of the property's cost as a section 179 deduction. Tax deductions (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). Tax deductions You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). Tax deductions You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. Tax deductions Qualified Liberty Zone Property For a 2001 calendar or fiscal year and a 2000 fiscal year that ends after September 10, 2001, property qualifies for the special Liberty Zone depreciation allowance if it meets the following requirements. Tax deductions It is one of the following types of property. Tax deductions Used property depreciated under MACRS with a recovery period of 20 years or less. Tax deductions See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Tax deductions Used water utility property. Tax deductions See 25-year property on page 22 in Publication 946. Tax deductions Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Tax deductions (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Tax deductions ) Certain nonresidential real property and residential rental property (defined later). Tax deductions It meets the following tests (explained later under Tests to be met). Tax deductions Acquisition date test. Tax deductions Placed in service date test. Tax deductions Substantial use test. Tax deductions Original use test. Tax deductions It is not excepted property (explained later under Excepted property). Tax deductions Nonresidential real property and residential rental property. Tax deductions   This property is qualifying property only to the extent it rehabilitates real property damaged, or replaces real property destroyed or condemned, as a result of the terrorist attack of September 11, 2001. Tax deductions Property is treated as replacing destroyed or condemned property if, as part of an integrated plan, such property replaces real property included in a continuous area that includes real property destroyed or condemned. Tax deductions   For these purposes, real property is considered destroyed (or condemned) only if an entire building or structure was destroyed (or condemned) as a result of the terrorist attack. Tax deductions Otherwise, the property is considered damaged real property. Tax deductions For example, if certain structural components of a building (such as walls, floors, or plumbing fixtures) are damaged or destroyed as a result of the terrorist attack, but the building is not destroyed (or condemned), then only costs related to replacing the damaged or destroyed structural components qualify for the special Liberty Zone depreciation allowance. Tax deductions Tests to be met. Tax deductions   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. Tax deductions Acquisition date test. Tax deductions   You must have acquired the property by purchase after September 10, 2001, and there must not have been a binding written contract for the acquisition in effect before September 11, 2001. Tax deductions   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. Tax deductions   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001. Tax deductions Placed in service date test. Tax deductions   Generally, the property must be placed in service for use in your trade or business or for the production of income before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property). Tax deductions   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Tax deductions Substantial use test. Tax deductions   Substantially all use of the property must be in the Liberty Zone and in the active conduct of your trade or business in the Liberty Zone. Tax deductions Original use test. Tax deductions   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. Tax deductions   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. Tax deductions Also, additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test if the original use of the property in the Liberty Zone began with you. Tax deductions Excepted property. Tax deductions   The following property does not qualify for the special Liberty Zone depreciation allowance. Tax deductions Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Tax deductions Property required to be depreciated using ADS. Tax deductions This includes listed property used 50% or less in a qualified business use. Tax deductions Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). Tax deductions Example. Tax deductions In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. Tax deductions New office furniture with a MACRS recovery period of 7 years. Tax deductions A used computer with a MACRS recovery period of 5 years. Tax deductions The computer had not previously been used within the Liberty Zone. Tax deductions Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. Tax deductions Because the computer is used property that had not previously been used in the Liberty Zone, it qualifies for the special Liberty Zone depreciation allowance, but not the special depreciation allowance. Tax deductions Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. Tax deductions If you make this election for any property, it applies to all property in the same property class placed in service during the year. Tax deductions To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Tax deductions When to make the election. Tax deductions   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Tax deductions   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Tax deductions Attach the election statement to the amended return. Tax deductions At the top of the election statement, write “Filed pursuant to section 301. Tax deductions 9100–2. Tax deductions ” Revoking an election. Tax deductions   Once you elect not to deduct the special Liberty Zone depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Tax deductions A request to revoke the election is subject to a user fee. Tax deductions Returns filed before June 1, 2002. Tax deductions   The rules that apply to the special depreciation allowance discussed earlier in Rules for Returns Filed Before June 1, 2002 under Special Depreciation Allowance also apply to the special Liberty Zone depreciation allowance. Tax deductions Increased Section 179 Deduction Under section 179 of the Internal Revenue Code, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Tax deductions For tax years beginning in 2000, that limit was $20,000. Tax deductions For tax years beginning in 2001 and 2002, that limit is generally $24,000. Tax deductions If the cost of qualifying section 179 property placed in service in a year is over $200,000, you must reduce the dollar limit (but not below zero) by the amount of the cost over $200,000. Tax deductions Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. Tax deductions The increase is the smaller of the following amounts. Tax deductions $35,000. Tax deductions The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. Tax deductions If you use the revised 2001 Form 4562 (dated March 2002) for a tax year beginning in 2000, you must reduce the section 179 dollar limit to $20,000 before adding the additional amount for qualified property. Tax deductions Qualified property. Tax deductions   To qualify for the increased section 179 deduction, your property must be section 179 property that is either: Qualified Liberty Zone property, or Property that would be qualified Liberty Zone property except that it is eligible for the special depreciation allowance. Tax deductions Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. Tax deductions Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. Tax deductions For information on the requirements that must be met for property to qualify for the section 179 deduction, see What Property Qualifies? on page 14 of Publication 946. Tax deductions Example 1. Tax deductions In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. Tax deductions Because this cost is less than $35,000, the dollar limit on the section 179 deduction is increased by $25,000 to $49,000 ($24,000 + $25,000). Tax deductions Example 2. Tax deductions In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. Tax deductions Because $35,000 is less than the cost of the property you place in service, the dollar limit on the section 179 deduction you can claim is increased by $35,000 to $59,000 ($24,000 + $35,000). Tax deductions Reduced Dollar Limit Generally, you must reduce the dollar limit for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. Tax deductions However, if the cost of your Liberty Zone property exceeds $200,000, you take into account only 50% (instead of 100%) of the cost of qualified property placed in service in a year. Tax deductions Example. Tax deductions In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. Tax deductions Your increased dollar limit is $59,000 ($35,000 + $24,000). Tax deductions Because 50% of the cost of the property you place in service ($230,000) is $30,000 more than $200,000, you must reduce your $59,000 dollar limit to $29,000 ($59,000 - $30,000). Tax deductions Recapture Rules Rules similar to those explained on page 20 of Publication 946 under When Must You Recapture the Deduction? apply with respect to any qualified property you stop using in the Liberty Zone. Tax deductions Returns Filed Before June 1, 2002 If you filed a return before June 1, 2002, and did not deduct the increased section 179 amount for qualified property placed in service after September 10, 2001, you can deduct the increased amount by filing an amended return by the due date (not including extensions) of the return for the year after the year the property was placed in service. Tax deductions This rule applies to returns for the following years. Tax deductions 2000 fiscal years that end after September 10, 2001. Tax deductions 2001 calendar and fiscal years. Tax deductions On the amended return, write “Filed Pursuant to Rev. Tax deductions Proc. Tax deductions 2002–33. Tax deductions ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. Tax deductions This means that it is depreciated over a recovery period of 5 years. Tax deductions For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. Tax deductions The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. Tax deductions Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. Tax deductions Returns Filed Before June 1, 2002 If you filed either of the following returns before June 1, 2002, and did not depreciate qualified Liberty Zone leasehold improvement property placed in service during the tax year as 5-year property using the straight line method, you should file an amended return before you file your return for the year after the year the property was placed in service. Tax deductions Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). Tax deductions Your 2001 calendar or fiscal year return. Tax deductions On the amended return, write “Filed Pursuant to Rev. Tax deductions Proc. Tax deductions 2002–33. Tax deductions ” Table 2. Tax deductions Rules for Returns Filed Before June 1, 2002 Note:This chart highlights the rules for returns affected by the Job Creation and Worker Assistance Act of 2002 that were filed before June 1, 2002, without accounting for any of the new benefits under the law. Tax deductions See the text for definitions and examples. Tax deductions Do not rely on this chart alone. Tax deductions IF you want to. Tax deductions . Tax deductions . Tax deductions THEN you. Tax deductions . Tax deductions . Tax deductions BY. Tax deductions . Tax deductions . Tax deductions claim the special depreciation allowance or special Liberty Zone depreciation allowance • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service, or • must file Form 3115, Application for Change in Accounting Method, with your return for the year after the year the property was placed in service • the due date (including extensions) of your return for the year after the year the property was placed in service, and • must file a copy of your completed Form 3115 with the IRS National Office • the date you file the original Form 3115 with your return for the year after the year the property was placed in service. Tax deductions elect not to claim the special depreciation allowance or the special Liberty Zone depreciation allowance 1 • must have filed your return timely for the year the property was placed in service, and   • must file an amended return stating you are not claiming the allowance • the date that is 6 months after the due date of the original return (not including extensions). Tax deductions deduct the increased section 179 amount • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service. Tax deductions use a 5-year recovery period for depreciating qualified Liberty Zone leasehold improvement property • should file an amended return • the date you file your return for the year after the year the property was placed in service. Tax deductions 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. Tax deductions Prev  Up  Next   Home   More Online Publications