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W2 Book For 1040ez

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W2 Book For 1040ez

W2 book for 1040ez 3. W2 book for 1040ez   Personal Exemptions and Dependents Table of Contents What's New Introduction Useful Items - You may want to see: ExemptionsPersonal Exemptions Exemptions for Dependents Qualifying Child Qualifying Relative Phaseout of Exemptions Social Security Numbers for DependentsBorn and died in 2013. W2 book for 1040ez Taxpayer identification numbers for aliens. W2 book for 1040ez Taxpayer identification numbers for adoptees. W2 book for 1040ez What's New Exemption amount. W2 book for 1040ez  The amount you can deduct for each exemption has increased. W2 book for 1040ez It was $3,800 for 2012. W2 book for 1040ez It is $3,900 for 2013. W2 book for 1040ez Exemption phaseout. W2 book for 1040ez  You lose at least part of the benefit of your exemptions if your adjusted gross income is more than a certain amount. W2 book for 1040ez For 2013, this amount is $150,000 for a married individual filing a separate return; $250,000 for a single individual; $275,000 for a head of household; and $300,000 for married individuals filing jointly or a qualifying widow(er). W2 book for 1040ez See Phaseout of Exemptions , later. W2 book for 1040ez Introduction This chapter discusses the following topics. W2 book for 1040ez Personal exemptions — You generally can take one for yourself and, if you are married, one for your spouse. W2 book for 1040ez Exemptions for dependents — You generally can take an exemption for each of your dependents. W2 book for 1040ez A dependent is your qualifying child or qualifying relative. W2 book for 1040ez If you are entitled to claim an exemption for a dependent, that dependent cannot claim a personal exemption on his or her own tax return. W2 book for 1040ez Phaseout of exemptions — Your deduction is reduced if your adjusted gross income is more than a certain amount. W2 book for 1040ez Social security number (SSN) requirement for dependents — You must list the SSN of any dependent for whom you claim an exemption. W2 book for 1040ez Deduction. W2 book for 1040ez   Exemptions reduce your taxable income. W2 book for 1040ez You can deduct $3,900 for each exemption you claim in 2013. W2 book for 1040ez But you may lose at least part of the dollar amount of your exemptions if your adjusted gross income is more than a certain amount. W2 book for 1040ez See Phaseout of Exemptions , later. W2 book for 1040ez How to claim exemptions. W2 book for 1040ez    How you claim an exemption on your tax return depends on which form you file. W2 book for 1040ez    If you file Form 1040EZ, the exemption amount is combined with the standard deduction amount and entered on line 5. W2 book for 1040ez    If you file Form 1040A, complete lines 6a through 6d. W2 book for 1040ez The total number of exemptions you can claim is the total in the box on line 6d. W2 book for 1040ez Also complete line 26. W2 book for 1040ez   If you file Form 1040, complete lines 6a through 6d. W2 book for 1040ez The total number of exemptions you can claim is the total in the box on line 6d. W2 book for 1040ez Also complete line 42. W2 book for 1040ez Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information Form (and Instructions) 2120 Multiple Support Declaration 8332 Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent Exemptions There are two types of exemptions you may be able to take: Personal exemptions for yourself and your spouse, and Exemptions for dependents (dependency exemptions). W2 book for 1040ez While each is worth the same amount ($3,900 for 2013), different rules apply to each type. W2 book for 1040ez Personal Exemptions You are generally allowed one exemption for yourself. W2 book for 1040ez If you are married, you may be allowed one exemption for your spouse. W2 book for 1040ez These are called personal exemptions. W2 book for 1040ez Your Own Exemption You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. W2 book for 1040ez If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself even if the other taxpayer does not actually claim you as a dependent. W2 book for 1040ez Your Spouse's Exemption Your spouse is never considered your dependent. W2 book for 1040ez Joint return. W2 book for 1040ez   On a joint return you can claim one exemption for yourself and one for your spouse. W2 book for 1040ez Separate return. W2 book for 1040ez   If you file a separate return, you can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. W2 book for 1040ez This is true even if the other taxpayer does not actually claim your spouse as a dependent. W2 book for 1040ez You can claim an exemption for your spouse even if he or she is a nonresident alien; in that case, your spouse must have no gross income for U. W2 book for 1040ez S. W2 book for 1040ez tax purposes, must not be filing a return, and must not be the dependent of another taxpayer. W2 book for 1040ez Death of spouse. W2 book for 1040ez   If your spouse died during the year and you file a joint return for yourself and your deceased spouse, you generally can claim your spouse's exemption under the rules just explained in Joint return . W2 book for 1040ez If you file a separate return for the year, you may be able to claim your spouse's exemption under the rules just described in Separate return . W2 book for 1040ez   If you remarried during the year, you cannot take an exemption for your deceased spouse. W2 book for 1040ez   If you are a surviving spouse without gross income and you remarry in the year your spouse died, you can be claimed as an exemption on both the final separate return of your deceased spouse and the separate return of your new spouse for that year. W2 book for 1040ez If you file a joint return with your new spouse, you can be claimed as an exemption only on that return. W2 book for 1040ez Divorced or separated spouse. W2 book for 1040ez   If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. W2 book for 1040ez This rule applies even if you provided all of your former spouse's support. W2 book for 1040ez Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. W2 book for 1040ez You can claim an exemption for a dependent even if your dependent files a return. W2 book for 1040ez The term “dependent” means: A qualifying child, or A qualifying relative. W2 book for 1040ez The terms “ qualifying child ” and “ qualifying relative ” are defined later. W2 book for 1040ez You can claim an exemption for a qualifying child or qualifying relative only if these three tests are met. W2 book for 1040ez Dependent taxpayer test. W2 book for 1040ez Joint return test. W2 book for 1040ez Citizen or resident test. W2 book for 1040ez These three tests are explained in detail later. W2 book for 1040ez All the requirements for claiming an exemption for a dependent are summarized in Table 3-1. W2 book for 1040ez Table 3-1. W2 book for 1040ez Overview of the Rules for Claiming an Exemption for a Dependent Caution. W2 book for 1040ez This table is only an overview of the rules. W2 book for 1040ez For details, see the rest of this chapter. W2 book for 1040ez You cannot claim any dependents if you (or your spouse, if filing jointly) could be claimed as a dependent by another taxpayer. W2 book for 1040ez   You cannot claim a married person who files a joint return as a dependent unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid. W2 book for 1040ez   You cannot claim a person as a dependent unless that person is a U. W2 book for 1040ez S. W2 book for 1040ez citizen, U. W2 book for 1040ez S. W2 book for 1040ez resident alien, U. W2 book for 1040ez S. W2 book for 1040ez national, or a resident of Canada or Mexico. W2 book for 1040ez 1  You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. W2 book for 1040ez   Tests To Be a Qualifying Child   Tests To Be a Qualifying Relative The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. W2 book for 1040ez   The child must be (a) under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse, if filing jointly), or (c) any age if permanently and totally disabled. W2 book for 1040ez   The child must have lived with you for more than half of the year. W2 book for 1040ez 2  The child must not have provided more than half of his or her own support for the year. W2 book for 1040ez   The child is not filing a joint return for the year (unless that return is filed only to get a refund of income tax withheld or estimated tax paid). W2 book for 1040ez  If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child. W2 book for 1040ez See the Special Rule for Qualifying Child of More Than One Person to find out which person is the person entitled to claim the child as a qualifying child. W2 book for 1040ez   The person cannot be your qualifying child or the qualifying child of any other taxpayer. W2 book for 1040ez   The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you , or (b) must live with you all year as a member of your household2 (and your relationship must not violate local law). W2 book for 1040ez   The person's gross income for the year must be less than $3,900. W2 book for 1040ez 3  You must provide more than half of the person's total support for the year. W2 book for 1040ez 4  1There is an exception for certain adopted children. W2 book for 1040ez 2There are exceptions for temporary absences, children who were born or died during the year, children of divorced or separated parents (or parents who live apart), and kidnapped children. W2 book for 1040ez 3There is an exception if the person is disabled and has income from a sheltered workshop. W2 book for 1040ez 4There are exceptions for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. W2 book for 1040ez Dependent not allowed a personal exemption. W2 book for 1040ez If you can claim an exemption for your dependent, the dependent cannot claim his or her own personal exemption on his or her own tax return. W2 book for 1040ez This is true even if you do not claim the dependent's exemption on your return. W2 book for 1040ez It is also true if the dependent's exemption on your return is reduced or eliminated under the phaseout rule described under Phaseout of Exemptions, later. W2 book for 1040ez Housekeepers, maids, or servants. W2 book for 1040ez   If these people work for you, you cannot claim exemptions for them. W2 book for 1040ez Child tax credit. W2 book for 1040ez   You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. W2 book for 1040ez For more information, see chapter 34. W2 book for 1040ez Dependent Taxpayer Test If you can be claimed as a dependent by another person, you cannot claim anyone else as a dependent. W2 book for 1040ez Even if you have a qualifying child or qualifying relative, you cannot claim that person as a dependent. W2 book for 1040ez If you are filing a joint return and your spouse can be claimed as a dependent by someone else, you and your spouse cannot claim any dependents on your joint return. W2 book for 1040ez Joint Return Test You generally cannot claim a married person as a dependent if he or she files a joint return. W2 book for 1040ez Exception. W2 book for 1040ez   You can claim an exemption for a person who files a joint return if that person and his or her spouse file the joint return only to claim a refund of income tax withheld or estimated tax paid. W2 book for 1040ez Example 1—child files joint return. W2 book for 1040ez You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. W2 book for 1040ez He earned $25,000 for the year. W2 book for 1040ez The couple files a joint return. W2 book for 1040ez You cannot take an exemption for your daughter. W2 book for 1040ez Example 2—child files joint return only as claim for refund of withheld tax. W2 book for 1040ez Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. W2 book for 1040ez Neither is required to file a tax return. W2 book for 1040ez They do not have a child. W2 book for 1040ez Taxes were taken out of their pay so they filed a joint return only to get a refund of the withheld taxes. W2 book for 1040ez The exception to the joint return test applies, so you are not disqualified from claiming an exemption for each of them just because they file a joint return. W2 book for 1040ez You can claim exemptions for each of them if all the other tests to do so are met. W2 book for 1040ez Example 3—child files joint return to claim American opportunity credit. W2 book for 1040ez The facts are the same as in Example 2 except no taxes were taken out of your son's pay. W2 book for 1040ez He and his wife are not required to file a tax return. W2 book for 1040ez However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. W2 book for 1040ez Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. W2 book for 1040ez The exception to the joint return test does not apply, so you cannot claim an exemption for either of them. W2 book for 1040ez Citizen or Resident Test You cannot claim a person as a dependent unless that person is a U. W2 book for 1040ez S. W2 book for 1040ez citizen, U. W2 book for 1040ez S. W2 book for 1040ez resident alien, U. W2 book for 1040ez S. W2 book for 1040ez national, or a resident of Canada or Mexico. W2 book for 1040ez However, there is an exception for certain adopted children, as explained next. W2 book for 1040ez Exception for adopted child. W2 book for 1040ez   If you are a U. W2 book for 1040ez S. W2 book for 1040ez citizen or U. W2 book for 1040ez S. W2 book for 1040ez national who has legally adopted a child who is not a U. W2 book for 1040ez S. W2 book for 1040ez citizen, U. W2 book for 1040ez S. W2 book for 1040ez resident alien, or U. W2 book for 1040ez S. W2 book for 1040ez national, this test is met if the child lived with you as a member of your household all year. W2 book for 1040ez This exception also applies if the child was lawfully placed with you for legal adoption. W2 book for 1040ez Child's place of residence. W2 book for 1040ez   Children usually are citizens or residents of the country of their parents. W2 book for 1040ez   If you were a U. W2 book for 1040ez S. W2 book for 1040ez citizen when your child was born, the child may be a U. W2 book for 1040ez S. W2 book for 1040ez citizen and meet this test even if the other parent was a nonresident alien and the child was born in a foreign country. W2 book for 1040ez Foreign students' place of residence. W2 book for 1040ez   Foreign students brought to this country under a qualified international education exchange program and placed in American homes for a temporary period generally are not U. W2 book for 1040ez S. W2 book for 1040ez residents and do not meet this test. W2 book for 1040ez You cannot claim an exemption for them. W2 book for 1040ez However, if you provided a home for a foreign student, you may be able to take a charitable contribution deduction. W2 book for 1040ez See Expenses Paid for Student Living With You in chapter 24. W2 book for 1040ez U. W2 book for 1040ez S. W2 book for 1040ez national. W2 book for 1040ez   A U. W2 book for 1040ez S. W2 book for 1040ez national is an individual who, although not a U. W2 book for 1040ez S. W2 book for 1040ez citizen, owes his or her allegiance to the United States. W2 book for 1040ez U. W2 book for 1040ez S. W2 book for 1040ez nationals include American Samoans and Northern Mariana Islanders who chose to become U. W2 book for 1040ez S. W2 book for 1040ez nationals instead of U. W2 book for 1040ez S. W2 book for 1040ez citizens. W2 book for 1040ez Qualifying Child Five tests must be met for a child to be your qualifying child. W2 book for 1040ez The five tests are: Relationship, Age, Residency, Support, and Joint return. W2 book for 1040ez These tests are explained next. W2 book for 1040ez If a child meets the five tests to be the qualifying child of more than one person, a special rule applies to determine which person can actually treat the child as a qualifying child. W2 book for 1040ez See Special Rule for Qualifying Child of More Than One Person, later. W2 book for 1040ez Relationship Test To meet this test, a child must be: Your son, daughter, stepchild, foster child, or a descendant (for example, your grandchild) of any of them, or Your brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant (for example, your niece or nephew) of any of them. W2 book for 1040ez Adopted child. W2 book for 1040ez   An adopted child is always treated as your own child. W2 book for 1040ez The term “adopted child” includes a child who was lawfully placed with you for legal adoption. W2 book for 1040ez Foster child. W2 book for 1040ez   A foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. W2 book for 1040ez Age Test To meet this test, a child must be: Under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), A student under age 24 at the end of the year and younger than you (or your spouse, if filing jointly), or Permanently and totally disabled at any time during the year, regardless of age. W2 book for 1040ez Example. W2 book for 1040ez Your son turned 19 on December 10. W2 book for 1040ez Unless he was permanently and totally disabled or a student, he does not meet the age test because, at the end of the year, he was not under age 19. W2 book for 1040ez Child must be younger than you or spouse. W2 book for 1040ez   To be your qualifying child, a child who is not permanently and totally disabled must be younger than you. W2 book for 1040ez However, if you are married filing jointly, the child must be younger than you or your spouse but does not have to be younger than both of you. W2 book for 1040ez Example 1—child not younger than you or spouse. W2 book for 1040ez Your 23-year-old brother, who is a student and unmarried, lives with you and your spouse. W2 book for 1040ez He is not disabled. W2 book for 1040ez Both you and your spouse are 21 years old, and you file a joint return. W2 book for 1040ez Your brother is not your qualifying child because he is not younger than you or your spouse. W2 book for 1040ez Example 2—child younger than your spouse but not younger than you. W2 book for 1040ez The facts are the same as in Example 1 except your spouse is 25 years old. W2 book for 1040ez Because your brother is younger than your spouse, and you and your spouse are filing a joint return, your brother is your qualifying child, even though he is not younger than you. W2 book for 1040ez Student defined. W2 book for 1040ez   To qualify as a student, your child must be, during some part of each of any 5 calendar months of the year: A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or by a state, county, or local government agency. W2 book for 1040ez The 5 calendar months do not have to be consecutive. W2 book for 1040ez Full-time student. W2 book for 1040ez   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. W2 book for 1040ez School defined. W2 book for 1040ez   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. W2 book for 1040ez However, an on-the-job training course, correspondence school, or school offering courses only through the Internet does not count as a school. W2 book for 1040ez Vocational high school students. W2 book for 1040ez   Students who work on “co-op” jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. W2 book for 1040ez Permanently and totally disabled. W2 book for 1040ez   Your child is permanently and totally disabled if both of the following apply. W2 book for 1040ez He or she cannot engage in any substantial gainful activity because of a physical or mental condition. W2 book for 1040ez A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. W2 book for 1040ez Residency Test To meet this test, your child must have lived with you for more than half the year. W2 book for 1040ez There are exceptions for temporary absences, children who were born or died during the year, kidnapped children, and children of divorced or separated parents. W2 book for 1040ez Temporary absences. W2 book for 1040ez   Your child is considered to have lived with you during periods of time when one of you, or both, are temporarily absent due to special circumstances such as: Illness, Education, Business, Vacation, or Military service. W2 book for 1040ez Your child is also considered to have lived with you during any required hospital stay following birth, as long as the child would have lived with you during that time but for the hospitalization. W2 book for 1040ez Death or birth of child. W2 book for 1040ez   A child who was born or died during the year is treated as having lived with you more than half of the year if your home was the child's home more than half of the time he or she was alive during the year. W2 book for 1040ez Child born alive. W2 book for 1040ez   You may be able to claim an exemption for a child born alive during the year, even if the child lived only for a moment. W2 book for 1040ez State or local law must treat the child as having been born alive. W2 book for 1040ez There must be proof of a live birth shown by an official document, such as a birth certificate. W2 book for 1040ez The child must be your qualifying child or qualifying relative, and all the other tests to claim an exemption for a dependent must be met. W2 book for 1040ez Stillborn child. W2 book for 1040ez   You cannot claim an exemption for a stillborn child. W2 book for 1040ez Kidnapped child. W2 book for 1040ez   You may be able to treat your child as meeting the residency test even if the child has been kidnapped. W2 book for 1040ez See Publication 501 for details. W2 book for 1040ez Children of divorced or separated parents (or parents who live apart). W2 book for 1040ez   In most cases, because of the residency test, a child of divorced or separated parents is the qualifying child of the custodial parent. W2 book for 1040ez However, the child will be treated as the qualifying child of the noncustodial parent if all four of the following statements are true. W2 book for 1040ez The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of the year, whether or not they are or were married. W2 book for 1040ez The child received over half of his or her support for the year from the parents. W2 book for 1040ez The child is in the custody of one or both parents for more than half of the year. W2 book for 1040ez Either of the following statements is true. W2 book for 1040ez The custodial parent signs a written declaration, discussed later, that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return. W2 book for 1040ez (If the decree or agreement went into effect after 1984 and before 2009, see Post-1984 and pre-2009 divorce decree or separation agreement , later. W2 book for 1040ez If the decree or agreement went into effect after 2008, see Post-2008 divorce decree or separation agreement , later. W2 book for 1040ez ) A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 states that the noncustodial parent can claim the child as a dependent, the decree or agreement was not changed after 1984 to say the noncustodial parent cannot claim the child as a dependent, and the noncustodial parent provides at least $600 for the child's support during the year. W2 book for 1040ez Custodial parent and noncustodial parent. W2 book for 1040ez   The custodial parent is the parent with whom the child lived for the greater number of nights during the year. W2 book for 1040ez The other parent is the noncustodial parent. W2 book for 1040ez   If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year. W2 book for 1040ez   A child is treated as living with a parent for a night if the child sleeps: At that parent's home, whether or not the parent is present, or In the company of the parent, when the child does not sleep at a parent's home (for example, the parent and child are on vacation together). W2 book for 1040ez Equal number of nights. W2 book for 1040ez   If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income (AGI). W2 book for 1040ez December 31. W2 book for 1040ez   The night of December 31 is treated as part of the year in which it begins. W2 book for 1040ez For example, December 31, 2013, is treated as part of 2013. W2 book for 1040ez Emancipated child. W2 book for 1040ez   If a child is emancipated under state law, the child is treated as not living with either parent. W2 book for 1040ez See Examples 5 and 6. W2 book for 1040ez Absences. W2 book for 1040ez   If a child was not with either parent on a particular night (because, for example, the child was staying at a friend's house), the child is treated as living with the parent with whom the child normally would have lived for that night, except for the absence. W2 book for 1040ez But if it cannot be determined with which parent the child normally would have lived or if the child would not have lived with either parent that night, the child is treated as not living with either parent that night. W2 book for 1040ez Parent works at night. W2 book for 1040ez   If, due to a parent's nighttime work schedule, a child lives for a greater number of days, but not nights, with the parent who works at night, that parent is treated as the custodial parent. W2 book for 1040ez On a school day, the child is treated as living at the primary residence registered with the school. W2 book for 1040ez Example 1—child lived with one parent for a greater number of nights. W2 book for 1040ez You and your child’s other parent are divorced. W2 book for 1040ez In 2013, your child lived with you 210 nights and with the other parent 155 nights. W2 book for 1040ez You are the custodial parent. W2 book for 1040ez Example 2—child is away at camp. W2 book for 1040ez In 2013, your daughter lives with each parent for alternate weeks. W2 book for 1040ez In the summer, she spends 6 weeks at summer camp. W2 book for 1040ez During the time she is at camp, she is treated as living with you for 3 weeks and with her other parent, your ex-spouse, for 3 weeks because this is how long she would have lived with each parent if she had not attended summer camp. W2 book for 1040ez Example 3—child lived same number of nights with each parent. W2 book for 1040ez Your son lived with you 180 nights during the year and lived the same number of nights with his other parent, your ex-spouse. W2 book for 1040ez Your AGI is $40,000. W2 book for 1040ez Your ex-spouse's AGI is $25,000. W2 book for 1040ez You are treated as your son's custodial parent because you have the higher AGI. W2 book for 1040ez Example 4—child is at parent’s home but with other parent. W2 book for 1040ez Your son normally lives with you during the week and with his other parent, your ex-spouse, every other weekend. W2 book for 1040ez You become ill and are hospitalized. W2 book for 1040ez The other parent lives in your home with your son for 10 consecutive days while you are in the hospital. W2 book for 1040ez Your son is treated as living with you during this 10-day period because he was living in your home. W2 book for 1040ez Example 5—child emancipated in May. W2 book for 1040ez When your son turned age 18 in May 2013, he became emancipated under the law of the state where he lives. W2 book for 1040ez As a result, he is not considered in the custody of his parents for more than half of the year. W2 book for 1040ez The special rule for children of divorced or separated parents does not apply. W2 book for 1040ez Example 6—child emancipated in August. W2 book for 1040ez Your daughter lives with you from January 1, 2013, until May 31, 2013, and lives with her other parent, your ex-spouse, from June 1, 2013, through the end of the year. W2 book for 1040ez She turns 18 and is emancipated under state law on August 1, 2013. W2 book for 1040ez Because she is treated as not living with either parent beginning on August 1, she is treated as living with you the greater number of nights in 2013. W2 book for 1040ez You are the custodial parent. W2 book for 1040ez Written declaration. W2 book for 1040ez    The custodial parent may use either Form 8332 or a similar statement (containing the same information required by the form) to make the written declaration to release the exemption to the noncustodial parent. W2 book for 1040ez The noncustodial parent must attach a copy of the form or statement to his or her tax return. W2 book for 1040ez   The exemption can be released for 1 year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration. W2 book for 1040ez Post-1984 and pre-2009 divorce decree or separation agreement. W2 book for 1040ez   If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. W2 book for 1040ez The decree or agreement must state all three of the following. W2 book for 1040ez The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support. W2 book for 1040ez The custodial parent will not claim the child as a dependent for the year. W2 book for 1040ez The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent. W2 book for 1040ez   The noncustodial parent must attach all of the following pages of the decree or agreement to his or her tax return. W2 book for 1040ez The cover page (write the other parent's social security number on this page). W2 book for 1040ez The pages that include all of the information identified in items (1) through (3) above. W2 book for 1040ez The signature page with the other parent's signature and the date of the agreement. W2 book for 1040ez Post-2008 divorce decree or separation agreement. W2 book for 1040ez   The noncustodial parent cannot attach pages from the decree or agreement instead of Form 8332 if the decree or agreement went into effect after 2008. W2 book for 1040ez The custodial parent must sign either Form 8332 or a similar statement whose only purpose is to release the custodial parent's claim to an exemption for a child, and the noncustodial parent must attach a copy to his or her return. W2 book for 1040ez The form or statement must release the custodial parent's claim to the child without any conditions. W2 book for 1040ez For example, the release must not depend on the noncustodial parent paying support. W2 book for 1040ez    The noncustodial parent must attach the required information even if it was filed with a return in an earlier year. W2 book for 1040ez Revocation of release of claim to an exemption. W2 book for 1040ez   The custodial parent can revoke a release of claim to exemption that he or she previously released to the noncustodial parent on Form 8332 (or a similar statement). W2 book for 1040ez For the revocation to be effective for 2013, the custodial parent must have given (or made reasonable efforts to give) written notice of the revocation to the noncustodial parent in 2012 or earlier. W2 book for 1040ez The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to his or her return for each tax year he or she claims the child as a dependent as a result of the revocation. W2 book for 1040ez Remarried parent. W2 book for 1040ez   If you remarry, the support provided by your new spouse is treated as provided by you. W2 book for 1040ez Parents who never married. W2 book for 1040ez   This special rule for divorced or separated parents also applies to parents who never married, and who lived apart at all times during the last 6 months of the year. W2 book for 1040ez Support Test (To Be a Qualifying Child) To meet this test, the child cannot have provided more than half of his or her own support for the year. W2 book for 1040ez This test is different from the support test to be a qualifying relative, which is described later. W2 book for 1040ez However, to see what is or is not support, see Support Test (To Be a Qualifying Relative) , later. W2 book for 1040ez If you are not sure whether a child provided more than half of his or her own support, you may find Worksheet 3-1 helpful. W2 book for 1040ez Worksheet 3-1. W2 book for 1040ez Worksheet for Determining Support Funds Belonging to the Person You Supported       1. W2 book for 1040ez Enter the total funds belonging to the person you supported, including income received (taxable and nontaxable) and amounts borrowed during the year, plus the amount in savings and other accounts at the beginning of the year. W2 book for 1040ez Do not include funds provided by the state; include those amounts on line 23 instead 1. W2 book for 1040ez     2. W2 book for 1040ez Enter the amount on line 1 that was used for the person's support 2. W2 book for 1040ez     3. W2 book for 1040ez Enter the amount on line 1 that was used for other purposes 3. W2 book for 1040ez     4. W2 book for 1040ez Enter the total amount in the person's savings and other accounts at the end of the year 4. W2 book for 1040ez     5. W2 book for 1040ez Add lines 2 through 4. W2 book for 1040ez (This amount should equal line 1. W2 book for 1040ez ) 5. W2 book for 1040ez     Expenses for Entire Household (where the person you supported lived)       6. W2 book for 1040ez Lodging (complete line 6a or 6b):         a. W2 book for 1040ez Enter the total rent paid 6a. W2 book for 1040ez       b. W2 book for 1040ez Enter the fair rental value of the home. W2 book for 1040ez If the person you supported owned the home,  also include this amount in line 21 6b. W2 book for 1040ez     7. W2 book for 1040ez Enter the total food expenses 7. W2 book for 1040ez     8. W2 book for 1040ez Enter the total amount of utilities (heat, light, water, etc. W2 book for 1040ez not included in line 6a or 6b) 8. W2 book for 1040ez     9. W2 book for 1040ez Enter the total amount of repairs (not included in line 6a or 6b) 9. W2 book for 1040ez     10. W2 book for 1040ez Enter the total of other expenses. W2 book for 1040ez Do not include expenses of maintaining the home, such as mortgage interest, real estate taxes, and insurance 10. W2 book for 1040ez     11. W2 book for 1040ez Add lines 6a through 10. W2 book for 1040ez These are the total household expenses 11. W2 book for 1040ez     12. W2 book for 1040ez Enter total number of persons who lived in the household 12. W2 book for 1040ez     Expenses for the Person You Supported       13. W2 book for 1040ez Divide line 11 by line 12. W2 book for 1040ez This is the person's share of the household expenses 13. W2 book for 1040ez     14. W2 book for 1040ez Enter the person's total clothing expenses 14. W2 book for 1040ez     15. W2 book for 1040ez Enter the person's total education expenses 15. W2 book for 1040ez     16. W2 book for 1040ez Enter the person's total medical and dental expenses not paid for or reimbursed by insurance 16. W2 book for 1040ez     17. W2 book for 1040ez Enter the person's total travel and recreation expenses 17. W2 book for 1040ez     18. W2 book for 1040ez Enter the total of the person's other expenses 18. W2 book for 1040ez     19. W2 book for 1040ez Add lines 13 through 18. W2 book for 1040ez This is the total cost of the person's support for the year 19. W2 book for 1040ez     Did the Person Provide More Than Half of His or Her Own Support?       20. W2 book for 1040ez Multiply line 19 by 50% (. W2 book for 1040ez 50) 20. W2 book for 1040ez     21. W2 book for 1040ez Enter the amount from line 2, plus the amount from line 6b if the person you supported owned  the home. W2 book for 1040ez This is the amount the person provided for his or her own support 21. W2 book for 1040ez     22. W2 book for 1040ez Is line 21 more than line 20?   No. W2 book for 1040ez You meet the support test for this person to be your qualifying child. W2 book for 1040ez If this person also meets the other tests to be a qualifying child, stop here; do not complete lines 23–26. W2 book for 1040ez Otherwise, go to line 23 and fill out the rest of the worksheet to determine if this person is your qualifying relative. W2 book for 1040ez    Yes. W2 book for 1040ez You do not meet the support test for this person to be either your qualifying child or your qualifying relative. W2 book for 1040ez Stop here. W2 book for 1040ez        Did You Provide More Than Half?       23. W2 book for 1040ez Enter the amount others provided for the person's support. W2 book for 1040ez Include amounts provided by state, local, and other welfare societies or agencies. W2 book for 1040ez Do not include any amounts included on line 1 23. W2 book for 1040ez     24. W2 book for 1040ez Add lines 21 and 23 24. W2 book for 1040ez     25. W2 book for 1040ez Subtract line 24 from line 19. W2 book for 1040ez This is the amount you provided for the person's support 25. W2 book for 1040ez     26. W2 book for 1040ez Is line 25 more than line 20?   Yes. W2 book for 1040ez You meet the support test for this person to be your qualifying relative. W2 book for 1040ez    No. W2 book for 1040ez You do not meet the support test for this person to be your qualifying relative. W2 book for 1040ez You cannot claim an exemption for this person unless you can do so under a multiple support agreement, the support test for children of divorced or separated parents, or the special rule for kidnapped children. W2 book for 1040ez See Multiple Support Agreement or Support Test for Children of Divorced or Separated Parents (or Parents Who Live Apart) , or Kidnapped child under Qualifying Relative. W2 book for 1040ez   Example. W2 book for 1040ez You provided $4,000 toward your 16-year-old son's support for the year. W2 book for 1040ez He has a part-time job and provided $6,000 to his own support. W2 book for 1040ez He provided more than half of his own support for the year. W2 book for 1040ez He is not your qualifying child. W2 book for 1040ez Foster care payments and expenses. W2 book for 1040ez   Payments you receive for the support of a foster child from a child placement agency are considered support provided by the agency. W2 book for 1040ez Similarly, payments you receive for the support of a foster child from a state or county are considered support provided by the state or county. W2 book for 1040ez   If you are not in the trade or business of providing foster care and your unreimbursed out-of-pocket expenses in caring for a foster child were mainly to benefit an organization qualified to receive deductible charitable contributions, the expenses are deductible as charitable contributions but are not considered support you provided. W2 book for 1040ez For more information about the deduction for charitable contributions, see chapter 24. W2 book for 1040ez If your unreimbursed expenses are not deductible as charitable contributions, they may qualify as support you provided. W2 book for 1040ez   If you are in the trade or business of providing foster care, your unreimbursed expenses are not considered support provided by you. W2 book for 1040ez Example 1. W2 book for 1040ez Lauren, a foster child, lived with Mr. W2 book for 1040ez and Mrs. W2 book for 1040ez Smith for the last 3 months of the year. W2 book for 1040ez The Smiths cared for Lauren because they wanted to adopt her (although she had not been placed with them for adoption). W2 book for 1040ez They did not care for her as a trade or business or to benefit the agency that placed her in their home. W2 book for 1040ez The Smiths' unreimbursed expenses are not deductible as charitable contributions but are considered support they provided for Lauren. W2 book for 1040ez Example 2. W2 book for 1040ez You provided $3,000 toward your 10-year-old foster child's support for the year. W2 book for 1040ez The state government provided $4,000, which is considered support provided by the state, not by the child. W2 book for 1040ez See Support provided by the state (welfare, food stamps, housing, etc. W2 book for 1040ez ) , later. W2 book for 1040ez Your foster child did not provide more than half of her own support for the year. W2 book for 1040ez Scholarships. W2 book for 1040ez   A scholarship received by a child who is a student is not taken into account in determining whether the child provided more than half of his or her own support. W2 book for 1040ez Joint Return Test (To Be a Qualifying Child) To meet this test, the child cannot file a joint return for the year. W2 book for 1040ez Exception. W2 book for 1040ez   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. W2 book for 1040ez Example 1—child files joint return. W2 book for 1040ez You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. W2 book for 1040ez He earned $25,000 for the year. W2 book for 1040ez The couple files a joint return. W2 book for 1040ez Because your daughter and her husband file a joint return, she is not your qualifying child. W2 book for 1040ez Example 2—child files joint return only as a claim for refund of withheld tax. W2 book for 1040ez Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. W2 book for 1040ez Neither is required to file a tax return. W2 book for 1040ez They do not have a child. W2 book for 1040ez Taxes were taken out of their pay so they filed a joint return only to get a refund of the withheld taxes. W2 book for 1040ez The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. W2 book for 1040ez Example 3—child files joint return to claim American opportunity credit. W2 book for 1040ez The facts are the same as in Example 2 except no taxes were taken out of your son's pay. W2 book for 1040ez He and his wife were not required to file a tax return. W2 book for 1040ez However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. W2 book for 1040ez Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. W2 book for 1040ez The exception to the joint return test does not apply, so your son is not your qualifying child. W2 book for 1040ez Special Rule for Qualifying Child of More Than One Person If your qualifying child is not a qualifying child of anyone else, this special rule does not apply to you and you do not need to read about it. W2 book for 1040ez This is also true if your qualifying child is not a qualifying child of anyone else except your spouse with whom you file a joint return. W2 book for 1040ez If a child is treated as the qualifying child of the noncustodial parent under the rules for children of divorced or separated parents (or parents who live apart) described earlier, see Applying this special rule to divorced or separated parents (or parents who live apart), later. W2 book for 1040ez Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. W2 book for 1040ez Although the child is a qualifying child of each of these persons, only one person can actually treat the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). W2 book for 1040ez The exemption for the child. W2 book for 1040ez The child tax credit. W2 book for 1040ez Head of household filing status. W2 book for 1040ez The credit for child and dependent care expenses. W2 book for 1040ez The exclusion from income for dependent care benefits. W2 book for 1040ez The earned income credit. W2 book for 1040ez The other person cannot take any of these benefits based on this qualifying child. W2 book for 1040ez In other words, you and the other person cannot agree to divide these benefits between you. W2 book for 1040ez The other person cannot take any of these tax benefits for a child unless he or she has a different qualifying child. W2 book for 1040ez Tiebreaker rules. W2 book for 1040ez   To determine which person can treat the child as a qualifying child to claim these six tax benefits, the following tiebreaker rules apply. W2 book for 1040ez If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. W2 book for 1040ez If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. W2 book for 1040ez If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. W2 book for 1040ez If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. W2 book for 1040ez If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. W2 book for 1040ez If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. W2 book for 1040ez If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' combined AGI equally between the parents. W2 book for 1040ez See Example 6 . W2 book for 1040ez   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. W2 book for 1040ez Example 1—child lived with parent and grandparent. W2 book for 1040ez You and your 3-year-old daughter Jane lived with your mother all year. W2 book for 1040ez You are 25 years old, unmarried, and your AGI is $9,000. W2 book for 1040ez Your mother's AGI is $15,000. W2 book for 1040ez Jane's father did not live with you or your daughter. W2 book for 1040ez You have not signed Form 8332 (or a similar statement) to release the child's exemption to the noncustodial parent. W2 book for 1040ez Jane is a qualifying child of both you and your mother because she meets the relationship, age, residency, support, and joint return tests for both you and your mother. W2 book for 1040ez However, only one of you can claim her. W2 book for 1040ez Jane is not a qualifying child of anyone else, including her father. W2 book for 1040ez You agree to let your mother claim Jane. W2 book for 1040ez This means your mother can claim Jane as a qualifying child for all of the six tax benefits listed earlier, if she qualifies (and if you do not claim Jane as a qualifying child for any of those tax benefits). W2 book for 1040ez Example 2—parent has higher AGI than grandparent. W2 book for 1040ez The facts are the same as in Example 1 except your AGI is $18,000. W2 book for 1040ez Because your mother's AGI is not higher than yours, she cannot claim Jane. W2 book for 1040ez Only you can claim Jane. W2 book for 1040ez Example 3—two persons claim same child. W2 book for 1040ez The facts are the same as in Example 1 except that you and your mother both claim Jane as a qualifying child. W2 book for 1040ez In this case, you, as the child's parent, will be the only one allowed to claim Jane as a qualifying child. W2 book for 1040ez The IRS will disallow your mother's claim to the six tax benefits listed earlier unless she has another qualifying child. W2 book for 1040ez Example 4—qualifying children split between two persons. W2 book for 1040ez The facts are the same as in Example 1 except you also have two other young children who are qualifying children of both you and your mother. W2 book for 1040ez Only one of you can claim each child. W2 book for 1040ez However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. W2 book for 1040ez For example, if you claim one child, your mother can claim the other two. W2 book for 1040ez Example 5—taxpayer who is a qualifying child. W2 book for 1040ez The facts are the same as in Example 1 except you are only 18 years old and did not provide more than half of your own support for the year. W2 book for 1040ez This means you are your mother's qualifying child. W2 book for 1040ez If she can claim you as a dependent, then you cannot claim your daughter as a dependent because of the Dependent Taxpayer Test explained earlier. W2 book for 1040ez Example 6—child lived with both parents and grandparent. W2 book for 1040ez The facts are the same as in Example 1 except you are married to your daughter's father. W2 book for 1040ez The two of you live together with your daughter and your mother, and have an AGI of $20,000 on a joint return. W2 book for 1040ez If you and your husband do not claim your daughter as a qualifying child, your mother can claim her instead. W2 book for 1040ez Even though the AGI on your joint return, $20,000, is more than your mother's AGI of $15,000, for this purpose each parent's AGI can be treated as $10,000, so your mother's $15,000 AGI is treated as higher than the highest AGI of any of the child's parents who can claim the child. W2 book for 1040ez Example 7—separated parents. W2 book for 1040ez You, your husband, and your 10-year-old son lived together until August 1, 2013, when your husband moved out of the household. W2 book for 1040ez In August and September, your son lived with you. W2 book for 1040ez For the rest of the year, your son lived with your husband, the boy's father. W2 book for 1040ez Your son is a qualifying child of both you and your husband because your son lived with each of you for more than half the year and because he met the relationship, age, support, and joint return tests for both of you. W2 book for 1040ez At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the rule for children of divorced or separated parents (or parents who live apart) does not apply. W2 book for 1040ez You and your husband will file separate returns. W2 book for 1040ez Your husband agrees to let you treat your son as a qualifying child. W2 book for 1040ez This means, if your husband does not claim your son as a qualifying child, you can claim your son as a qualifying child for the dependency exemption, child tax credit, and exclusion for dependent care benefits (if you qualify for each of those tax benefits). W2 book for 1040ez However, you cannot claim head of household filing status because you and your husband did not live apart for the last 6 months of the year. W2 book for 1040ez As a result, your filing status is married filing separately, so you cannot claim the earned income credit or the credit for child and dependent care expenses. W2 book for 1040ez Example 8—separated parents claim same child. W2 book for 1040ez The facts are the same as in Example 7 except that you and your husband both claim your son as a qualifying child. W2 book for 1040ez In this case, only your husband will be allowed to treat your son as a qualifying child. W2 book for 1040ez This is because, during 2013, the boy lived with him longer than with you. W2 book for 1040ez If you claimed an exemption or the child tax credit for your son, the IRS will disallow your claim to both these tax benefits. W2 book for 1040ez If you do not have another qualifying child or dependent, the IRS will also disallow your claim to the exclusion for dependent care benefits. W2 book for 1040ez In addition, because you and your husband did not live apart for the last 6 months of the year, your husband cannot claim head of household filing status. W2 book for 1040ez As a result, his filing status is married filing separately, so he cannot claim the earned income credit or the credit for child and dependent care expenses. W2 book for 1040ez Example 9—unmarried parents. W2 book for 1040ez You, your 5-year-old son, and your son's father lived together all year. W2 book for 1040ez You and your son's father are not married. W2 book for 1040ez Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, support, and joint return tests for both you and his father. W2 book for 1040ez Your AGI is $12,000 and your son's father's AGI is $14,000. W2 book for 1040ez Your son's father agrees to let you claim the child as a qualifying child. W2 book for 1040ez This means you can claim him as a qualifying child for the dependency exemption, child tax credit, head of household filing status, credit for child and dependent care expenses, exclusion for dependent care benefits, and the earned income credit, if you qualify for each of those tax benefits (and if your son's father does not, in fact, claim your son as a qualifying child for any of those tax benefits). W2 book for 1040ez Example 10—unmarried parents claim same child. W2 book for 1040ez The facts are the same as in Example 9 except that you and your son's father both claim your son as a qualifying child. W2 book for 1040ez In this case, only your son's father will be allowed to treat your son as a qualifying child. W2 book for 1040ez This is because his AGI, $14,000, is more than your AGI, $12,000. W2 book for 1040ez If you claimed an exemption or the child tax credit for your son, the IRS will disallow your claim to both these tax benefits. W2 book for 1040ez If you do not have another qualifying child or dependent, the IRS will also disallow your claim to the earned income credit, head of household filing status, the credit for child and dependent care expenses, and the exclusion for dependent care benefits. W2 book for 1040ez Example 11—child did not live with a parent. W2 book for 1040ez You and your 7-year-old niece, your sister's child, lived with your mother all year. W2 book for 1040ez You are 25 years old, and your AGI is $9,300. W2 book for 1040ez Your mother's AGI is $15,000. W2 book for 1040ez Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. W2 book for 1040ez Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, support, and joint return tests for both you and your mother. W2 book for 1040ez However, only your mother can treat her as a qualifying child. W2 book for 1040ez This is because your mother's AGI, $15,000, is more than your AGI, $9,300. W2 book for 1040ez Applying this special rule to divorced or separated parents (or parents who live apart). W2 book for 1040ez   If a child is treated as the qualifying child of the noncustodial parent under the rules described earlier for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. W2 book for 1040ez However, the custodial parent, if eligible, or other eligible person can claim the child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. W2 book for 1040ez If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules just explained determine which person can treat the child as a qualifying child. W2 book for 1040ez Example 1. W2 book for 1040ez You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. W2 book for 1040ez Your AGI is $10,000. W2 book for 1040ez Your mother's AGI is $25,000. W2 book for 1040ez Your son's father did not live with you or your son. W2 book for 1040ez Under the rules explained earlier for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for him. W2 book for 1040ez Because of this, you cannot claim an exemption or the child tax credit for your son. W2 book for 1040ez However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the earned income credit. W2 book for 1040ez You and your mother did not have any child care expenses or dependent care benefits, so neither of you can claim the credit for child and dependent care expenses or the exclusion for dependent care benefits. W2 book for 1040ez But the boy is a qualifying child of both you and your mother for head of household filing status and the earned income credit because he meets the relationship, age, residency, support, and joint return tests for both you and your mother. W2 book for 1040ez (Note: The support test does not apply for the earned income credit. W2 book for 1040ez ) However, you agree to let your mother claim your son. W2 book for 1040ez This means she can claim him for head of household filing status and the earned income credit if she qualifies for each and if you do not claim him as a qualifying child for the earned income credit. W2 book for 1040ez (You cannot claim head of household filing status because your mother paid the entire cost of keeping up the home. W2 book for 1040ez ) Example 2. W2 book for 1040ez The facts are the same as in Example 1 except your AGI is $25,000 and your mother's AGI is $21,000. W2 book for 1040ez Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. W2 book for 1040ez Example 3. W2 book for 1040ez The facts are the same as in Example 1 except you and your mother both claim your son as a qualifying child for the earned income credit. W2 book for 1040ez Your mother also claims him as a qualifying child for head of household filing status. W2 book for 1040ez You, as the child's parent, will be the only one allowed to claim your son as a qualifying child for the earned income credit. W2 book for 1040ez The IRS will disallow your mother's claim to the earned income credit and head of household filing status unless she has another qualifying child. W2 book for 1040ez Qualifying Relative Four tests must be met for a person to be your qualifying relative. W2 book for 1040ez The four tests are: Not a qualifying child test, Member of household or relationship test, Gross income test, and Support test. W2 book for 1040ez Age. W2 book for 1040ez   Unlike a qualifying child, a qualifying relative can be any age. W2 book for 1040ez There is no age test for a qualifying relative. W2 book for 1040ez Kidnapped child. W2 book for 1040ez   You may be able to treat a child as your qualifying relative even if the child has been kidnapped. W2 book for 1040ez See Publication 501 for details. W2 book for 1040ez Not a Qualifying Child Test A child is not your qualifying relative if the child is your qualifying child or the qualifying child of any other taxpayer. W2 book for 1040ez Example 1. W2 book for 1040ez Your 22-year-old daughter, who is a student, lives with you and meets all the tests to be your qualifying child. W2 book for 1040ez She is not your qualifying relative. W2 book for 1040ez Example 2. W2 book for 1040ez Your 2-year-old son lives with your parents and meets all the tests to be their qualifying child. W2 book for 1040ez He is not your qualifying relative. W2 book for 1040ez Example 3. W2 book for 1040ez Your son lives with you but is not your qualifying child because he is 30 years old and does not meet the age test. W2 book for 1040ez He may be your qualifying relative if the gross income test and the support test are met. W2 book for 1040ez Example 4. W2 book for 1040ez Your 13-year-old grandson lived with his mother for 3 months, with his uncle for 4 months, and with you for 5 months during the year. W2 book for 1040ez He is not your qualifying child because he does not meet the residency test. W2 book for 1040ez He may be your qualifying relative if the gross income test and the support test are met. W2 book for 1040ez Child of person not required to file a return. W2 book for 1040ez   A child is not the qualifying child of any other taxpayer and so may qualify as your qualifying relative if the child's parent (or other person for whom the child is defined as a qualifying child) is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. W2 book for 1040ez Example 1—return not required. W2 book for 1040ez You support an unrelated friend and her 3-year-old child, who lived with you all year in your home. W2 book for 1040ez Your friend has no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. W2 book for 1040ez Both your friend and her child are your qualifying relatives if the support test is met. W2 book for 1040ez Example 2—return filed to claim refund. W2 book for 1040ez The facts are the same as in Example 1 except your friend had wages of $1,500 during the year and had income tax withheld from her wages. W2 book for 1040ez She files a return only to get a refund of the income tax withheld and does not claim the earned income credit or any other tax credits or deductions. W2 book for 1040ez Both your friend and her child are your qualifying relatives if the support test is met. W2 book for 1040ez Example 3—earned income credit claimed. W2 book for 1040ez The facts are the same as in Example 2 except your friend had wages of $8,000 during the year and claimed the earned income credit on her return. W2 book for 1040ez Your friend's child is the qualifying child of another taxpayer (your friend), so you cannot claim your friend's child as your qualifying relative. W2 book for 1040ez Child in Canada or Mexico. W2 book for 1040ez   You may be able to claim your child as a dependent even if the child lives in Canada or Mexico. W2 book for 1040ez If the child does not live with you, the child does not meet the residency test to be your qualifying child. W2 book for 1040ez However, the child may still be your qualifying relative. W2 book for 1040ez If the persons the child does live with are not U. W2 book for 1040ez S. W2 book for 1040ez citizens and have no U. W2 book for 1040ez S. W2 book for 1040ez gross income, those persons are not “taxpayers,” so the child is not the qualifying child of any other taxpayer. W2 book for 1040ez If the child is not the qualifying child of any other taxpayer, the child is your qualifying relative as long as the gross income test and the support test are met. W2 book for 1040ez   You cannot claim as a dependent a child who lives in a foreign country other than Canada or Mexico, unless the child is a U. W2 book for 1040ez S. W2 book for 1040ez citizen, U. W2 book for 1040ez S. W2 book for 1040ez resident alien, or U. W2 book for 1040ez S. W2 book for 1040ez national. W2 book for 1040ez There is an exception for certain adopted children who lived with you all year. W2 book for 1040ez See Citizen or Resident Test , earlier. W2 book for 1040ez Example. W2 book for 1040ez You provide all the support of your children, ages 6, 8, and 12, who live in Mexico with your mother and have no income. W2 book for 1040ez You are single and live in the United States. W2 book for 1040ez Your mother is not a U. W2 book for 1040ez S. W2 book for 1040ez citizen and has no U. W2 book for 1040ez S. W2 book for 1040ez income, so she is not a “taxpayer. W2 book for 1040ez ” Your children are not your qualifying children because they do not meet the residency test. W2 book for 1040ez But since they are not the qualifying children of any other taxpayer, they are your qualifying relatives and you can claim them as dependents. W2 book for 1040ez You may also be able to claim your mother as a dependent if the gross income and support tests are met. W2 book for 1040ez Member of Household or Relationship Test To meet this test, a person must either: Live with you all year as a member of your household, or Be related to you in one of the ways listed under Relatives who do not have to live with you . W2 book for 1040ez If at any time during the year the person was your spouse, that person cannot be your qualifying relative. W2 book for 1040ez However, see Personal Exemptions , earlier. W2 book for 1040ez Relatives who do not have to live with you. W2 book for 1040ez   A person related to you in any of the following ways does not have to live with you all year as a member of your household to meet this test. W2 book for 1040ez Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). W2 book for 1040ez (A legally adopted child is considered your child. W2 book for 1040ez ) Your brother, sister, half brother, half sister, stepbrother, or stepsister. W2 book for 1040ez Your father, mother, grandparent, or other direct ancestor, but not foster parent. W2 book for 1040ez Your stepfather or stepmother. W2 book for 1040ez A son or daughter of your brother or sister. W2 book for 1040ez A son or daughter of your half brother or half sister. W2 book for 1040ez A brother or sister of your father or mother. W2 book for 1040ez Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. W2 book for 1040ez Any of these relationships that were established by marriage are not ended by death or divorce. W2 book for 1040ez Example. W2 book for 1040ez You and your wife began supporting your wife's father, a widower, in 2006. W2 book for 1040ez Your wife died in 2012. W2 book for 1040ez Despite your wife's death, your father-in-law continues to meet this test, even if he does not live with you. W2 book for 1040ez You can claim him as a dependent if all other tests are met, including the gross income test and support test. W2 book for 1040ez Foster child. W2 book for 1040ez   A foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. W2 book for 1040ez Joint return. W2 book for 1040ez   If you file a joint return, the person can be related to either you or your spouse. W2 book for 1040ez Also, the person does not need to be related to the spouse who provides support. W2 book for 1040ez   For example, your spouse's uncle who receives more than half of his support from you may be your qualifying relative, even though he does not live with you. W2 book for 1040ez However, if you and your spouse file separate returns, your spouse's uncle can be your qualifying relative only if he lives with you all year as a member of your household. W2 book for 1040ez Temporary absences. W2 book for 1040ez   A person is considered to live with you as a member of your household during periods of time when one of you, or both, are temporarily absent due to special circumstances such as: Illness, Education, Business, Vacation, or Military service. W2 book for 1040ez   If the person is placed in a nursing home for an indefinite period of time to receive constant medical care, the absence may be considered temporary. W2 book for 1040ez Death or birth. W2 book for 1040ez   A person who died during the year, but lived with you as a member of your household until death, will meet this test. W2 book for 1040ez The same is true for a child who was born during the year and lived with you as a member of your household for the rest of the year. W2 book for 1040ez The test is also met if a child lived with you as a member of your household except for any required hospital stay following birth. W2 book for 1040ez   If your dependent died during the year and you otherwise qualify to claim an exemption for the dependent, you can still claim the exemption. W2 book for 1040ez Example. W2 book for 1040ez Your dependent mother died on January 15. W2 book for 1040ez She met the tests to be your qualifying relative. W2 book for 1040ez The other tests to claim an exemption for a dependent were also met. W2 book for 1040ez You can claim an exemption for her on your return. W2 book for 1040ez Local law violated. W2 book for 1040ez   A person does not meet this test if at any time during the year the relationship between you and that person violates local law. W2 book for 1040ez Example. W2 book for 1040ez Your girlfriend lived with you as a member of your household all year. W2 book for 1040ez However, your relationship with her violated the laws of the state where you live, because she was married to someone else. W2 book for 1040ez Therefore, she does not meet this test and you cannot claim her as a dependent. W2 book for 1040ez Adopted child. W2 book for 1040ez   An adopted child is always treated as your own child. W2 book for 1040ez The term “adopted child” includes a child who was lawfully placed with you for legal adoption. W2 book for 1040ez Cousin. W2 book for 1040ez   Your cousin meets this test only if he or she lives with you all year as a member of your household. W2 book for 1040ez A cousin is a descendant of a brother or sister of your father or mother. W2 book for 1040ez Gross Income Test To meet this test, a person's gross income for the year must be less than $3,900. W2 book for 1040ez Gross income defined. W2 book for 1040ez   Gross income is all income in the form of money, property, and services that is not exempt from tax. W2 book for 1040ez   In a manufacturing, merchandising, or mining business, gross income is the total net sales minus the cost of goods sold, plus any miscellaneous income from the business. W2 book for 1040ez   Gross receipts from rental property are gross income. W2 book for 1040ez Do not deduct taxes, repairs, or other expenses, to determine the gross income from rental property. W2 book for 1040ez   Gross income includes a partner's share of the gross (not a share of the net) partnership income. W2 book for 1040ez    Gross income also includes all taxable unemployment compensation and certain scholarship and fellowship grants. W2 book for 1040ez Scholarships received by degree candidates and used for tuition, fees, supplies, books, and equipment required for particular courses generally are not included in gross income. W2 book for 1040ez For more information about scholarships, see chapter 12. W2 book for 1040ez   Tax-exempt income, such as certain social security benefits, is not included in gross income. W2 book for 1040ez Disabled dependent working at sheltered workshop. W2 book for 1040ez   For purposes of the gross income test, the gross income of an individual who is permanently and totally disabled at any time during the year does not include income for services the individual performs at a sheltered workshop. W2 book for 1040ez The availability of medical care at the workshop must be the main reason for the individual's presence there. W2 book for 1040ez Also, the income must come solely from activities at the workshop that are incident to this medical care. W2 book for 1040ez   A “sheltered workshop” is a school that: Provides special instruction or training designed to alleviate the disability of the individual, and Is operated by certain tax-exempt organizations, or by a state, a U. W2 book for 1040ez S. W2 book for 1040ez possession, a political subdivision of a state or possession, the United States, or the District of Columbia. W2 book for 1040ez “Permanently and totally disabled” has the same meaning here as under Qualifying Child, earlier. W2 book for 1040ez Support Test (To Be a Qualifying Relative) To meet this test, you generally must provide more than half of a person's total support during the calendar year. W2 book for 1040ez However, if two or more persons provide support, but no one person provides more than half of a person's total support, see Multiple Support Agreement , later. W2 book for 1040ez How to determine if support test is met. W2 book for 1040ez   You figure whether you have provided more than half of a person's total support by comparing the amount you contributed to that person's support with the entire amount of support that person received from all sources. W2 book for 1040ez This includes support the person provided from his or her own funds. W2 book for 1040ez   You may find Worksheet 3-1 helpful in figuring whether you provided more than half of a person's support. W2 book for 1040ez Person's own funds not used for support. W2 book for 1040ez   A person's own funds are not support unless they are actually spent for support. W2 book for 1040ez Example. W2 book for 1040ez Your mother received $2,400 in social security benefits and $300 in interest. W2 book for 1040ez She paid $2,000 for lodging and $400 for recreation. W2 book for 1040ez She put $300 in a savings account. W2 book for 1040ez Even though your mother received a total of $2,700 ($2,400 + $300), she spent only $2,400 ($2,000 + $400) for her own support. W2 book for 1040ez If you spent more than $2,400 for her support and no other support was received, you have provided more than half of her support. W2 book for 1040ez Child's wages used for own support. W2 book for 1040ez   You cannot include in your contribution to your child's support any support paid for by the child with the child's own wages, even if you paid the wages. W2 book for 1040ez Year support is provided. W2 book for 1040ez   The year you provide the support is the year you pay for it, even if you do so with borrowed money that you repay in a later year. W2 book for 1040ez   If you use a fiscal year to report your income, you must provide more than half of the dependent's support for the calendar year in which your fiscal year begins. W2 book for 1040ez Armed Forces dependency allotments. W2 book for 1040ez   The part of the allotment contributed by the government and the part taken out of your military pay are both considered provided by you in figuring whether you provide more than half of the support. W2 book for 1040ez If your allotment is used to support persons other than those you name, you can take the exemptions for them if they otherwise qualify. W2 book for 1040ez Example. W2 book for 1040ez You are in the Armed Forces. W2 book for 1040ez You authorize an allotment for your widowed mother that she uses to support herself and her sister. W2 book for 1040ez If the allotment provides more than half of each person's support, you can take an exemption for each of them, if they otherwise qualify, even though you authorize the allotment only for your mother. W2 book for 1040ez Tax-exempt military quarters allowances. W2 book for 1040ez   These allowances are treated the same way as dependency allotments in figuring support. W2 book for 1040ez The allotment of pay and the tax-exempt basic allowance for quarters are both considered as provided by you for support. W2 book for 1040ez Tax-exempt income. W2 book for 1040ez   In figuring a person's total support, include tax-exempt income, savings, and borrowed amounts used to support that person. W2 book for 1040ez Tax-exempt income includes certain social security benefits, welfare benefits, nontaxable life insurance proceeds, Armed Forces family allotments, nontaxable pensions, and tax-exempt interest. W2 book for 1040ez Example 1. W2 book for 1040ez You provide $4,000 toward your mother's support during the year. W2 book for 1040ez She has earned income of $600, nontaxable social security benefits of $4,800, and tax-exempt interest of $200. W2 book for 1040ez She uses all these for her support. W2 book for 1040ez You cannot claim an exemption for your mother because the $4,000 you provide is not more than half of her total support of $9,600 ($4,000 + $600 + $4,800 + $200). W2 book for 1040ez Example 2. W2 book for 1040ez Your niece takes out a student loan of $2,500 a
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The W2 Book For 1040ez

W2 book for 1040ez 2. W2 book for 1040ez   Electing the Section 179 Deduction Table of Contents Introduction Useful Items - You may want to see: What Property Qualifies?Eligible Property Property Acquired for Business Use Property Acquired by Purchase What Property Does Not Qualify?Land and Improvements Excepted Property How Much Can You Deduct?Dollar Limits Business Income Limit Partnerships and Partners S Corporations Other Corporations How Do You Elect the Deduction? When Must You Recapture the Deduction? Introduction You can elect 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. W2 book for 1040ez This is the section 179 deduction. W2 book for 1040ez You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions. W2 book for 1040ez Estates and trusts cannot elect the section 179 deduction. W2 book for 1040ez This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. W2 book for 1040ez It also explains when and how to recapture the deduction. W2 book for 1040ez Useful Items - You may want to see: Publication 537 Installment Sales 544 Sales and Other Dispositions of Assets 954 Tax Incentives for Distressed Communities Form (and Instructions) 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. W2 book for 1040ez What Property Qualifies? To qualify for the section 179 deduction, your property must meet all the following requirements. W2 book for 1040ez It must be eligible property. W2 book for 1040ez It must be acquired for business use. W2 book for 1040ez It must have been acquired by purchase. W2 book for 1040ez It must not be property described later under What Property Does Not Qualify . W2 book for 1040ez The following discussions provide information about these requirements and exceptions. W2 book for 1040ez Eligible Property To qualify for the section 179 deduction, your property must be one of the following types of depreciable property. W2 book for 1040ez Tangible personal property. W2 book for 1040ez Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services, A research facility used in connection with any of the activities in (a) above, or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. W2 book for 1040ez Single purpose agricultural (livestock) or horticultural structures. W2 book for 1040ez See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures. W2 book for 1040ez Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. W2 book for 1040ez Off-the-shelf computer software. W2 book for 1040ez Qualified real property (described below). W2 book for 1040ez Tangible personal property. W2 book for 1040ez   Tangible personal property is any tangible property that is not real property. W2 book for 1040ez It includes the following property. W2 book for 1040ez Machinery and equipment. W2 book for 1040ez Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. W2 book for 1040ez Gasoline storage tanks and pumps at retail service stations. W2 book for 1040ez Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals. W2 book for 1040ez   The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. W2 book for 1040ez For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law. W2 book for 1040ez Off-the-shelf computer software. W2 book for 1040ez   Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. W2 book for 1040ez This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. W2 book for 1040ez It includes any program designed to cause a computer to perform a desired function. W2 book for 1040ez However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software. W2 book for 1040ez Qualified real property. W2 book for 1040ez   You can elect to treat certain qualified real property you placed in service as section 179 property for tax years beginning in 2013. W2 book for 1040ez If this election is made, the term “section 179 property” will include any qualified real property that is: Qualified leasehold improvement property, Qualified restaurant property, or Qualified retail improvement property. W2 book for 1040ez The maximum section 179 expense deduction that can be elected for qualified section 179 real property is $250,000 of the maximum section 179 deduction of $500,000 in 2013. W2 book for 1040ez For more information, see Special rules for qualified section 179 real property, later. W2 book for 1040ez Also, see Election for certain qualified section 179 real property, later, for information on how to make this election. W2 book for 1040ez Qualified leasehold improvement property. W2 book for 1040ez   Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. W2 book for 1040ez   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. W2 book for 1040ez A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. W2 book for 1040ez Examples include the following. W2 book for 1040ez A complete liquidation of a subsidiary. W2 book for 1040ez A transfer to a corporation controlled by the transferor. W2 book for 1040ez An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. W2 book for 1040ez Qualified restaurant property. W2 book for 1040ez   Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service after December 31, 2008, and before January 1, 2014. W2 book for 1040ez Also, more than 50% of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals. W2 book for 1040ez Qualified retail improvement property. W2 book for 1040ez   Generally, this is any improvement (placed in service after December 31, 2008, and before January 1, 2014) to an interior portion of nonresidential real property if it meets the following requirements. W2 book for 1040ez The portion is open to the general public and is used in the retail trade or business of selling tangible property to the general public. W2 book for 1040ez The improvement is placed in service more than 3 years after the date the building was first placed in service. W2 book for 1040ez The expenses are not for the enlargement of the building, any elevator or escalator, any structural components benefiting a common area, or the internal structural framework of the building. W2 book for 1040ez In addition, an improvement made by the lessor does not qualify as qualified retail improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. W2 book for 1040ez A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. W2 book for 1040ez Examples include the following. W2 book for 1040ez A complete liquidation of a subsidiary. W2 book for 1040ez A transfer to a corporation controlled by the transferor. W2 book for 1040ez An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. W2 book for 1040ez Property Acquired for Business Use To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. W2 book for 1040ez Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify. W2 book for 1040ez Partial business use. W2 book for 1040ez   When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. W2 book for 1040ez If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. W2 book for 1040ez Use the resulting business cost to figure your section 179 deduction. W2 book for 1040ez Example. W2 book for 1040ez May Oak bought and placed in service an item of section 179 property costing $11,000. W2 book for 1040ez She used the property 80% for her business and 20% for personal purposes. W2 book for 1040ez The business part of the cost of the property is $8,800 (80% × $11,000). W2 book for 1040ez Property Acquired by Purchase To qualify for the section 179 deduction, your property must have been acquired by purchase. W2 book for 1040ez For example, property acquired by gift or inheritance does not qualify. W2 book for 1040ez Property is not considered acquired by purchase in the following situations. W2 book for 1040ez It is acquired by one component member of a controlled group from another component member of the same group. W2 book for 1040ez Its basis is determined either— In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or Under the stepped-up basis rules for property acquired from a decedent. W2 book for 1040ez It is acquired from a related person. W2 book for 1040ez Related persons. W2 book for 1040ez   Related persons are described under Related persons earlier. W2 book for 1040ez However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only his or her spouse, ancestors, and lineal descendants and substitute "50%" for "10%" each place it appears. W2 book for 1040ez Example. W2 book for 1040ez Ken Larch is a tailor. W2 book for 1040ez He bought two industrial sewing machines from his father. W2 book for 1040ez He placed both machines in service in the same year he bought them. W2 book for 1040ez They do not qualify as section 179 property because Ken and his father are related persons. W2 book for 1040ez He cannot claim a section 179 deduction for the cost of these machines. W2 book for 1040ez What Property Does Not Qualify? Certain property does not qualify for the section 179 deduction. W2 book for 1040ez This includes the following. W2 book for 1040ez Land and Improvements Land and land improvements do not qualify as section 179 property. W2 book for 1040ez Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences. W2 book for 1040ez Excepted Property Even if the requirements explained earlier under What Property Qualifies are met, you cannot elect the section 179 deduction for the following property. W2 book for 1040ez Certain property you lease to others (if you are a noncorporate lessor). W2 book for 1040ez Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. W2 book for 1040ez Air conditioning or heating units. W2 book for 1040ez Property used predominantly outside the United States, except property described in section 168(g)(4) of the Internal Revenue Code. W2 book for 1040ez Property used by certain tax-exempt organizations, except property used in connection with the production of income subject to the tax on unrelated trade or business income. W2 book for 1040ez Property used by governmental units or foreign persons or entities, except property used under a lease with a term of less than 6 months. W2 book for 1040ez Leased property. W2 book for 1040ez   Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. W2 book for 1040ez This rule does not apply to corporations. W2 book for 1040ez However, you can claim a section 179 deduction for the cost of the following property. W2 book for 1040ez Property you manufacture or produce and lease to others. W2 book for 1040ez Property you purchase and lease to others if both the following tests are met. W2 book for 1040ez The term of the lease (including options to renew) is less than 50% of the property's class life. W2 book for 1040ez For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property. W2 book for 1040ez Property used for lodging. W2 book for 1040ez   Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. W2 book for 1040ez However, this does not apply to the following types of property. W2 book for 1040ez Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities. W2 book for 1040ez Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients. W2 book for 1040ez Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures. W2 book for 1040ez Any energy property. W2 book for 1040ez Energy property. W2 book for 1040ez   Energy property is property that meets the following requirements. W2 book for 1040ez It is one of the following types of property. W2 book for 1040ez Equipment that uses solar energy to generate electricity, to heat or cool a structure, to provide hot water for use in a structure, or to provide solar process heat, except for equipment used to generate energy to heat a swimming pool. W2 book for 1040ez Equipment placed in service after December 31, 2005, and before January 1, 2017, that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. W2 book for 1040ez Equipment used to produce, distribute, or use energy derived from a geothermal deposit. W2 book for 1040ez For electricity generated by geothermal power, this includes equipment up to (but not including) the electrical transmission stage. W2 book for 1040ez Qualified fuel cell property or qualified microturbine property placed in service after December 31, 2005, and before January 1, 2017. W2 book for 1040ez The construction, reconstruction, or erection of the property must be completed by you. W2 book for 1040ez For property you acquire, the original use of the property must begin with you. W2 book for 1040ez The property must meet the performance and quality standards, if any, prescribed by Income Tax Regulations in effect at the time you get the property. W2 book for 1040ez   For periods before February 14, 2008, energy property does not include any property that is public utility property as defined by section 46(f)(5) of the Internal Revenue Code (as in effect on November 4, 1990). W2 book for 1040ez How Much Can You Deduct? Your section 179 deduction is generally the cost of the qualifying property. W2 book for 1040ez However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. W2 book for 1040ez These limits apply to each taxpayer, not to each business. W2 book for 1040ez However, see Married Individuals under Dollar Limits , later. W2 book for 1040ez For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. W2 book for 1040ez See Do the Passenger Automobile Limits Apply in chapter 5 . W2 book for 1040ez If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct. W2 book for 1040ez Trade-in of other property. W2 book for 1040ez   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 deduction includes only the cash you paid. W2 book for 1040ez Example. W2 book for 1040ez Silver Leaf, a retail bakery, traded two ovens having a total adjusted basis of $680 for a new oven costing $1,320. W2 book for 1040ez They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. W2 book for 1040ez The bakery also traded a used van with an adjusted basis of $4,500 for a new van costing $9,000. W2 book for 1040ez They received a $4,800 trade-in allowance on the used van and paid $4,200 in cash for the new van. W2 book for 1040ez Only the portion of the new property's basis paid by cash qualifies for the section 179 deduction. W2 book for 1040ez Therefore, Silver Leaf's qualifying costs for the section 179 deduction are $4,720 ($520 + $4,200). W2 book for 1040ez Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 generally cannot be more than $500,000. W2 book for 1040ez If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. W2 book for 1040ez You do not have to claim the full $500,000. W2 book for 1040ez Qualified real property (described earlier) that you elected to treat as section 179 real property is limited to $250,000 of the maximum deduction of $500,000 for 2013. W2 book for 1040ez The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year. W2 book for 1040ez After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction. W2 book for 1040ez Example. W2 book for 1040ez In 2013, you bought and placed in service $500,000 in machinery and a $25,000 circular saw for your business. W2 book for 1040ez You elect to deduct $475,000 for the machinery and the entire $25,000 for the saw, a total of $500,000. W2 book for 1040ez This is the maximum amount you can deduct. W2 book for 1040ez Your $25,000 deduction for the saw completely recovered its cost. W2 book for 1040ez Your basis for depreciation is zero. W2 book for 1040ez The basis for depreciation of your machinery is $25,000. W2 book for 1040ez You figure this by subtracting your $475,000 section 179 deduction for the machinery from the $500,000 cost of the machinery. W2 book for 1040ez Situations affecting dollar limit. W2 book for 1040ez   Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. W2 book for 1040ez The general dollar limit is affected by any of the following situations. W2 book for 1040ez The cost of your section 179 property placed in service exceeds $2,000,000. W2 book for 1040ez Your business is an enterprise zone business. W2 book for 1040ez You placed in service a sport utility or certain other vehicles. W2 book for 1040ez You are married filing a joint or separate return. W2 book for 1040ez Costs exceeding $2,000,000 If the cost of your qualifying section 179 property placed in service in a year is more than $2,000,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,000,000. W2 book for 1040ez If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. W2 book for 1040ez Example. W2 book for 1040ez In 2013, Jane Ash placed in service machinery costing $2,100,000. W2 book for 1040ez This cost is $100,000 more than $2,000,000, so she must reduce her dollar limit to $400,000 ($500,000 − $100,000). W2 book for 1040ez Enterprise Zone Businesses An increased section 179 deduction is available to enterprise zone businesses for qualified zone property placed in service during the tax year, in an empowerment zone. W2 book for 1040ez For more information including the definitions of “enterprise zone business” and “qualified zone property,” see sections 1397A, 1397C, and 1397D of the Internal Revenue Code. W2 book for 1040ez The dollar limit on the section 179 deduction is increased by the smaller of: $35,000, or The cost of section 179 property that is also qualified zone property placed in service before January 1, 2014 (including such property placed in service by your spouse, even if you are filing a separate return). W2 book for 1040ez Note. W2 book for 1040ez   You take into account only 50% (instead of 100%) of the cost of qualified zone property placed in service in a year when figuring the reduced dollar limit for costs exceeding $2,000,000 (explained earlier). W2 book for 1040ez Sport Utility and Certain Other Vehicles You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. W2 book for 1040ez This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. W2 book for 1040ez However, the $25,000 limit does not apply to any vehicle: Designed to seat more than nine passengers behind the driver's seat, Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. W2 book for 1040ez Married Individuals If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. W2 book for 1040ez If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. W2 book for 1040ez If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2,000,000. W2 book for 1040ez You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. W2 book for 1040ez If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. W2 book for 1040ez Example. W2 book for 1040ez Jack Elm is married. W2 book for 1040ez He and his wife file separate returns. W2 book for 1040ez Jack bought and placed in service $2,000,000 of qualified farm machinery in 2013. W2 book for 1040ez His wife has her own business, and she bought and placed in service $30,000 of qualified business equipment. W2 book for 1040ez Their combined dollar limit is $470,000. W2 book for 1040ez This is because they must figure the limit as if they were one taxpayer. W2 book for 1040ez They reduce the $500,000 dollar limit by the $30,000 excess of their costs over $2,000,000. W2 book for 1040ez They elect to allocate the $470,000 dollar limit as follows. W2 book for 1040ez $446,500 ($470,000 x 95%) to Mr. W2 book for 1040ez Elm's machinery. W2 book for 1040ez $23,500 ($470,000 x 5%) to Mrs. W2 book for 1040ez Elm's equipment. W2 book for 1040ez If they did not make an election to allocate their costs in this way, they would have to allocate $235,000 ($470,000 × 50%) to each of them. W2 book for 1040ez Joint return after filing separate returns. W2 book for 1040ez   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. W2 book for 1040ez The dollar limit (after reduction for any cost of section 179 property over $2,000,000). W2 book for 1040ez The total cost of section 179 property you and your spouse elected to expense on your separate returns. W2 book for 1040ez Example. W2 book for 1040ez The facts are the same as in the previous example except that Jack elected to deduct $30,000 of the cost of section 179 property on his separate return and his wife elected to deduct $2,000. W2 book for 1040ez After the due date of their returns, they file a joint return. W2 book for 1040ez Their dollar limit for the section 179 deduction is $32,000. W2 book for 1040ez This is the lesser of the following amounts. W2 book for 1040ez $470,000—The dollar limit less the cost of section 179 property over $2,000,000. W2 book for 1040ez $32,000—The total they elected to expense on their separate returns. W2 book for 1040ez Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. W2 book for 1040ez Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. W2 book for 1040ez Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. W2 book for 1040ez Special rules apply to a 2013 deduction of qualified section 179 real property that is disallowed because of the business income limit. W2 book for 1040ez See Special rules for qualified section 179 property under Carryover of disallowed deduction, later. W2 book for 1040ez Taxable income. W2 book for 1040ez   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. W2 book for 1040ez Net income or loss from a trade or business includes the following items. W2 book for 1040ez Section 1231 gains (or losses). W2 book for 1040ez Interest from working capital of your trade or business. W2 book for 1040ez Wages, salaries, tips, or other pay earned as an employee. W2 book for 1040ez For information about section 1231 gains and losses, see chapter 3 in Publication 544. W2 book for 1040ez   In addition, figure taxable income without regard to any of the following. W2 book for 1040ez The section 179 deduction. W2 book for 1040ez The self-employment tax deduction. W2 book for 1040ez Any net operating loss carryback or carryforward. W2 book for 1040ez Any unreimbursed employee business expenses. W2 book for 1040ez Two different taxable income limits. W2 book for 1040ez   In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. W2 book for 1040ez You may have to figure the limit for this other deduction taking into account the section 179 deduction. W2 book for 1040ez If so, complete the following steps. W2 book for 1040ez Step Action 1 Figure taxable income without the section 179 deduction or the other deduction. W2 book for 1040ez 2 Figure a hypothetical section 179 deduction using the taxable income figured in Step 1. W2 book for 1040ez 3 Subtract the hypothetical section 179 deduction figured in Step 2 from the taxable income figured in Step 1. W2 book for 1040ez 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. W2 book for 1040ez 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1. W2 book for 1040ez 6 Figure your actual section 179 deduction using the taxable income figured in Step 5. W2 book for 1040ez 7 Subtract your actual section 179 deduction figured in Step 6 from the taxable income figured in Step 1. W2 book for 1040ez 8 Figure your actual other deduction using the taxable income figured in Step 7. W2 book for 1040ez Example. W2 book for 1040ez On February 1, 2013, the XYZ corporation purchased and placed in service qualifying section 179 property that cost $500,000. W2 book for 1040ez It elects to expense the entire $500,000 cost under section 179. W2 book for 1040ez In June, the corporation gave a charitable contribution of $10,000. W2 book for 1040ez A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. W2 book for 1040ez The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. W2 book for 1040ez XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $520,000. W2 book for 1040ez XYZ figures its section 179 deduction and its deduction for charitable contributions as follows. W2 book for 1040ez Step 1– Taxable income figured without either deduction is $520,000. W2 book for 1040ez Step 2– Using $520,000 as taxable income, XYZ's hypothetical section 179 deduction is $500,000. W2 book for 1040ez Step 3– $20,000 ($520,000 − $500,000). W2 book for 1040ez Step 4– Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. W2 book for 1040ez Step 5– $518,000 ($520,000 − $2,000). W2 book for 1040ez Step 6– Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. W2 book for 1040ez Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 deduction. W2 book for 1040ez Step 7– $20,000 ($520,000 − $500,000). W2 book for 1040ez Step 8– Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. W2 book for 1040ez Carryover of disallowed deduction. W2 book for 1040ez   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. W2 book for 1040ez This disallowed deduction amount is shown on line 13 of Form 4562. W2 book for 1040ez You use the amount you carry over to determine your section 179 deduction in the next year. W2 book for 1040ez Enter that amount on line 10 of your Form 4562 for the next year. W2 book for 1040ez   If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. W2 book for 1040ez Your selections must be shown in your books and records. W2 book for 1040ez For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. W2 book for 1040ez If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year. W2 book for 1040ez   If costs from more than one year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first. W2 book for 1040ez Special rules for qualified section 179 real property. W2 book for 1040ez   You can carry over to 2013 a 2012 deduction attributable to qualified section 179 real property that you elected to expense but were unable to take because of the business income limitation. W2 book for 1040ez Any such 2012 carryover amounts that are not deducted in 2013, plus any 2013 disallowed section 179 expense deductions attributable to qualified real property, are not carried over to 2014. W2 book for 1040ez Instead these amounts are treated as property placed in service on the first day of 2013 for purposes of computing depreciation (including the special depreciation allowance, if applicable). W2 book for 1040ez See section 179(f) of the Internal Revenue Code and Notice 2013-59 for more information. W2 book for 1040ez If there is a sale or other disposition of your property (including a transfer at death) before you can use the full amount of any outstanding carryover of your disallowed section 179 deduction, neither you nor the new owner can deduct any of the unused amount. W2 book for 1040ez Instead, you must add it back to the property's basis. W2 book for 1040ez Partnerships and Partners The section 179 deduction limits apply both to the partnership and to each partner. W2 book for 1040ez The partnership determines its section 179 deduction subject to the limits. W2 book for 1040ez It then allocates the deduction among its partners. W2 book for 1040ez Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. W2 book for 1040ez ) to his or her nonpartnership section 179 costs and then applies the dollar limit to this total. W2 book for 1040ez To determine any reduction in the dollar limit for costs over $2,000,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. W2 book for 1040ez After the dollar limit (reduced for any nonpartnership section 179 costs over $2,000,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit. W2 book for 1040ez Partnership's taxable income. W2 book for 1040ez   For purposes of the business income limit, figure the partnership's taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. W2 book for 1040ez See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). W2 book for 1040ez However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code. W2 book for 1040ez Partner's share of partnership's taxable income. W2 book for 1040ez   For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership's trades or businesses includes his or her allocable share of taxable income derived from the partnership's active conduct of any trade or business. W2 book for 1040ez Example. W2 book for 1040ez In 2013, Beech Partnership placed in service section 179 property with a total cost of $2,025,000. W2 book for 1040ez The partnership must reduce its dollar limit by $25,000 ($2,025,000 − $2,000,000). W2 book for 1040ez Its maximum section 179 deduction is $475,000 ($500,000 − $25,000), and it elects to expense that amount. W2 book for 1040ez The partnership's taxable income from the active conduct of all its trades or businesses for the year was $600,000, so it can deduct the full $475,000. W2 book for 1040ez It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners. W2 book for 1040ez In addition to being a partner in Beech Partnership, Dean is also a partner in the Cedar Partnership, which allocated to him a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. W2 book for 1040ez He also conducts a business as a sole proprietor and, in 2013, placed in service in that business qualifying section 179 property costing $55,000. W2 book for 1040ez He had a net loss of $5,000 from that business for the year. W2 book for 1040ez Dean does not have to include section 179 partnership costs to figure any reduction in his dollar limit, so his total section 179 costs for the year are not more than $2,000,000 and his dollar limit is not reduced. W2 book for 1040ez His maximum section 179 deduction is $500,000. W2 book for 1040ez He elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of his sole proprietorship's section 179 costs, and notes that information in his books and records. W2 book for 1040ez However, his deduction is limited to his business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership minus $5,000 loss from his sole proprietorship). W2 book for 1040ez He carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2014. W2 book for 1040ez He allocates the carryover amount to the cost of section 179 property placed in service in his sole proprietorship, and notes that allocation in his books and records. W2 book for 1040ez Different tax years. W2 book for 1040ez   For purposes of the business income limit, if the partner's tax year and that of the partnership differ, the partner's share of the partnership's taxable income for a tax year is generally the partner's distributive share for the partnership tax year that ends with or within the partner's tax year. W2 book for 1040ez Example. W2 book for 1040ez John and James Oak are equal partners in Oak Partnership. W2 book for 1040ez Oak Partnership uses a tax year ending January 31. W2 book for 1040ez John and James both use a tax year ending December 31. W2 book for 1040ez For its tax year ending January 31, 2013, Oak Partnership's taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2012. W2 book for 1040ez John and James each include $40,000 (each partner's entire share) of partnership taxable income in computing their business income limit for the 2013 tax year. W2 book for 1040ez Adjustment of partner's basis in partnership. W2 book for 1040ez   A partner must reduce the basis of his or her partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. W2 book for 1040ez If the partner disposes of his or her partnership interest, the partner's basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership. W2 book for 1040ez Adjustment of partnership's basis in section 179 property. W2 book for 1040ez   The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. W2 book for 1040ez This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits. W2 book for 1040ez S Corporations Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. W2 book for 1040ez The deduction limits apply to an S corporation and to each shareholder. W2 book for 1040ez The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits. W2 book for 1040ez Figuring taxable income for an S corporation. W2 book for 1040ez   To figure taxable income (or loss) from the active conduct by an S corporation of any trade or business, you total the net income and losses from all trades or businesses actively conducted by the S corporation during the year. W2 book for 1040ez   To figure the net income (or loss) from a trade or business actively conducted by an S corporation, you take into account the items from that trade or business that are passed through to the shareholders and used in determining each shareholder's tax liability. W2 book for 1040ez However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. W2 book for 1040ez For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. W2 book for 1040ez In figuring the taxable income of an S corporation, disregard any limits on the amount of an S corporation item that must be taken into account when figuring a shareholder's taxable income. W2 book for 1040ez Other Corporations A corporation's taxable income from its active conduct of any trade or business is its taxable income figured with the following changes. W2 book for 1040ez It is figured before deducting the section 179 deduction, any net operating loss deduction, and special deductions (as reported on the corporation's income tax return). W2 book for 1040ez It is adjusted for items of income or deduction included in the amount figured in 1, above, not derived from a trade or business actively conducted by the corporation during the tax year. W2 book for 1040ez How Do You Elect the Deduction? You elect to take the section 179 deduction by completing Part I of Form 4562. W2 book for 1040ez If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I. W2 book for 1040ez For property placed in service in 2013, file Form 4562 with either of the following. W2 book for 1040ez Your original 2013 tax return, whether or not you file it timely. W2 book for 1040ez An amended return for 2013 filed within the time prescribed by law. W2 book for 1040ez An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. W2 book for 1040ez The amended return must also include any resulting adjustments to taxable income. W2 book for 1040ez You must keep records that show the specific identification of each piece of qualifying section 179 property. W2 book for 1040ez These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. W2 book for 1040ez Election for certain qualified section 179 real property. W2 book for 1040ez   You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2013. W2 book for 1040ez If you elect to treat this property as section 179 property, you must elect the application of the special rules for qualified real property described in section 179(f) of the Internal Revenue Code. W2 book for 1040ez   To make the election, attach a statement indicating you are “electing the application of section 179(f) of the Internal Revenue Code” with either of the following. W2 book for 1040ez Your original 2013 tax return, whether or not you file it timely. W2 book for 1040ez An amended return for 2013 filed within the time prescribed by law. W2 book for 1040ez The amended return must also include any adjustments to taxable income. W2 book for 1040ez   The statement should indicate your election to expense certain qualified real property under section 179(f) on your return. W2 book for 1040ez It must specify one or more of the three types of qualified property (described under Qualified real property ) to which the election applies, the cost of each such type, and the portion of the cost of each such property to be taken into account. W2 book for 1040ez Also, report this on line 6 of Form 4562. W2 book for 1040ez    The maximum section 179 expense deduction that can be taken for qualified section 179 real property is limited to $250,000. W2 book for 1040ez Revoking an election. W2 book for 1040ez   An election (or any specification made in the election) to take a section 179 deduction for 2013 can be revoked without IRS approval by filing an amended return. W2 book for 1040ez The amended return must be filed within the time prescribed by law. W2 book for 1040ez The amended return must also include any resulting adjustments to taxable income. W2 book for 1040ez Once made, the revocation is irrevocable. W2 book for 1040ez When Must You Recapture the Deduction? You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. W2 book for 1040ez In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV of Form 4797. W2 book for 1040ez You also increase the basis of the property by the recapture amount. W2 book for 1040ez Recovery periods for property are discussed under Which Recovery Period Applies in chapter 4 . W2 book for 1040ez If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. W2 book for 1040ez Instead, use the rules for recapturing depreciation explained in chapter 3 of Publication 544 under Section 1245 Property. W2 book for 1040ez For qualified real property (described earlier), see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. W2 book for 1040ez If the property is listed property (described in chapter 5 ), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. W2 book for 1040ez Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement. W2 book for 1040ez Figuring the recapture amount. W2 book for 1040ez   To figure the amount to recapture, take the following steps. W2 book for 1040ez Figure the depreciation that would have been allowable on the section 179 deduction you claimed. W2 book for 1040ez Begin with the year you placed the property in service and include the year of recapture. W2 book for 1040ez Subtract the depreciation figured in (1) from the section 179 deduction you claimed. W2 book for 1040ez The result is the amount you must recapture. W2 book for 1040ez Example. W2 book for 1040ez In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. W2 book for 1040ez The property is not listed property. W2 book for 1040ez The property is 3-year property. W2 book for 1040ez He elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. W2 book for 1040ez He used the property only for business in 2011 and 2012. W2 book for 1040ez In 2013, he used the property 40% for business and 60% for personal use. W2 book for 1040ez He figures his recapture amount as follows. W2 book for 1040ez Section 179 deduction claimed (2011) $5,000. W2 book for 1040ez 00 Minus: Allowable depreciation using Table A-1 (instead of section 179 deduction):   2011 $1,666. W2 book for 1040ez 50   2012 2,222. W2 book for 1040ez 50   2013 ($740. W2 book for 1040ez 50 × 40% (business)) 296. W2 book for 1040ez 20 4,185. W2 book for 1040ez 20 2013 — Recapture amount $ 814. W2 book for 1040ez 80 Paul must include $814. W2 book for 1040ez 80 in income for 2013. W2 book for 1040ez If any qualified zone property placed in service during the year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return. W2 book for 1040ez Prev  Up  Next   Home   More Online Publications