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2011 Income Tax

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2011 Income Tax

2011 income tax 12. 2011 income tax   Business Deduction for Work-Related Education Table of Contents What's New Introduction Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. 2011 income tax Transportation Expenses Travel Expenses No Double Benefit Allowed How To Treat ReimbursementsAccountable Plans Nonaccountable Plans Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping Illustrated Example What's New Standard mileage rate. 2011 income tax  Generally, if you claim a business deduction for work-related education and you drive your car to and from school, the amount you can deduct for miles driven from January 1, 2013 through December 31, 2013, is 56. 2011 income tax 5 cents per mile. 2011 income tax For more information, see Transportation Expenses under What Expenses Can Be Deducted, later. 2011 income tax Introduction This chapter discusses work-related education expenses that you may be able to deduct as business expenses. 2011 income tax To claim such a deduction, you must: Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee, File Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming if you are self-employed, and Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education , later. 2011 income tax What is the tax benefit of taking a business deduction for work-related education. 2011 income tax   If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. 2011 income tax Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses (except for impairment-related work expenses of disabled individuals) is greater than 2% of your adjusted gross income. 2011 income tax An itemized deduction reduces the amount of your income subject to tax. 2011 income tax   If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. 2011 income tax This reduces the amount of your income subject to both income tax and self-employment tax. 2011 income tax   Your work-related education expenses may also qualify you for other tax benefits, such as the American opportunity and lifetime learning credits. 2011 income tax You may qualify for these other benefits even if you do not meet the requirements listed above. 2011 income tax   Also, your work-related education expenses may qualify you to claim more than one tax benefit. 2011 income tax Generally, you may claim any number of benefits as long as you use different expenses to figure each one. 2011 income tax Qualifying Work-Related Education You can deduct the costs of qualifying work-related education as business expenses. 2011 income tax This is education that meets at least one of the following two tests. 2011 income tax The education is required by your employer or the law to keep your present salary, status, or job. 2011 income tax The required education must serve a bona fide business purpose of your employer. 2011 income tax The education maintains or improves skills needed in your present work. 2011 income tax However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. 2011 income tax You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree. 2011 income tax Use Figure 12-1, Does Your Work-Related Education Qualify as a quick check to see if your education qualifies. 2011 income tax Education Required by Employer or by Law Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. 2011 income tax This additional education is qualifying work-related education if all three of the following requirements are met. 2011 income tax It is required for you to keep your present salary, status, or job, The requirement serves a bona fide business purpose of your employer, and The education is not part of a program that will qualify you for a new trade or business. 2011 income tax When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work. 2011 income tax See Education To Maintain or Improve Skills , later. 2011 income tax Example. 2011 income tax You are a teacher who has satisfied the minimum requirements for teaching. 2011 income tax Your employer requires you to take an additional college course each year to keep your teaching job. 2011 income tax If the courses will not qualify you for a new trade or business, they are qualifying work-related education even if you eventually receive a master's degree and an increase in salary because of this extra education. 2011 income tax This image is too large to be displayed in the current screen. 2011 income tax Please click the link to view the image. 2011 income tax Figure 12-1 Education To Maintain or Improve Skills If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. 2011 income tax This could include refresher courses, courses on current developments, and academic or vocational courses. 2011 income tax Example. 2011 income tax You repair televisions, radios, and stereo systems for XYZ Store. 2011 income tax To keep up with the latest changes, you take special courses in radio and stereo service. 2011 income tax These courses maintain and improve skills required in your work. 2011 income tax Maintaining skills vs. 2011 income tax qualifying for new job. 2011 income tax   Education to maintain or improve skills needed in your present work is not qualifying education if it will also qualify you for a new trade or business. 2011 income tax Education during temporary absence. 2011 income tax   If you stop working for a year or less in order to get education to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. 2011 income tax Education that you get during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your present work. 2011 income tax Example. 2011 income tax You quit your biology research job to become a full-time biology graduate student for 1 year. 2011 income tax If you return to work in biology research after completing the courses, the education is related to your present work even if you do not go back to work with the same employer. 2011 income tax Education during indefinite absence. 2011 income tax   If you stop work for more than a year, your absence from your job is considered indefinite. 2011 income tax Education during an indefinite absence, even if it maintains or improves skills needed in the work from which you are absent, is considered to qualify you for a new trade or business. 2011 income tax Therefore, it is not qualifying work-related education. 2011 income tax Education To Meet Minimum Requirements Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. 2011 income tax The minimum educational requirements are determined by: Laws and regulations, Standards of your profession, trade, or business, and Your employer. 2011 income tax Once you have met the minimum educational requirements that were in effect when you were hired, you do not have to meet any new minimum educational requirements. 2011 income tax This means that if the minimum requirements change after you were hired, any education you need to meet the new requirements can be qualifying education. 2011 income tax You have not necessarily met the minimum educational requirements of your trade or business simply because you are already doing the work. 2011 income tax Example 1. 2011 income tax You are a full-time engineering student. 2011 income tax Although you have not received your degree or certification, you work part time as an engineer for a firm that will employ you as a full-time engineer after you finish college. 2011 income tax Although your college engineering courses improve your skills in your present job, they are also needed to meet the minimum job requirements for a full-time engineer. 2011 income tax The education is not qualifying work-related education. 2011 income tax Example 2. 2011 income tax You are an accountant and you have met the minimum educational requirements of your employer. 2011 income tax Your employer later changes the minimum educational requirements and requires you to take college courses to keep your job. 2011 income tax These additional courses can be qualifying work-related education because you have already satisfied the minimum requirements that were in effect when you were hired. 2011 income tax Requirements for Teachers States or school districts usually set the minimum educational requirements for teachers. 2011 income tax The requirement is the college degree or the minimum number of college hours usually required of a person hired for that position. 2011 income tax If there are no requirements, you will have met the minimum educational requirements when you become a faculty member. 2011 income tax The determination of whether you are a faculty member of an educational institution must be made on the basis of the particular practices of the institution. 2011 income tax You generally will be considered a faculty member when one or more of the following occurs. 2011 income tax You have tenure. 2011 income tax Your years of service count toward obtaining tenure. 2011 income tax You have a vote in faculty decisions. 2011 income tax Your school makes contributions for you to a retirement plan other than social security or a similar program. 2011 income tax Example 1. 2011 income tax The law in your state requires beginning secondary school teachers to have a bachelor's degree, including 10 professional education courses. 2011 income tax In addition, to keep the job a teacher must complete a fifth year of training within 10 years from the date of hire. 2011 income tax If the employing school certifies to the state Department of Education that qualified teachers cannot be found, the school can hire persons with only 3 years of college. 2011 income tax However, to keep their jobs, these teachers must get a bachelor's degree and the required professional education courses within 3 years. 2011 income tax Under these facts, the bachelor's degree, whether or not it includes the 10 professional education courses, is considered the minimum educational requirement for qualification as a teacher in your state. 2011 income tax If you have all the required education except the fifth year, you have met the minimum educational requirements. 2011 income tax The fifth year of training is qualifying work-related education unless it is part of a program of study that will qualify you for a new trade or business. 2011 income tax Example 2. 2011 income tax Assume the same facts as in Example 1 except that you have a bachelor's degree and only six professional education courses. 2011 income tax The additional four education courses can be qualifying work-related education. 2011 income tax Although you do not have all the required courses, you have already met the minimum educational requirements. 2011 income tax Example 3. 2011 income tax Assume the same facts as in Example 1 except that you are hired with only 3 years of college. 2011 income tax The courses you take that lead to a bachelor's degree (including those in education) are not qualifying work-related education. 2011 income tax They are needed to meet the minimum educational requirements for employment as a teacher. 2011 income tax Example 4. 2011 income tax You have a bachelor's degree and you work as a temporary instructor at a university. 2011 income tax At the same time, you take graduate courses toward an advanced degree. 2011 income tax The rules of the university state that you can become a faculty member only if you get a graduate degree. 2011 income tax Also, you can keep your job as an instructor only as long as you show satisfactory progress toward getting this degree. 2011 income tax You have not met the minimum educational requirements to qualify you as a faculty member. 2011 income tax The graduate courses are not qualifying work-related education. 2011 income tax Certification in a new state. 2011 income tax   Once you have met the minimum educational requirements for teachers for your state, you are considered to have met the minimum educational requirements in all states. 2011 income tax This is true even if you must get additional education to be certified in another state. 2011 income tax Any additional education you need is qualifying work-related education. 2011 income tax You have already met the minimum requirements for teaching. 2011 income tax Teaching in another state is not a new trade or business. 2011 income tax Example. 2011 income tax You hold a permanent teaching certificate in State A and are employed as a teacher in that state for several years. 2011 income tax You move to State B and are promptly hired as a teacher. 2011 income tax You are required, however, to complete certain prescribed courses to get a permanent teaching certificate in State B. 2011 income tax These additional courses are qualifying work-related education because the teaching position in State B involves the same general kind of work for which you were qualified in State A. 2011 income tax Education That Qualifies You for a New Trade or Business Education that is part of a program of study that will qualify you for a new trade or business is not qualifying work-related education. 2011 income tax This is true even if you do not plan to enter that trade or business. 2011 income tax If you are an employee, a change of duties that involves the same general kind of work is not a new trade or business. 2011 income tax Example 1. 2011 income tax You are an accountant. 2011 income tax Your employer requires you to get a law degree at your own expense. 2011 income tax You register at a law school for the regular curriculum that leads to a law degree. 2011 income tax Even if you do not intend to become a lawyer, the education is not qualifying because the law degree will qualify you for a new trade or business. 2011 income tax Example 2. 2011 income tax You are a general practitioner of medicine. 2011 income tax You take a 2-week course to review developments in several specialized fields of medicine. 2011 income tax The course does not qualify you for a new profession. 2011 income tax It is qualifying work- related education because it maintains or improves skills required in your present profession. 2011 income tax Example 3. 2011 income tax While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. 2011 income tax The program will lead to qualifying you to practice psychoanalysis. 2011 income tax The psychoanalytic training does not qualify you for a new profession. 2011 income tax It is qualifying work-related education because it maintains or improves skills required in your present profession. 2011 income tax Bar or CPA Review Course Review courses to prepare for the bar examination or the certified public accountant (CPA) examination are not qualifying work-related education. 2011 income tax They are part of a program of study that can qualify you for a new profession. 2011 income tax Teaching and Related Duties All teaching and related duties are considered the same general kind of work. 2011 income tax A change in duties in any of the following ways is not considered a change to a new business. 2011 income tax Elementary school teacher to secondary school teacher. 2011 income tax Teacher of one subject, such as biology, to teacher of another subject, such as art. 2011 income tax Classroom teacher to guidance counselor. 2011 income tax Classroom teacher to school administrator. 2011 income tax What Expenses Can Be Deducted If your education meets the requirements described earlier under Qualifying Work-Related Education you can generally deduct your education expenses as business expenses. 2011 income tax If you are not self-employed, you can deduct business expenses only if you itemize your deductions. 2011 income tax You cannot deduct expenses related to tax-exempt and excluded income. 2011 income tax Deductible expenses. 2011 income tax   The following education expenses can be deducted. 2011 income tax Tuition, books, supplies, lab fees, and similar items. 2011 income tax Certain transportation and travel costs. 2011 income tax Other education expenses, such as costs of research and typing when writing a paper as part of an educational program. 2011 income tax Nondeductible expenses. 2011 income tax   You cannot deduct personal or capital expenses. 2011 income tax For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. 2011 income tax This amount is a personal expense. 2011 income tax Unclaimed reimbursement. 2011 income tax   If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to that unclaimed reimbursement. 2011 income tax Example. 2011 income tax Your employer agrees to pay your education expenses if you file a voucher showing your expenses. 2011 income tax You do not file a voucher and you do not get reimbursed. 2011 income tax Because you did not file a voucher, you cannot deduct the expenses on your tax return. 2011 income tax Transportation Expenses If your education qualifies, you can deduct local transportation costs of going directly from work to school. 2011 income tax If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home. 2011 income tax Temporary basis. 2011 income tax   You go to school on a temporary basis if either of the following situations applies to you. 2011 income tax Your attendance at school is realistically expected to last 1 year or less and does indeed last for 1 year or less. 2011 income tax Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. 2011 income tax Your attendance is temporary up to the date you determine it will last more than 1 year. 2011 income tax If you are in either situation (1) or (2) above, your attendance is not temporary if facts and circumstances indicate otherwise. 2011 income tax Attendance not on a temporary basis. 2011 income tax   You do not go to school on a temporary basis if either of the following situations apply to you. 2011 income tax Your attendance at school is realistically expected to last more than 1 year. 2011 income tax It does not matter how long you actually attend. 2011 income tax Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. 2011 income tax Your attendance is not temporary after the date you determine it will last more than 1 year. 2011 income tax Deductible Transportation Expenses If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. 2011 income tax This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days. 2011 income tax Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. 2011 income tax Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight. 2011 income tax Example 1. 2011 income tax You regularly work in a nearby town, and go directly from work to home. 2011 income tax You also attend school every work night for 3 months to take a course that improves your job skills. 2011 income tax Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. 2011 income tax This is true regardless of the distance traveled. 2011 income tax Example 2. 2011 income tax Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. 2011 income tax You can deduct your transportation expenses from your regular work site to school and then home. 2011 income tax Example 3. 2011 income tax Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. 2011 income tax Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school. 2011 income tax Example 4. 2011 income tax Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. 2011 income tax Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. 2011 income tax If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. 2011 income tax If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school. 2011 income tax Using your car. 2011 income tax    If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. 2011 income tax The standard mileage rate for miles driven from January 1, 2013 through December 31, 2013, is 56. 2011 income tax 5 cents per mile. 2011 income tax Whichever method you use, you can also deduct parking fees and tolls. 2011 income tax See Publication 463, chapter 4, for information on deducting your actual expenses of using a car. 2011 income tax Travel Expenses You can deduct expenses for travel, meals (see 50% limit on meals , later), and lodging if you travel overnight mainly to obtain qualifying work-related education. 2011 income tax Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. 2011 income tax For more information, see chapter 1 of Publication 463. 2011 income tax You cannot deduct expenses for personal activities such as sightseeing, visiting, or entertaining. 2011 income tax Mainly personal travel. 2011 income tax   If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. 2011 income tax You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities. 2011 income tax   Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. 2011 income tax An important factor is the comparison of time spent on personal activities with time spent on educational activities. 2011 income tax If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location. 2011 income tax Example 1. 2011 income tax John works in Newark, New Jersey. 2011 income tax He traveled to Chicago to take a deductible 1-week course at the request of his employer. 2011 income tax His main reason for going to Chicago was to take the course. 2011 income tax While there, he took a sightseeing trip, entertained some friends, and took a side trip to Pleasantville for a day. 2011 income tax Since the trip was mainly for business, John can deduct his round-trip airfare to Chicago. 2011 income tax He cannot deduct his transportation expenses of going to Pleasantville. 2011 income tax He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities. 2011 income tax Example 2. 2011 income tax Sue works in Boston. 2011 income tax She went to a university in Michigan to take a course for work. 2011 income tax The course is qualifying work-related education. 2011 income tax She took one course, which is one-fourth of a full course load of study. 2011 income tax She spent the rest of the time on personal activities. 2011 income tax Her reasons for taking the course in Michigan were all personal. 2011 income tax Sue's trip is mainly personal because three-fourths of her time is considered personal time. 2011 income tax She cannot deduct the cost of her round-trip train ticket to Michigan. 2011 income tax She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university. 2011 income tax Example 3. 2011 income tax Dave works in Nashville and recently traveled to California to take a 2-week seminar. 2011 income tax The seminar is qualifying work-related education. 2011 income tax While there, he spent an extra 8 weeks on personal activities. 2011 income tax The facts, including the extra 8-week stay, show that his main purpose was to take a vacation. 2011 income tax Dave cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. 2011 income tax He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar. 2011 income tax Cruises and conventions. 2011 income tax   Certain cruises and conventions offer seminars or courses as part of their itinerary. 2011 income tax Even if the seminars or courses are work related, your deduction for travel may be limited. 2011 income tax This applies to: Travel by ocean liner, cruise ship, or other form of luxury water transportation, and Conventions outside the North American area. 2011 income tax   For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in chapter 1 of Publication 463. 2011 income tax 50% limit on meals. 2011 income tax   You can deduct only 50% of the cost of your meals while traveling away from home to obtain qualifying work-related education. 2011 income tax If you were reimbursed for the meals, see How To Treat Reimbursements , later. 2011 income tax   Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit. 2011 income tax Travel as Education You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business. 2011 income tax Example. 2011 income tax You are a French language teacher. 2011 income tax While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. 2011 income tax You chose your itinerary and most of your activities to improve your French language skills. 2011 income tax You cannot deduct your travel expenses as education expenses. 2011 income tax This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities. 2011 income tax No Double Benefit Allowed You cannot do either of the following. 2011 income tax Deduct work-related education expenses as business expenses if you benefit from these expenses under any other provision of the law, for example, as a tuition and fees deduction. 2011 income tax Deduct work-related education expenses paid with tax-free scholarship, grant, or employer-provided educational assistance. 2011 income tax See Adjustments to Qualifying Work-Related Education Expenses, next. 2011 income tax Adjustments to Qualifying Work-Related Education Expenses If you pay qualifying work-related education expenses with certain tax-free funds, you cannot claim a deduction for those amounts. 2011 income tax You must reduce the qualifying expenses by the amount of such expenses allocable to the tax-free educational assistance. 2011 income tax Tax-free educational assistance. 2011 income tax   This includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). 2011 income tax Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. 2011 income tax Amounts that do not reduce qualifying work-related education expenses. 2011 income tax   Do not reduce the qualifying work-related education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. 2011 income tax Also, do not reduce the qualifying work-related education expenses by any scholarship or fellowship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualifying work-related education expenses. 2011 income tax How To Treat Reimbursements How you treat reimbursements depends on the arrangement you have with your employer. 2011 income tax There are two basic types of reimbursement arrangements—accountable plans and nonaccountable plans. 2011 income tax You can tell the type of plan you are reimbursed under by the way the reimbursement is reported on your Form W-2. 2011 income tax Note. 2011 income tax The following rules about reimbursement arrangements also apply to expense allowances received from your employer. 2011 income tax Accountable Plans To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules. 2011 income tax Your expenses must have a business connection. 2011 income tax This means your expenses must be deductible under the rules for qualifying work-related education explained earlier. 2011 income tax You must adequately account to your employer for your expenses within a reasonable period of time. 2011 income tax You must return any reimbursement or allowance in excess of the expenses accounted for within a reasonable period of time. 2011 income tax If you are reimbursed under an accountable plan, your employer should not include any reimbursement in your income in box 1 of your Form W-2. 2011 income tax If your employer included reimbursements in box 1 of your Form W-2 and you meet all three rules for accountable plans, ask your employer for a corrected Form W-2. 2011 income tax Accountable plan rules not met. 2011 income tax   Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules for accountable plans. 2011 income tax Those expenses that fail to meet the three rules are treated as having been reimbursed under a Nonaccountable Plan (discussed later). 2011 income tax Expenses equal reimbursement. 2011 income tax   Under an accountable plan, if your expenses equal your reimbursement, you do not complete Form 2106 or 2106-EZ. 2011 income tax Because your expenses and reimbursements are equal, you do not have a deduction. 2011 income tax Excess expenses. 2011 income tax   If your expenses are more than your reimbursement, you can deduct your excess expenses. 2011 income tax This is discussed later, under Deducting Business Expenses . 2011 income tax Allocating your reimbursements for meals. 2011 income tax   Because your excess meal expenses are subject to the 50% limit, you must figure them separately from your other expenses. 2011 income tax If your employer paid you a single amount to cover both meals and other expenses, you must allocate the reimbursement so that you can figure your excess meal expenses separately. 2011 income tax Make the allocation as follows. 2011 income tax Divide your meal expenses by your total expenses. 2011 income tax Multiply your total reimbursement by the result from (1). 2011 income tax This is the allocated reimbursement for your meal expenses. 2011 income tax Subtract the amount figured in (2) from your total reimbursement. 2011 income tax The difference is the allocated reimbursement for your other expenses of qualifying work-related education. 2011 income tax Example. 2011 income tax Your employer paid you an expense allowance of $2,000 under an accountable plan. 2011 income tax The allowance was to cover all of your expenses of traveling away from home to take a 2-week training course for work. 2011 income tax There was no indication of how much of the reimbursement was for each type of expense. 2011 income tax Your actual expenses equal $2,500 ($425 for meals + $700 lodging + $150 transportation expenses + $1,225 for books and tuition). 2011 income tax Using the steps listed above, allocate the reimbursement between the $425 meal expenses and the $2,075 other expenses. 2011 income tax   1. 2011 income tax $425 meal expenses  $2,500 total expenses = . 2011 income tax 17   2. 2011 income tax $2,000 (reimbursement)×. 2011 income tax 17     =$340 (allocated reimbursement for meal expenses)   3. 2011 income tax $2,000 (reimbursement)−$340 (meals)     = $1,660 (allocated reimbursement for other qualifying work-related education expenses) Your excess meal expenses are $85 ($425 − $340) and your excess other expenses are $415 ($2,075 − $1,660). 2011 income tax After you apply the 50% limit to your meals, you have a deduction for work-related education expenses of $458 (($85 × 50%) + $415). 2011 income tax Nonaccountable Plans Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay and report the total in box 1 of your Form W-2. 2011 income tax You can deduct your expenses regardless of whether they are more than, less than, or equal to your reimbursement. 2011 income tax This is discussed later under Deducting Business Expenses . 2011 income tax An illustrated example of a nonaccountable plan, using Form 2106-EZ, is shown at the end of this chapter. 2011 income tax Reimbursements for nondeductible expenses. 2011 income tax   Reimbursements you received for nondeductible expenses are treated as paid under a nonaccountable plan. 2011 income tax You must include them in your income. 2011 income tax For example, you must include in your income reimbursements your employer gave you for expenses of education that: You need to meet the minimum educational requirements for your job, or Is part of a program of study that can qualify you for a new trade or business. 2011 income tax   For more information on accountable and nonaccountable plans, see chapter 6 of Publication 463. 2011 income tax Deducting Business Expenses Self-employed persons and employees report their business expenses differently. 2011 income tax The following information explains what forms you must use to deduct the cost of your qualifying work-related education as a business expense. 2011 income tax Self-Employed Persons If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040)). 2011 income tax If your education expenses include expenses for a car or truck, travel, or meals, report those expenses the same way you report other business expenses for those items. 2011 income tax See the instructions for the form you file for information on how to complete it. 2011 income tax Employees If you are an employee, you can deduct the cost of qualifying work-related education only if you: Did not receive (and were not entitled to receive) any reimbursement from your employer, Were reimbursed under a nonaccountable plan (amount is included in box 1 of Form W-2), or Received reimbursement under an accountable plan, but the amount received was less than your expenses for which you claimed reimbursement. 2011 income tax If either (1) or (2) applies, you can deduct the total qualifying cost. 2011 income tax If (3) applies, you can deduct only the qualifying costs that were more than your reimbursement. 2011 income tax In order to deduct the cost of your qualifying work-related education as a business expense, include the amount with your deduction for any other employee business expenses on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. 2011 income tax (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. 2011 income tax ) This deduction (except for impairment-related work expenses of disabled individuals) is subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. 2011 income tax Form 2106 or 2106-EZ. 2011 income tax   To figure your deduction for employee business expenses, including qualifying work-related education, you generally must complete Form 2106 or 2106-EZ. 2011 income tax Form not required. 2011 income tax   Do not complete either Form 2106 or 2106-EZ if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are not claiming travel, transportation, meal, or entertainment expenses. 2011 income tax   If you meet both of these requirements, enter the expenses directly on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. 2011 income tax (Special rules for expenses of certain Performing Artists and Fee-Basis Officials and for Impairment-Related Work Expenses are explained later. 2011 income tax ) Using Form 2106-EZ. 2011 income tax   This form is shorter and easier to use than Form 2106. 2011 income tax Generally, you can use this form if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are using the standard mileage rate if you are claiming vehicle expenses. 2011 income tax   If you do not meet both of these requirements, use Form 2106. 2011 income tax Performing Artists and Fee-Basis Officials If you are a qualified performing artist, or a state (or local) government official who is paid in whole or in part on a fee basis, you can deduct the cost of your qualifying work-related education as an adjustment to gross income rather than as an itemized deduction. 2011 income tax Include the cost of your qualifying work-related education with any other employee business expenses on Form 1040, line 24, or Form 1040NR, line 35. 2011 income tax You do not have to itemize your deductions on Schedule A (Form 1040 or 1040NR), and, therefore, the deduction is not subject to the 2%-of-adjusted-gross-income limit. 2011 income tax You must complete Form 2106 or 2106-EZ to figure your deduction even if you meet the requirements described earlier under Form not required . 2011 income tax For more information on qualified performing artists, see chapter 6 of Publication 463. 2011 income tax Impairment-Related Work Expenses If you are disabled and have impairment-related work expenses that are necessary for you to be able to get qualifying work-related education, you can deduct these expenses on Schedule A (Form 1040), line 28, or Schedule A (Form 1040NR), line 14. 2011 income tax They are not subject to the 2%-of-adjusted-gross-income limit. 2011 income tax To deduct these expenses, you must complete Form 2106 or 2106-EZ even if you meet the requirements described earlier under Form not required . 2011 income tax For more information on impairment-related work expenses, see chapter 6 of Publication 463. 2011 income tax Recordkeeping You must keep records as proof of any deduction claimed on your tax return. 2011 income tax Generally, you should keep your records for 3 years from the date of filing the tax return and claiming the deduction. 2011 income tax If you are an employee who is reimbursed for expenses and you give your records and documentation to your employer, you do not have to keep duplicate copies of this information. 2011 income tax However, you should keep your records for a 3-year period if: You claim deductions for expenses that are more than your reimbursement, Your employer does not use adequate accounting procedures to verify expense accounts, You are related to your employer, or Your expenses are reimbursed under a nonaccountable plan. 2011 income tax Examples of records to keep. 2011 income tax   If any of the above cases apply to you, you must be able to prove that your expenses are deductible. 2011 income tax You should keep adequate records or have sufficient evidence that will support your expenses. 2011 income tax Estimates or approximations do not qualify as proof of an expense. 2011 income tax Some examples of what can be used to help prove your expenses are: Documents, such as transcripts, course descriptions, catalogs, etc. 2011 income tax , showing periods of enrollment in educational institutions, principal subjects studied, and descriptions of educational activity. 2011 income tax Canceled checks and receipts to verify amounts you spent for: Tuition and books, Meals and lodging while away from home overnight for educational purposes, Travel and transportation, and Other education expenses. 2011 income tax Statements from your employer explaining whether the education was necessary for you to keep your job, salary, or status; how the education helped maintain or improve skills needed in your job; how much reimbursement you received; and, if you are a teacher, the type of certificate and subjects taught. 2011 income tax Complete information about any scholarship or fellowship grants, including amounts you received during the year. 2011 income tax Illustrated Example Victor Jones teaches math at a private high school in North Carolina. 2011 income tax He was selected to attend a 3-week math seminar at a university in California. 2011 income tax The seminar will improve his skills in his current job and is qualifying work-related education. 2011 income tax He was reimbursed for his expenses under his employer's nonaccountable plan, so his reimbursement of $2,100 is included in the wages shown in box 1 of his Form W-2. 2011 income tax Victor will file Form 1040. 2011 income tax His actual expenses for the seminar are as follows:   Lodging   $1,050     Meals   526     Airfare   550     Taxi fares   50     Tuition and books   400     Total Expenses   $2,576   Victor files Form 2106-EZ with his tax return. 2011 income tax He shows his expenses for the seminar in Part I of the form. 2011 income tax He enters $1,650 ($1,050 + $550 + $50) on line 3 to account for his lodging, airfare, and taxi fares. 2011 income tax He enters $400 on line 4 for his tuition and books. 2011 income tax On the line provided for total meals and entertainment expenses, Victor enters $526 for meal expenses. 2011 income tax He multiplies that amount by 50% and enters the result, $263, on line 5. 2011 income tax On line 6, Victor totals the amounts from lines 3 through 5. 2011 income tax He carries the total, $2,313, to Schedule A (Form 1040), line 21. 2011 income tax Since he does not claim any vehicle expenses, Victor leaves Part II blank. 2011 income tax His filled-in form is shown on the next page. 2011 income tax This image is too large to be displayed in the current screen. 2011 income tax Please click the link to view the image. 2011 income tax Form 2106-EZ for V. 2011 income tax Jones Prev  Up  Next   Home   More Online Publications
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Understanding your CP2501 Notice

You need to contact us. We've received information not reported on your tax return.


What you need to do

  • Read your notice carefully — it explains the information we received.
  • Complete the notice's response form whether or not the information is right or wrong.

You may want to...

  • Contact the business or person reporting the information if it is wrong. Ask them to correct it.
  • Order a transcript of your return.
  • Make sure your earlier returns don't have the same mistake.
  • Fill out the section on the response form to allow someone (such as an accountant) to contact us on your behalf.
  • Contact us with any unanswered questions you have.
  • Keep a copy of your notice for your files.

Answers to Common Questions

Is the notice a bill?
No. It informs you about the information we've received.

What do I need to do?
Complete the notice's response form.

What do I do if the information is wrong?
The response form has instructions on what to do if the new information is wrong. You also may want to contact whoever reported the information and ask them to correct it.

I want to check a copy of my original return. I don't have one. How can I get one?
You can order a transcript of your return. You also can get one by completing and sending us a Form 4506-T, Request for Transcript of Tax Return.

I don't want a transcript of my return. I want a copy. How can I get one?
Did an accountant or some other person prepare your return? You could ask them for a copy.

I can't get a copy of my return from a tax preparer. How else can I get a copy of it?
You can get a copy of your return by completing and sending us a Form 4506, Request for Copy of Tax Return. We charge a fee for return requests.

The information is wrong because someone else is using my name and Social Security number. What can I do?
You can visit our Identity theft information to find out more about what you can do. You also should call us and let us know.

Why did it take you so long to contact me about this matter?
Our computer systems match the information you report on your tax return with information reported by employers, banks, businesses, and others. This matching takes several months to complete.


Tips for next year

You can avoid future problems by:

  • keeping accurate and full records
  • waiting until you get all of your income statements to file your tax return
  • checking the records you get from your employer, mortgage company, bank, or other sources of income (W-2s, 1098s, 1099s, etc.) to make sure they're correct
  • including all your income on your tax return
  • following the instructions on how to report income, expenses and deductions
  • filing an amended tax return for any information you receive after you've filed your return

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about how to file electronically.

Page Last Reviewed or Updated: 28-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The 2011 Income Tax

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