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2011 Tax Return Form 1040

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2011 Tax Return Form 1040

2011 tax return form 1040 35. 2011 tax return form 1040   Education Credits Table of Contents Introduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses Introduction For 2013, there are two tax credits available to persons who pay expenses for higher (postsecondary) education. 2011 tax return form 1040 They are: The American opportunity credit, and The lifetime learning credit. 2011 tax return form 1040 The chapter will present an overview of these education credits. 2011 tax return form 1040 To get the detailed information you will need to claim either of the credits, and for examples illustrating that information, see chapters 2 and 3 of Publication 970. 2011 tax return form 1040 Can you claim more than one education credit this year?   For each student, you can choose for any year only one of the credits. 2011 tax return form 1040 For example, if you choose to take the American opportunity credit for a child on your 2013 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2013. 2011 tax return form 1040   If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. 2011 tax return form 1040   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and the lifetime learning credits on a per-student, per-year basis. 2011 tax return form 1040 This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. 2011 tax return form 1040 Table 35-1. 2011 tax return form 1040 Comparison of Education Credits Caution. 2011 tax return form 1040 You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student. 2011 tax return form 1040   American Opportunity Credit Lifetime Learning Credit Maximum credit Up to $2,500 credit per eligible student Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly;  $90,000 if single, head of household, or qualifying widow(er) $127,000 if married filing jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable Credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) the Hope credit was claimed) Available for an unlimited number of years Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period beginning during the tax year Available for one or more courses Felony drug conviction At the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Felony drug convictions do not make the student ineligible Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Differences between the American opportunity and lifetime learning credits. 2011 tax return form 1040   There are several differences between these two credits. 2011 tax return form 1040 These differences are summarized in Table 35-1, later. 2011 tax return form 1040 Useful Items - You may want to see: Publication 970 Tax Benefits for Education Form (and Instructions) 8863 Education Credits (American Opportunity and Lifetime Learning Credits) Who Can Claim an Education Credit You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. 2011 tax return form 1040 The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014. 2011 tax return form 1040 For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit(s). 2011 tax return form 1040 Academic period. 2011 tax return form 1040   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. 2011 tax return form 1040 In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. 2011 tax return form 1040 Eligible educational institution. 2011 tax return form 1040   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. 2011 tax return form 1040 S. 2011 tax return form 1040 Department of Education. 2011 tax return form 1040 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2011 tax return form 1040 The educational institution should be able to tell you if it is an eligible educational institution. 2011 tax return form 1040   Certain educational institutions located outside the United States also participate in the U. 2011 tax return form 1040 S. 2011 tax return form 1040 Department of Education's Federal Student Aid (FSA) programs. 2011 tax return form 1040 Who can claim a dependent's expenses. 2011 tax return form 1040   If an exemption is allowed as a deduction for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. 2011 tax return form 1040 Therefore, only that person can claim an education credit for the student. 2011 tax return form 1040 If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit. 2011 tax return form 1040 Expenses paid by a third party. 2011 tax return form 1040   Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. 2011 tax return form 1040 However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. 2011 tax return form 1040 Therefore, you are treated as having paid expenses that were paid by the third party. 2011 tax return form 1040 For more information and an example see Who Can Claim a Dependent's Expenses in Pub. 2011 tax return form 1040 970, chapter 2 or 3. 2011 tax return form 1040 Who cannot claim a credit. 2011 tax return form 1040   You cannot take an education credit if any of the following apply. 2011 tax return form 1040 You are claimed as a dependent on another person's tax return, such as your parent's return. 2011 tax return form 1040 Your filing status is married filing separately. 2011 tax return form 1040 You (or your spouse) were a nonresident alien for any part of 2013 and did not elect to be treated as a resident alien for tax purposes. 2011 tax return form 1040 Your MAGI is one of the following. 2011 tax return form 1040 American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er). 2011 tax return form 1040 Lifetime learning credit: $127,000 or more if married filing jointly, or $63,000 or more if single, head of household, or qualifying widow(er) . 2011 tax return form 1040   Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. 2011 tax return form 1040 However, if you are filing Form 2555, Form 2555–EZ, or Form 4563, or are excluding income from Puerto RIco, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. 2011 tax return form 1040 For details, see Pub. 2011 tax return form 1040 970. 2011 tax return form 1040    Figure 35-A may be helpful in determining if you can claim an education credit on your tax return. 2011 tax return form 1040 The American opportunity credit will always be greater than or equal to the lifetime learning credit for any student who is eligible for both credits. 2011 tax return form 1040 However, if any of the conditions for the American opportunity credit, listed in Table 35-1 earlier, are not met for any student, you cannot take the American opportunity credit for that student. 2011 tax return form 1040 You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. 2011 tax return form 1040 See Pub. 2011 tax return form 1040 970 for information on other education benefits. 2011 tax return form 1040 Qualified Education Expenses Generally, qualified education expenses are amounts paid in 2013 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. 2011 tax return form 1040 It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds. 2011 tax return form 1040 For course-related books, supplies, and equipment, only certain expenses qualify. 2011 tax return form 1040 American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. 2011 tax return form 1040 Lifetime learning credit: Qualified education expenses include amounts for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance. 2011 tax return form 1040 Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. 2011 tax return form 1040 However, fees for personal expenses (described below) are never qualified education expenses. 2011 tax return form 1040 Qualified education expenses for either credit do not include amounts paid for: Personal expenses. 2011 tax return form 1040 This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses. 2011 tax return form 1040 Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills. 2011 tax return form 1040 You should receive Form 1098–T, Tuition Statement, from the institution reporting either payments received in 2013 (box 1) or amounts billed in 2013 (box 2). 2011 tax return form 1040 However, the amount in box 1 or 2 of Form 1098–T may be different from the amount you paid (or are treated as having paid). 2011 tax return form 1040 In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2013, reduced as necessary, as described in Adjustments to Qualified Education Expenses , later. 2011 tax return form 1040 Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. 2011 tax return form 1040 Qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. 2011 tax return form 1040 If you or the student takes a deduction for higher education expenses, such as on Schedule A or C (Form 1040), you cannot use those expenses in your qualified education expenses when figuring your education credits. 2011 tax return form 1040 Qualified education expenses for any academic period must be reduced by any tax-free educational assistance allocable to that academic period. 2011 tax return form 1040 See Adjustments to Qualified Education Expenses, later. 2011 tax return form 1040 Prepaid Expenses. 2011 tax return form 1040   Qualified education expenses paid in 2013 for an academic period that begins in the first 3 months of 2014 can be used in figuring an education credit for 2013 only. 2011 tax return form 1040 See Academic period , earlier. 2011 tax return form 1040 For example, if you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). 2011 tax return form 1040    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). 2011 tax return form 1040 Paid with borrowed funds. 2011 tax return form 1040   You can claim an education credit for qualified education expenses paid with the proceeds of a loan. 2011 tax return form 1040 Use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid. 2011 tax return form 1040 Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. 2011 tax return form 1040 Student withdraws from class(es). 2011 tax return form 1040   You can claim an education credit for qualified education expenses not refunded when a student withdraws. 2011 tax return form 1040 No Double Benefit Allowed You cannot do any of the following. 2011 tax return form 1040 Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses. 2011 tax return form 1040 Claim more than one education credit based on the same qualified education expenses. 2011 tax return form 1040 Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). 2011 tax return form 1040 Claim an education credit based on qualified education expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided educational assistance. 2011 tax return form 1040 See Adjustments to Qualified Education Expenses, next. 2011 tax return form 1040 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid in 2013 by or on behalf of that student under the following rules. 2011 tax return form 1040 The result is the amount of adjusted qualified education expenses for each student. 2011 tax return form 1040 Tax-free educational assistance. 2011 tax return form 1040   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. 2011 tax return form 1040 See Academic period , earlier. 2011 tax return form 1040      Tax-free educational assistance includes:    Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Pub. 2011 tax return form 1040 970), The tax-free part of Pell grants (see chapter 1 of Pub. 2011 tax return form 1040 970), The tax-free part of employer-provided educational assistance (see Pub. 2011 tax return form 1040 970), Veterans' educational assistance (see chapter 1 of Pub. 2011 tax return form 1040 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. 2011 tax return form 1040 Generally, any scholarship or fellowship is treated as tax-free educational assistance. 2011 tax return form 1040 However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent the student includes it in gross income (if the student is required to file a tax return) for the year the scholarship or fellowship is received and either: The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. 2011 tax return form 1040 970, chapter 1; or The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. 2011 tax return form 1040 970, chapter 1. 2011 tax return form 1040 You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year received. 2011 tax return form 1040 For details, see Adjustments of Qualified Education Expenses, in chapters 2 and 3 of Pub. 2011 tax return form 1040 970. 2011 tax return form 1040 Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. 2011 tax return form 1040 This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). 2011 tax return form 1040 If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. 2011 tax return form 1040 If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. 2011 tax return form 1040 Refunds. 2011 tax return form 1040   A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. 2011 tax return form 1040 Some tax-free educational assistance received after 2013 may be treated as a refund. 2011 tax return form 1040 See Tax-free educational assistance, earlier. 2011 tax return form 1040 Refunds received in 2013. 2011 tax return form 1040   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses paid in 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. 2011 tax return form 1040 Refunds received after 2013 but before your income tax return is filed. 2011 tax return form 1040   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received before you file your 2013 income tax return, reduce the amount of qualified education expenses for 2013 by the amount of the refund. 2011 tax return form 1040 Refunds received after 2013 and after your income tax return is filed. 2011 tax return form 1040   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received after you file your 2013 income tax return, you may need to repay some or all of the credit that you claimed. 2011 tax return form 1040 See Credit recapture, next. 2011 tax return form 1040 Credit recapture. 2011 tax return form 1040    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. 2011 tax return form 1040 You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. 2011 tax return form 1040 You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). 2011 tax return form 1040 Include that amount as an additional tax for the year the refund or tax-free assistance was received. 2011 tax return form 1040 Example. 2011 tax return form 1040    You paid $8,000 tuition and fees in December 2013 for your child's Spring semester beginning in January 2014. 2011 tax return form 1040 You filed your 2013 tax return on February 3, 2014, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x . 2011 tax return form 1040 20). 2011 tax return form 1040 You claimed no other tax credits. 2011 tax return form 1040 After you filed your return, your child withdrew from two courses and you received a refund of $1,400. 2011 tax return form 1040 You must refigure your 2013 lifetime learning credit using $6,600 ($8,000 qualified education expenses − $1,400 refund). 2011 tax return form 1040 The refigured credit is $1,320 and your tax liability increased by $280. 2011 tax return form 1040 You must include the difference of $280 ($1,600 credit originally claimed − $1,320 refigured credit) as additional tax on your 2014 income tax return. 2011 tax return form 1040 See the instructions for your 2014 income tax return to determine where to include this tax. 2011 tax return form 1040 If you also pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. 2011 tax return form 1040 Amounts that do not reduce qualified education expenses. 2011 tax return form 1040   Do not reduce qualified 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 tax return form 1040   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. 2011 tax return form 1040 The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Chapter 1 of Pub. 2011 tax return form 1040 970. 2011 tax return form 1040 The use of the money is not restricted. 2011 tax return form 1040   For examples, see chapter 2 in Pub. 2011 tax return form 1040 970. 2011 tax return form 1040 Figure 35-A. 2011 tax return form 1040 Can You Claim an Education Credit for 2013? This image is too large to be displayed in the current screen. 2011 tax return form 1040 Please click the link to view the image. 2011 tax return form 1040 Figure 35-A. 2011 tax return form 1040 Can You Claim an Education Credit for 2013? Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Oklahoma Attorney General

Website: Oklahoma Attorney General

Address: Oklahoma Attorney General
Public Protection Unit
313 N.E. 21st St.
Oklahoma City, OK 73105

Phone Number: 405-521-3921 (Oklahoma City) 918-581-2885 (Tulsa)

Oklahoma Department of Consumer Credit

Website: Oklahoma Department of Consumer Credit

Address: Oklahoma Department of Consumer Credit
3613 N.W. 56th St., Suite 240
Oklahoma City, OK 73112-4512

Phone Number: 405-521-3653

Toll-free: 1-800-448-4904 (Consumer Hotline)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

State Banking Department

Website: State Banking Department

Address: State Banking Department
2900 N. Lincoln Blvd.
Oklahoma City, OK 73105

Phone Number: 405-521-2782

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Insurance Department

Website: Insurance Department

Address: Insurance Department
Consumer Assistance Division
Five Corporate Plaza
3625 N.W. 56th St., Suite 100
Oklahoma City, OK 73112

Phone Number: 405-521-2991

Toll-free: 1-800-522-0071 (OK)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Department of Securities

Website: Department of Securities

Address: Department of Securities
First National Center
120 N. Robinson Ave., Suite 860
Oklahoma City, OK 73102

Phone Number: 405-280-7700

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Corporation Commission

Website: Corporation Commission

Address: Corporation Commission
Consumer Services Division
PO Box 52000
Oklahoma City, OK 73152-2000

Phone Number: 405-522-0478

Toll-free: 1-800-522-8154 (OK)

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The 2011 Tax Return Form 1040

2011 tax return form 1040 Depreciation Table of Contents Introduction Special Depreciation AllowanceQualified Property Election Not To Claim the Allowance Rules for Returns Filed Before June 1, 2002 Passenger Automobiles New York Liberty Zone BenefitsSpecial Liberty Zone Depreciation Allowance Increased Section 179 Deduction Liberty Zone Leasehold Improvement Property If you depreciate business property that you acquired and placed in service after September 10, 2001, new law contains provisions that may affect your depreciation deduction for that property. 2011 tax return form 1040 Publication 946, How To Depreciate Property, contains information on depreciation. 2011 tax return form 1040 However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. 2011 tax return form 1040 The new provisions are in the Supplement to Publication 946, which is reprinted below. 2011 tax return form 1040 Supplement to Publication 946 How To Depreciate Property   Introduction After Publication 946 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. 2011 tax return form 1040 The new law made several changes in the tax rules explained in the publication. 2011 tax return form 1040 Some of the changes apply to property placed in service during 2001. 2011 tax return form 1040 This supplemental publication describes those changes and explains what you should do if you are affected by them. 2011 tax return form 1040 The situations and examples in Publication 946 do not reflect any of the changes made by the Job Creation and Worker Assistance Act of 2002. 2011 tax return form 1040 The new law contains the following provisions. 2011 tax return form 1040 30% depreciation deductions (special depreciation allowance and special New York Liberty Zone (Liberty Zone) depreciation allowance) for the year qualified property is placed in service after September 10, 2001. 2011 tax return form 1040 An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. 2011 tax return form 1040 A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. 2011 tax return form 1040 An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. 2011 tax return form 1040 If you believe you qualify for an increased deduction under any of these new rules, you must file the revised 2001 Form 4562 (dated March 2002) for 2001 calendar or fiscal years and 2000 fiscal years ending after September 10, 2001. 2011 tax return form 1040 If you have already filed a tax return, this supplemental publication explains how to claim these benefits and how to elect not to claim the special depreciation allowance or special Liberty Zone depreciation allowance. 2011 tax return form 1040 See Table 2 at the end of the supplement for an overview of the rules that apply if you filed your return before June 1, 2002. 2011 tax return form 1040 Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. 2011 tax return form 1040 The allowance is an additional deduction of 30% of the property's depreciable basis. 2011 tax return form 1040 To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. 2011 tax return form 1040 See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. 2011 tax return form 1040 The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. 2011 tax return form 1040 There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. 2011 tax return form 1040 In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. 2011 tax return form 1040 Example 1. 2011 tax return form 1040 On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. 2011 tax return form 1040 You did not elect to claim a section 179 deduction. 2011 tax return form 1040 You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. 2011 tax return form 1040 You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. 2011 tax return form 1040 Example 2. 2011 tax return form 1040 The facts are the same as in Example 1, except that you choose to deduct $24,000 of the property's cost as a section 179 deduction. 2011 tax return form 1040 You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). 2011 tax return form 1040 You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. 2011 tax return form 1040 Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. 2011 tax return form 1040 It is new property of one of the following types. 2011 tax return form 1040 Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. 2011 tax return form 1040 See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. 2011 tax return form 1040 Water utility property. 2011 tax return form 1040 See 25-year property on page 22 in Publication 946. 2011 tax return form 1040 Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. 2011 tax return form 1040 (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. 2011 tax return form 1040 ) Qualified leasehold improvement property (defined later). 2011 tax return form 1040 It meets the following tests (explained later under Tests To Be Met). 2011 tax return form 1040 Acquisition date test. 2011 tax return form 1040 Placed in service date test. 2011 tax return form 1040 Original use test. 2011 tax return form 1040 It is not excepted property (explained later under Excepted Property). 2011 tax return form 1040 Qualified leasehold improvement property. 2011 tax return form 1040    Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the following requirements are met. 2011 tax return form 1040 The improvement is made under or pursuant to a lease by the lessee (or any sublessee) or the lessor of that part of the building. 2011 tax return form 1040 That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. 2011 tax return form 1040 The improvement is placed in service more than 3 years after the date the building was first placed in service. 2011 tax return form 1040   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. 2011 tax return form 1040 The enlargement of the building. 2011 tax return form 1040 Any elevator or escalator. 2011 tax return form 1040 Any structural component benefiting a common area. 2011 tax return form 1040 The internal structural framework of the building. 2011 tax return form 1040   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. 2011 tax return form 1040 However, a binding commitment between related persons is not treated as a lease. 2011 tax return form 1040 Related persons. 2011 tax return form 1040   For this purpose, the following are related persons. 2011 tax return form 1040 Members of an affiliated group. 2011 tax return form 1040 The persons listed in items (1) through (9) under Related persons on page 8 of Publication 946 (except that “80% or more” should be substituted for “more than 10%” each place it appears). 2011 tax return form 1040 An executor and a beneficiary of the same estate. 2011 tax return form 1040 Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. 2011 tax return form 1040 Acquisition date test. 2011 tax return form 1040    Generally, you must have acquired the property either: After September 10, 2001, and before September 11, 2004, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or Pursuant to a written binding contract entered into after September 10, 2001, and before September 11, 2004. 2011 tax return form 1040   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001, and before September 11, 2004. 2011 tax return form 1040 Placed in service date test. 2011 tax return form 1040   Generally, the property must be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. 2011 tax return form 1040   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. 2011 tax return form 1040 Original use test. 2011 tax return form 1040   The original use of the property must have begun with you after September 10, 2001. 2011 tax return form 1040 “Original use” means the first use to which the property is put, whether or not by you. 2011 tax return form 1040 Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. 2011 tax return form 1040 Excepted Property The following property does not qualify for the special depreciation allowance. 2011 tax return form 1040 Property used by any person before September 11, 2001. 2011 tax return form 1040 Property required to be depreciated using ADS. 2011 tax return form 1040 This includes listed property used 50% or less in a qualified business use. 2011 tax return form 1040 Qualified New York Liberty Zone leasehold improvement property (defined next). 2011 tax return form 1040 Qualified New York Liberty Zone leasehold improvement property. 2011 tax return form 1040   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. 2011 tax return form 1040 The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). 2011 tax return form 1040 The improvement is placed in service after September 10, 2001, and before January 1, 2007. 2011 tax return form 1040 No written binding contract for the improvement was in effect before September 11, 2001. 2011 tax return form 1040 Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. 2011 tax return form 1040 If you make this election for any property, it applies to all property in the same property class placed in service during the year. 2011 tax return form 1040 To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. 2011 tax return form 1040 When to make election. 2011 tax return form 1040   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. 2011 tax return form 1040   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). 2011 tax return form 1040 Attach the election statement to the amended return. 2011 tax return form 1040 At the top of the election statement, write “Filed pursuant to section 301. 2011 tax return form 1040 9100–2. 2011 tax return form 1040 ” Revoking an election. 2011 tax return form 1040   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. 2011 tax return form 1040 A request to revoke the election is subject to a user fee. 2011 tax return form 1040 Rules for Returns Filed Before June 1, 2002 The following rules apply if you placed qualified property in service after September 10, 2001, and filed your return before June 1, 2002. 2011 tax return form 1040 The rules apply to returns for the following years. 2011 tax return form 1040 2000 fiscal years that end after September 10, 2001. 2011 tax return form 1040 2001 calendar and fiscal years. 2011 tax return form 1040 Claiming the allowance. 2011 tax return form 1040   If you did not claim the allowance on your return and did not make the election not to claim the allowance, you can do either of the following to claim the allowance. 2011 tax return form 1040 File an amended return by the due date (not including extensions) of your return for the year following the year the property was placed in service. 2011 tax return form 1040 Write “Filed Pursuant to Rev. 2011 tax return form 1040 Proc. 2011 tax return form 1040 2002–33” at the top of the amended return. 2011 tax return form 1040 File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. 2011 tax return form 1040 Your return must be filed by the due date (including extensions). 2011 tax return form 1040 Write “Automatic Change Filed Under Rev. 2011 tax return form 1040 Proc. 2011 tax return form 1040 2002–33” on the appropriate line of Form 3115. 2011 tax return form 1040 You must also file a copy (with signature) of the completed Form 3115 with the IRS National Office no later than when you file the original with your return. 2011 tax return form 1040 For more information about filing Form 3115, including the address to send it to, see Revenue Procedure 2002–9, Revenue Procedure 2002–19, and Revenue Procedure 2002–33. 2011 tax return form 1040 Example 1. 2011 tax return form 1040 You are an individual and you use the calendar year. 2011 tax return form 1040 You placed qualified property in service for your business in December 2001. 2011 tax return form 1040 You filed your 2001 income tax return before April 15, 2002. 2011 tax return form 1040 You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. 2011 tax return form 1040 You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. 2011 tax return form 1040 Proc. 2011 tax return form 1040 2002–33” at the top of the amended return. 2011 tax return form 1040 You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. 2011 tax return form 1040 Example 2. 2011 tax return form 1040 The facts concerning your 2001 return are the same as in Example 1. 2011 tax return form 1040 In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. 2011 tax return form 1040 You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. 2011 tax return form 1040 Proc. 2011 tax return form 1040 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. 2011 tax return form 1040 You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. 2011 tax return form 1040 Electing not to claim the allowance. 2011 tax return form 1040   Generally, you have elected not to claim the special depreciation allowance for a class of property if you: Filed your return timely (including extensions) for the year you placed qualified property in service and indicated on a statement with the return that you are not claiming the allowance, or Filed your return timely and filed an amended return within 6 months of the due date of the original return (not including extensions) and indicated on a statement with the amended return that you are not claiming the allowance. 2011 tax return form 1040 The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. 2011 tax return form 1040 The statement can be either attached to or written on the return. 2011 tax return form 1040 You can, for example, write “not deducting 30%” on Form 4562. 2011 tax return form 1040 Deemed election. 2011 tax return form 1040   If you have not followed either of the procedures described above to elect not to claim the allowance, you may still be treated as making the election. 2011 tax return form 1040 You will be treated as making the election if you meet both of the following conditions. 2011 tax return form 1040 You filed your return for the year you placed the property in service and claimed depreciation, but not the special allowance, for any class of property. 2011 tax return form 1040 You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. 2011 tax return form 1040 See Claiming the allowance, earlier. 2011 tax return form 1040 Passenger Automobiles The limit on your depreciation deduction (including any section 179 deduction) for any passenger automobile that is qualified property (defined earlier) placed in service after September 10, 2001, and for which you claim the special depreciation allowance is increased. 2011 tax return form 1040 Generally, the limit is increased from $3,060 to $7,660. 2011 tax return form 1040 However, if the automobile is a qualified electric car, the limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002). 2011 tax return form 1040 Table 1 shows the maximum deduction amounts for 2001. 2011 tax return form 1040 Table 1. 2011 tax return form 1040 Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. 2011 tax return form 1040 11 Placed in Service After Sept. 2011 tax return form 1040 10 Passenger automobile $3,060 $7,660 Electric car 9,280 23,080 1 1$22,980 if you place an electric car in service in 2002. 2011 tax return form 1040 Election not to claim the allowance. 2011 tax return form 1040   The increased maximum depreciation deduction does not apply if you elected not to claim the special depreciation allowance as explained earlier under Election Not To Claim the Allowance and Rules for Returns Filed Before June 1, 2002. 2011 tax return form 1040 New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). 2011 tax return form 1040 They include a special depreciation allowance for the year you place the property in service, an increased section 179 deduction, and the classification of certain leasehold improvement property as 5-year property. 2011 tax return form 1040 Area defined. 2011 tax return form 1040   The New York Liberty Zone is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York. 2011 tax return form 1040 Special Liberty Zone Depreciation Allowance You can take a special depreciation allowance for qualified Liberty Zone property you place in service after September 10, 2001. 2011 tax return form 1040 The allowance is an additional deduction of 30% of the property's depreciable basis. 2011 tax return form 1040 To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. 2011 tax return form 1040 See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. 2011 tax return form 1040 The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. 2011 tax return form 1040 There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. 2011 tax return form 1040 In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. 2011 tax return form 1040 You cannot claim the special Liberty Zone depreciation allowance for property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. 2011 tax return form 1040 Qualified property is eligible for only one special depreciation allowance. 2011 tax return form 1040 Example 1. 2011 tax return form 1040 On November 1, 2001, you bought and placed in service in your business, which is in the Liberty Zone, qualified Liberty Zone property that cost $200,000. 2011 tax return form 1040 You did not elect to claim a section 179 deduction. 2011 tax return form 1040 You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. 2011 tax return form 1040 You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. 2011 tax return form 1040 Example 2. 2011 tax return form 1040 The facts are the same as in Example 1, except that you choose to deduct $59,000 of the property's cost as a section 179 deduction. 2011 tax return form 1040 (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). 2011 tax return form 1040 You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). 2011 tax return form 1040 You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. 2011 tax return form 1040 Qualified Liberty Zone Property For a 2001 calendar or fiscal year and a 2000 fiscal year that ends after September 10, 2001, property qualifies for the special Liberty Zone depreciation allowance if it meets the following requirements. 2011 tax return form 1040 It is one of the following types of property. 2011 tax return form 1040 Used property depreciated under MACRS with a recovery period of 20 years or less. 2011 tax return form 1040 See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. 2011 tax return form 1040 Used water utility property. 2011 tax return form 1040 See 25-year property on page 22 in Publication 946. 2011 tax return form 1040 Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. 2011 tax return form 1040 (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. 2011 tax return form 1040 ) Certain nonresidential real property and residential rental property (defined later). 2011 tax return form 1040 It meets the following tests (explained later under Tests to be met). 2011 tax return form 1040 Acquisition date test. 2011 tax return form 1040 Placed in service date test. 2011 tax return form 1040 Substantial use test. 2011 tax return form 1040 Original use test. 2011 tax return form 1040 It is not excepted property (explained later under Excepted property). 2011 tax return form 1040 Nonresidential real property and residential rental property. 2011 tax return form 1040   This property is qualifying property only to the extent it rehabilitates real property damaged, or replaces real property destroyed or condemned, as a result of the terrorist attack of September 11, 2001. 2011 tax return form 1040 Property is treated as replacing destroyed or condemned property if, as part of an integrated plan, such property replaces real property included in a continuous area that includes real property destroyed or condemned. 2011 tax return form 1040   For these purposes, real property is considered destroyed (or condemned) only if an entire building or structure was destroyed (or condemned) as a result of the terrorist attack. 2011 tax return form 1040 Otherwise, the property is considered damaged real property. 2011 tax return form 1040 For example, if certain structural components of a building (such as walls, floors, or plumbing fixtures) are damaged or destroyed as a result of the terrorist attack, but the building is not destroyed (or condemned), then only costs related to replacing the damaged or destroyed structural components qualify for the special Liberty Zone depreciation allowance. 2011 tax return form 1040 Tests to be met. 2011 tax return form 1040   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. 2011 tax return form 1040 Acquisition date test. 2011 tax return form 1040   You must have acquired the property by purchase after September 10, 2001, and there must not have been a binding written contract for the acquisition in effect before September 11, 2001. 2011 tax return form 1040   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. 2011 tax return form 1040   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001. 2011 tax return form 1040 Placed in service date test. 2011 tax return form 1040   Generally, the property must be placed in service for use in your trade or business or for the production of income before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property). 2011 tax return form 1040   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. 2011 tax return form 1040 Substantial use test. 2011 tax return form 1040   Substantially all use of the property must be in the Liberty Zone and in the active conduct of your trade or business in the Liberty Zone. 2011 tax return form 1040 Original use test. 2011 tax return form 1040   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. 2011 tax return form 1040   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. 2011 tax return form 1040 Also, additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test if the original use of the property in the Liberty Zone began with you. 2011 tax return form 1040 Excepted property. 2011 tax return form 1040   The following property does not qualify for the special Liberty Zone depreciation allowance. 2011 tax return form 1040 Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. 2011 tax return form 1040 Property required to be depreciated using ADS. 2011 tax return form 1040 This includes listed property used 50% or less in a qualified business use. 2011 tax return form 1040 Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). 2011 tax return form 1040 Example. 2011 tax return form 1040 In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. 2011 tax return form 1040 New office furniture with a MACRS recovery period of 7 years. 2011 tax return form 1040 A used computer with a MACRS recovery period of 5 years. 2011 tax return form 1040 The computer had not previously been used within the Liberty Zone. 2011 tax return form 1040 Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. 2011 tax return form 1040 Because the computer is used property that had not previously been used in the Liberty Zone, it qualifies for the special Liberty Zone depreciation allowance, but not the special depreciation allowance. 2011 tax return form 1040 Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. 2011 tax return form 1040 If you make this election for any property, it applies to all property in the same property class placed in service during the year. 2011 tax return form 1040 To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. 2011 tax return form 1040 When to make the election. 2011 tax return form 1040   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. 2011 tax return form 1040   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). 2011 tax return form 1040 Attach the election statement to the amended return. 2011 tax return form 1040 At the top of the election statement, write “Filed pursuant to section 301. 2011 tax return form 1040 9100–2. 2011 tax return form 1040 ” Revoking an election. 2011 tax return form 1040   Once you elect not to deduct the special Liberty Zone depreciation allowance for a class of property, you cannot revoke the election without IRS consent. 2011 tax return form 1040 A request to revoke the election is subject to a user fee. 2011 tax return form 1040 Returns filed before June 1, 2002. 2011 tax return form 1040   The rules that apply to the special depreciation allowance discussed earlier in Rules for Returns Filed Before June 1, 2002 under Special Depreciation Allowance also apply to the special Liberty Zone depreciation allowance. 2011 tax return form 1040 Increased Section 179 Deduction Under section 179 of the Internal Revenue Code, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. 2011 tax return form 1040 For tax years beginning in 2000, that limit was $20,000. 2011 tax return form 1040 For tax years beginning in 2001 and 2002, that limit is generally $24,000. 2011 tax return form 1040 If the cost of qualifying section 179 property placed in service in a year is over $200,000, you must reduce the dollar limit (but not below zero) by the amount of the cost over $200,000. 2011 tax return form 1040 Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. 2011 tax return form 1040 The increase is the smaller of the following amounts. 2011 tax return form 1040 $35,000. 2011 tax return form 1040 The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. 2011 tax return form 1040 If you use the revised 2001 Form 4562 (dated March 2002) for a tax year beginning in 2000, you must reduce the section 179 dollar limit to $20,000 before adding the additional amount for qualified property. 2011 tax return form 1040 Qualified property. 2011 tax return form 1040   To qualify for the increased section 179 deduction, your property must be section 179 property that is either: Qualified Liberty Zone property, or Property that would be qualified Liberty Zone property except that it is eligible for the special depreciation allowance. 2011 tax return form 1040 Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. 2011 tax return form 1040 Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. 2011 tax return form 1040 For information on the requirements that must be met for property to qualify for the section 179 deduction, see What Property Qualifies? on page 14 of Publication 946. 2011 tax return form 1040 Example 1. 2011 tax return form 1040 In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. 2011 tax return form 1040 Because this cost is less than $35,000, the dollar limit on the section 179 deduction is increased by $25,000 to $49,000 ($24,000 + $25,000). 2011 tax return form 1040 Example 2. 2011 tax return form 1040 In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. 2011 tax return form 1040 Because $35,000 is less than the cost of the property you place in service, the dollar limit on the section 179 deduction you can claim is increased by $35,000 to $59,000 ($24,000 + $35,000). 2011 tax return form 1040 Reduced Dollar Limit Generally, you must reduce the dollar limit for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. 2011 tax return form 1040 However, if the cost of your Liberty Zone property exceeds $200,000, you take into account only 50% (instead of 100%) of the cost of qualified property placed in service in a year. 2011 tax return form 1040 Example. 2011 tax return form 1040 In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. 2011 tax return form 1040 Your increased dollar limit is $59,000 ($35,000 + $24,000). 2011 tax return form 1040 Because 50% of the cost of the property you place in service ($230,000) is $30,000 more than $200,000, you must reduce your $59,000 dollar limit to $29,000 ($59,000 - $30,000). 2011 tax return form 1040 Recapture Rules Rules similar to those explained on page 20 of Publication 946 under When Must You Recapture the Deduction? apply with respect to any qualified property you stop using in the Liberty Zone. 2011 tax return form 1040 Returns Filed Before June 1, 2002 If you filed a return before June 1, 2002, and did not deduct the increased section 179 amount for qualified property placed in service after September 10, 2001, you can deduct the increased amount by filing an amended return by the due date (not including extensions) of the return for the year after the year the property was placed in service. 2011 tax return form 1040 This rule applies to returns for the following years. 2011 tax return form 1040 2000 fiscal years that end after September 10, 2001. 2011 tax return form 1040 2001 calendar and fiscal years. 2011 tax return form 1040 On the amended return, write “Filed Pursuant to Rev. 2011 tax return form 1040 Proc. 2011 tax return form 1040 2002–33. 2011 tax return form 1040 ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. 2011 tax return form 1040 This means that it is depreciated over a recovery period of 5 years. 2011 tax return form 1040 For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. 2011 tax return form 1040 The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. 2011 tax return form 1040 Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. 2011 tax return form 1040 Returns Filed Before June 1, 2002 If you filed either of the following returns before June 1, 2002, and did not depreciate qualified Liberty Zone leasehold improvement property placed in service during the tax year as 5-year property using the straight line method, you should file an amended return before you file your return for the year after the year the property was placed in service. 2011 tax return form 1040 Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). 2011 tax return form 1040 Your 2001 calendar or fiscal year return. 2011 tax return form 1040 On the amended return, write “Filed Pursuant to Rev. 2011 tax return form 1040 Proc. 2011 tax return form 1040 2002–33. 2011 tax return form 1040 ” Table 2. 2011 tax return form 1040 Rules for Returns Filed Before June 1, 2002 Note:This chart highlights the rules for returns affected by the Job Creation and Worker Assistance Act of 2002 that were filed before June 1, 2002, without accounting for any of the new benefits under the law. 2011 tax return form 1040 See the text for definitions and examples. 2011 tax return form 1040 Do not rely on this chart alone. 2011 tax return form 1040 IF you want to. 2011 tax return form 1040 . 2011 tax return form 1040 . 2011 tax return form 1040 THEN you. 2011 tax return form 1040 . 2011 tax return form 1040 . 2011 tax return form 1040 BY. 2011 tax return form 1040 . 2011 tax return form 1040 . 2011 tax return form 1040 claim the special depreciation allowance or special Liberty Zone depreciation allowance • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service, or • must file Form 3115, Application for Change in Accounting Method, with your return for the year after the year the property was placed in service • the due date (including extensions) of your return for the year after the year the property was placed in service, and • must file a copy of your completed Form 3115 with the IRS National Office • the date you file the original Form 3115 with your return for the year after the year the property was placed in service. 2011 tax return form 1040 elect not to claim the special depreciation allowance or the special Liberty Zone depreciation allowance 1 • must have filed your return timely for the year the property was placed in service, and   • must file an amended return stating you are not claiming the allowance • the date that is 6 months after the due date of the original return (not including extensions). 2011 tax return form 1040 deduct the increased section 179 amount • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service. 2011 tax return form 1040 use a 5-year recovery period for depreciating qualified Liberty Zone leasehold improvement property • should file an amended return • the date you file your return for the year after the year the property was placed in service. 2011 tax return form 1040 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. 2011 tax return form 1040 Prev  Up  Next   Home   More Online Publications