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Hrblockfreefile 5. Hrblockfreefile   Ministers and Church Employees Table of Contents Alternative Limit for Church Employees Changes to Includible Compensation for Most Recent Year of ServiceChanges to Includible Compensation Changes to Years of Service Self-employed ministers and church employees who participate in 403(b) plans generally follow the same rules as other 403(b) plan participants. Hrblockfreefile This means that if you are a self-employed minister or a church employee, your MAC generally is the lesser of: Your limit on annual additions, or Your limit on elective deferrals. Hrblockfreefile For most ministers and church employees, the limit on annual additions is figured without any changes. Hrblockfreefile This means that if you are a minister or church employee, your limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or Your includible compensation for your most recent year of service. Hrblockfreefile Although, in general, the same limit applies, church employees can choose an alternative limit and there are changes in how church employees, foreign missionaries, and self-employed ministers figure includible compensation for the most recent year of service. Hrblockfreefile This chapter will explain the alternative limit and the changes. Hrblockfreefile Who is a church employee?   A church employee is anyone who is an employee of a church or a convention or association of churches, including an employee of a tax-exempt organization controlled by or associated with a church or a convention or association of churches. Hrblockfreefile Alternative Limit for Church Employees If you are a church employee, you can choose to use $10,000 a year as your limit on annual additions, even if your annual additions computed under the general rule is less. Hrblockfreefile Total contributions over your lifetime under this choice cannot be more than $40,000. Hrblockfreefile Changes to Includible Compensation for Most Recent Year of Service There are two types of changes in determining includible compensation for the most recent year of service. Hrblockfreefile They are: Changes in how the includible compensation of foreign missionaries and self-employed ministers is figured, and A change to the years that are counted when figuring the most recent year of service for church employees and self-employed ministers. Hrblockfreefile Changes to Includible Compensation Includible compensation is figured differently for foreign missionaries and self-employed ministers. Hrblockfreefile Foreign missionary. Hrblockfreefile   If you are a foreign missionary, your includible compensation includes foreign earned income that may otherwise be excludable from your gross income under section 911. Hrblockfreefile   If you are a foreign missionary, and your adjusted gross income is $17,000 or less, contributions to your 403(b) account will not be treated as exceeding the limit on annual additions if the contributions are not in excess of $3,000. Hrblockfreefile   You are a foreign missionary if you are either a layperson or a duly ordained, commissioned, or licensed minister of a church and you meet both of the following requirements. Hrblockfreefile You are an employee of a church or convention or association of churches. Hrblockfreefile You are performing services for the church outside the United States. Hrblockfreefile Self-employed minister. Hrblockfreefile   If you are a self-employed minister, you are treated as an employee of a tax-exempt organization that is a qualified employer. Hrblockfreefile Your includible compensation is your net earnings from your ministry minus the contributions made to the retirement plan on your behalf and the deductible portion of your self-employment tax. Hrblockfreefile Changes to Years of Service Generally, only service with the employer who maintains your 403(b) account can be counted when figuring your limit on annual additions. Hrblockfreefile Church employees. Hrblockfreefile   If you are a church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer. Hrblockfreefile Self-employed minister. Hrblockfreefile   If you are a self-employed minister, your years of service include full and part years during which you were self-employed. Hrblockfreefile 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

Office of Attorney General

Website: Office of Attorney General

Address: Office of Attorney General
Consumer Protection Division
PO Drawer 1508
Santa Fe, NM 87504-1508

Phone Number: 505-827-6009 (Santa Fe) 505-222-9100 (Albuquerque) 575-526-2280(Las Cruces) (Albuquerque)

Toll-free: 1-800-678-1508

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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.

Regulation and Licensing Department

Website: Regulation and Licensing Department

Address: Regulation and Licensing Department
Financial Institutions Division
2550 Cerrillos Rd., 3rd Floor
Santa Fe, NM 87505

Phone Number: 505-476-4885

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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.

Public Regulation Commission

Website: Public Regulation Commission

Address: Public Regulation Commission
Insurance Division
PO Box 1269
1120 Paseo de Peralta
Santa Fe, NM 87504

Toll-free: 1-888-427-5772 (NM)

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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.

Regulation and Licensing Department

Website: Regulation and Licensing Department

Address: Regulation and Licensing Department
Securities Division
2550 Cerrillos Rd., 3rd Floor
Santa Fe, NM 87505

Phone Number: 505-476-4580

Toll-free: 1-800-704-5533 (NM)

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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.

Public Regulation Commission

Website: Public Regulation Commission

Address: Public Regulation Commission
Consumer Relations Division
1120 Paseo de Peralta
PO Box 1269
Santa Fe, NM 87501

Phone Number: 505-827-4592

Toll-free: 1-888-427-5772

TTY: 505-827-6911

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Hrblockfreefile 4. Hrblockfreefile   Transportation Table of Contents Parking fees. Hrblockfreefile Advertising display on car. Hrblockfreefile Car pools. Hrblockfreefile Hauling tools or instruments. Hrblockfreefile Union members' trips from a union hall. Hrblockfreefile Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. Hrblockfreefile These expenses include the cost of transportation by air, rail, bus, taxi, etc. Hrblockfreefile , and the cost of driving and maintaining your car. Hrblockfreefile Transportation expenses include the ordinary and necessary costs of all of the following. Hrblockfreefile Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Hrblockfreefile Tax home is defined in chapter 1. Hrblockfreefile Visiting clients or customers. Hrblockfreefile Going to a business meeting away from your regular workplace. Hrblockfreefile Getting from your home to a temporary workplace when you have one or more regular places of work. Hrblockfreefile These temporary workplaces can be either within the area of your tax home or outside that area. Hrblockfreefile Transportation expenses do not include expenses you have while traveling away from home overnight. Hrblockfreefile Those expenses are travel expenses discussed in chapter 1 . Hrblockfreefile However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. Hrblockfreefile See Car Expenses , later. Hrblockfreefile Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. Hrblockfreefile However, there may be exceptions to this general rule. Hrblockfreefile You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Hrblockfreefile Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. Hrblockfreefile Illustration of transportation expenses. Hrblockfreefile    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. Hrblockfreefile You may want to refer to it when deciding whether you can deduct your transportation expenses. Hrblockfreefile Temporary work location. Hrblockfreefile   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. Hrblockfreefile   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. Hrblockfreefile   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. Hrblockfreefile   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. Hrblockfreefile It will not be treated as temporary after the date you determine it will last more than 1 year. Hrblockfreefile   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. Hrblockfreefile You may have deductible travel expenses as discussed in chapter 1 . Hrblockfreefile No regular place of work. Hrblockfreefile   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Hrblockfreefile   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. Hrblockfreefile   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Hrblockfreefile These are nondeductible commuting expenses. Hrblockfreefile Two places of work. Hrblockfreefile   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. Hrblockfreefile However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Hrblockfreefile   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. Hrblockfreefile You cannot deduct them. Hrblockfreefile Armed Forces reservists. Hrblockfreefile   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. Hrblockfreefile You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . Hrblockfreefile   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. Hrblockfreefile In this case, your transportation generally is a nondeductible commuting expense. Hrblockfreefile However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. Hrblockfreefile   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. Hrblockfreefile   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Hrblockfreefile These expenses are discussed in chapter 1 . Hrblockfreefile   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. Hrblockfreefile For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. Hrblockfreefile Commuting expenses. Hrblockfreefile   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. Hrblockfreefile These costs are personal commuting expenses. Hrblockfreefile You cannot deduct commuting expenses no matter how far your home is from your regular place of work. Hrblockfreefile You cannot deduct commuting expenses even if you work during the commuting trip. Hrblockfreefile Example. Hrblockfreefile You sometimes use your cell phone to make business calls while commuting to and from work. Hrblockfreefile Sometimes business associates ride with you to and from work, and you have a business discussion in the car. Hrblockfreefile These activities do not change the trip from personal to business. Hrblockfreefile You cannot deduct your commuting expenses. Hrblockfreefile Parking fees. Hrblockfreefile    Fees you pay to park your car at your place of business are nondeductible commuting expenses. Hrblockfreefile You can, however, deduct business-related parking fees when visiting a customer or client. Hrblockfreefile Advertising display on car. Hrblockfreefile   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. Hrblockfreefile If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. Hrblockfreefile Car pools. Hrblockfreefile   You cannot deduct the cost of using your car in a nonprofit car pool. Hrblockfreefile Do not include payments you receive from the passengers in your income. Hrblockfreefile These payments are considered reimbursements of your expenses. Hrblockfreefile However, if you operate a car pool for a profit, you must include payments from passengers in your income. Hrblockfreefile You can then deduct your car expenses (using the rules in this publication). Hrblockfreefile Hauling tools or instruments. Hrblockfreefile   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. Hrblockfreefile However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). Hrblockfreefile Union members' trips from a union hall. Hrblockfreefile   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Hrblockfreefile Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. Hrblockfreefile Office in the home. Hrblockfreefile   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Hrblockfreefile (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Hrblockfreefile ) Examples of deductible transportation. Hrblockfreefile   The following examples show when you can deduct transportation expenses based on the location of your work and your home. Hrblockfreefile Example 1. Hrblockfreefile You regularly work in an office in the city where you live. Hrblockfreefile Your employer sends you to a 1-week training session at a different office in the same city. Hrblockfreefile You travel directly from your home to the training location and return each day. Hrblockfreefile You can deduct the cost of your daily round-trip transportation between your home and the training location. Hrblockfreefile Example 2. Hrblockfreefile Your principal place of business is in your home. Hrblockfreefile You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. Hrblockfreefile Example 3. Hrblockfreefile You have no regular office, and you do not have an office in your home. Hrblockfreefile In this case, the location of your first business contact inside the metropolitan area is considered your office. Hrblockfreefile Transportation expenses between your home and this first contact are nondeductible commuting expenses. Hrblockfreefile Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Hrblockfreefile While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. Hrblockfreefile Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. Hrblockfreefile You generally can use one of the two following methods to figure your deductible expenses. Hrblockfreefile Standard mileage rate. Hrblockfreefile Actual car expenses. Hrblockfreefile If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. Hrblockfreefile See Leasing a Car , later. Hrblockfreefile In this publication, “car” includes a van, pickup, or panel truck. Hrblockfreefile For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. Hrblockfreefile Rural mail carriers. Hrblockfreefile   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. Hrblockfreefile Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. Hrblockfreefile   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). Hrblockfreefile You must complete Form 2106 and attach it to your Form 1040, U. Hrblockfreefile S. Hrblockfreefile Individual Income Tax Return. Hrblockfreefile   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. Hrblockfreefile It is given as an equipment maintenance allowance (EMA) to employees of the U. Hrblockfreefile S. Hrblockfreefile Postal Service. Hrblockfreefile It is at the rate contained in the 1991 collective bargaining agreement. Hrblockfreefile Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. Hrblockfreefile See your employer for information on your reimbursement. Hrblockfreefile    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. Hrblockfreefile Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. Hrblockfreefile For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Hrblockfreefile If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. Hrblockfreefile You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. Hrblockfreefile See Choosing the standard mileage rate and Standard mileage rate not allowed, later. Hrblockfreefile You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. Hrblockfreefile See chapter 6 for more information on reimbursements . Hrblockfreefile Choosing the standard mileage rate. Hrblockfreefile   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Hrblockfreefile Then, in later years, you can choose to use either the standard mileage rate or actual expenses. Hrblockfreefile   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. Hrblockfreefile For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. Hrblockfreefile   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. Hrblockfreefile You cannot revoke the choice. Hrblockfreefile However, in later years, you can switch from the standard mileage rate to the actual expenses method. Hrblockfreefile If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. Hrblockfreefile Example. Hrblockfreefile Larry is an employee who occasionally uses his own car for business purposes. Hrblockfreefile He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. Hrblockfreefile Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. Hrblockfreefile   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. Hrblockfreefile Standard mileage rate not allowed. Hrblockfreefile   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. Hrblockfreefile (See Rural mail carriers , earlier. Hrblockfreefile ) Note. Hrblockfreefile You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. Hrblockfreefile Five or more cars. Hrblockfreefile   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. Hrblockfreefile However, you may be able to deduct your actual expenses for operating each of the cars in your business. Hrblockfreefile See Actual Car Expenses , later, for information on how to figure your deduction. Hrblockfreefile   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. Hrblockfreefile   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. Hrblockfreefile Example 1. Hrblockfreefile Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. Hrblockfreefile She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. Hrblockfreefile Example 2. Hrblockfreefile Tony and his employees use his four pickup trucks in his landscaping business. Hrblockfreefile During the year, he traded in two of his old trucks for two newer ones. Hrblockfreefile Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. Hrblockfreefile Example 3. Hrblockfreefile Chris owns a repair shop and an insurance business. Hrblockfreefile He and his employees use his two pickup trucks and van for the repair shop. Hrblockfreefile Chris alternates using his two cars for the insurance business. Hrblockfreefile No one else uses the cars for business purposes. Hrblockfreefile Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. Hrblockfreefile Example 4. Hrblockfreefile Maureen owns a car and four vans that are used in her housecleaning business. Hrblockfreefile Her employees use the vans, and she uses the car to travel to various customers. Hrblockfreefile Maureen cannot use the standard mileage rate for the car or the vans. Hrblockfreefile This is because all five vehicles are used in Maureen's business at the same time. Hrblockfreefile She must use actual expenses for all vehicles. Hrblockfreefile Interest. Hrblockfreefile   If you are an employee, you cannot deduct any interest paid on a car loan. Hrblockfreefile This applies even if you use the car 100% for business as an employee. Hrblockfreefile   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. Hrblockfreefile For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). Hrblockfreefile You cannot deduct the part of the interest expense that represents your personal use of the car. Hrblockfreefile    If you use a home equity loan to purchase your car, you may be able to deduct the interest. Hrblockfreefile See Publication 936, Home Mortgage Interest Deduction, for more information. Hrblockfreefile Personal property taxes. Hrblockfreefile   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. Hrblockfreefile You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. Hrblockfreefile   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). Hrblockfreefile If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). Hrblockfreefile Parking fees and tolls. Hrblockfreefile   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Hrblockfreefile (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Hrblockfreefile ) Sale, trade-in, or other disposition. Hrblockfreefile   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. Hrblockfreefile See Disposition of a Car , later. Hrblockfreefile Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. Hrblockfreefile If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. Hrblockfreefile Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Hrblockfreefile Continue to keep records, as explained later in chapter 5 . Hrblockfreefile Business and personal use. Hrblockfreefile   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. Hrblockfreefile You can divide your expense based on the miles driven for each purpose. Hrblockfreefile Example. Hrblockfreefile You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. Hrblockfreefile You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. Hrblockfreefile Employer-provided vehicle. Hrblockfreefile   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. Hrblockfreefile You cannot use the standard mileage rate. Hrblockfreefile See Vehicle Provided by Your Employer in chapter 6. Hrblockfreefile Interest on car loans. Hrblockfreefile   If you are an employee, you cannot deduct any interest paid on a car loan. Hrblockfreefile This interest is treated as personal interest and is not deductible. Hrblockfreefile If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. Hrblockfreefile Taxes paid on your car. Hrblockfreefile   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. Hrblockfreefile Enter the amount paid on line 7 of Schedule A (Form 1040). Hrblockfreefile Sales taxes. Hrblockfreefile   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. Hrblockfreefile Fines and collateral. Hrblockfreefile   You cannot deduct fines you pay or collateral you forfeit for traffic violations. Hrblockfreefile Casualty and theft losses. Hrblockfreefile   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. Hrblockfreefile See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. Hrblockfreefile Depreciation and section 179 deductions. Hrblockfreefile   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Hrblockfreefile Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. Hrblockfreefile However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. Hrblockfreefile Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. Hrblockfreefile The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. Hrblockfreefile   Generally, there are limits on these deductions. Hrblockfreefile Special rules apply if you use your car 50% or less in your work or business. Hrblockfreefile   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. Hrblockfreefile   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. Hrblockfreefile Car defined. Hrblockfreefile   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. Hrblockfreefile Its unloaded gross vehicle weight must not be more than 6,000 pounds. Hrblockfreefile A car includes any part, component, or other item physically attached to it or usually included in the purchase price. Hrblockfreefile   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. Hrblockfreefile Qualified nonpersonal use vehicles. Hrblockfreefile   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Hrblockfreefile They 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. Hrblockfreefile Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. Hrblockfreefile More information. Hrblockfreefile   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. Hrblockfreefile Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. Hrblockfreefile If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. Hrblockfreefile There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. Hrblockfreefile See Depreciation Limits, later. Hrblockfreefile You can claim the section 179 deduction only in the year you place the car in service. Hrblockfreefile For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. Hrblockfreefile Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. Hrblockfreefile A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. Hrblockfreefile Example. Hrblockfreefile In 2012, you bought a new car and used it for personal purposes. Hrblockfreefile In 2013, you began to use it for business. Hrblockfreefile Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. Hrblockfreefile However, you can claim a depreciation deduction for the business use of the car starting in 2013. Hrblockfreefile See Depreciation Deduction , later. Hrblockfreefile More than 50% business use requirement. Hrblockfreefile   You must use the property more than 50% for business to claim any section 179 deduction. Hrblockfreefile If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Hrblockfreefile The result is the cost of the property that can qualify for the section 179 deduction. Hrblockfreefile Example. Hrblockfreefile Peter purchased a car in April 2013 for $24,500 and used it 60% for business. Hrblockfreefile Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). Hrblockfreefile But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. Hrblockfreefile Limits. Hrblockfreefile   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. Hrblockfreefile Limit on the amount of the section 179 deduction. Hrblockfreefile   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. Hrblockfreefile   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. Hrblockfreefile If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. Hrblockfreefile   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. Hrblockfreefile   If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Hrblockfreefile   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. Hrblockfreefile You must allocate the dollar limit (after any reduction) between you. Hrblockfreefile   For more information on the above section 179 deduction limits, see Publication 946. Hrblockfreefile Limit for sport utility and certain other vehicles. Hrblockfreefile   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. Hrblockfreefile This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. Hrblockfreefile However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or That has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. Hrblockfreefile    Limit on total section 179, special depreciation allowance, and depreciation deduction. Hrblockfreefile   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. Hrblockfreefile The limit is reduced if your business use of the car is less than 100%. Hrblockfreefile See Depreciation Limits , later, for more information. Hrblockfreefile Example. Hrblockfreefile In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. Hrblockfreefile However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). Hrblockfreefile Cost of car. Hrblockfreefile   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. Hrblockfreefile For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. Hrblockfreefile Your cost includes only the cash you paid. Hrblockfreefile Basis of car for depreciation. Hrblockfreefile   The amount of the section 179 deduction reduces your basis in your car. Hrblockfreefile If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. Hrblockfreefile The resulting amount is the basis in your car you use to figure your depreciation deduction. Hrblockfreefile When to choose. Hrblockfreefile   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. Hrblockfreefile How to choose. Hrblockfreefile    Employees use Form 2106 to make this choice and report the section 179 deduction. Hrblockfreefile All others use Form 4562. Hrblockfreefile   File the appropriate form with either of the following. Hrblockfreefile Your original tax return filed for the year the property was placed in service (whether or not you file it timely). Hrblockfreefile An amended return filed within the time prescribed by law. Hrblockfreefile An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Hrblockfreefile The amended return must also include any resulting adjustments to taxable income. Hrblockfreefile    You must keep records that show the specific identification of each piece of qualifying section 179 property. Hrblockfreefile These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Hrblockfreefile Revoking an election. Hrblockfreefile   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. Hrblockfreefile Recapture of section 179 deduction. Hrblockfreefile   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. Hrblockfreefile If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. Hrblockfreefile Any section 179 deduction claimed on the car is included in calculating the excess depreciation. Hrblockfreefile For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. Hrblockfreefile Dispositions. Hrblockfreefile   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. Hrblockfreefile You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). Hrblockfreefile For information on the disposition of a car, see Disposition of a Car , later. Hrblockfreefile Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. Hrblockfreefile The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). Hrblockfreefile The special depreciation allowance applies only for the first year the car is placed in service. Hrblockfreefile To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). Hrblockfreefile Combined depreciation. Hrblockfreefile   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). Hrblockfreefile For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Hrblockfreefile See Depreciation Limits , later in this chapter. Hrblockfreefile Qualified car. Hrblockfreefile   To be a qualified car (including trucks and vans), the car must meet all of the following tests. Hrblockfreefile You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. Hrblockfreefile Election not to claim the special depreciation allowance. Hrblockfreefile   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. Hrblockfreefile If you make this election, it applies to all 5-year property placed in service during the year. Hrblockfreefile   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. Hrblockfreefile    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. Hrblockfreefile Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. Hrblockfreefile This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. Hrblockfreefile You generally need to know the following things about the car you intend to depreciate. Hrblockfreefile Your basis in the car. Hrblockfreefile The date you place the car in service. Hrblockfreefile The method of depreciation and recovery period you will use. Hrblockfreefile Basis. Hrblockfreefile   Your basis in a car for figuring depreciation is generally its cost. Hrblockfreefile This includes any amount you borrow or pay in cash, other property, or services. Hrblockfreefile   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). Hrblockfreefile However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). Hrblockfreefile For one of these situations see Exception under Methods of depreciation, later. Hrblockfreefile   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. Hrblockfreefile Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . Hrblockfreefile Placed in service. Hrblockfreefile   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. Hrblockfreefile Depreciation begins when the car is placed in service for use in your work or business or for the production of income. Hrblockfreefile   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. Hrblockfreefile Car placed in service and disposed of in the same year. Hrblockfreefile   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. Hrblockfreefile Methods of depreciation. Hrblockfreefile   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). Hrblockfreefile MACRS is discussed later in this chapter. Hrblockfreefile Exception. Hrblockfreefile   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. Hrblockfreefile You must use straight line depreciation over the estimated remaining useful life of the car. Hrblockfreefile   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. Hrblockfreefile The rate per mile varies depending on the year(s) you used the standard mileage rate. Hrblockfreefile For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. Hrblockfreefile   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . Hrblockfreefile You must use your adjusted basis in your car to figure your depreciation deduction. Hrblockfreefile For additional information on the straight line method of depreciation, see Publication 946. Hrblockfreefile More-than-50%-use test. Hrblockfreefile   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. Hrblockfreefile You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. Hrblockfreefile   If your business use is 50% or less, you must use the straight line method to depreciate your car. Hrblockfreefile This is explained later under Car Used 50% or Less for Business . Hrblockfreefile Qualified business use. Hrblockfreefile   A qualified business use is any use in your trade or business. Hrblockfreefile It does not include use for the production of income (investment use). Hrblockfreefile However, you do combine your business and investment use to compute your depreciation deduction for the tax year. Hrblockfreefile Use of your car by another person. Hrblockfreefile   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. Hrblockfreefile It is directly connected with your business. Hrblockfreefile It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). Hrblockfreefile It results in a payment of fair market rent. Hrblockfreefile This includes any payment to you for the use of your car. Hrblockfreefile Business use changes. Hrblockfreefile   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. Hrblockfreefile See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. Hrblockfreefile    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. Hrblockfreefile Use for more than one purpose. Hrblockfreefile   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. Hrblockfreefile You do this on the basis of mileage. Hrblockfreefile Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. Hrblockfreefile Change from personal to business use. Hrblockfreefile   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. Hrblockfreefile In this case, you figure the percentage of business use for the year as follows. Hrblockfreefile Determine the percentage of business use for the period following the change. Hrblockfreefile Do this by dividing business miles by total miles driven during that period. Hrblockfreefile Multiply the percentage in (1) by a fraction. Hrblockfreefile The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. Hrblockfreefile Example. Hrblockfreefile You use a car only for personal purposes during the first 6 months of the year. Hrblockfreefile During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. Hrblockfreefile This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. Hrblockfreefile Your business use for the year is 40% (80% × 6/12). Hrblockfreefile Limits. Hrblockfreefile   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. Hrblockfreefile The maximum amount you can claim depends on the year in which you placed your car in service. Hrblockfreefile You have to reduce the maximum amount if you did not use the car exclusively for business. Hrblockfreefile See Depreciation Limits , later. Hrblockfreefile Unadjusted basis. Hrblockfreefile   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . Hrblockfreefile Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. Hrblockfreefile   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. Hrblockfreefile Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. Hrblockfreefile Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. Hrblockfreefile Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. Hrblockfreefile 1, 2006), and alternative motor vehicle credit. Hrblockfreefile   See Form 8910 for information on the alternative motor vehicle credit. Hrblockfreefile If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. Hrblockfreefile See Car Used 50% or Less for Business, later, for more information. Hrblockfreefile If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. Hrblockfreefile Improvements. Hrblockfreefile   A major improvement to a car is treated as a new item of 5-year recovery property. Hrblockfreefile It is treated as placed in service in the year the improvement is made. Hrblockfreefile It does not matter how old the car is when the improvement is added. Hrblockfreefile Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. Hrblockfreefile However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. Hrblockfreefile Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. Hrblockfreefile See Depreciation Limits , later. Hrblockfreefile Car trade-in. Hrblockfreefile   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. Hrblockfreefile You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Hrblockfreefile If you make this election, you treat the old car as disposed of at the time of the trade-in. Hrblockfreefile The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. Hrblockfreefile You then figure your depreciation deduction for the new car beginning with the date you placed it in service. Hrblockfreefile You make this election by completing Form 2106, Part II, Section D. Hrblockfreefile This method is explained later, beginning at Effect of trade-in on basis . Hrblockfreefile If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. Hrblockfreefile You must apply two depreciation limits (see Depreciation Limits , later). Hrblockfreefile The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. Hrblockfreefile The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. Hrblockfreefile You must use Form 4562 to compute your depreciation deduction. Hrblockfreefile You cannot use Form 2106, Part II, Section D. Hrblockfreefile This method is explained in Publication 946. Hrblockfreefile   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). Hrblockfreefile Otherwise, you must use the method described in (2). Hrblockfreefile Effect of trade-in on basis. Hrblockfreefile   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Hrblockfreefile For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. Hrblockfreefile 168(i)-6(d)(3). Hrblockfreefile Traded car used only for business. Hrblockfreefile   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. Hrblockfreefile Example. Hrblockfreefile Paul trades in a car that has an adjusted basis of $5,000 for a new car. Hrblockfreefile In addition, he pays cash of $20,000 for the new car. Hrblockfreefile His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). Hrblockfreefile Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. Hrblockfreefile Traded car used partly in business. Hrblockfreefile   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. Hrblockfreefile This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. Hrblockfreefile (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. Hrblockfreefile See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. Hrblockfreefile )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. Hrblockfreefile Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. Hrblockfreefile For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. Hrblockfreefile Modified Accelerated Cost Recovery System (MACRS). Hrblockfreefile   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. Hrblockfreefile   The maximum amount you can deduct is limited, depending on the year you placed your car in service. Hrblockfreefile See Depreciation Limits , later. Hrblockfreefile Recovery period. Hrblockfreefile   Under MACRS, cars are classified as 5-year property. Hrblockfreefile You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. Hrblockfreefile This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. Hrblockfreefile Depreciation deduction for certain Indian reservation property. Hrblockfreefile   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. Hrblockfreefile The recovery that applies for a business-use car is 3 years instead of 5 years. Hrblockfreefile However, the depreciation limits, discussed later, will still apply. Hrblockfreefile   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. Hrblockfreefile Depreciation methods. Hrblockfreefile   You can use one of the following methods to depreciate your car. Hrblockfreefile The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Hrblockfreefile The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Hrblockfreefile The straight line method (SL) over a 5-year recovery period. Hrblockfreefile    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. Hrblockfreefile This is because the chart has the switch to the straight line method built into its rates. Hrblockfreefile   Before choosing a method, you may wish to consider the following facts. Hrblockfreefile Using the straight line method provides equal yearly deductions throughout the recovery period. Hrblockfreefile Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. Hrblockfreefile MACRS depreciation chart. Hrblockfreefile   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . Hrblockfreefile Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. Hrblockfreefile A similar chart appears in the Instructions for Form 2106. Hrblockfreefile    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. Hrblockfreefile   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. Hrblockfreefile You file your return on a fiscal year basis. Hrblockfreefile You file your return for a short tax year (less than 12 months). Hrblockfreefile During the year, all of the following conditions apply. Hrblockfreefile You placed some property in service from January through September. Hrblockfreefile You placed some property in service from October through December. Hrblockfreefile Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. Hrblockfreefile   You placed qualified property in service on an Indian reservation. Hrblockfreefile Depreciation in future years. Hrblockfreefile   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. Hrblockfreefile However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. Hrblockfreefile In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. Hrblockfreefile See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Hrblockfreefile    In future years, do not use the chart in this edition of the publication. Hrblockfreefile Instead, use the chart in the publication or the form instructions for those future years. Hrblockfreefile Disposition of car during recovery period. Hrblockfreefile   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. Hrblockfreefile See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. Hrblockfreefile How to use the 2013 chart. Hrblockfreefile   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. Hrblockfreefile Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. Hrblockfreefile If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. Hrblockfreefile    Your deduction cannot be more than the maximum depreciation limit for cars. Hrblockfreefile See Depreciation Limits, later. Hrblockfreefile Example. Hrblockfreefile Phil bought a used truck in February 2012 to use exclusively in his landscape business. Hrblockfreefile He paid $9,200 for the truck with no trade-in. Hrblockfreefile Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. Hrblockfreefile Phil used the MACRS depreciation chart in 2012 to find his percentage. Hrblockfreefile The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. Hrblockfreefile He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. Hrblockfreefile In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. Hrblockfreefile His records show that the business use of his truck was 90% in 2013. Hrblockfreefile Phil used Table 4-1 to find his percentage. Hrblockfreefile Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. Hrblockfreefile He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. Hrblockfreefile Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. Hrblockfreefile The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. Hrblockfreefile The maximum amount you can deduct each year depends on the year you place the car in service. Hrblockfreefile These limits are shown in the following tables. Hrblockfreefile   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 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 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Hrblockfreefile 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Hrblockfreefile 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Hrblockfreefile 4$7,660 if you acquired the car before 5/6/2003. Hrblockfreefile $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. Hrblockfreefile 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. Hrblockfreefile Trucks and vans. Hrblockfreefile   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. Hrblockfreefile A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. Hrblockfreefile For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. Hrblockfreefile 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 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. Hrblockfreefile 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. Hrblockfreefile Car used less than full year. Hrblockfreefile   The depreciation limits are not reduced if you use a car for less than a full year. Hrblockfreefile This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. Hrblockfreefile However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. Hrblockfreefile See Reduction for personal use , next. Hrblockfreefile Reduction for personal use. Hrblockfreefile   The depreciation limits are reduced based on your percentage of personal use. Hrblockfreefile If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. Hrblockfreefile Section 179 deduction. Hrblockfreefile   The section 179 deduction is treated as a depreciation deduction. Hrblockfreefile If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. Hrblockfreefile Example. Hrblockfreefile On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. Hrblockfreefile He used it 80% for his business, and he chooses to take a section 179 deduction for the car. Hrblockfreefile The car is not qualified property for purposes of the special depreciation allowance. Hrblockfreefile Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. Hrblockfreefile This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). Hrblockfreefile Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). Hrblockfreefile He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. Hrblockfreefile Jack has reached his maximum depreciation deduction for 2013. Hrblockfreefile For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. Hrblockfreefile Deductions in years after the recovery period. Hrblockfreefile   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. Hrblockfreefile If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. Hrblockfreefile Unrecovered basis. Hrblockfreefile   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. Hrblockfreefile The recovery period. Hrblockfreefile   For 5-year property, your recovery period is 6 calendar years. Hrblockfreefile A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. Hrblockfreefile   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. Hrblockfreefile You determine your unrecovered basis in the 7th year after you placed the car in service. Hrblockfreefile How to treat unrecovered basis. Hrblockfreefile   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. Hrblockfreefile The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. Hrblockfreefile For example, no deduction is allowed for a year you use your car 100% for personal purposes. Hrblockfreefile Example. Hrblockfreefile In April 2007, Bob bought and placed in service a car he used exclusively in his business. Hrblockfreefile The car cost $31,500. Hrblockfreefile Bob did not claim a section 179 deduction or the special depreciation allowance for the car. Hrblockfreefile He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). Hrblockfreefile For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. Hrblockfreefile Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. Hrblockfreefile      MACRS     Deprec. Hrblockfreefile Year % Amount Limit Allowed 2007 20. Hrblockfreefile 00 $6,300 $3,060 $ 3,060 2008 32. Hrblockfreefile 00 10,080 4,900 4,900 2009 19. Hrblockfreefile 20 6,048 2,850 2,850 2010 11. Hrblockfreefile 52 3,629 1,775 1,775 2011 11. Hrblockfreefile 52 3,629 1,775 1,775 2012 5. Hrblockfreefile 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. Hrblockfreefile   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). Hrblockfreefile If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. Hrblockfreefile   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. Hrblockfreefile However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. Hrblockfreefile For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. Hrblockfreefile Table 4-1. Hrblockfreefile 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Hrblockfreefile ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. Hrblockfreefile   First, using the left column, find the date you first placed the car in service in 2013. Hrblockfreefile Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. Hrblockfreefile For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. Hrblockfreefile Refer back to the MACRS Depreciation Chart for the year you placed the car in service. Hrblockfreefile (See Car Used 50% or Less for Business . Hrblockfreefile )  Multiply the unadjusted basis of your car by your business use percentage. Hrblockfreefile Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. Hrblockfreefile (Also see Depreciation Limits . Hrblockfreefile )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. Hrblockfreefile 1—Sept. Hrblockfreefile 30 percentage instead of the Oct. Hrblockfreefile 1—Dec. Hrblockfreefile 31 percentage for your car. Hrblockfreefile               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. Hrblockfreefile If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. Hrblockfreefile 1—Sept. Hrblockfreefile 30 for figuring depreciation for your car. Hrblockfreefile See Which Convention Applies? in chapter 4 of Publication 946 for more details. Hrblockfreefile               Example. Hrblockfreefile You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. Hrblockfreefile You