You Make the Call
Feb. 20, 2025
Question: Sandra, a partner in TRX, LLC, received a Schedule K-1 (Form 1065) with $45,000 in Box 19, Code C. The instructions for this current distribution indicate that this is the partnership's adjusted basis of property immediately before it was distributed to Sandra. Besides the adjusted basis, what does her tax preparer need to know to complete the new Form 7217, Partner's Report of Property Distributed by a Partnership, that should be filed with her Form 1040, U.S. Individual Income Tax Return?
Answer: Sandra and her preparer also need to know her outside basis in the partnership so it can be compared to the adjusted basis of the property reported on Schedule K-1. The fair market value of the property on the distribution date is also required to complete the form.
Form 7217, as it applies to current distributions, is a new form (2024) that reports the adjusted basis of property distributed from a partnership to a partner. Although a cash distribution in excess of outside basis may result in immediate gain recognition, current distributions of noncash property (such as real estate or equipment) generally do not cause either the partner or the partnership to recognize gain or loss on the distribution.
Instead, the partner's basis in the distributed property cannot be more than the partner's outside basis before the distribution (reduced by any cash distributions). Thus, the partnership's adjusted basis in the property carries over to the partner to the extent of the partner's outside basis so that recognition of gain or loss is deferred.
In other words, a partner's basis in the distributed property is the smaller of:
- The partnership's adjusted basis immediately before the distribution, or
- The adjusted basis of their partnership interest (outside basis) reduced by any cash distributed in the same transaction.
The partner may recognize gain or loss at a later time, such as when they dispose of the property [§732(a)].
Feb. 13, 2025
Question: Katherine is a U.S. citizen living in El Salvador. She purchased a personal residence in that country over 12 years ago and has lived there as her primary residence ever since. Katherine sold her home in May of 2024. The home was originally purchased for $220,000; she made $50,000 in improvements and sold it for $300,000. The sale results in a small gain.
Katherine mentions that she has not yet received Form 1099-S,
Proceeds from Real Estate Transactions, but she will receive one. Would Katherine be able to take advantage of the §121 exclusion and how would that be reported on her tax return since the home was in a foreign country?
Answer: Yes, if all the §121 requirements are met, the exclusion can be used on a foreign residence. Section 121 and Reg. §1.121-1 do not explicitly require the residence to be in the United States.
Therefore, as long as Katherine satisfies the ownership and use tests required under §121, she is eligible to exclude the gain from the sale of her principal residence, regardless of its location in a foreign country.
Katherine will report the sale of her foreign principal residence and the exclusion on Form 8949,
Sale and Other Dispositions of Capital Assets, and Schedule D (Form 1040),
Capital gains and Losses, just as if it was sold in the U.S.
Feb. 6, 2025
Question: Diego is an active-duty military member stationed in Germany since last March. His spouse and children (ages 3 and 6) remained in Florida in the home they own together. This is Diego's first deployment, and his spouse is not sure what filing status to use since Diego has not lived in their home for the last 10 months.
The couple does not want to lose any credits they could be eligible for but are concerned because Box 1 of Diego's Form W-2,
Wage and Tax Statement, only shows $8,000 even though he is employed by the military full time and received other nontaxable pay. The couple's only other source of income comes from the small business Diego's spouse owns, which nets $19,000 annually after expenses. Neither Diego nor his spouse attend school currently, but they do have eligible childcare expenses for both children. They are not separated and do maintain their home equally. Which filing status is more beneficial for Diego and his family?
Answer: Married filing jointly is the correct filing status to ensure that Diego and his spouse can claim all the credits they are eligible for, such as the child and dependent care credit. In this case, even though Diego has been out of the home the last six months of the year, his spouse does not qualify for head of household filing status since they maintained the household together. The married filing separately filing status would not benefit the couple because they would not be able to claim certain credits.
Diego and his spouse would also qualify for the earned income credit (EIC) based on their combined adjusted gross income (AGI) of $27,000. For tax year 2024, $62,688 is the maximum AGI eligible for couples filing jointly to claim EIC with two children. Box 1 of Diego's Form W-2 is smaller than the total pay he received for the year because his taxable income does not include special pay allowances. Those amounts will be listed in Box 12 and can be found on his military leave and earnings statement as well.
Jan. 30, 2025
Question: Sandy, the custodian of her 12-year-old granddaughter Sharon, passed away in May 2024. After Sandy's death, Sharon moved in with her aunt. If Sandy had not passed away, she would have been eligible to claim the earned income credit (EIC) with Sharon as her qualifying child, assuming all other EIC requirements were met. Who is eligible to claim EIC with Sharon as a qualifying child: Sandy on her final return, or Sharon's aunt?
Answer: Either Sandy (on her final return) or Sharon's aunt could claim EIC with Sharon as a qualifying child if all other EIC requirements are met. A key requirement for a qualifying child is that the child must live with the taxpayer for more than half the year (§ 32(c)(3)).
When Sandy passed away in May 2024, her tax year became a short tax year (January to May), meaning Sharon lived with Sandy for her entire tax year. As a result, Sharon qualifies as a qualifying child for EIC on Sandy's final return. If Sharon subsequently moved in with her aunt, she could potentially claim EIC for Sharon, assuming all other requirements are met.
However, only one taxpayer can claim EIC with Sharon as a qualifying child. If Sandy's personal representative and Sharon's aunt cannot agree on who will claim Sharon, the IRS tie-breaker rules will apply (§ 32(c)(1)(A)). The tie-breaker rules prioritize parents; since Sharon did not live with either parent during the tax year, both would be ineligible to claim Sharon as a qualifying child. Sharon lived with both her grandmother and aunt for more than half of their respective tax years, so the custodian with the higher adjusted gross income (AGI) will be entitled to claim EIC (§ 32(c)(1)(B)). The fact that Sandy passed away does not prevent her personal representative from claiming EIC for her on Sandy's final return if all other requirements are satisfied (§32).
Jan. 23, 2025
Question: Jim, age 60 and single, receives a Form W-2,
Wage and Tax Statement, reporting Box 1 income of $45,000. He also files Schedule C (Form 1040),
Profit or Loss From Business, reporting net profit of $80,701. Jim has no other income and his Schedule 1 (Form 1040),
Additional Income and Adjustments to Income, initially reports $5,701 in deductible self-employment tax. Jim does not contribute to a 401(k) plan with his employer. For 2024, can Jim contribute to both a SEP-IRA and a Roth IRA, assuming he satisfies the contribution deadlines and meets the requirements to establish the SEP-IRA?
Answer: Yes, he can contribute to both. For 2024 Jim can contribute $15,000 to a SEP-IRA and $8,000 to a Roth IRA.
Self-employed persons can adopt a SEP plan, and the contribution limit is generally the lesser of 25% of an employee's compensation (limited to $345,000) or $69,000. In general, for plans that have a 25% plan contribution rate, the recalculated maximum rate of 20% applies to a self-employed owner. In Jim's case, the contribution rate is the lower of $15,000 [($80,701 - $5,701) = $75,000) x .20)] or $69,000. Therefore, $15,000 is his maximum deduction. The $15,000 will be reported on his Schedule 1.
The SEP-IRA contribution will not affect his eligibility to make a Roth IRA contribution, assuming his modified adjusted gross income (MAGI) stays within the Roth IRA contribution limits.
Jim can contribute $8,000 (including the catch-up amount) to a Roth IRA, provided his MAGI is less than $146,000. If his MAGI is $146,000 or more, but less than $161,000, his contribution is reduced. At a MAGI of $161,000 or more, no contribution is allowed. For Roth contributions, Jim's MAGI is $105,000 [($45,000 + $80,701 = $125,701) - ($5,701 + $15,000 = $20,701)]. Because his MAGI is below $146,000, he can contribute the maximum amount to his Roth IRA.
Jan. 16, 2025
Question: In 2023, Remy hired a home energy auditor to identify which energy efficiency improvements should be installed in his principal residence located in the U.S. He claimed the home energy audit credit on his 2023 tax return. His brother Erek had a home energy audit for his principal residence in 2024 and wondered if he can claim the same credit. He heard the rules to claim the credit have changed. Can Erek claim the energy home efficient improvement credit for the costs of the home energy audit performed in 2024?
Answer: It depends. Beginning Jan. 1, 2024, home energy audits must be performed by a qualified home energy auditor or under the supervision of an auditor. The qualified home energy auditor must be certified by a qualified certification program at the time of the audit (Notice 2023-59). To locate one of the qualified certification programs, check out the list on the
Department of Energy's website. If Erek meets this requirement, he may be eligible to claim the credit.
For home energy audits conducted between Jan. 1, 2023, and Dec. 31, 2023, the auditor is not required to be a certified home energy auditor.
Jan. 9, 2025
Question: Jason regularly gambles at the local casino. He is not considered engaged in the trade or business of gambling but does spend a large amount of money pursuing the activity of gambling at one specific casino.
The casino gives Jason perks such as vouchers for free meals or drinks, complimentary overnight stays and tickets to attend shows at the local comedy club to encourage him to continue spending money at their casino rather than going to the larger casino in the next town. The total value of all the perks Jason received from the casino is $2,500.
During the year, Jason's gambling pursuits have resulted in gambling winnings of $10,000, which he will report on his Form 1040,
U.S. Individual Income Tax Return, as taxable income. He also keeps a log of all his wagers and has allowable documented gambling losses of $20,000. Assuming Jason is able to itemize his deductions on Schedule A (Form 1040),
Itemized Deductions, what amount of gambling losses may he deduct?
Answer: Jason may deduct $12,500 of his gambling losses. He would report $12,500 in winnings and be allowed to offset that income with a deduction for an equal amount. The remaining $7,500 in losses are not deductible and can't be carried forward.
Gambling losses are deductible on Schedule A as an itemized deduction up to the amount of the taxpayer's gains from gambling (wagering) transactions. The perks, sometimes referred to as “comps,” Jason received from the casino are treated as gambling winnings for tax purposes because they are closely related to his gambling activity, and he would not have received them had he not gambled exclusively at that casino.
Therefore, the comps are considered gains from the gambling activity and must be treated as gambling winnings for purposes of reporting the income and determining how much of the gambling losses will be allowed as a deduction on Schedule A.
Jan. 2, 2025
Question: Sandra has a publicly traded partnership (PTP) Schedule K-1 (Form 1065) with multiple PTP activities reported. One of the activities, Energy Partners LLP (a PTP), has a $5,000 loss in Box 1. Another activity, Blackstone Group (a PTP), has $6,000 of income in Box 1. Sandra is hopeful the loss from one activity can offset the gain from the other. Can the passive income from Blackstone Group offset the passive losses from Energy Partners, LLP?
Answer: No. Each PTP activity is treated on a stand-alone basis for passive activity loss purposes. This means that losses from one activity, including carryforwards, can only offset income from the same specific PTP. In other words, losses from Energy Partners LLP cannot offset the passive income from Blackstone Group, even though they are reported on the same Schedule K-1 (1065). Sandra will report $6,000 of passive income separately and a $5,000 suspended passive loss, currently non-deductible, which can only be used against future income from Energy Partners LLP.
Dec. 26, 2024
Question: Jane earns $35,000 a year and receives non-taxable alimony and child support. She shares custody of their 2-year-old son with Mark. Their son lives with Jane Monday through Friday and stays with Mark on weekends. Jane and Mark, however, cannot agree on who should claim their son on their income tax returns. Which parent is entitled to claim their son – Jane or Mark?
Answer: According to §152(e), the parent the child spends the most time with – also known as the custodial parent – generally has the right to claim the child as a dependent. In Jane's case, since their son lives with her during the week, she is considered the custodial parent. This means Jane is the parent entitled to claim their son as a dependent on her Form 1040,
U.S. Individual Income Tax Return, as long as she meets the other requirements (§152). Mark, on the other hand, could only claim their son if Jane agrees in writing to release her dependency claim (Form 8332,
Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, is usually used for such purpose).
It should be noted that even if Jane does agree in writing to allow Mark to claim their son as a dependent for tax purposes, Jane retains the right to file as head of household under §2(b), to claim the child and dependent care credit under §21 and earned income credit (EIC) under §32. More information can be found on the
IRS's website.
Dec. 19, 2024
Question: Jim and Sarah are U.S. citizens who reside in the United States and file a joint federal income tax return. They have $5,000 in foreign bank accounts. Jim and Sarah also have $200,000 in foreign stocks issued by a foreign corporation, which is directly held be the couple and is not in a U.S. financial institution.
Could Jim and Sarah have a Form 8938,
Statement of Specified Foreign Financial Assets, reporting requirement, but not a Report of Foreign Bank and Financial Accounts (FBAR) filing requirement using FinCEN Form 114?
Answer: Yes, a taxpayer could have a Form 8938, filing requirement but not an FBAR filing requirement. This is due to differences in the threshold requirements and types of reportable assets for each form. A taxpayer might have foreign assets that meet the Form 8938 filing thresholds (e.g., foreign stock held directly) but do not qualify as foreign financial accounts. Since FBAR only covers foreign financial accounts, these types of foreign assets would not trigger an FBAR filing.
- Types of reportable assets:
- Form 8938: Covers a broader range of foreign financial assets, including interests in foreign entities and certain foreign non-account assets like foreign stocks held directly.
- FinCEN 114 (FBAR): Limited to foreign financial accounts, such as bank accounts, brokerage accounts, and similar types of accounts with a financial institution.
- Threshold differences:
- Form 8938: For specified individuals, the thresholds are as follows: If an unmarried or married filing separately (MFS) taxpayer living in the U.S. has assets over $50,000 on the last day of the tax year, or $75,000 at any time during the tax year, they must file. For married taxpayers filing jointly (MFJ), these limits are $100,000 on the last day of the tax year or $150,000 at any time during the tax year. These amounts increase for U.S. citizens/resident aliens living abroad: For unmarried or MFS taxpayers, the threshold is $200,000 on the last day of the tax year or $300,000 at any time during the tax year. For MFJ taxpayers, the thresholds are $400,000 on the last day of the tax year and $600,000 at any time during the tax year.
- FinCEN Form 114 (FBAR): Required if the aggregate value of foreign financial accounts exceeds $10,000 at any point during the calendar year. There are no differences in thresholds whether the taxpayer is married filing a joint return, married filing a separate return, or an unmarried taxpayer.
Dec. 12, 2024
Question: Edgar runs a small technology company that uses the services of two foreign contractors; one lives in Guatemala and the other in Costa Rica. They will be paid $5,500 and $8,500 respectively. Edgar needs to know if he has a compliance obligation to issue them a Form 1099-NEC,
Nonemployee Compensation?
Answer: No, Form 1099-NEC is not required to be issued to foreign contractors. First, the employer verifies the contractors are not U.S. citizens working outside the country. The foreign contractors will sign Form W-8BEN,
Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals). By completing Part I and signing Form W-8BEN, the foreign contractors are certifying they are not U.S. persons. The foreign contractors do not need ITINs. Form 1099-NEC does not need to be filed [Reg.§1.6041-4(a)]. The Form W-8BEN is not filed with the IRS, however, the employer must keep it in the files just in the event of an audit.
Dec. 5, 2024
Question: Maeve is marking National Pearl Harbor Remembrance Day by donating her family's World War II artifacts to the city of Honolulu, Hawaii, for public display. Will this gift be eligible for a charitable deduction on Maeve's tax return?
Answer: Yes. Property donations to local governments may be tax-deductible. To qualify, the charitable gift must be used for a public purpose. The fact Maeve's artifacts will be on public display likely qualifies as a public purpose, so long as she didn't retain control over the property and received nothing of value from the city in return.
IRC §170(c)(1) states that a donation is tax deductible when it is to a state, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes. In this case, the city of Honolulu qualifies as a political subdivision of a state.
Nov. 27, 2024
Question: Susan pays her neighbor Alli to babysit her 5-year-old son and perform light housework two days a week. Alli will turn 18 on Dec. and is a full-time high school student. Alli meets the definition of being a household employee and Susan pays Alli in cash for the hourly work performed. Susan consistently pays Alli $240 per month, meaning that by the end of the year she will have paid Alli $2,880 for her services. Susan is trying to determine if she has an obligation to pay Social Security, Medicare or federal unemployment taxes. As a household employer, is Susan required to pay FICA and FUTA taxes for the wages paid to Alli?
Answer: No. Although Alli is considered Susan's household employee and household employers are subject to FICA taxes if they pay the employee at least $2,700 during the year ($2,600 for 2023), Susan is not subject to FICA taxes on Alli's wages because Alli was under age 18 during the year. IRC Sec. 3121(b)(21) and Notice 95-18 state that if an individual is under age 18 at any time during the year, their wages are exempt from FICA taxes as long as the household services are not their principal occupation. Because Alli is a full-time high school student, her job working for Susan is not considered her principal occupation, therefore, her wages are not subject to FICA taxes.
Susan also does not have to pay FUTA taxes for the wages she pays to Alli because she paid her less than $1,000 for each quarter.
Nov. 21, 2024
Question: Sherri and Chris were talking about year-end tax savings when Chris mentioned that she has a Health Savings Account (HSA) in conjunction with the high deductible health plan (HDHP) offered by her employer. Of her 2024 $4,150 maximum allowable contribution, she has thus far only contributed $2,150 through payroll deductions. Now, in November, she has extra cash in hand and regrets her earlier annual election amount. Sherri says, “I have a remedy for that, Chris. You can contribute to the HSA from out-of-pocket, rather than through wages, and get a tax deduction if you contribute before April 15, 2025.” Is Sherri correct?
Answer: Yes, as an eligible individual for the entire tax year, Chris can contribute the additional $2,000 shortfall to reach the $4,150 maximum for 2024. Anyone can contribute to an eligible individual's HSA. For an employee's HSA, the employee, employer or both may contribute to the employee's HSA in the same year.
Using Part I of Form 8889,
Health Savings Accounts (HSAs), to figure the deduction, Chris will ultimately realize the deduction amount on Schedule 1 (Form 1040), Part II Line 13, if contributed before April 15, 2025.
Nov. 14, 2024
Question: Mary's mother, Martha, lives in a nursing home with an annual cost of $72,000. Fortunately, Martha has a long-term care (LTC) insurance policy that covered $65,000 of those expenses for the 2023 tax year. Mary believes that Martha can deduct all nursing home costs that exceed 7.5% of the adjusted gross income (AGI) of $90,000 reported on Martha's I Schedule A. However, Martha's CPA, Sue, disagrees and believes that Martha's deductions will be limited to the amount not reimbursed through her LTC policy. Who is correct in this scenario and how much of a deduction is allowed by Martha?
Answer: Sue is right. When it comes to deducting medical expenses on your tax return, you can only include the amounts you personally paid out of pocket. Any amounts reimbursed by insurance must be subtracted from the total expenses before you calculate your deduction [§213(a)].
Since Martha's long-term care policy covered $65,000 of the nursing home costs, she can only use the remaining $7,000 ($72,000 total cost minus $65,000 reimbursement) to determine the deduction.
Martha's AGI is $90,000. Martha's filing status is single. She will not be able to deduct the first $6,750 ($90,000 multiplied by 7.5%) in medical and dental expenses on Schedule A. Based solely on the nursing home annual cost, Martha would only be able to include $250 in expenses on Schedule A.
In summary, while Mary might have thought Martha could deduct all her nursing home expenses that exceed 7.5% of her AGI, the rules are clear. The deduction is limited to the expenses Martha actually paid after accounting for any insurance reimbursements. So, Sue's guidance aligns with IRS regulations, ensuring Martha correctly navigates her tax deductions.
Nov. 7, 2024
Question: John is an unmarried taxpayer and has a dependent son, Billy. Billy passed away in May of 2023. Can John still claim head of household (HOH) status in the year Billy passed away, if Billy met all the other requirements to be a qualifying child (relationship, age, support and joint return) except the residency test (Billy did not live with John more than half the year)?
Answer: Yes, John can still file using the HOH filing status, even if Billy passed away in May according to both IRS Publication 17,
Your Federal Income Tax for Individuals, Page 27, and IRS Publication 501,
Dependents, Standard Deduction, and Filing Information, Page 9. These publications say a taxpayer may be eligible to file as head of household even if the person who qualifies you for this filing status is born or died during the year. To qualify for HOH filing status, the qualifying person must be a qualifying child or qualifying relative who lived with the taxpayer for more than half the part of the year they were alive. In addition, IRS Reg. §1.2-2(c)(1), Household, provides the taxpayer and such other person, must occupy the household for the entire taxable year of the taxpayer. However, the fact that such other person is born or dies within the taxable year will not prevent the taxpayer from qualifying as an HOH if the household constitutes the principal place of abode of such other person for the remaining or preceding part of such taxable year.
The key condition is that the HOH requirement must have been met until the date of death, not the entire taxable year. According to IRS Publication 17, Page 31, Residency Test. To meet this test the child must have lived with the taxpayer more than half the year,. There is an exception for children who were born or died during the tax year.
Oct. 31, 2024
Question: John is preparing to meet with two of his potential clients, Robert and Steve. Through their conversation on the phone, John learned that Robert owns a tax-exempt LLC and Steve is a minister who is responsible for the administration of his church and ensuring it complies with its reporting obligations. The two gentlemen are confused as to whether they need to file beneficial ownership information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN). They heard that all tax-exempt entities were exempt from BOI reporting requirements. What should John tell them?
Answer: Not all tax-exempt entities are exempt from BOI filing. John, as a tax preparer, should provide the two clients with the following information.
Beginning Jan. 1, 2024, the federal
Corporate Transparency Act (CTA) requires certain types of entities to file a BOI report with FinCEN, a bureau of the U.S. Department of Treasury. The CTA does not distinguish between for-profit and nonprofit entities with regard to BOI reports. Generally, three types of tax-exempt entities qualify for the exemption; they are §501(c) organizations, §527 political organizations and §4947 trusts. If your tax-exempt organization is not one of the three types of exempt entities and meets the definition of a reporting company, you still need to file a BOI report.
Per CTA, every domestic corporation, LLC, or other entity set up in compliance with the secretary of state or any foreign entity formed under the law of a foreign country and registered with the state in the U.S. is required to file a BOI, unless they qualify for one of the 23 exemptions set forth in the CTA. [31 CFR 1010.380(C)(1)]
Given the scenario presented to John, if Robert has his own tax-exempt LLC (which is not one of the three types abovementioned), and was created by filing with a U.S. state, he will still need to file. For Steve's church, he likely does not need to file a BOI report as it is a §501(c) organization.
To confirm entity's exempt status, taxpayers should go through the questions and criteria for each type of exempt entity listed under
BOI Small Compliance Guide v1.1 (fincen.gov) and
Beneficial Ownership Information | FinCEN.gov.
Oct. 24, 2024
Question: Benny has been preparing for the World Series by oiling his catching glove, planning out his game day snacks and, of course, reviewing his tax situation. Due to the great seats he secured for the games, he anticipates catching a home-run baseball. Benny's personal tradition is to return the ball by immediately throwing it back onto the field. He fears that his catch and release of the valuable ball will generate income or gift tax consequences to him. Is that the case?
Answer: No, there will be no income nor gift tax consequences to Benny. The IRS has informed taxpayers that the catch and release of a home-run baseball will not create any taxable income [IRS News Release 98-56, 9/08/1998].
The IRS has likened the situation to a taxpayer's refusal to accept a prize or unsolicited merchandise awarded in all types of contests. Generally, prizes are included in the recipient's gross income for federal income tax purposes
unless the contest winner refuses to accept the prize [Rev. Rul. 57-374, 1957-2 C.B. 69].
Benny's return of the ball will also not constitute a taxable gift being made. For there to be a gift, the donor must have sufficient property or ownership interest in the transferred property.
Now armed with the facts, Benny can fearlessly execute his plan to throw back the World Series ball, knowing there are no income or gift tax consequences to him.
Oct. 17, 2024
Question: Ryan has a Schedule C business where he has a piece of 5-year class life equipment that he placed in service in 2022. The equipment is qualified property and eligible for bonus depreciation; however, when Ryan timely filed his 2022 tax return, he did not claim bonus depreciation and did not elect out of claiming bonus depreciation. He has also timely filed his 2023 return, continuing to claim depreciation on the asset. Realizing that he should have either claimed bonus depreciation or elected out, Ryan wants to amend his 2022 return to claim bonus depreciation since he is still within the statute of limitations. Can Ryan amend his 2022 tax return to claim the bonus depreciation he was eligible to take?
Answer: No, Ryan cannot amend his tax return to claim bonus depreciation. Instead, he must file Form 3115,
Change in Method of Accounting, to claim the missed bonus depreciation. The return is past the due date; therefore, Ryan cannot elect out of bonus depreciation. Because no affirmative election-out was made, Ryan is required to compute depreciation and basis of the equipment as if bonus depreciation was taken; therefore, he should file Form 3115 to claim the missed depreciation to receive the benefit of the deduction. In instances where a taxpayer timely files their tax return without affirmatively electing out of depreciation, they can go back and make the election-out on an amended tax return within six months of the due date of the original return, excluding extensions, and writing “filed pursuant to Section 301.9100-2” at the top of the return. Because Ryan's return is past the six-month mark, he should file Form 3115 to claim the missed bonus depreciation since no affirmative election-out was made.
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