You can take a special depreciation allowance for qualified recovery assistance property (as defined below) you acquire after May 4, 2007. The special allowance is an additional deduction of 50% of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction). The special allowance applies only for the first year the property is placed in service.
The special allowance is deductible for both the regular tax and the alternative minimum tax (AMT). There is no AMT adjustment required for any depreciation figured on the remaining basis of the property.
You can elect not to deduct the special allowance for qualified recovery assistance property. If you make this election for any property, it applies to all property in the same class placed in service during the year.taxmap/pubs/p4492a-005.htm#en_us_publink100016342
Property that qualifies for the special allowance for qualified recovery assistance property includes the following.
- Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less.
- Water utility property.
- Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS.)
- Qualified leasehold improvement property.
- Nonresidential real property and residential rental property.
For more information on this property, see Publication 946.taxmap/pubs/p4492a-005.htm#en_us_publink100016343
To be qualified recovery assistance property, the property must also meet all of the following tests.
- You must have acquired the property, by purchase, after May 4, 2007, but only if no binding written contract for the acquisition was in effect before
May 5, 2007.
- The property must be placed in service before 2009 (2010 in the case of nonresidential real property and residential rental property).
- Substantially all of the use of the property must be in the Kansas disaster area and in the active conduct of your trade or business in the Kansas disaster area.
- The original use of the property in the Kansas disaster area must begin with you after May 4, 2007. Used property can be qualified recovery assistance property if it has not previously been used within the Kansas disaster area. Also, additional capital expenditures you incurred after May 4, 2007, to recondition or rebuild your property meet the original use test if the original use of the property in the Kansas disaster area began with you.
Qualified recovery assistance property does not include any of the following.
- Property required to be depreciated using the Alternative Depreciation System (ADS).
- Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103.
- Property for which you are claiming a commercial revitalization deduction.
- Property in the same class as that for which you elected not to claim the special allowance for qualified recovery assistance property.
- Property placed in service and disposed of in the same tax year.
- Property converted from business use to personal use in the same tax year it is placed in service. Property converted from personal use to business use in the same or later tax year may be qualified recovery assistance property.
If, in any year after the year you claim the special allowance, the property ceases to be qualified recovery assistance property, you may have to recapture as ordinary income any excess benefit you received from claiming the special allowance.taxmap/pubs/p4492a-005.htm#en_us_publink100012885
If you have already filed your tax return, you may have to amend that return to claim any special allowance. Additional guidance will be published on how you may claim, or elect not to claim, the special allowance if you have already filed your tax return.taxmap/pubs/p4492a-005.htm#en_us_publink100016346
An increased section 179 deduction is allowable for qualified section 179 recovery assistance property (as defined later) placed in service in the Kansas disaster area.taxmap/pubs/p4492a-005.htm#en_us_publink100016347
The limit on the section 179 deduction ($125,000 for 2007, $250,000 for 2008) is increased by the smaller of:
- $100,000, or
- The cost of qualified section 179 recovery assistance property placed in service during the year (including such property placed in service by your spouse, even if you are filing a separate return).
The amount for which you can make the election is reduced if the cost of all section 179 property you placed in service during the year exceeds $500,000 for 2007 and $800,000 for 2008 increased by the smaller of:
- $600,000, or
- The cost of qualified section 179 recovery assistance property placed in service during the year.
Qualified section 179 recovery assistance property is section 179 property that is qualified recovery assistance property (explained earlier under Special Depreciation Allowance). Section 179 property does not include nonresidential real property or residential rental property. For more information, including the requirements that must be met for property to qualify for the section 179 deduction, see chapter 2 of Publication 946.taxmap/pubs/p4492a-005.htm#en_us_publink100012886
If you have already filed your tax return, you may have to amend that return for any increased section 179 deduction.taxmap/pubs/p4492a-005.htm#en_us_publink100016353
An eligible employer who conducted an active trade or business in the Kansas disaster area can claim the employee retention credit. The credit is 40% of qualified wages for each eligible employee (up to a maximum of $6,000 in qualified wages per employee). Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). Use Form 5884-A to claim the credit. See Form 5884-A later. The following rules and definitions apply.taxmap/pubs/p4492a-005.htm#en_us_publink100016354
The following definitions apply to employers affected by the storms and tornadoes.taxmap/pubs/p4492a-005.htm#en_us_publink100016355
For this purpose, an eligible employer is any employer who meets all of the following.
- Employed an average of not more than 200 employees on business days during the tax year before May 4, 2007.
- Conducted an active trade or business on May 4, 2007, in the Kansas disaster area.
- Whose trade or business was inoperable on any day after May 4, 2007, and before January 1, 2008, because of damage caused by the storms and tornadoes.
For this purpose, an eligible employee is an employee whose principal place of employment on May 4, 2007, with the eligible employer was in the Kansas disaster area. An employee is not an eligible employee for purposes of the storms and tornadoes if the employee is treated as an eligible employee for the work opportunity credit.taxmap/pubs/p4492a-005.htm#en_us_publink100016363
Qualified wages are wages you paid or incurred before January 1, 2008, (up to $6,000 per employee) for an eligible employee beginning on the date your trade or business first became inoperable at the employee's principal place of employment immediately before May 4, 2007, and ending on the date your trade or business resumed significant operations at that place. In addition, the wages must have been paid or incurred after May 4, 2007.
This includes wages paid even if the employee performed no services, performed services at a place of employment other than the principal place of employment, or performed services at the principal place of employment before significant operations resumed.
Wages qualifying for the credit generally have the same meaning as wages subject to the Federal Unemployment Tax Act (FUTA). Qualified wages also include amounts you paid for medical or hospitalization expenses in connection with sickness or accident disability. Qualified wages for any employee must be reduced by the amount of any work supplementation payment you received under the Social Security Act.
For agricultural employees, if the work performed by any employee during more than half of any pay period qualified under FUTA as agricultural labor, that employee's wages subject to social security and Medicare taxes are qualified wages. For a special rule that applies to railroad employees, see section 51(h)(1)(B).
Qualified wages do not include the following.
- Wages paid to your dependent or a related individual. See section 51(i)(1).
- Wages paid to any employee during the period for which you received payment for the employee from a federally funded on-the-job training program.
- Wages for services of replacement workers during a strike or lockout.
Use Section A of Form 5884-A (Rev. October 2006) to claim the employer retention credit. Section B does not apply to the Kansas disaster area. Before you complete the form, modify the form as follows.
- Cross out "Hurricane Katrina, Rita, or Wilma" in the title at the top of the form and enter "Kansas Storms and Tornadoes."
- On line 1a cross out "Hurricane Katrina" and enter "Kansas Storms and Tornadoes," cross out "August 28, 2005," and enter "May 4, 2007," and cross out "January 1, 2006," and enter "January 1, 2008."
Complete the form as instructed. Lines 1b and 1c do not apply. Include the amount from Form 5884-A, line 4 in the amount entered on Form 3800, line 1x. On the dotted line to the left of line 1x, enter "5884-A." Use the applicable dates and terms in this publication instead of those used in the Form 5884-A instructions.taxmap/pubs/p4492a-005.htm#en_us_publink100015019
You may have to amend a previously filed return to claim the employee retention credit.taxmap/pubs/p4492a-005.htm#en_us_publink100016366
You can elect to deduct 50% of any qualified recovery assistance clean-up costs for the tax year in which the costs are paid or incurred, instead of capitalizing them. Qualified recovery assistance clean-up costs are any amounts paid or incurred after May 3, 2007, and before January 1, 2010, for the removal of debris from, or the demolition of structures on, real property located in the Kansas disaster area that is:
- Held by you for use in a trade or business or for the production of income, or
- Inventory or other property held primarily for sale to customers in the ordinary course of your trade or business.
If you have already filed your tax return, you may have to amend that return to claim the 50% of any qualified recovery assistance clean-up costs.