From determining the interest due for depreciated property to figuring the interest refunded to individuals, businesses, and pass-through entities, Form 8866 is a necessary tool for taxpayers. Learn more about how this form applies to you.
What is Form 8866?
Form 8866 is a form used to figure the interest due or to be refunded under the look-back method of section 167(g)(2) for property placed in service after September 13, 1995, that is depreciated under the income forecast method. It can be used for Motion picture films, Video tapes, Sound recordings, Copyrights, Books, and Patents. Generally, you must file Form 8866 to figure the interest unless the unadjusted basis of the property is $100,000 or less. Pass-through entities are subject to different filing requirements. The taxpayer as of the end of the recomputation year will be responsible for the payment of interest, and only the taxpayer that had depreciated the property may request a refund of any overpayment. Instructions are provided on the Form 8866 for the filing process.
IRS Form 8866 – Who Needs to Fill It Out?
The IRS Form 8866 needs to be filled out by general rule by individuals and pass-through entities, such as partnerships, S corporations, or trusts, that are not closely held and depreciate any property under the income forecast method after September 13, 1995. Exceptions include when the property had an unadjusted basis of $100,000 or less at the end of the recomputation year, or if the actual income from the property is within 10% of the estimated income for all years before the recomputation year. Any costs incurred should also be taken into account in the form. Pass-through entities must apply the look-back method at the entity level to any property for which substantially all of the gross income is from U.S. sources. Filing instructions and details regarding any attachments vary.
Step-by-Step: Form 8866 Instructions For Filling Out the Document
Filling out the Form 8866 requires several steps. The purpose of the form is to calculate the interest due or to be refunded under the look-back method of section 167(g)(2). If you owe interest or no interest is to be refunded, you will need to attach the form to your income tax return, and if refunding interest is necessary, it must be filed separately. You will also be required to include any additional costs incurred, as well as information from the pass-through entity. Furthermore, changes of taxpayer and filing of corrected forms must be completed following the instructions on the form. Finally, if you need more space, make sure to attach separate sheets to the back, with your name and identifying number.
Below, we present a table that will help you understand how to fill out Form 8866.
|Form Name||Form 8866|
|Purpose||Calculate interest due or to be refunded under the look-back method of section 167(g)(2).|
|Filing Requirements||Attach to your income tax return if you owe interest or no interest is to be refunded. Include additional costs and information from the pass-through entity. Follow instructions for changes and corrections.|
|Additional Information||Attach separate sheets if you need more space. Meet due diligence requirements to avoid potential penalties.|
Do You Need to File Form 8866 Each Year?
Generally, you must file Form 8866 each recomputation year if you are depreciating property under the income forecast method as described in section 167(g). For the tax year in which the property was placed in service, this is generally the 3rd and 10th tax years after that tax year. However, this does not apply for any property with an unadjusted basis of $100,000 or less at the end of its recomputation year. Pass-through entities that are not closely held must also apply the look-back method at the entity level. If the taxpayer changes prior to the recomputation year, the person as of the end of the recomputation year will be responsible for the interest due.
Download the official IRS Form 8866 PDF
On the official IRS website, you will find a link to download Form 8866. However, to make it easier for you, we are providing the link in our article, which comes directly from the official irs.gov website! Click to download Form 8866