Instructions For Form 8903 - Domestic Production Activities Deduction

For details, see the Instructions for

States in your engineering or

Allocation of gross receipts. You

Form 4626, Alternative Minimum

architectural services trade or

generally must allocate your gross

Tax —Corporations.

business for the construction of real

receipts between DPGR and

property in the United States.

non-DPGR. Allocate gross receipts

Qualified Production

using a reasonable method that

3. Any lease, rental, license, sale,

accurately identifies gross receipts

exchange, or other disposition of the

Activities Income (QPAI)

following.

that are DPGR. However, if less than

Your allowable DPAD generally

5% of your gross receipts are

a. Qualifying production property

cannot be more than 6% of your

non-DPGR, you can treat all of your

you manufacture, produce, grow or

QPAI. If you do not have QPAI, you

gross receipts as DPGR. Also, if less

extract in whole or in significant part

generally are not allowed a DPAD.

than 5% of your gross receipts are

in the United States. See Qualifying

However, you do not need QPAI to

DPGR, you can treat all of your gross

Production Property below and

claim a DPAD you are allocated as a

receipts as non-DPGR.

Manufacturing, Producing, Growing,

patron of an agricultural or

or Extracting, on page 4 for details.

For details, see Regulations

horticultural cooperative.

b. Any qualified film you produce.

section 1.199-1(d).

S corporations and partnerships.

c. Electricity, natural gas, or

Qualifying Production Property

S corporations and partnerships that

potable water you produce in the

meet specific requirements can

The following are qualifying

United States.

choose to figure QPAI at the entity

production property.

•

level and allocate QPAI to

Tangible personal property.

In general, gross receipts derived

•

shareholders or partners. The

Computer software.

from the following activities are not

•

shareholder or partner then combines

Sound recordings.

DPGR.

the allocated portion with QPAI from

•

Tangible personal property.

Activities not attributable to the

other sources on Form 8903 to

actual conduct of a trade or business.

Tangible personal property includes

determine the DPAD. S corporations

•

any tangible property other than land,

The sale of food and beverages

or partnerships that are not eligible to

buildings (including structural

you prepare at a retail establishment.

figure QPAI at the entity level must

•

components), computer software,

The lease, rental, or license of

report each shareholder’s or partner’s

sound recordings, qualified films,

property between certain persons

share of deductions, expenses, or

electricity, natural gas, or potable

treated as a single employer.

losses on Schedule K-1 with other

•

water. Tangible personal property

The lease, rental, license, sale,

information the shareholder or partner

also includes any gas (other than

exchange, or other disposition of

needs to figure their DPAD.

natural gas), chemical, and similar

land.

QPAI from an estate or trust. An

•

property, such as steam, oxygen,

The transmission or distribution of

estate or trust will figure its QPAI and

hydrogen, or nitrogen.

electricity, natural gas, or potable

report each beneficiary’s share on

water.

Machinery, printing presses,

Schedule K-1 (Form 1041).

•

Advertising and product-placement;

transportation and office equipment,

Figuring QPAI. QPAI is the excess

however, see Regulations section

refrigerators, grocery counters,

(if any) of:

1.199-3(i)(5)(ii) for exceptions.

testing equipment, display racks and

•

1. Domestic production gross

Customer and technical support,

shelves, and neon and other signs

receipts (DPGR), over

telephone and other

that are contained in or attached to a

2. The sum of:

telecommunications services, online

building constitute tangible personal

services (including Internet access

property.

a. Cost of goods sold allocable to

services, online banking services,

DPGR, and

Note. Local law does not control

providing access to online electronic

b. Other expenses, losses, or

whether property is tangible personal

books, newspapers, and journals)

deductions (other than the DPAD)

property.

and other similar services; however,

allocable to DPGR.

see Regulations section

See Regulation section

1.199-3(i)(6)(iii) for exceptions.

1.199-3(j)(2) for more information.

Cooperatives. For tax years

beginning after March 19, 2007,

Computer software. In general,

Gross receipts. Gross receipts

cooperatives figure QPAI without any

computer software includes the

include the following amounts from

deduction for patronage dividends,

following:

your trade or business activities.

per-unit retain allocations, or

•

Any program, routine, or sequence

Total sales (net of returns and

nonpatronage distributions under

of machine-readable code that is

allowances).

section 1382(b) or (c). However, you

•

designed to cause a computer to

Amounts received for services, not

can choose to apply this rule to tax

perform a desired function or set of

including wages received as an

years beginning after December 31,

functions, and the documentation

employee.

2004.

•

required to describe or maintain that

Income from incidental or outside

program or routine. An electronic

Domestic Production Gross

sources (including sales of business

book online or for download does not

property).

Receipts (DPGR)

constitute computer software.

•

Generally, your gross receipts

Gross receipts are generally not

Machine-readable code for (a)

(defined below) derived from the

reduced by the:

video games or similar programs, (b)

•

following activities are DPGR.

Cost of goods sold, or

equipment that is an integral part of

•

1. Construction of real property

Adjusted basis of property (other

other property, and (c) typewriters,

you perform in the United States in

than capital assets) sold or otherwise

calculators, adding and accounting

your construction trade or business.

disposed of if such property is

machines, copiers, duplicating

2. Engineering or architectural

described in section 1221(a)(1)

equipment, and similar equipment,

services you perform in the United

through (5).

even if the program is not designed to

-3-

Instructions for Form 8903

Instructions For Form 8903 - Domestic Production Activities Deduction - 2007 Page 3

Related Articles

Related forms

Related Categories