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Ez Tax Form 2012

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Ez Tax Form 2012

Ez tax form 2012 1. Ez tax form 2012   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. Ez tax form 2012 It is an allowance for the wear and tear, deterioration, or obsolescence of the property. Ez tax form 2012 This chapter discusses the general rules for depreciating property and answers the following questions. Ez tax form 2012 What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. Ez tax form 2012 What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. Ez tax form 2012 You also can depreciate certain intangible property, such as patents, copyrights, and computer software. Ez tax form 2012 To be depreciable, the property must meet all the following requirements. Ez tax form 2012 It must be property you own. Ez tax form 2012 It must be used in your business or income-producing activity. Ez tax form 2012 It must have a determinable useful life. Ez tax form 2012 It must be expected to last more than one year. Ez tax form 2012 The following discussions provide information about these requirements. Ez tax form 2012 Property You Own To claim depreciation, you usually must be the owner of the property. Ez tax form 2012 You are considered as owning property even if it is subject to a debt. Ez tax form 2012 Example 1. Ez tax form 2012 You made a down payment to purchase rental property and assumed the previous owner's mortgage. Ez tax form 2012 You own the property and you can depreciate it. Ez tax form 2012 Example 2. Ez tax form 2012 You bought a new van that you will use only for your courier business. Ez tax form 2012 You will be making payments on the van over the next 5 years. Ez tax form 2012 You own the van and you can depreciate it. Ez tax form 2012 Leased property. Ez tax form 2012   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). Ez tax form 2012 This means you bear the burden of exhaustion of the capital investment in the property. Ez tax form 2012 Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Ez tax form 2012 You can, however, depreciate any capital improvements you make to the property. Ez tax form 2012 See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. Ez tax form 2012   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Ez tax form 2012 However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. Ez tax form 2012 Incidents of ownership. Ez tax form 2012   Incidents of ownership in property include the following. Ez tax form 2012 The legal title to the property. Ez tax form 2012 The legal obligation to pay for the property. Ez tax form 2012 The responsibility to pay maintenance and operating expenses. Ez tax form 2012 The duty to pay any taxes on the property. Ez tax form 2012 The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. Ez tax form 2012 Life tenant. Ez tax form 2012   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Ez tax form 2012 However, see Certain term interests in property under Excepted Property, later. Ez tax form 2012 Cooperative apartments. Ez tax form 2012   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. Ez tax form 2012   Figure your depreciation deduction as follows. Ez tax form 2012 Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. Ez tax form 2012 If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Ez tax form 2012 Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. Ez tax form 2012 Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Ez tax form 2012 Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Ez tax form 2012 Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Ez tax form 2012 Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. Ez tax form 2012 Multiply the result of (2) by the percentage you figured in (3). Ez tax form 2012 This is your depreciation on the stock. Ez tax form 2012   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. Ez tax form 2012 You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. Ez tax form 2012 Example. Ez tax form 2012 You figure your share of the cooperative housing corporation's depreciation to be $30,000. Ez tax form 2012 Your adjusted basis in the stock of the corporation is $50,000. Ez tax form 2012 You use one half of your apartment solely for business purposes. Ez tax form 2012 Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). Ez tax form 2012 Change to business use. Ez tax form 2012   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. Ez tax form 2012 The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Ez tax form 2012 The fair market value of the property on the date you change your apartment to business use. Ez tax form 2012 This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Ez tax form 2012 The corporation's adjusted basis in the property on that date. Ez tax form 2012 Do not subtract depreciation when figuring the corporation's adjusted basis. Ez tax form 2012   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. Ez tax form 2012 The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Ez tax form 2012   For a discussion of fair market value and adjusted basis, see Publication 551. Ez tax form 2012 Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Ez tax form 2012 If you use property to produce income (investment use), the income must be taxable. Ez tax form 2012 You cannot depreciate property that you use solely for personal activities. Ez tax form 2012 Partial business or investment use. Ez tax form 2012   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. Ez tax form 2012 For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. Ez tax form 2012    You must keep records showing the business, investment, and personal use of your property. Ez tax form 2012 For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. Ez tax form 2012    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. Ez tax form 2012 For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. Ez tax form 2012 Office in the home. Ez tax form 2012   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. Ez tax form 2012 For information about depreciating your home office, see Publication 587. Ez tax form 2012 Inventory. Ez tax form 2012   You cannot depreciate inventory because it is not held for use in your business. Ez tax form 2012 Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Ez tax form 2012   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. Ez tax form 2012 See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. Ez tax form 2012   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. Ez tax form 2012 If it is unclear, examine carefully all the facts in the operation of the particular business. Ez tax form 2012 The following example shows how a careful examination of the facts in two similar situations results in different conclusions. Ez tax form 2012 Example. Ez tax form 2012 Maple Corporation is in the business of leasing cars. Ez tax form 2012 At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. Ez tax form 2012 Maple does not have a showroom, used car lot, or individuals to sell the cars. Ez tax form 2012 Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. Ez tax form 2012 Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. Ez tax form 2012 If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. Ez tax form 2012 In this situation, the cars are held primarily for sale to customers in the ordinary course of business. Ez tax form 2012 Containers. Ez tax form 2012   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. Ez tax form 2012 However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. Ez tax form 2012 They qualify as property used in your business. Ez tax form 2012 Title to the containers does not pass to the buyer. Ez tax form 2012   To determine if these requirements are met, consider the following questions. Ez tax form 2012 Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Ez tax form 2012 This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Ez tax form 2012 Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. Ez tax form 2012 Example. Ez tax form 2012 You maintain a library for use in your profession. Ez tax form 2012 You can depreciate it. Ez tax form 2012 However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. Ez tax form 2012 Instead, you deduct their cost as a business expense. Ez tax form 2012 What Property Cannot Be Depreciated? Certain property cannot be depreciated. Ez tax form 2012 This includes land and certain excepted property. Ez tax form 2012 Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. Ez tax form 2012 The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Ez tax form 2012 Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Ez tax form 2012 These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Ez tax form 2012 Example. Ez tax form 2012 You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Ez tax form 2012 Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. Ez tax form 2012 If you replace the building, you would have to destroy the bushes and trees right next to it. Ez tax form 2012 These bushes and trees are closely associated with the building, so they have a determinable useful life. Ez tax form 2012 Therefore, you can depreciate them. Ez tax form 2012 Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Ez tax form 2012 Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. Ez tax form 2012 Property placed in service and disposed of in the same year. Ez tax form 2012 Determining when property is placed in service is explained later. Ez tax form 2012 Equipment used to build capital improvements. Ez tax form 2012 You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Ez tax form 2012 See Uniform Capitalization Rules in Publication 551. Ez tax form 2012 Section 197 intangibles. Ez tax form 2012 You must amortize these costs. Ez tax form 2012 Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. Ez tax form 2012 Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. Ez tax form 2012 See Intangible Property , later. Ez tax form 2012 Certain term interests. Ez tax form 2012 Certain term interests in property. Ez tax form 2012   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Ez tax form 2012 A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. Ez tax form 2012 Related persons. Ez tax form 2012   For a description of related persons, see Related Persons, later. Ez tax form 2012 For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Ez tax form 2012 Basis adjustments. Ez tax form 2012   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. Ez tax form 2012   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. Ez tax form 2012 However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. Ez tax form 2012 The term interest is held by an organization exempt from tax. Ez tax form 2012 The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. Ez tax form 2012 Exceptions. Ez tax form 2012   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Ez tax form 2012 They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. Ez tax form 2012 When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Ez tax form 2012 You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Ez tax form 2012 Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Ez tax form 2012 Even if you are not using the property, it is in service when it is ready and available for its specific use. Ez tax form 2012 Example 1. Ez tax form 2012 Donald Steep bought a machine for his business. Ez tax form 2012 The machine was delivered last year. Ez tax form 2012 However, it was not installed and operational until this year. Ez tax form 2012 It is considered placed in service this year. Ez tax form 2012 If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. Ez tax form 2012 Example 2. Ez tax form 2012 On April 6, Sue Thorn bought a house to use as residential rental property. Ez tax form 2012 She made several repairs and had it ready for rent on July 5. Ez tax form 2012 At that time, she began to advertise it for rent in the local newspaper. Ez tax form 2012 The house is considered placed in service in July when it was ready and available for rent. Ez tax form 2012 She can begin to depreciate it in July. Ez tax form 2012 Example 3. Ez tax form 2012 James Elm is a building contractor who specializes in constructing office buildings. Ez tax form 2012 He bought a truck last year that had to be modified to lift materials to second-story levels. Ez tax form 2012 The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. Ez tax form 2012 The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. Ez tax form 2012 Conversion to business use. Ez tax form 2012   If you place property in service in a personal activity, you cannot claim depreciation. Ez tax form 2012 However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. Ez tax form 2012 You place the property in service in the business or income-producing activity on the date of the change. Ez tax form 2012 Example. Ez tax form 2012 You bought a home and used it as your personal home several years before you converted it to rental property. Ez tax form 2012 Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Ez tax form 2012 You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. Ez tax form 2012 Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). Ez tax form 2012 For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Ez tax form 2012 Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Ez tax form 2012 You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Ez tax form 2012 See What Is the Basis of Your Depreciable Property , later. Ez tax form 2012 Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Ez tax form 2012 You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Ez tax form 2012 You sell or exchange the property. Ez tax form 2012 You convert the property to personal use. Ez tax form 2012 You abandon the property. Ez tax form 2012 You transfer the property to a supplies or scrap account. Ez tax form 2012 The property is destroyed. Ez tax form 2012 If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. Ez tax form 2012 What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. Ez tax form 2012 MACRS is discussed in chapter 4. Ez tax form 2012 You cannot use MACRS to depreciate the following property. Ez tax form 2012 Property you placed in service before 1987. Ez tax form 2012 Certain property owned or used in 1986. Ez tax form 2012 Intangible property. Ez tax form 2012 Films, video tapes, and recordings. Ez tax form 2012 Certain corporate or partnership property acquired in a nontaxable transfer. Ez tax form 2012 Property you elected to exclude from MACRS. Ez tax form 2012 The following discussions describe the property listed above and explain what depreciation method should be used. Ez tax form 2012 Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). Ez tax form 2012 Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. Ez tax form 2012 For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. Ez tax form 2012 Use of real property changed. Ez tax form 2012   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Ez tax form 2012 Improvements made after 1986. Ez tax form 2012   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Ez tax form 2012 Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Ez tax form 2012 For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. Ez tax form 2012 Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. Ez tax form 2012 If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. Ez tax form 2012 For the following discussions, do not treat property as owned before you placed it in service. Ez tax form 2012 If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. Ez tax form 2012 Personal property. Ez tax form 2012   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. Ez tax form 2012 You or someone related to you owned or used the property in 1986. Ez tax form 2012 You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. Ez tax form 2012 You lease the property to a person (or someone related to this person) who owned or used the property in 1986. Ez tax form 2012 You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. Ez tax form 2012 Real property. Ez tax form 2012   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. Ez tax form 2012 You or someone related to you owned the property in 1986. Ez tax form 2012 You lease the property to a person who owned the property in 1986 (or someone related to that person). Ez tax form 2012 You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. Ez tax form 2012 MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. Ez tax form 2012 It does not apply to the carried-over part of the basis. Ez tax form 2012 Exceptions. Ez tax form 2012   The rules above do not apply to the following. Ez tax form 2012 Residential rental property or nonresidential real property. Ez tax form 2012 Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. Ez tax form 2012 For information on how to figure depreciation under ACRS, see Publication 534. Ez tax form 2012 Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. Ez tax form 2012 Related persons. Ez tax form 2012   For this purpose, the following are related persons. Ez tax form 2012 An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. Ez tax form 2012 A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. Ez tax form 2012 Two corporations that are members of the same controlled group. Ez tax form 2012 A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. Ez tax form 2012 The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Ez tax form 2012 The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Ez tax form 2012 A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. Ez tax form 2012 Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. Ez tax form 2012 A corporation and a partnership if the same persons own both of the following. Ez tax form 2012 More than 10% of the value of the outstanding stock of the corporation. Ez tax form 2012 More than 10% of the capital or profits interest in the partnership. Ez tax form 2012 The executor and beneficiary of any estate. Ez tax form 2012 A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. Ez tax form 2012 Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. Ez tax form 2012 The related person and a person who is engaged in trades or businesses under common control. Ez tax form 2012 See section 52(a) and 52(b) of the Internal Revenue Code. Ez tax form 2012 When to determine relationship. Ez tax form 2012   You must determine whether you are related to another person at the time you acquire the property. Ez tax form 2012   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. Ez tax form 2012 For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. Ez tax form 2012 Constructive ownership of stock or partnership interest. Ez tax form 2012   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. Ez tax form 2012 Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Ez tax form 2012 However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. Ez tax form 2012 An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. Ez tax form 2012 An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. Ez tax form 2012 For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. Ez tax form 2012 However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. Ez tax form 2012 Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. Ez tax form 2012 However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). Ez tax form 2012 You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. Ez tax form 2012 Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. Ez tax form 2012 To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Ez tax form 2012 Subtract the salvage value, if any, from the adjusted basis. Ez tax form 2012 The balance is the total depreciation you can take over the useful life of the property. Ez tax form 2012 Divide the balance by the number of years in the useful life. Ez tax form 2012 This gives you your yearly depreciation deduction. Ez tax form 2012 Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. Ez tax form 2012 If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Ez tax form 2012 Example. Ez tax form 2012 In April, Frank bought a patent for $5,100 that is not a section 197 intangible. Ez tax form 2012 He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. Ez tax form 2012 He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. Ez tax form 2012 He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. Ez tax form 2012 Next year, Frank can deduct $300 for the full year. Ez tax form 2012 Patents and copyrights. Ez tax form 2012   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. Ez tax form 2012 The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. Ez tax form 2012 However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. Ez tax form 2012 Computer software. Ez tax form 2012   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. Ez tax form 2012   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Ez tax form 2012 It is readily available for purchase by the general public. Ez tax form 2012 It is subject to a nonexclusive license. Ez tax form 2012 It has not been substantially modified. Ez tax form 2012   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. Ez tax form 2012 If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. Ez tax form 2012    Tax-exempt use property subject to a lease. Ez tax form 2012   The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. Ez tax form 2012 Certain created intangibles. Ez tax form 2012   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. Ez tax form 2012 For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. Ez tax form 2012   The following are not eligible. Ez tax form 2012 Any intangible asset acquired from another person. Ez tax form 2012 Created financial interests. Ez tax form 2012 Any intangible asset that has a useful life that can be estimated with reasonable accuracy. Ez tax form 2012 Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. Ez tax form 2012 Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. Ez tax form 2012   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. Ez tax form 2012 For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. Ez tax form 2012 Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. Ez tax form 2012 Motion picture films or video tapes. Ez tax form 2012 Sound recordings. Ez tax form 2012 Copyrights. Ez tax form 2012 Books. Ez tax form 2012 Patents. Ez tax form 2012 Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. Ez tax form 2012 The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. Ez tax form 2012 For more information, see section 167(g) of the Internal Revenue Code. Ez tax form 2012 Films, video tapes, and recordings. Ez tax form 2012   You cannot use MACRS for motion picture films, video tapes, and sound recordings. Ez tax form 2012 For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. Ez tax form 2012 You can depreciate this property using either the straight line method or the income forecast method. Ez tax form 2012 Participations and residuals. Ez tax form 2012   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. Ez tax form 2012 The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. Ez tax form 2012 For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. Ez tax form 2012   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. Ez tax form 2012 Videocassettes. Ez tax form 2012   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. Ez tax form 2012 If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. Ez tax form 2012 Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. Ez tax form 2012 You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. Ez tax form 2012 However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. Ez tax form 2012 The nontaxable transfers covered by this rule include the following. Ez tax form 2012 A distribution in complete liquidation of a subsidiary. Ez tax form 2012 A transfer to a corporation controlled by the transferor. Ez tax form 2012 An exchange of property solely for corporate stock or securities in a reorganization. Ez tax form 2012 A contribution of property to a partnership in exchange for a partnership interest. Ez tax form 2012 A partnership distribution of property to a partner. Ez tax form 2012 Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. Ez tax form 2012 You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. Ez tax form 2012 You must make this election by the return due date (including extensions) for the tax year you place your property in service. Ez tax form 2012 However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). Ez tax form 2012 Attach the election to the amended return and write “Filed pursuant to section 301. Ez tax form 2012 9100-2” on the election statement. Ez tax form 2012 File the amended return at the same address you filed the original return. Ez tax form 2012 Use of standard mileage rate. Ez tax form 2012   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. Ez tax form 2012 See Publication 463 for a discussion of the standard mileage rate. Ez tax form 2012 What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Ez tax form 2012 To determine basis, you need to know the cost or other basis of your property. Ez tax form 2012 Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. Ez tax form 2012 The cost includes the amount you pay in cash, debt obligations, other property, or services. Ez tax form 2012 Exception. Ez tax form 2012   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Ez tax form 2012 If you make that choice, you cannot include those sales taxes as part of your cost basis. Ez tax form 2012 Assumed debt. Ez tax form 2012   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. Ez tax form 2012 Example. Ez tax form 2012 You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. Ez tax form 2012 Your total cost is $140,000, the cash you paid plus the mortgage you assumed. Ez tax form 2012 Settlement costs. Ez tax form 2012   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. Ez tax form 2012 These generally are shown on your settlement statement and include the following. Ez tax form 2012 Legal and recording fees. Ez tax form 2012 Abstract fees. Ez tax form 2012 Survey charges. Ez tax form 2012 Owner's title insurance. Ez tax form 2012 Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Ez tax form 2012   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. Ez tax form 2012 Property you construct or build. Ez tax form 2012   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. Ez tax form 2012 For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. Ez tax form 2012 Other Basis Other basis usually refers to basis that is determined by the way you received the property. Ez tax form 2012 For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. Ez tax form 2012 If you acquired property in this or some other way, see Publication 551 to determine your basis. Ez tax form 2012 Property changed from personal use. Ez tax form 2012   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. Ez tax form 2012 The fair market value (FMV) of the property on the date of the change in use. Ez tax form 2012 Your original cost or other basis adjusted as follows. Ez tax form 2012 Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. Ez tax form 2012 Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. Ez tax form 2012 Example. Ez tax form 2012 Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. Ez tax form 2012 Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. Ez tax form 2012 Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. Ez tax form 2012 Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). Ez tax form 2012 On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Ez tax form 2012 The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). Ez tax form 2012 Property acquired in a nontaxable transaction. Ez tax form 2012   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. Ez tax form 2012 Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. Ez tax form 2012 See Like-kind exchanges and involuntary conversions. Ez tax form 2012 under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. Ez tax form 2012   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. Ez tax form 2012 See How Do You Use General Asset Accounts in chapter 4. Ez tax form 2012 Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Ez tax form 2012 These events could include the following. Ez tax form 2012 Installing utility lines. Ez tax form 2012 Paying legal fees for perfecting the title. Ez tax form 2012 Settling zoning issues. Ez tax form 2012 Receiving rebates. Ez tax form 2012 Incurring a casualty or theft loss. Ez tax form 2012 For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. Ez tax form 2012 If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. Ez tax form 2012 For more information, see What Is the Basis for Depreciation in chapter 4. Ez tax form 2012 . Ez tax form 2012 Basis adjustment for depreciation allowed or allowable. Ez tax form 2012   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Ez tax form 2012 Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Ez tax form 2012 Depreciation allowable is depreciation you are entitled to deduct. Ez tax form 2012   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Ez tax form 2012   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Ez tax form 2012 How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. Ez tax form 2012 Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. Ez tax form 2012 You generally deduct the cost of repairing business property in the same way as any other business expense. Ez tax form 2012 However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Ez tax form 2012 Example. Ez tax form 2012 You repair a small section on one corner of the roof of a rental house. Ez tax form 2012 You deduct the cost of the repair as a rental expense. Ez tax form 2012 However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. Ez tax form 2012 You depreciate the cost of the new roof. Ez tax form 2012 Improvements to rented property. Ez tax form 2012   You can depreciate permanent improvements you make to business property you rent from someone else. Ez tax form 2012 Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. Ez tax form 2012 Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. Ez tax form 2012 A section 179 deduction for the current year or a section 179 carryover from a prior year. Ez tax form 2012 See chapter 2 for information on the section 179 deduction. Ez tax form 2012 Depreciation for property placed in service during the current year. Ez tax form 2012 Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Ez tax form 2012 See chapter 5 for information on listed property. Ez tax form 2012 A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Ez tax form 2012 Amortization of costs if the current year is the first year of the amortization period. Ez tax form 2012 Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. Ez tax form 2012 S. Ez tax form 2012 Income Tax Return for an S Corporation) regardless of when it was placed in service. Ez tax form 2012 You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. Ez tax form 2012 Table 1-1 presents an overview of the purpose of the various parts of Form 4562. Ez tax form 2012 Employee. Ez tax form 2012   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. Ez tax form 2012 Instead, use either Form 2106 or Form 2106-EZ. Ez tax form 2012 Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. Ez tax form 2012 How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Ez tax form 2012 See Filing an Amended Return , next. Ez tax form 2012 If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Ez tax form 2012 See Changing Your Accounting Method , later. Ez tax form 2012 Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Ez tax form 2012 You claimed the incorrect amount because of a mathematical error made in any year. Ez tax form 2012 You claimed the incorrect amount because of a posting error made in any year. Ez tax form 2012 You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Ez tax form 2012 You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Ez tax form 2012 Adoption of accounting method defined. Ez tax form 2012   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. Ez tax form 2012   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Ez tax form 2012 irs. Ez tax form 2012 gov/pub/irs-irbs/irb11-04. Ez tax form 2012 pdf. Ez tax form 2012 (Note. Ez tax form 2012 Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Ez tax form 2012 For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Ez tax form 2012 irs. Ez tax form 2012 gov/pub/irs-irbs/irb12-14. Ez tax form 2012 pdf. Ez tax form 2012 )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Ez tax form 2012 irs. Ez tax form 2012 gov/pub/irs-irbs/irb07-29. Ez tax form 2012 pdf. Ez tax form 2012 When to file. Ez tax form 2012   If an amended return is allowed, you must file it by the later of the following. Ez tax form 2012 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Ez tax form 2012 A return filed before an unextended due date is considered filed on that due date. Ez tax form 2012 2 years from the time you paid your tax for that year. Ez tax form 2012 Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Ez tax form 2012 You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. Ez tax form 2012 The following are examples of a change in method of accounting for depreciation. Ez tax form 2012 A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. Ez tax form 2012 A change in the treatment of an asset from nondepreciable to depreciable or vice versa. Ez tax form 2012 A change in the depreciation method, period of recovery, or convention of a depreciable asset. Ez tax form 2012 A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. Ez tax form 2012 A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). Ez tax form 2012 Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. Ez tax form 2012 An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. Ez tax form 2012 A change in use of an asset in the hands of the same taxpayer. Ez tax form 2012 Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). Ez tax form 2012 If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. Ez tax form 2012 Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. Ez tax form 2012 You must submit a request for a letter ruling to make a late election or revoke an election. Ez tax form 2012 Any change in the placed in service date of a depreciable asset. Ez tax form 2012 See section 1. Ez tax form 2012 446-1(e)(2)(ii)(d) of the regulations for more information and examples. Ez tax form 2012 IRS approval. Ez tax form 2012   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. Ez tax form 2012 If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. Ez tax form 2012 B. Ez tax form 2012 680. Ez tax form 2012 Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. Ez tax form 2012 Additional guidance. Ez tax form 2012    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Ez tax form 2012 irs. Ez tax form 2012 gov/pub/irs-irbs/irb11-04. Ez tax form 2012 pdf. Ez tax form 2012 (Note. Ez tax form 2012 Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Ez tax form 2012 For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Ez tax form 2012 irs. Ez tax form 2012 gov/pub/irs-irbs/irb12-14. Ez tax form 2012 pdf. Ez tax form 2012 )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Ez tax form 2012 irs. Ez tax form 2012 gov/pub/irs-irbs/irb07-29. Ez tax form 2012 pdf. Ez tax form 2012 Table 1-1. Ez tax form 2012 Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. Ez tax form 2012 For more information, see Form 4562 and its instructions. Ez tax form 2012 Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. Ez tax form 2012   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. Ez tax form 2012 The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. Ez tax form 2012 If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. Ez tax form 2012 A negative section 481(a) adjustment results in a decrease in taxable income. Ez tax form 2012 It is taken into account in the year of change and is reported on your business tax returns as “other expenses. Ez tax form 2012 ” A positive section 481(a) adjustment results in an increase in taxable income. Ez tax form 2012 It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. Ez tax form 2012 ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. Ez tax form 2012 Make the election by completing the appropriate line on Form 3115. Ez tax form 2012   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. Ez tax form 2012 Prev  Up  Next   Home   More Online Publications
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Record of Account

Record of Account Transcripts combine the information from tax account and tax return transcripts.

Page Last Reviewed or Updated: 10-Jan-2014

The Ez Tax Form 2012

Ez tax form 2012 Accelerated Cost Recovery System (ACRS) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: ACRS Defined What Can and Cannot Be Depreciated Under ACRSRecovery Property Nonrecovery Property How To Figure the DeductionUnadjusted Basis Classes of Recovery Property Recovery Periods Alternate ACRS Method (Modified Straight Line Method) ACRS Deduction in Short Tax Year DispositionsEarly dispositions of ACRS property other than 15-, 18-, or 19-year real property. Ez tax form 2012 Dispositions — mass asset accounts. Ez tax form 2012 Early dispositions — 15-year real property. Ez tax form 2012 Early dispositions — 18- and 19-year real property. Ez tax form 2012 Depreciation Recapture Topics - This chapter discusses: The definition of ACRS What can and cannot be depreciated under ACRS How to figure the deduction Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization The Accelerated Cost Recovery System (ACRS) applies to property first used before 1987. Ez tax form 2012 It is the name given to tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. Ez tax form 2012 These rules are mandatory and generally apply to tangible property placed in service after 1980 and before 1987. Ez tax form 2012 If you placed property in service during this period, you must continue to figure your depreciation under ACRS. Ez tax form 2012 If you used listed property placed in service after June 18, 1984, less than 50% for business in 1995, see Predominant Use Test in chapter 3. Ez tax form 2012 Listed property includes cars, other means of transportation, and certain computers. Ez tax form 2012 Any additions or improvements placed in service after 1986, including any components of a building (such as plumbing, wiring, storm windows, etc. Ez tax form 2012 ), are depreciated using MACRS, discussed in chapter 3 of Publication 946. Ez tax form 2012 It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Ez tax form 2012 ACRS Defined ACRS consists of accelerated depreciation methods and an alternate ACRS method that could have been elected. Ez tax form 2012 The alternate ACRS method used a recovery percentage based on a modified straight line method. Ez tax form 2012 The law prescribes fixed percentages to be uses for each class of property. Ez tax form 2012 Property depreciable under ACRS is called recovery property. Ez tax form 2012 The recovery class of property determines the recovery period. Ez tax form 2012 Generally, the class life of property places it in a 3-year, 5-year, 10-year, 15-year, 18-year, or 19-year recovery class. Ez tax form 2012 Under ACRS, the prescribed percentages are used to recover the unadjusted basis of recovery property. Ez tax form 2012 To figure a depreciation deduction, you multiply the prescribed percentage for the recovery class by the unadjusted basis of the recovery property. Ez tax form 2012 You must continue to figure your depreciation under ACRS for property placed in service after 1980 and before 1987. Ez tax form 2012 For property you placed in service after 1986, you must use MACRS, discussed in chapter 3 of Publication 946. Ez tax form 2012 What Can and Cannot Be Depreciated Under ACRS ACRS applies to most depreciable tangible property placed in service after 1980 and before 1987. Ez tax form 2012 It includes new or used and real or personal property. Ez tax form 2012 The property must be for use in a trade or business or for the production of income. Ez tax form 2012 Property you acquired before 1981 or after 1986 is not ACRS recovery property. Ez tax form 2012 For information on depreciating property acquired before 1981, see chapter 2. Ez tax form 2012 For information on depreciating property acquired after 1986, see chapter 3 of Publication 946. Ez tax form 2012 Recovery Property Recovery property under ACRS is tangible depreciable property placed in service after 1980 and before 1987. Ez tax form 2012 It generally includes new or used property that you acquired after 1980 and before 1987 for use in your trade or business or for the production of income. Ez tax form 2012 Nonrecovery Property You cannot use ACRS for property you placed in service before 1981 or after 1986. Ez tax form 2012 Nonrecovery property also includes: Intangible property, Property you elected to exclude from ACRS that is properly depreciated under a method of depreciation that is not based on a term of years, Certain public utility property, and Certain property acquired and excluded from ACRS because of the antichurning rules. Ez tax form 2012 Intangible property. Ez tax form 2012   Intangible property is not depreciated under ACRS. Ez tax form 2012 Property depreciated under methods not expressed in a term of years. Ez tax form 2012   Certain property depreciated under a method not expressed in a term of years is not depreciated under ACRS. Ez tax form 2012 This included any property: If you made an irrevocable election to exclude such property, and In the first year that you could have claimed depreciation, you properly used the unit-of-production method or any method of depreciation not expressed in a term of years (not including the retirement-replacement-betterment method). Ez tax form 2012 Public utility property. Ez tax form 2012   Public utility property for which the taxpayer does not use a normalization method of accounting is excluded from ACRS and is subject to depreciation under a special rule. Ez tax form 2012 Additions or improvements to ACRS property after 1986. Ez tax form 2012   Any additions or improvements placed in service after 1986, including any components of a building (plumbing, wiring, storm windows, etc. Ez tax form 2012 ) are depreciated using MACRS, discussed in chapter 3 of Publication 946. Ez tax form 2012 It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Ez tax form 2012 How To Figure the Deduction After you determine that your property can be depreciated under ACRS, you are ready to figure your deduction. Ez tax form 2012 Because the conventions are built into the percentage table rates, you only need to know the following: The unadjusted basis of your recovery property, The classes of recovery property, The recovery periods, and Whether to use the prescribed percentages based on accelerated methods or percentages based on using the alternate ACRS method. Ez tax form 2012 Unadjusted Basis To figure your ACRS deduction, you multiply the unadjusted basis in your recovery property by its applicable percentage for the year. Ez tax form 2012 Unadjusted basis is the same amount you would use to figure gain on a sale, but it is figured without taking into account any depreciation taken in earlier years. Ez tax form 2012 However, reduce your original basis by the amount of amortization taken on the property and by any section 179 deduction claimed as discussed in chapter 2 of Publication 946. Ez tax form 2012 If you buy property, your unadjusted basis is usually its cost minus any amortized amount and minus any section 179 deduction elected. Ez tax form 2012 If you acquire property in some other way, such as by inheriting it, getting it as a gift, or building it yourself, you figure your unadjusted basis under other rules. Ez tax form 2012 See Publication 551. Ez tax form 2012 Classes of Recovery Property All recovery property under ACRS is in one of the following classes. Ez tax form 2012 The class for your property was determined when you began to depreciate it. Ez tax form 2012 3-Year Property 3-year property includes automobiles, light-duty trucks (actual unloaded weight less than 13,000 pounds), and tractor units for use over-the-road. Ez tax form 2012 Race horses over 2 years old when placed in service are 3-year property. Ez tax form 2012 Any other horses over 12 years old when you placed them in service are also included in the 3-year property class. Ez tax form 2012 The ACRS percentages for 3-year recovery property are: Recovery Period Percentage 1st year 25% 2nd year 38% 3rd year 37% If you used the percentages above to depreciate your 3-year recovery property, your property, except for certain passenger automobiles, is fully depreciated. Ez tax form 2012 You cannot claim depreciation for this property after 1988. Ez tax form 2012 5-Year Property 5-year property includes computers, copiers, and equipment, such as office furniture and fixtures. Ez tax form 2012 It also includes single purpose agricultural or horticultural structures and petroleum storage facilities (other than buildings and their structural components). Ez tax form 2012 The ACRS percentages for 5-year recovery property are: Recovery period Percentage 1st year 15% 2nd year 22% 3rd through 5th year 21% If you used the percentages above to depreciate your 5-year recovery property, it is fully depreciated. Ez tax form 2012 You cannot claim depreciation for this property after 1990. Ez tax form 2012 10-Year Property 10-year property includes certain real property such as theme-park structures and certain public utility property. Ez tax form 2012 Manufactured homes (including mobile homes) and railroad tank cars are also 10-year property. Ez tax form 2012 You do not treat a building, and its structural components, as 10-year property by reason of a change in use after you placed the property in service. Ez tax form 2012 For example, a building (15-year real property) that was placed in service in 1981 and was converted to a theme-park structure in 1986 remains 15-year real property. Ez tax form 2012 The ACRS percentages for 10-year recovery property are: Recovery Period Percentage 1st year 8% 2nd year 14% 3rd year 12% 4th through 6th year 10% 7th through 10th year 9% If you used the percentages above, you cannot claim depreciation for this property after 1995. Ez tax form 2012 Example. Ez tax form 2012 On April 21, 1986, you bought and placed in service a new mobile home for $26,000 to be used as rental property. Ez tax form 2012 You paid $10,000 cash and signed a note for $16,000 giving you an unadjusted basis of $26,000. Ez tax form 2012 On June 8, 1986, you bought and placed in service a used mobile home for use as rental property at a total cost of $11,500. Ez tax form 2012 The total unadjusted basis of your 10-year recovery property placed in service in 1986 was $37,500 ($26,000 + $11,500). Ez tax form 2012 Your ACRS deduction was $3,000 (8% × $37,500). Ez tax form 2012 In 1987, your ACRS deduction was $5,250 (14% × $37,500). Ez tax form 2012 In 1988, your ACRS deduction was $4,500 (12% × $37,500). Ez tax form 2012 In 1989, 1990, and 1991, your ACRS deduction was $3,750 (10% × $37,500). Ez tax form 2012 In 1992, 1993, 1994, and 1995 your deduction for each year is $3,375 (9% × $37,500). Ez tax form 2012 15-Year Real Property 15-year real property is real property that is recovery property placed in service before March 16, 1984. Ez tax form 2012 It includes all real property, such as buildings, other than that designated as 5-year or 10-year property. Ez tax form 2012 Unlike the 3-, 5-, or 10-year classes of property, the percentages for 15-year real property depend on when you placed the property in service during your tax year. Ez tax form 2012 You could group 15-year real property by month and year placed in service. Ez tax form 2012 In Table 1, at the end of this publication in the Appendix, find the month in your tax year that you placed the property in service in your trade or business or for the production of income. Ez tax form 2012 You use the percentages listed under that month for each year of the recovery period to determine your depreciation deduction each year. Ez tax form 2012 Example. Ez tax form 2012 On March 5, 1984, you placed an apartment building in service in your business. Ez tax form 2012 It is 15-year real property. Ez tax form 2012 After subtracting the value of the land, your unadjusted basis in the building is $250,000. Ez tax form 2012 You use the calendar year as your tax year. Ez tax form 2012 March is the third month of your tax year. Ez tax form 2012 Your ACRS deduction for 1984 was $25,000 (10% × $250,000). Ez tax form 2012 For 1985, the percentage for the third month of the second year of the recovery period is 11%. Ez tax form 2012 Your deduction was $27,500 (11% × $250,000). Ez tax form 2012 For the third, fourth, and fifth years of the recovery period (1986, 1987, and 1988), the percentages are 9%, 8%, and 7%. Ez tax form 2012 For 1989 through 1992, the percentage for the third month is 6%. Ez tax form 2012 Your deduction each year is $15,000 (6% × $250,000). Ez tax form 2012 For 1993, 1994, and 1995, the percentage for the third month is 5%. Ez tax form 2012 Your depreciation deduction is $12,500 (5% × $250,000) for 1993, 1994, and 1995. Ez tax form 2012 Low-Income Housing Low-income housing that was assigned a 15-year recovery period under ACRS includes the following types of property: Federally assisted housing projects where the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. Ez tax form 2012 Low-income rental housing for which a depreciation deduction for rehabilitation expenditures is allowed. Ez tax form 2012 Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of state or local laws that authorize similar subsidies for low-income families. Ez tax form 2012 Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Ez tax form 2012 The ACRS percentages for low-income housing real property, like the regular 15-year real property percentages, depend on when you placed the property in service. Ez tax form 2012 Find the month in your tax year in Table 2 or 3 at the end of this publication in the Appendix that you first placed the property in service as rental housing. Ez tax form 2012 Use the percentages listed under that month for each year of the recovery period. Ez tax form 2012 Table 2 shows percentages for low-income housing placed in service before May 9, 1985. Ez tax form 2012 Table 3 shows percentages for low-income housing placed in service after May 8, 1985, and before 1987. Ez tax form 2012 Example. Ez tax form 2012 In May 1986, you acquired and placed in service a house that qualified as low-income rental housing under item 3) of the above listing. Ez tax form 2012 You use the calendar year as your tax year. Ez tax form 2012 You use Table C–3 because the property was placed in service after May 8, 1985. Ez tax form 2012 Your unadjusted basis for the property, not including the land, was $59,000. Ez tax form 2012 Your deduction for 1986 through 2001 is shown in the following table. Ez tax form 2012 Year Rate Deduction 1986 8. Ez tax form 2012 9% $5,251 1987 12. Ez tax form 2012 1% 7,139 1988 10. Ez tax form 2012 5% 6,195 1989 9. Ez tax form 2012 1% 5,369 1990 7. Ez tax form 2012 9% 4,661 1991 6. Ez tax form 2012 9% 4,071 1992 5. Ez tax form 2012 9% 3,481 1993 5. Ez tax form 2012 2% 3,068 1994 4. Ez tax form 2012 6% 2,714 1995 4. Ez tax form 2012 6% 2,714 1996 4. Ez tax form 2012 6% 2,714 1997 4. Ez tax form 2012 6% 2,714 1998 4. Ez tax form 2012 6% 2,714 1999 4. Ez tax form 2012 5% 2,655 2000 4. Ez tax form 2012 5% 2,655 2001 1. Ez tax form 2012 5% 885 18-Year Real Property 18-year real property is real property that is recovery property placed in service after March 15, 1984, and before May 9, 1985. Ez tax form 2012 It includes real property, such as buildings, other than that designated as 5-year, 10-year, 15-year real property, or low-income housing. Ez tax form 2012 The ACRS percentages for 18-year real property depend on when you placed the property in service in your trade or business or for the production of income during your tax year. Ez tax form 2012 There are also tables for 18-year real property in the Appendix. Ez tax form 2012 Table 4 shows the percentages for 18-year real property you placed in service after June 22, 1984, and before May 9, 1985. Ez tax form 2012 Table 5 is for 18-year real property placed in service after March 15, 1984, and before June 23, 1984. Ez tax form 2012 Find the month in your tax year that you placed the property in service in a trade or business or for the production of income. Ez tax form 2012 Use the percentages listed under that month for each year of the recovery period. Ez tax form 2012 Example. Ez tax form 2012 On April 28, 1985, you bought and placed in service a rental house. Ez tax form 2012 The house, not including the land, cost $95,000. Ez tax form 2012 This is your unadjusted basis for the house. Ez tax form 2012 You use the calendar year as your tax year. Ez tax form 2012 Because the house was placed in service after June 22, 1984, and before May 9, 1985, it is 18-year real property. Ez tax form 2012 You use Table 4 to figure your deduction for the house. Ez tax form 2012 April is the fourth month of your tax year. Ez tax form 2012 Your deduction for 1985 through 2003 is shown in the following table. Ez tax form 2012 Year Rate Deduction 1985 7. Ez tax form 2012 0% $6,650 1986 9. Ez tax form 2012 0% 8,550 1987 8. Ez tax form 2012 0% 7,600 1988 7. Ez tax form 2012 0% 6,650 1989 7. Ez tax form 2012 0% 6,650 1990 6. Ez tax form 2012 0% 5,700 1991 5. Ez tax form 2012 0% 4,750 1992 5. Ez tax form 2012 0% 4,750 1993 5. Ez tax form 2012 0% 4,750 1994 5. Ez tax form 2012 0% 4,750 1995 5. Ez tax form 2012 0% 4,750 1996 5. Ez tax form 2012 0% 4,750 1997 5. Ez tax form 2012 0% 4,750 1998 4. Ez tax form 2012 0% 3,800 1999 4. Ez tax form 2012 0% 3,800 2000 4. Ez tax form 2012 0% 3,800 2001 4. Ez tax form 2012 0% 3,800 2002 4. Ez tax form 2012 0% 3,800 2003 1. Ez tax form 2012 0% 950 19-Year Real Property 19-year real property is real property that is recovery property placed in service after May 8, 1985, and before 1987. Ez tax form 2012 It includes all real property, other than that designated as 5-year, 10-year, 15-year, or 18-year real property, or low-income housing. Ez tax form 2012 The ACRS percentages for 19-year real property depend on when you placed the property in service in a trade or business or for the production of income during your tax year. Ez tax form 2012 Table 6 shows the percentages for 19-year real property. Ez tax form 2012 You find the month in your tax year that you placed the property in service. Ez tax form 2012 You use the percentages listed under that month for each year of the recovery period. Ez tax form 2012 Recovery Periods Each item of recovery property is assigned to a class of property. Ez tax form 2012 The classes of recovery property establish the recovery periods over which the unadjusted basis of items in a class is recovered. Ez tax form 2012 The classes of property are: 3-Year property 5-Year property 10-Year property 15-Year real property Low-income housing 18-Year real property 19-Year real property Alternate ACRS Method (Modified Straight Line Method) ACRS provides an alternate ACRS method that could be elected. Ez tax form 2012 This alternate ACRS method uses a recovery percentage based on a modified straight line method. Ez tax form 2012 This alternate ACRS method generally uses percentages other than those from the tables. Ez tax form 2012 If you elected the alternate ACRS method, you determine the recovery period by using the following schedule. Ez tax form 2012 This schedule is for other than 18- and 19-year real property and low-income housing: In the case of: You could have elected a recovery period of: 3-year property 3, 5, or 12 years 5-year property 5, 12, or 25 years 15-year real property 15, 35, or 45 years Percentages. Ez tax form 2012   The straight-line percentages for the alternate ACRS method are: Recovery Period Percentage 5 years 20. Ez tax form 2012 00% 10 years 10. Ez tax form 2012 00% 12 years 8. Ez tax form 2012 333% 15 years 6. Ez tax form 2012 667% 25 years 4. Ez tax form 2012 00% 35 years 2. Ez tax form 2012 857%   You apply the percentage to the unadjusted basis(defined earlier) of the property to figure your ACRS deduction. Ez tax form 2012 There are tables for 18- and 19-year real property later in this publication in the Appendix. Ez tax form 2012 For 15-year real property, see 15-year real property, later. Ez tax form 2012 3-, 5-, and 10-year property. Ez tax form 2012   If you elected to use an alternate recovery percentage, you have to use the same recovery percentage for all property in that class that you placed in service in that tax year. Ez tax form 2012 This applies throughout the recovery period you selected. Ez tax form 2012 Half-year convention. Ez tax form 2012   If you elected the alternate method, only a half-year of depreciation was deducted for the year you placed the property in service. Ez tax form 2012 This applied regardless of when in the tax year you placed the property in service. Ez tax form 2012 For each of the remaining years in the recovery period, you take a full year's deduction. Ez tax form 2012 If you hold the property for the entire recovery period, a half-year of depreciation is allowable for the year following the end of the recovery period. Ez tax form 2012 Example. Ez tax form 2012 You operate a small upholstery business. Ez tax form 2012 On March 19, 1986, you bought and placed in service a $13,000 light-duty panel truck to be used in your business and a $500 electric saw. Ez tax form 2012 You elected to use the alternate ACRS method. Ez tax form 2012 You did not elect to take a section 179 deduction. Ez tax form 2012 You decided to recover the cost of the truck, which is 3-year recovery property, over 5 years. Ez tax form 2012 The saw is 5-year property, but you decided to recover its cost over 12 years. Ez tax form 2012 For 1986, your ACRS deduction reflected the half-year convention. Ez tax form 2012 In the first year, you deducted half of the amount determined for a full year. Ez tax form 2012 Your ACRS deduction for 1986 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. Ez tax form 2012 00     Electric saw   12 years straight line = 8. Ez tax form 2012 333% 8. Ez tax form 2012 333% ÷ $500 = $41. Ez tax form 2012 67 Half-year convention -½ of $41. Ez tax form 2012 67= 20. Ez tax form 2012 84 Total ACRS deduction for 1986 $1,320. Ez tax form 2012 84       You take a full year of depreciation for both the truck and the saw for the years 1987 through 1990. Ez tax form 2012 Your ACRS deduction for each of those years is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600     Electric saw     12 years straight line = 8. Ez tax form 2012 333% 8. Ez tax form 2012 333% ÷ $500 = $41. Ez tax form 2012 67 Total annual ACRS deduction for 1987 through 1990 $2,641. Ez tax form 2012 67       In 1991, you take a half-year of depreciation for the truck and a full year of depreciation for the saw. Ez tax form 2012 Your ACRS deduction for 1991 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. Ez tax form 2012 00     Electric saw   12 years straight line = 8. Ez tax form 2012 333% 8. Ez tax form 2012 333% ÷ $500 = $41. Ez tax form 2012 67 Total ACRS deduction for 1991 $1,341. Ez tax form 2012 67       The truck is fully depreciated after 1991. Ez tax form 2012 You take a full year of depreciation for the saw for the years 1992 through 1997. Ez tax form 2012 Your ACRS deduction for each of those years is as follows: Electric saw     12 years straight line = 8. Ez tax form 2012 333% 8. Ez tax form 2012 333% ÷ $500 = $41. Ez tax form 2012 67 Total annual ACRS deduction for 1992 through 1997 $41. Ez tax form 2012 67       You take a half-year of depreciation for the saw for 1998. Ez tax form 2012 Your ACRS deduction for 1998 is as follows: Electric saw   12 years straight line = 8. Ez tax form 2012 333% 8. Ez tax form 2012 333% ÷ $500 = $41. Ez tax form 2012 67 Half-year convention -½ of $41. Ez tax form 2012 67= 20. Ez tax form 2012 84 Total ACRS deduction for 1998 $20. Ez tax form 2012 84       The saw is fully depreciated after 1998. Ez tax form 2012 15-year real property. Ez tax form 2012   Under ACRS, you could also elect to use the alternate ACRS method for 15-year real property. Ez tax form 2012 The alternate ACRS method allows you to depreciate your 15-year real property using the straight line ACRS method over the alternate recovery periods of 15, 35, or 45 years. Ez tax form 2012 If you selected a 15-year recovery period, you use the percentage (6. Ez tax form 2012 667%) from the schedule above. Ez tax form 2012 You prorate this percentage for the number of months the property was in service in the first year. Ez tax form 2012 If you selected a 35- or 45-year recovery period, you use either Table 11 or 15. Ez tax form 2012 Alternate periods for 18-year real property. Ez tax form 2012   For 18-year real property, the alternate recovery periods are 18, 35, or 45 years. Ez tax form 2012 The percentages for 18-year real property under the alternate method are in Tables 7, 8, 10, 11, 14, and 15 in the Appendix. Ez tax form 2012 There are two tables for each alternate recovery period. Ez tax form 2012 One table shows the percentage for property placed in service after June 22, 1984. Ez tax form 2012 The other table has the percentages for property placed in service after March 15, 1984, and before June 23, 1984. Ez tax form 2012 Alternate periods for 19-year real property. Ez tax form 2012   For 19-year real property, the alternate recovery periods are 19, 35, or 45 years. Ez tax form 2012 If you selected a 19-year recovery period, use Table 9 to determine your deduction. Ez tax form 2012 If you select a 35- or 45-year recovery period, use either Table 13 or 14. Ez tax form 2012 Example. Ez tax form 2012 You placed in service an apartment building on August 3, 1986. Ez tax form 2012 The building is 19-year real property. Ez tax form 2012 The sales contract allocated $300,000 to the building and $100,000 to the land. Ez tax form 2012 You use the calendar year as your tax year. Ez tax form 2012 You chose the alternate ACRS method over a recovery period of 35 years. Ez tax form 2012 For 1986, you figure your ACRS deduction usingTable 13. Ez tax form 2012 August is the eighth month of your tax year. Ez tax form 2012 The percentage from Table 13 for the eighth month is 1. Ez tax form 2012 1%. Ez tax form 2012 Your deduction was $3,300 ($300,000 ÷ 1. Ez tax form 2012 1%). Ez tax form 2012 The deduction rate from ACRS Table 13 for years 2 through 20 is 2. Ez tax form 2012 9% so that your deduction in 1987 through 2005 is $8,700 ($300,000 ÷ 2. Ez tax form 2012 9%). Ez tax form 2012 Alternate periods for low-income housing. Ez tax form 2012   For low-income housing, the alternate recovery periods are 15, 35, or 45 years. Ez tax form 2012 If you selected a 15-year period for this property, use 6. Ez tax form 2012 667% as the percentage. Ez tax form 2012 If you selected a 35- or 45-year period, use either Table 11, 12, or 15. Ez tax form 2012 Election. Ez tax form 2012   You had to make the election to use the alternate ACRS method by the return due date (including extensions) for the tax year you placed the property in service. Ez tax form 2012 Revocation of election. Ez tax form 2012   Your election to use an alternate ACRS method, once made, can be changed only with the consent of the Commissioner. Ez tax form 2012 The Commissioner grants consent only in extraordinary circumstances. Ez tax form 2012 Any request for a revocation will be considered a request for a ruling. Ez tax form 2012 ACRS Deduction in Short Tax Year For a tax year that is less than 12 months, the ACRS deduction is prorated on a 12-month basis. Ez tax form 2012 Figure the amount of the ACRS deduction for a short tax year as follows: First, you figure the ACRS deduction for a full year. Ez tax form 2012 You figure this by multiplying the unadjusted basis by the recovery percentage. Ez tax form 2012 You then multiply the ACRS deduction determined for a full tax year by a fraction. Ez tax form 2012 The numerator (top number) of the fraction is the number of months in the short tax year and the denominator (bottom number) is 12. Ez tax form 2012 For example, a corporation placed in service in June 1986 an item of 3-year property with an unadjusted basis of $10,000. Ez tax form 2012 The corporation files a tax return, because of a change in its accounting period, for the 6-month short tax year ending June 30, 1986. Ez tax form 2012 The full year's ACRS deduction for this item is $2,500 ($10,000 ÷ 25%), the first year percentage from the 3-year table. Ez tax form 2012 The ACRS deduction for the short tax year is $1,250 ($2,500 ÷ 6/12). Ez tax form 2012 You use the full ACRS percentages during the remaining years of the recovery period. Ez tax form 2012 For the first tax year after the recovery period, the unrecovered basis will be deductible. Ez tax form 2012 Exception. Ez tax form 2012   For the tax year in which you placed 15-, 18-, or 19-year real property in service or in the tax year you dispose of it, you compute the ACRS deduction for the number of months that the property is in service during that tax year. Ez tax form 2012 You compute the number of months using either a full month or mid-month convention. Ez tax form 2012 This is true regardless of the number of months in the tax year and the recovery period and method used. Ez tax form 2012 Dispositions A disposition is the permanent withdrawal of property from use in your trade or business or in the production of income. Ez tax form 2012 You can make a withdrawal by sale, exchange, retirement, abandonment, or destruction. Ez tax form 2012 You generally recognize gain or loss on the disposition of an asset by sale. Ez tax form 2012 However, nonrecognition rules can allow you to postpone some gain. Ez tax form 2012 See Publication 544. Ez tax form 2012 If you physically abandon property, you can deduct as a loss the adjusted basis of the asset at the time of its abandonment. Ez tax form 2012 Your intent must be to discard the asset so that you will not use it again or retrieve it for sale, exchange, or other disposition. Ez tax form 2012 Early dispositions. Ez tax form 2012   The disposal of an asset before the end of its specified recovery period, is referred to as an early disposition. Ez tax form 2012 When an early disposition occurs, the depreciation deduction in the year of disposition depends on the class of property involved. Ez tax form 2012 Early dispositions of ACRS property other than 15-, 18-, or 19-year real property. Ez tax form 2012   Generally, you get no ACRS deduction for the tax year in which you dispose of or retire recovery property, except for 15-, 18-, and 19-year real property. Ez tax form 2012 This means there is no depreciation deduction under ACRS in the year you dispose of or retire any of your 3-, 5-, or 10-year recovery property. Ez tax form 2012 Dispositions — mass asset accounts. Ez tax form 2012   The law provides a special rule to avoid the calculation of gain on the disposition of assets from mass asset accounts. Ez tax form 2012 A mass asset account includes items usually minor in value in relation to the group, numerous in quantity, impractical to separately identify, and not usually accounted for on a separate basis, but on a total dollar value. Ez tax form 2012 Examples of mass assets include minor items of office, plant, and store furniture and fixtures. Ez tax form 2012   Under the special rule, if you elected to use a mass asset account, you recognize gain to the extent of the proceeds from the disposition of the asset. Ez tax form 2012 You leave the unadjusted basis of the property in the account until recovered in future years. Ez tax form 2012 If you did this, include the total proceeds realized from the disposition in income on the tax return for the year of disposition. Ez tax form 2012 Early dispositions — 15-year real property. Ez tax form 2012   If you dispose of 15-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. Ez tax form 2012 You use a full-month convention. Ez tax form 2012 For a disposition at any time during a particular month before the end of the recovery period, no deduction is allowed for the month of disposition. Ez tax form 2012 This applies whether you use the regular ACRS method or elected the alternate ACRS method. Ez tax form 2012 Example. Ez tax form 2012 You purchased and placed in service a rental house on March 2, 1984, for $98,000 (not including the cost of land). Ez tax form 2012 You file your return based on a calendar year. Ez tax form 2012 Your rate from Table 1 for the third month is 10%. Ez tax form 2012 Your ACRS deduction for 1984 was $9,800 ($98. Ez tax form 2012 000 ÷ 10%). Ez tax form 2012 For 1985 through 1988, you figured your ACRS deductions using 11%, 9%, 8%, and 7% ÷ $98,000. Ez tax form 2012 For 1989 through 1992, you figured your ACRS deductions using 6% for each year. Ez tax form 2012 The deduction each year was $98,000 ÷ 6%. Ez tax form 2012 For 1993 and 1994, the ACRS deduction is ($98,000 ÷ 5%) $4,900 for each year. Ez tax form 2012 You sell the house on June 1, 1995. Ez tax form 2012 You figure your ACRS deduction for 1995 for the full year and then prorate that amount for the months of use. Ez tax form 2012 The full ACRS deduction for 1995 is $4,900 ($98,000 ÷ 5%). Ez tax form 2012 You then prorate this amount to the 5 months in 1995 during which it was rented. Ez tax form 2012 Your ACRS deduction for 1995 is $2,042 ($4,900 ÷ 5/12). Ez tax form 2012 Early dispositions — 18- and 19-year real property. Ez tax form 2012   If you dispose of 18- or 19-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. Ez tax form 2012 For 18-year property placed in service before June 23, 1984, use a full-month convention on a disposition. Ez tax form 2012 For 18-year property placed in service after June 22, 1984, and for 19-year property, determine the number of months in use by using the mid-month convention. Ez tax form 2012 Under the mid-month convention,treat real property disposed of any time during a month as disposed of in the middle of that month. Ez tax form 2012 Count the month of disposition as half a month of use. Ez tax form 2012 Example. Ez tax form 2012 You purchased and placed in service a rental house on July 2, 1984, for $100,000 (not including the cost of land). Ez tax form 2012 You file your return based on a calendar year. Ez tax form 2012 Your rate from Table 4 for the seventh month is 4%. Ez tax form 2012 You figured your ACRS deduction for 1984 was $4,000 ($100,000 ÷ 4%). Ez tax form 2012 In 1985 through 1994, your ACRS deductions were 9%, 8%, 8%, 7%, 6%, 6%, 5%, 5%, and 5% ÷ $100,000. Ez tax form 2012 You sell the house on September 24, 1995. Ez tax form 2012 Figure your ACRS deduction for 1995 for the months of use. Ez tax form 2012 The full ACRS deduction for 1995 is $5,000 ($100,000 ÷ 5%). Ez tax form 2012 Prorate this amount for the 8. Ez tax form 2012 5 months in 1995 that you held the property. Ez tax form 2012 Under the mid-month convention, you count September as half a month. Ez tax form 2012 Your ACRS deduction for 1995 is $3,542 ($5,000 ÷ 8. Ez tax form 2012 5/12). Ez tax form 2012 Depreciation Recapture If you dispose of property depreciated under ACRS that is section 1245 recovery property, you will generally recognize gain or loss. Ez tax form 2012 Gain recognized on a disposition is ordinary income to the extent of prior depreciation deductions taken. Ez tax form 2012 This recapture rule applies to all personal property in the 3-year, 5-year, and 10-year classes. Ez tax form 2012 You recapture gain on manufactured homes and theme park structures in the 10-year class as section 1245 property. Ez tax form 2012 Section 1245 property generally includes all personal property. Ez tax form 2012 See Section 1245 property in chapter 4 of Publication 544 for more information. Ez tax form 2012 You treat dispositions of section 1250 real property on which you have a gain as section 1245 recovery property. Ez tax form 2012 You recognize gain on this property as ordinary income to the extent of prior depreciation deductions taken. Ez tax form 2012 Section 1250 property includes most real property. Ez tax form 2012 See Section 1250 property in chapter 4 of Publication 544 for more information. Ez tax form 2012 This rule applies to all section 1250 real property except the following property: Any 15-, 18-, or 19-year real property that is residential rental property. Ez tax form 2012 Any 15-, 18-, or 19-year real property that you elected to depreciate using the alternate ACRS method. Ez tax form 2012 Any 15-, 18-, or 19-year real property that is subsidized low-income housing. Ez tax form 2012 For these recapture rules, you treat the section 179 deduction and 50% of the investment credit that reduced your basis as depreciation. Ez tax form 2012 See Publication 544 for further discussion of dispositions of section 1245 and 1250 property. Ez tax form 2012 Prev  Up  Next   Home   More Online Publications