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1040ez free Index A Alimony paid, Alimony paid. 1040ez free Alimony received, Alimony received. 1040ez free Annulment, Divorce or separation. 1040ez free Assistance (see Tax help) B Basis of property, death of spouse, Death of spouse. 1040ez free Business expenses, Business and investment expenses. 1040ez free C Child tax credit, Child tax credit. 1040ez free Civil service annuities, Civil service retirement. 1040ez free Community income defined, Community or Separate Property and Income Community income, special rules, Certain community income not treated as community income by one spouse. 1040ez free Community property defined, Community or Separate Property and Income Community property laws disregarded, Community Property Laws Disregarded Credits Child tax credit, Credits, Taxes, and Payments Earned income credit, Earned income credit. 1040ez free CSRS annuities, Civil service retirement. 1040ez free D Death of spouse, basis of property, Death of spouse. 1040ez free Deductions Alimony paid, Deductions Business expenses, Deductions Investment expenses, Deductions IRA deduction, Deductions Personal expenses, Deductions Dependents, Exemptions Dividends, Dividends, interest, and rents. 1040ez free Divorce, Divorce or separation. 1040ez free Domestic partners, Registered domestic partners. 1040ez free Domicile, Domicile E Earned income credit, Earned income credit. 1040ez free End of the marital community, End of the Community Equitable relief, Equitable relief. 1040ez free ESA withdrawals, Withdrawals from individual retirement arrangements (IRAs) and Coverdell Education Savings Accounts (ESAs). 1040ez free Estimated tax payments, Estimated tax payments. 1040ez free Exempt income, Tax-exempt income. 1040ez free Exemptions Dependent, Exemptions Personal, Exemptions Extensions, Extension of time to file. 1040ez free F FERS annuities, Civil service retirement. 1040ez free Form 8958, Community or Separate Property and Income, Identifying Income, Deductions, and Credits, Dividends, interest, and rents. 1040ez free , Separate Return Preparation Free tax services, Free help with your tax return. 1040ez free G Gains and losses, Gains and losses. 1040ez free H Help (see Tax help) I Income Alimony received, Income Civil service annuities, Income Dividends, Income Gains and losses, Income Interest, Income IRA distributions, Income Lump-sum distributions, Income Military retirement pay, Income Partnership income, Income Pensions, Income Rents, Income Separate income, Income from separate property. 1040ez free Tax-exempt income, Income Wages, earnings, and profits, Income Innocent spouse relief, Relief from liability arising from community property law. 1040ez free , Equitable relief. 1040ez free Interest, Dividends, interest, and rents. 1040ez free Investment expenses, Business and investment expenses. 1040ez free IRA deduction, IRA deduction. 1040ez free IRA distributions, Withdrawals from individual retirement arrangements (IRAs) and Coverdell Education Savings Accounts (ESAs). 1040ez free J Joint return vs. 1040ez free separate returns, Joint Return Versus Separate Returns L Lump-sum distributions, Lump-sum distributions. 1040ez free M Military retirement pay, Military retirement pay. 1040ez free N Nonresident alien spouse, Nonresident alien spouse. 1040ez free O Overpayments, Overpayments. 1040ez free P Partnership income, Partnership income. 1040ez free Partnerships, self-employment tax, Partnerships. 1040ez free Payments Estimated tax payments, Estimated tax payments. 1040ez free Federal income tax withheld, Federal income tax withheld. 1040ez free Pensions, Pensions. 1040ez free Personal expenses, Personal expenses. 1040ez free Publications (see Tax help) R Registered domestic partners, Registered domestic partners. 1040ez free Relief from liability arising from community property law, Relief from liability arising from community property law. 1040ez free Rents, Dividends, interest, and rents. 1040ez free S Self-employment tax Partnership, Self-employment tax. 1040ez free Sole proprietorship, Self-employment tax. 1040ez free Separate income defined, Separate income. 1040ez free Separate property defined, Community or Separate Property and Income Separate property income, Income from separate property. 1040ez free Separate returns Extensions, Extension of time to file. 1040ez free Separate returns vs. 1040ez free joint return, Joint Return Versus Separate Returns Separated spouses, Spouses living apart all year. 1040ez free Separation agreement, Divorce or separation. 1040ez free Sole proprietorship, self-employment tax, Sole proprietorship. 1040ez free Spousal agreements, Spousal agreements. 1040ez free Spouses living apart, Spouses living apart all year. 1040ez free T Tax help, How To Get Tax Help Tax-exempt income, Tax-exempt income. 1040ez free TTY/TDD information, How To Get Tax Help W Wages, earnings, and profits, Wages, earnings, and profits. 1040ez free Withholding tax, Federal 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1040ez free 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. 1040ez free Dispositions — mass asset accounts. 1040ez free Early dispositions — 15-year real property. 1040ez free Early dispositions — 18- and 19-year real property. 1040ez free 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. 1040ez free 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. 1040ez free These rules are mandatory and generally apply to tangible property placed in service after 1980 and before 1987. 1040ez free If you placed property in service during this period, you must continue to figure your depreciation under ACRS. 1040ez free 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. 1040ez free Listed property includes cars, other means of transportation, and certain computers. 1040ez free Any additions or improvements placed in service after 1986, including any components of a building (such as plumbing, wiring, storm windows, etc. 1040ez free ), are depreciated using MACRS, discussed in chapter 3 of Publication 946. 1040ez free It does not matter that the underlying property is depreciated under ACRS or one of the other methods. 1040ez free ACRS Defined ACRS consists of accelerated depreciation methods and an alternate ACRS method that could have been elected. 1040ez free The alternate ACRS method used a recovery percentage based on a modified straight line method. 1040ez free The law prescribes fixed percentages to be uses for each class of property. 1040ez free Property depreciable under ACRS is called recovery property. 1040ez free The recovery class of property determines the recovery period. 1040ez free 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. 1040ez free Under ACRS, the prescribed percentages are used to recover the unadjusted basis of recovery property. 1040ez free To figure a depreciation deduction, you multiply the prescribed percentage for the recovery class by the unadjusted basis of the recovery property. 1040ez free You must continue to figure your depreciation under ACRS for property placed in service after 1980 and before 1987. 1040ez free For property you placed in service after 1986, you must use MACRS, discussed in chapter 3 of Publication 946. 1040ez free What Can and Cannot Be Depreciated Under ACRS ACRS applies to most depreciable tangible property placed in service after 1980 and before 1987. 1040ez free It includes new or used and real or personal property. 1040ez free The property must be for use in a trade or business or for the production of income. 1040ez free Property you acquired before 1981 or after 1986 is not ACRS recovery property. 1040ez free For information on depreciating property acquired before 1981, see chapter 2. 1040ez free For information on depreciating property acquired after 1986, see chapter 3 of Publication 946. 1040ez free Recovery Property Recovery property under ACRS is tangible depreciable property placed in service after 1980 and before 1987. 1040ez free 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. 1040ez free Nonrecovery Property You cannot use ACRS for property you placed in service before 1981 or after 1986. 1040ez free 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. 1040ez free Intangible property. 1040ez free   Intangible property is not depreciated under ACRS. 1040ez free Property depreciated under methods not expressed in a term of years. 1040ez free   Certain property depreciated under a method not expressed in a term of years is not depreciated under ACRS. 1040ez free 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). 1040ez free Public utility property. 1040ez free   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. 1040ez free Additions or improvements to ACRS property after 1986. 1040ez free   Any additions or improvements placed in service after 1986, including any components of a building (plumbing, wiring, storm windows, etc. 1040ez free ) are depreciated using MACRS, discussed in chapter 3 of Publication 946. 1040ez free It does not matter that the underlying property is depreciated under ACRS or one of the other methods. 1040ez free How To Figure the Deduction After you determine that your property can be depreciated under ACRS, you are ready to figure your deduction. 1040ez free 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. 1040ez free Unadjusted Basis To figure your ACRS deduction, you multiply the unadjusted basis in your recovery property by its applicable percentage for the year. 1040ez free 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. 1040ez free 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. 1040ez free If you buy property, your unadjusted basis is usually its cost minus any amortized amount and minus any section 179 deduction elected. 1040ez free 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. 1040ez free See Publication 551. 1040ez free Classes of Recovery Property All recovery property under ACRS is in one of the following classes. 1040ez free The class for your property was determined when you began to depreciate it. 1040ez free 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. 1040ez free Race horses over 2 years old when placed in service are 3-year property. 1040ez free Any other horses over 12 years old when you placed them in service are also included in the 3-year property class. 1040ez free 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. 1040ez free You cannot claim depreciation for this property after 1988. 1040ez free 5-Year Property 5-year property includes computers, copiers, and equipment, such as office furniture and fixtures. 1040ez free It also includes single purpose agricultural or horticultural structures and petroleum storage facilities (other than buildings and their structural components). 1040ez free 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. 1040ez free You cannot claim depreciation for this property after 1990. 1040ez free 10-Year Property 10-year property includes certain real property such as theme-park structures and certain public utility property. 1040ez free Manufactured homes (including mobile homes) and railroad tank cars are also 10-year property. 1040ez free 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. 1040ez free 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. 1040ez free 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. 1040ez free Example. 1040ez free On April 21, 1986, you bought and placed in service a new mobile home for $26,000 to be used as rental property. 1040ez free You paid $10,000 cash and signed a note for $16,000 giving you an unadjusted basis of $26,000. 1040ez free 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. 1040ez free The total unadjusted basis of your 10-year recovery property placed in service in 1986 was $37,500 ($26,000 + $11,500). 1040ez free Your ACRS deduction was $3,000 (8% × $37,500). 1040ez free In 1987, your ACRS deduction was $5,250 (14% × $37,500). 1040ez free In 1988, your ACRS deduction was $4,500 (12% × $37,500). 1040ez free In 1989, 1990, and 1991, your ACRS deduction was $3,750 (10% × $37,500). 1040ez free In 1992, 1993, 1994, and 1995 your deduction for each year is $3,375 (9% × $37,500). 1040ez free 15-Year Real Property 15-year real property is real property that is recovery property placed in service before March 16, 1984. 1040ez free It includes all real property, such as buildings, other than that designated as 5-year or 10-year property. 1040ez free 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. 1040ez free You could group 15-year real property by month and year placed in service. 1040ez free 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. 1040ez free You use the percentages listed under that month for each year of the recovery period to determine your depreciation deduction each year. 1040ez free Example. 1040ez free On March 5, 1984, you placed an apartment building in service in your business. 1040ez free It is 15-year real property. 1040ez free After subtracting the value of the land, your unadjusted basis in the building is $250,000. 1040ez free You use the calendar year as your tax year. 1040ez free March is the third month of your tax year. 1040ez free Your ACRS deduction for 1984 was $25,000 (10% × $250,000). 1040ez free For 1985, the percentage for the third month of the second year of the recovery period is 11%. 1040ez free Your deduction was $27,500 (11% × $250,000). 1040ez free For the third, fourth, and fifth years of the recovery period (1986, 1987, and 1988), the percentages are 9%, 8%, and 7%. 1040ez free For 1989 through 1992, the percentage for the third month is 6%. 1040ez free Your deduction each year is $15,000 (6% × $250,000). 1040ez free For 1993, 1994, and 1995, the percentage for the third month is 5%. 1040ez free Your depreciation deduction is $12,500 (5% × $250,000) for 1993, 1994, and 1995. 1040ez free 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. 1040ez free Low-income rental housing for which a depreciation deduction for rehabilitation expenditures is allowed. 1040ez free 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. 1040ez free Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. 1040ez free 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. 1040ez free 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. 1040ez free Use the percentages listed under that month for each year of the recovery period. 1040ez free Table 2 shows percentages for low-income housing placed in service before May 9, 1985. 1040ez free Table 3 shows percentages for low-income housing placed in service after May 8, 1985, and before 1987. 1040ez free Example. 1040ez free 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. 1040ez free You use the calendar year as your tax year. 1040ez free You use Table C–3 because the property was placed in service after May 8, 1985. 1040ez free Your unadjusted basis for the property, not including the land, was $59,000. 1040ez free Your deduction for 1986 through 2001 is shown in the following table. 1040ez free Year Rate Deduction 1986 8. 1040ez free 9% $5,251 1987 12. 1040ez free 1% 7,139 1988 10. 1040ez free 5% 6,195 1989 9. 1040ez free 1% 5,369 1990 7. 1040ez free 9% 4,661 1991 6. 1040ez free 9% 4,071 1992 5. 1040ez free 9% 3,481 1993 5. 1040ez free 2% 3,068 1994 4. 1040ez free 6% 2,714 1995 4. 1040ez free 6% 2,714 1996 4. 1040ez free 6% 2,714 1997 4. 1040ez free 6% 2,714 1998 4. 1040ez free 6% 2,714 1999 4. 1040ez free 5% 2,655 2000 4. 1040ez free 5% 2,655 2001 1. 1040ez free 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. 1040ez free It includes real property, such as buildings, other than that designated as 5-year, 10-year, 15-year real property, or low-income housing. 1040ez free 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. 1040ez free There are also tables for 18-year real property in the Appendix. 1040ez free Table 4 shows the percentages for 18-year real property you placed in service after June 22, 1984, and before May 9, 1985. 1040ez free Table 5 is for 18-year real property placed in service after March 15, 1984, and before June 23, 1984. 1040ez free 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. 1040ez free Use the percentages listed under that month for each year of the recovery period. 1040ez free Example. 1040ez free On April 28, 1985, you bought and placed in service a rental house. 1040ez free The house, not including the land, cost $95,000. 1040ez free This is your unadjusted basis for the house. 1040ez free You use the calendar year as your tax year. 1040ez free Because the house was placed in service after June 22, 1984, and before May 9, 1985, it is 18-year real property. 1040ez free You use Table 4 to figure your deduction for the house. 1040ez free April is the fourth month of your tax year. 1040ez free Your deduction for 1985 through 2003 is shown in the following table. 1040ez free Year Rate Deduction 1985 7. 1040ez free 0% $6,650 1986 9. 1040ez free 0% 8,550 1987 8. 1040ez free 0% 7,600 1988 7. 1040ez free 0% 6,650 1989 7. 1040ez free 0% 6,650 1990 6. 1040ez free 0% 5,700 1991 5. 1040ez free 0% 4,750 1992 5. 1040ez free 0% 4,750 1993 5. 1040ez free 0% 4,750 1994 5. 1040ez free 0% 4,750 1995 5. 1040ez free 0% 4,750 1996 5. 1040ez free 0% 4,750 1997 5. 1040ez free 0% 4,750 1998 4. 1040ez free 0% 3,800 1999 4. 1040ez free 0% 3,800 2000 4. 1040ez free 0% 3,800 2001 4. 1040ez free 0% 3,800 2002 4. 1040ez free 0% 3,800 2003 1. 1040ez free 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. 1040ez free 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. 1040ez free 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. 1040ez free Table 6 shows the percentages for 19-year real property. 1040ez free You find the month in your tax year that you placed the property in service. 1040ez free You use the percentages listed under that month for each year of the recovery period. 1040ez free Recovery Periods Each item of recovery property is assigned to a class of property. 1040ez free The classes of recovery property establish the recovery periods over which the unadjusted basis of items in a class is recovered. 1040ez free 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. 1040ez free This alternate ACRS method uses a recovery percentage based on a modified straight line method. 1040ez free This alternate ACRS method generally uses percentages other than those from the tables. 1040ez free If you elected the alternate ACRS method, you determine the recovery period by using the following schedule. 1040ez free 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. 1040ez free   The straight-line percentages for the alternate ACRS method are: Recovery Period Percentage 5 years 20. 1040ez free 00% 10 years 10. 1040ez free 00% 12 years 8. 1040ez free 333% 15 years 6. 1040ez free 667% 25 years 4. 1040ez free 00% 35 years 2. 1040ez free 857%   You apply the percentage to the unadjusted basis(defined earlier) of the property to figure your ACRS deduction. 1040ez free There are tables for 18- and 19-year real property later in this publication in the Appendix. 1040ez free For 15-year real property, see 15-year real property, later. 1040ez free 3-, 5-, and 10-year property. 1040ez free   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. 1040ez free This applies throughout the recovery period you selected. 1040ez free Half-year convention. 1040ez free   If you elected the alternate method, only a half-year of depreciation was deducted for the year you placed the property in service. 1040ez free This applied regardless of when in the tax year you placed the property in service. 1040ez free For each of the remaining years in the recovery period, you take a full year's deduction. 1040ez free 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. 1040ez free Example. 1040ez free You operate a small upholstery business. 1040ez free 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. 1040ez free You elected to use the alternate ACRS method. 1040ez free You did not elect to take a section 179 deduction. 1040ez free You decided to recover the cost of the truck, which is 3-year recovery property, over 5 years. 1040ez free The saw is 5-year property, but you decided to recover its cost over 12 years. 1040ez free For 1986, your ACRS deduction reflected the half-year convention. 1040ez free In the first year, you deducted half of the amount determined for a full year. 1040ez free 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. 1040ez free 00     Electric saw   12 years straight line = 8. 1040ez free 333% 8. 1040ez free 333% ÷ $500 = $41. 1040ez free 67 Half-year convention -½ of $41. 1040ez free 67= 20. 1040ez free 84 Total ACRS deduction for 1986 $1,320. 1040ez free 84       You take a full year of depreciation for both the truck and the saw for the years 1987 through 1990. 1040ez free 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. 1040ez free 333% 8. 1040ez free 333% ÷ $500 = $41. 1040ez free 67 Total annual ACRS deduction for 1987 through 1990 $2,641. 1040ez free 67       In 1991, you take a half-year of depreciation for the truck and a full year of depreciation for the saw. 1040ez free 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. 1040ez free 00     Electric saw   12 years straight line = 8. 1040ez free 333% 8. 1040ez free 333% ÷ $500 = $41. 1040ez free 67 Total ACRS deduction for 1991 $1,341. 1040ez free 67       The truck is fully depreciated after 1991. 1040ez free You take a full year of depreciation for the saw for the years 1992 through 1997. 1040ez free Your ACRS deduction for each of those years is as follows: Electric saw     12 years straight line = 8. 1040ez free 333% 8. 1040ez free 333% ÷ $500 = $41. 1040ez free 67 Total annual ACRS deduction for 1992 through 1997 $41. 1040ez free 67       You take a half-year of depreciation for the saw for 1998. 1040ez free Your ACRS deduction for 1998 is as follows: Electric saw   12 years straight line = 8. 1040ez free 333% 8. 1040ez free 333% ÷ $500 = $41. 1040ez free 67 Half-year convention -½ of $41. 1040ez free 67= 20. 1040ez free 84 Total ACRS deduction for 1998 $20. 1040ez free 84       The saw is fully depreciated after 1998. 1040ez free 15-year real property. 1040ez free   Under ACRS, you could also elect to use the alternate ACRS method for 15-year real property. 1040ez free 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. 1040ez free If you selected a 15-year recovery period, you use the percentage (6. 1040ez free 667%) from the schedule above. 1040ez free You prorate this percentage for the number of months the property was in service in the first year. 1040ez free If you selected a 35- or 45-year recovery period, you use either Table 11 or 15. 1040ez free Alternate periods for 18-year real property. 1040ez free   For 18-year real property, the alternate recovery periods are 18, 35, or 45 years. 1040ez free The percentages for 18-year real property under the alternate method are in Tables 7, 8, 10, 11, 14, and 15 in the Appendix. 1040ez free There are two tables for each alternate recovery period. 1040ez free One table shows the percentage for property placed in service after June 22, 1984. 1040ez free The other table has the percentages for property placed in service after March 15, 1984, and before June 23, 1984. 1040ez free Alternate periods for 19-year real property. 1040ez free   For 19-year real property, the alternate recovery periods are 19, 35, or 45 years. 1040ez free If you selected a 19-year recovery period, use Table 9 to determine your deduction. 1040ez free If you select a 35- or 45-year recovery period, use either Table 13 or 14. 1040ez free Example. 1040ez free You placed in service an apartment building on August 3, 1986. 1040ez free The building is 19-year real property. 1040ez free The sales contract allocated $300,000 to the building and $100,000 to the land. 1040ez free You use the calendar year as your tax year. 1040ez free You chose the alternate ACRS method over a recovery period of 35 years. 1040ez free For 1986, you figure your ACRS deduction usingTable 13. 1040ez free August is the eighth month of your tax year. 1040ez free The percentage from Table 13 for the eighth month is 1. 1040ez free 1%. 1040ez free Your deduction was $3,300 ($300,000 ÷ 1. 1040ez free 1%). 1040ez free The deduction rate from ACRS Table 13 for years 2 through 20 is 2. 1040ez free 9% so that your deduction in 1987 through 2005 is $8,700 ($300,000 ÷ 2. 1040ez free 9%). 1040ez free Alternate periods for low-income housing. 1040ez free   For low-income housing, the alternate recovery periods are 15, 35, or 45 years. 1040ez free If you selected a 15-year period for this property, use 6. 1040ez free 667% as the percentage. 1040ez free If you selected a 35- or 45-year period, use either Table 11, 12, or 15. 1040ez free Election. 1040ez free   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. 1040ez free Revocation of election. 1040ez free   Your election to use an alternate ACRS method, once made, can be changed only with the consent of the Commissioner. 1040ez free The Commissioner grants consent only in extraordinary circumstances. 1040ez free Any request for a revocation will be considered a request for a ruling. 1040ez free 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. 1040ez free Figure the amount of the ACRS deduction for a short tax year as follows: First, you figure the ACRS deduction for a full year. 1040ez free You figure this by multiplying the unadjusted basis by the recovery percentage. 1040ez free You then multiply the ACRS deduction determined for a full tax year by a fraction. 1040ez free The numerator (top number) of the fraction is the number of months in the short tax year and the denominator (bottom number) is 12. 1040ez free For example, a corporation placed in service in June 1986 an item of 3-year property with an unadjusted basis of $10,000. 1040ez free 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. 1040ez free The full year's ACRS deduction for this item is $2,500 ($10,000 ÷ 25%), the first year percentage from the 3-year table. 1040ez free The ACRS deduction for the short tax year is $1,250 ($2,500 ÷ 6/12). 1040ez free You use the full ACRS percentages during the remaining years of the recovery period. 1040ez free For the first tax year after the recovery period, the unrecovered basis will be deductible. 1040ez free Exception. 1040ez free   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. 1040ez free You compute the number of months using either a full month or mid-month convention. 1040ez free This is true regardless of the number of months in the tax year and the recovery period and method used. 1040ez free Dispositions A disposition is the permanent withdrawal of property from use in your trade or business or in the production of income. 1040ez free You can make a withdrawal by sale, exchange, retirement, abandonment, or destruction. 1040ez free You generally recognize gain or loss on the disposition of an asset by sale. 1040ez free However, nonrecognition rules can allow you to postpone some gain. 1040ez free See Publication 544. 1040ez free If you physically abandon property, you can deduct as a loss the adjusted basis of the asset at the time of its abandonment. 1040ez free 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. 1040ez free Early dispositions. 1040ez free   The disposal of an asset before the end of its specified recovery period, is referred to as an early disposition. 1040ez free When an early disposition occurs, the depreciation deduction in the year of disposition depends on the class of property involved. 1040ez free Early dispositions of ACRS property other than 15-, 18-, or 19-year real property. 1040ez free   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. 1040ez free 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. 1040ez free Dispositions — mass asset accounts. 1040ez free   The law provides a special rule to avoid the calculation of gain on the disposition of assets from mass asset accounts. 1040ez free 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. 1040ez free Examples of mass assets include minor items of office, plant, and store furniture and fixtures. 1040ez free   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. 1040ez free You leave the unadjusted basis of the property in the account until recovered in future years. 1040ez free If you did this, include the total proceeds realized from the disposition in income on the tax return for the year of disposition. 1040ez free Early dispositions — 15-year real property. 1040ez free   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. 1040ez free You use a full-month convention. 1040ez free 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. 1040ez free This applies whether you use the regular ACRS method or elected the alternate ACRS method. 1040ez free Example. 1040ez free You purchased and placed in service a rental house on March 2, 1984, for $98,000 (not including the cost of land). 1040ez free You file your return based on a calendar year. 1040ez free Your rate from Table 1 for the third month is 10%. 1040ez free Your ACRS deduction for 1984 was $9,800 ($98. 1040ez free 000 ÷ 10%). 1040ez free For 1985 through 1988, you figured your ACRS deductions using 11%, 9%, 8%, and 7% ÷ $98,000. 1040ez free For 1989 through 1992, you figured your ACRS deductions using 6% for each year. 1040ez free The deduction each year was $98,000 ÷ 6%. 1040ez free For 1993 and 1994, the ACRS deduction is ($98,000 ÷ 5%) $4,900 for each year. 1040ez free You sell the house on June 1, 1995. 1040ez free You figure your ACRS deduction for 1995 for the full year and then prorate that amount for the months of use. 1040ez free The full ACRS deduction for 1995 is $4,900 ($98,000 ÷ 5%). 1040ez free You then prorate this amount to the 5 months in 1995 during which it was rented. 1040ez free Your ACRS deduction for 1995 is $2,042 ($4,900 ÷ 5/12). 1040ez free Early dispositions — 18- and 19-year real property. 1040ez free   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. 1040ez free For 18-year property placed in service before June 23, 1984, use a full-month convention on a disposition. 1040ez free 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. 1040ez free Under the mid-month convention,treat real property disposed of any time during a month as disposed of in the middle of that month. 1040ez free Count the month of disposition as half a month of use. 1040ez free Example. 1040ez free You purchased and placed in service a rental house on July 2, 1984, for $100,000 (not including the cost of land). 1040ez free You file your return based on a calendar year. 1040ez free Your rate from Table 4 for the seventh month is 4%. 1040ez free You figured your ACRS deduction for 1984 was $4,000 ($100,000 ÷ 4%). 1040ez free In 1985 through 1994, your ACRS deductions were 9%, 8%, 8%, 7%, 6%, 6%, 5%, 5%, and 5% ÷ $100,000. 1040ez free You sell the house on September 24, 1995. 1040ez free Figure your ACRS deduction for 1995 for the months of use. 1040ez free The full ACRS deduction for 1995 is $5,000 ($100,000 ÷ 5%). 1040ez free Prorate this amount for the 8. 1040ez free 5 months in 1995 that you held the property. 1040ez free Under the mid-month convention, you count September as half a month. 1040ez free Your ACRS deduction for 1995 is $3,542 ($5,000 ÷ 8. 1040ez free 5/12). 1040ez free Depreciation Recapture If you dispose of property depreciated under ACRS that is section 1245 recovery property, you will generally recognize gain or loss. 1040ez free Gain recognized on a disposition is ordinary income to the extent of prior depreciation deductions taken. 1040ez free This recapture rule applies to all personal property in the 3-year, 5-year, and 10-year classes. 1040ez free You recapture gain on manufactured homes and theme park structures in the 10-year class as section 1245 property. 1040ez free Section 1245 property generally includes all personal property. 1040ez free See Section 1245 property in chapter 4 of Publication 544 for more information. 1040ez free You treat dispositions of section 1250 real property on which you have a gain as section 1245 recovery property. 1040ez free You recognize gain on this property as ordinary income to the extent of prior depreciation deductions taken. 1040ez free Section 1250 property includes most real property. 1040ez free See Section 1250 property in chapter 4 of Publication 544 for more information. 1040ez free 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. 1040ez free Any 15-, 18-, or 19-year real property that you elected to depreciate using the alternate ACRS method. 1040ez free Any 15-, 18-, or 19-year real property that is subsidized low-income housing. 1040ez free For these recapture rules, you treat the section 179 deduction and 50% of the investment credit that reduced your basis as depreciation. 1040ez free See Publication 544 for further discussion of dispositions of section 1245 and 1250 property. 1040ez free Prev  Up  Next   Home   More Online Publications