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2010 Electronic Tax Filing

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2010 Electronic Tax Filing

2010 electronic tax filing 4. 2010 electronic tax filing   Figuring Depreciation Under MACRS Table of Contents Introduction Useful Items - You may want to see: Which Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS?Rent-to-own dealer. 2010 electronic tax filing Rent-to-own contract. 2010 electronic tax filing What Is the Placed in Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies?Recovery Periods Under GDS Recovery Periods Under ADS Additions and Improvements Which Convention Applies? Which Depreciation Method Applies?Depreciation Methods for Farm Property Electing a Different Method How Is the Depreciation Deduction Figured?Using the MACRS Percentage Tables Figuring the Deduction Without Using the Tables Figuring the Deduction for Property Acquired in a Nontaxable Exchange Figuring the Deduction for a Short Tax Year How Do You Use General Asset Accounts?Grouping Property Figuring Depreciation for a GAA Disposing of GAA Property Terminating GAA Treatment Electing To Use a GAA When Do You Recapture MACRS Depreciation? Introduction The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. 2010 electronic tax filing MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). 2010 electronic tax filing Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. 2010 electronic tax filing To be sure you can use MACRS to figure depreciation for your property, see What Method Can You Use To Depreciate Your Property in chapter 1. 2010 electronic tax filing This chapter explains how to determine which MACRS depreciation system applies to your property. 2010 electronic tax filing It also discusses other information you need to know before you can figure depreciation under MACRS. 2010 electronic tax filing This information includes the property's recovery class, placed in service date, and basis, as well as the applicable recovery period, convention, and depreciation method. 2010 electronic tax filing It explains how to use this information to figure your depreciation deduction and how to use a general asset account to depreciate a group of properties. 2010 electronic tax filing Finally, it explains when and how to recapture MACRS depreciation. 2010 electronic tax filing Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 463 Travel, Entertainment, Gift, and Car  Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. 2010 electronic tax filing Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. 2010 electronic tax filing You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. 2010 electronic tax filing If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. 2010 electronic tax filing Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. 2010 electronic tax filing If you placed your property in service before 2013 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III. 2010 electronic tax filing Required use of ADS. 2010 electronic tax filing   You must use ADS for the following property. 2010 electronic tax filing Listed property used 50% or less in a qualified business use. 2010 electronic tax filing See chapter 5 for information on listed property. 2010 electronic tax filing Any tangible property used predominantly outside the United States during the year. 2010 electronic tax filing Any tax-exempt use property. 2010 electronic tax filing Any tax-exempt bond-financed property. 2010 electronic tax filing All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. 2010 electronic tax filing Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. 2010 electronic tax filing If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3) for the property. 2010 electronic tax filing Electing ADS. 2010 electronic tax filing   Although your property may qualify for GDS, you can elect to use ADS. 2010 electronic tax filing The election generally must cover all property in the same property class that you placed in service during the year. 2010 electronic tax filing However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. 2010 electronic tax filing Once you make this election, you can never revoke it. 2010 electronic tax filing   You make the election by completing line 20 in Part III of Form 4562. 2010 electronic tax filing Which Property Class Applies Under GDS? The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. 2010 electronic tax filing These property classes are also listed under column (a) in section B, Part III, of Form 4562. 2010 electronic tax filing For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. 2010 electronic tax filing 3-year property. 2010 electronic tax filing Tractor units for over-the-road use. 2010 electronic tax filing Any race horse over 2 years old when placed in service. 2010 electronic tax filing (All race horses placed in service after December 31, 2008, and before January 1, 2014, are deemed to be 3-year property, regardless of age. 2010 electronic tax filing ) Any other horse (other than a race horse) over 12 years old when placed in service. 2010 electronic tax filing Qualified rent-to-own property (defined later). 2010 electronic tax filing 5-year property. 2010 electronic tax filing Automobiles, taxis, buses, and trucks. 2010 electronic tax filing Computers and peripheral equipment. 2010 electronic tax filing Office machinery (such as typewriters, calculators, and copiers). 2010 electronic tax filing Any property used in research and experimentation. 2010 electronic tax filing Breeding cattle and dairy cattle. 2010 electronic tax filing Appliances, carpets, furniture, etc. 2010 electronic tax filing , used in a residential rental real estate activity. 2010 electronic tax filing Certain geothermal, solar, and wind energy property. 2010 electronic tax filing 7-year property. 2010 electronic tax filing Office furniture and fixtures (such as desks, files, and safes). 2010 electronic tax filing Agricultural machinery and equipment. 2010 electronic tax filing Any property that does not have a class life and has not been designated by law as being in any other class. 2010 electronic tax filing Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. 2010 electronic tax filing Any natural gas gathering line placed in service after April 11, 2005. 2010 electronic tax filing See Natural gas gathering line and electric transmission property , later. 2010 electronic tax filing 10-year property. 2010 electronic tax filing Vessels, barges, tugs, and similar water transportation equipment. 2010 electronic tax filing Any single purpose agricultural or horticultural structure. 2010 electronic tax filing Any tree or vine bearing fruits or nuts. 2010 electronic tax filing Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. 2010 electronic tax filing 15-year property. 2010 electronic tax filing Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). 2010 electronic tax filing Any retail motor fuels outlet (defined later), such as a convenience store. 2010 electronic tax filing Any municipal wastewater treatment plant. 2010 electronic tax filing Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. 2010 electronic tax filing Any qualified restaurant property (defined later) placed in service before January 1, 2014. 2010 electronic tax filing Initial clearing and grading land improvements for gas utility property. 2010 electronic tax filing Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005. 2010 electronic tax filing See Natural gas gathering line and electric transmission property , later. 2010 electronic tax filing Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. 2010 electronic tax filing Any qualified retail improvement property placed in service before January 1, 2014. 2010 electronic tax filing 20-year property. 2010 electronic tax filing Farm buildings (other than single purpose agricultural or horticultural structures). 2010 electronic tax filing Municipal sewers not classified as 25-year property. 2010 electronic tax filing Initial clearing and grading land improvements for electric utility transmission and distribution plants. 2010 electronic tax filing 25-year property. 2010 electronic tax filing This class is water utility property, which is either of the following. 2010 electronic tax filing Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property. 2010 electronic tax filing Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. 2010 electronic tax filing Residential rental property. 2010 electronic tax filing This is any building or structure, such as a rental home (including a mobile home), if 80% or more of its gross rental income for the tax year is from dwelling units. 2010 electronic tax filing A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. 2010 electronic tax filing It does not include a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis. 2010 electronic tax filing If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy. 2010 electronic tax filing Nonresidential real property. 2010 electronic tax filing This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27. 2010 electronic tax filing 5 years. 2010 electronic tax filing Qualified rent-to-own property. 2010 electronic tax filing   Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. 2010 electronic tax filing It is tangible personal property generally used in the home for personal use. 2010 electronic tax filing It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. 2010 electronic tax filing Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. 2010 electronic tax filing   If some of the property you rent to others under a rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you still can treat this property as qualified property as long as it does not represent a significant portion of your leasing property. 2010 electronic tax filing However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property. 2010 electronic tax filing Rent-to-own dealer. 2010 electronic tax filing   You are a rent-to-own dealer if you meet all the following requirements. 2010 electronic tax filing You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. 2010 electronic tax filing A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. 2010 electronic tax filing The property is tangible personal property of a type generally used within the home for personal use. 2010 electronic tax filing Rent-to-own contract. 2010 electronic tax filing   This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which— Is titled “Rent-to-Own Agreement,” “Lease Agreement with Ownership Option,” or other similar language. 2010 electronic tax filing Provides a beginning date and a maximum period of time, not to exceed 156 weeks or 36 months from the beginning date, for which the contract can be in effect (including renewals or options to extend). 2010 electronic tax filing Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. 2010 electronic tax filing If the payments are decreasing, no payment can be less than 40% of the largest payment. 2010 electronic tax filing Provides for total payments that generally exceed the normal retail price of the property plus interest. 2010 electronic tax filing Provides for total payments that do not exceed $10,000 for each item of property. 2010 electronic tax filing Provides that the customer has no legal obligation to make all payments outlined in the contract and that, at the end of each weekly or monthly payment period, the customer can either continue to use the property by making the next payment or return the property in good working order with no further obligations and no entitlement to a return of any prior payments. 2010 electronic tax filing Provides that legal title to the property remains with the rent-to-own dealer until the customer makes either all the required payments or the early purchase payments required under the contract to acquire legal title. 2010 electronic tax filing Provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, or otherwise dispose of the property until all contract payments have been made. 2010 electronic tax filing Motorsports entertainment complex. 2010 electronic tax filing   This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. 2010 electronic tax filing The events must be open to the public for the price of admission. 2010 electronic tax filing Qualified smart electric grid system. 2010 electronic tax filing   A qualified smart electric grid system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. 2010 electronic tax filing Smart grid property includes electronics and related equipment that is capable of: Sensing, collecting, and monitoring data of or from all portions of a utility's electric distribution grid, Providing real-time, two-way communications to monitor or to manage the grid, and Providing real-time analysis of an event prediction based on collected data that can be used to provide electric distribution system reliability, quality, and performance. 2010 electronic tax filing Retail motor fuels outlet. 2010 electronic tax filing   Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests. 2010 electronic tax filing It is not larger than 1,400 square feet. 2010 electronic tax filing 50% or more of the gross revenues generated from the property are derived from petroleum sales. 2010 electronic tax filing 50% or more of the floor space in the property is devoted to petroleum marketing sales. 2010 electronic tax filing A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. 2010 electronic tax filing Qualified leasehold improvement property. 2010 electronic tax filing    Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. 2010 electronic tax filing   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions. 2010 electronic tax filing A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or reacquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. 2010 electronic tax filing Examples include the following. 2010 electronic tax filing A complete liquidation of a subsidiary. 2010 electronic tax filing A transfer to a corporation controlled by the transferor. 2010 electronic tax filing An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. 2010 electronic tax filing Qualified restaurant property. 2010 electronic tax filing   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. 2010 electronic tax filing Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premises consumption of prepared meals. 2010 electronic tax filing Qualified smart electric meter. 2010 electronic tax filing   A qualified smart electric meter is any time-based meter and related communication equipment which is placed in service by a supplier of electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that: Measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day; Provides for the exchange of information between the supplier or provider and the customer's smart electric meter in support of time-based rates or other forms of demand response; Provides data to the supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and Provides all commercial and residential customers of such supplier or provider with net metering. 2010 electronic tax filing Net metering means allowing a customer a credit, if any, as complies with applicable federal and state laws and regulations for providing electricity to the supplier or provider. 2010 electronic tax filing Natural gas gathering line and electric transmission property. 2010 electronic tax filing   Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met. 2010 electronic tax filing The original use of the property must have begun with you after April 11, 2005. 2010 electronic tax filing Original use means the first use to which the property is put, whether or not by you. 2010 electronic tax filing Therefore, property used by any person before April 12, 2005, is not original use. 2010 electronic tax filing Original use includes additional capital expenditures you incurred to recondition or rebuild your property. 2010 electronic tax filing However, original use does not include the cost of reconditioned or rebuilt property you acquired. 2010 electronic tax filing Property containing used parts will not be treated as reconditioned or rebuilt if the cost of the used parts is not more than 20% of the total cost of the property. 2010 electronic tax filing The property must not be placed in service under a binding contract in effect before April 12, 2005. 2010 electronic tax filing The property must not be self-constructed property (property you manufacture, construct, or produce for your own use), if you began the manufacture, construction, or production of the property before April 12, 2005. 2010 electronic tax filing Property that is manufactured, constructed, or produced for your use by another person under a written binding contract entered into by you or a related party before the manufacture, construction, or production of the property is considered to be manufactured, constructed, or produced by you. 2010 electronic tax filing What Is the Placed in Service Date? You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. 2010 electronic tax filing The placed in service date for your property is the date the property is ready and available for a specific use. 2010 electronic tax filing It is therefore not necessarily the date it is first used. 2010 electronic tax filing If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. 2010 electronic tax filing See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. 2010 electronic tax filing What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. 2010 electronic tax filing For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . 2010 electronic tax filing Reduce that amount by any credits and deductions allocable to the property. 2010 electronic tax filing The following are examples of some credits and deductions that reduce basis. 2010 electronic tax filing Any deduction for section 179 property. 2010 electronic tax filing Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. 2010 electronic tax filing Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005, and before January 1, 2014. 2010 electronic tax filing Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005, and before January 1, 2014. 2010 electronic tax filing Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006, and before January 1, 2014 . 2010 electronic tax filing Any deduction for removal of barriers to the disabled and the elderly. 2010 electronic tax filing Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. 2010 electronic tax filing Any special depreciation allowance. 2010 electronic tax filing Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. 2010 electronic tax filing For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. 2010 electronic tax filing Enter the basis for depreciation under column (c) in Part III of Form 4562. 2010 electronic tax filing For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . 2010 electronic tax filing Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. 2010 electronic tax filing It is determined based on the depreciation system (GDS or ADS) used. 2010 electronic tax filing Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. 2010 electronic tax filing Property Class Recovery Period 3-year property   3 years 1   5-year property   5 years     7-year property   7 years     10-year property   10 years     15-year property   15 years 2   20-year property   20 years     25-year property   25 years 3   Residential rental property   27. 2010 electronic tax filing 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. 2010 electronic tax filing 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. 2010 electronic tax filing 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. 2010 electronic tax filing 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. 2010 electronic tax filing 431. 2010 electronic tax filing 5 years for property placed in service before May 13, 1993 (or before January 1, 1994, if the purchase or construction of the property is under a binding contract in effect before May 13, 1993, or if construction began before May 13, 1993). 2010 electronic tax filing The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. 2010 electronic tax filing Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. 2010 electronic tax filing Enter the appropriate recovery period on Form 4562 under column (d) in section B of Part III, unless already shown (for 25-year property, residential rental property, and nonresidential real property). 2010 electronic tax filing Office in the home. 2010 electronic tax filing   If your home is a personal-use single family residence and you begin to use part of your home as an office, depreciate that part of your home as nonresidential real property over 39 years (31. 2010 electronic tax filing 5 years if you began using it for business before May 13, 1993). 2010 electronic tax filing However, if your home is an apartment in an apartment building that you own and the building is residential rental property as defined earlier under Which Depreciation System (GDS or ADS) Applies , depreciate the part used as an office as residential rental property over 27. 2010 electronic tax filing 5 years. 2010 electronic tax filing See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. 2010 electronic tax filing Home changed to rental use. 2010 electronic tax filing   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. 2010 electronic tax filing 5 years. 2010 electronic tax filing Indian Reservation Property The recovery periods for qualified property you placed in service on an Indian reservation after 1993 and before 2014 are shorter than those listed earlier. 2010 electronic tax filing The following table shows these shorter recovery periods. 2010 electronic tax filing Property Class Recovery  Period 3-year property 2 years 5-year property 3 years 7-year property 4 years 10-year property 6 years 15-year property 9 years 20-year property 12 years Nonresidential real property 22 years Nonresidential real property is defined earlier under Which Property Class Applies Under GDS . 2010 electronic tax filing Use this chart to find the correct percentage table to use for qualified Indian reservation property. 2010 electronic tax filing IF your recovery period is: THEN use the following table in Appendix A: 2 years A-21 3 years A-1, A-2, A-3, A-4, or A-5 4 years A-22 6 years A-23 9 years A-14, A-15, A-16, A-17, or A-18 12 years A-14, A-15, A-16, A-17, or A-18 22 years A-24 Qualified property. 2010 electronic tax filing   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. 2010 electronic tax filing You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. 2010 electronic tax filing The rental of real property that is located on an Indian reservation is treated as the active conduct of a trade or business within an Indian reservation. 2010 electronic tax filing   The following property is not qualified property. 2010 electronic tax filing Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. 2010 electronic tax filing Property acquired directly or indirectly from a related person. 2010 electronic tax filing Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. 2010 electronic tax filing These activities are defined in section 4 of the Indian Regulatory Act (25 U. 2010 electronic tax filing S. 2010 electronic tax filing C. 2010 electronic tax filing 2703). 2010 electronic tax filing Any property you must depreciate under ADS. 2010 electronic tax filing Determine whether property is qualified without regard to the election to use ADS and after applying the special rules for listed property not used predominantly for qualified business use (discussed in chapter 5). 2010 electronic tax filing Qualified infrastructure property. 2010 electronic tax filing   Item (1) above does not apply to qualified infrastructure property located outside the reservation that is used to connect with qualified infrastructure property within the reservation. 2010 electronic tax filing Qualified infrastructure property is property that meets all the following rules. 2010 electronic tax filing It is qualified property, as defined earlier, except that it is outside the reservation. 2010 electronic tax filing It benefits the tribal infrastructure. 2010 electronic tax filing It is available to the general public. 2010 electronic tax filing It is placed in service in connection with the active conduct of a trade or business within a reservation. 2010 electronic tax filing Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. 2010 electronic tax filing Related person. 2010 electronic tax filing   For purposes of item (2) above, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 for a description of related persons. 2010 electronic tax filing Indian reservation. 2010 electronic tax filing   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. 2010 electronic tax filing S. 2010 electronic tax filing C. 2010 electronic tax filing 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. 2010 electronic tax filing S. 2010 electronic tax filing C. 2010 electronic tax filing 1903(10)). 2010 electronic tax filing Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. 2010 electronic tax filing For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. 2010 electronic tax filing Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. 2010 electronic tax filing The following table shows some of the ADS recovery periods. 2010 electronic tax filing Property Recovery  Period Rent-to-own property 4 years Automobiles and light duty trucks 5 years Computers and peripheral equipment 5 years High technology telephone station equipment installed on customer premises 5 years High technology medical equipment 5 years Personal property with no class life 12 years Natural gas gathering lines 14 years Single purpose agricultural and horticultural structures 15 years Any tree or vine bearing fruit or nuts 20 years Initial clearing and grading land  improvements for gas utility property 20 years Initial clearing and grading land  improvements for electric utility  transmission and distribution plants 25 years Electric transmission property used in the transmission at 69 or more kilovolts of electricity 30 years Natural gas distribution lines 35 years Any qualified leasehold improvement property 39 years Any qualified restaurant property 39 years Nonresidential real property 40 years Residential rental property 40 years Section 1245 real property not listed in Appendix B 40 years Railroad grading and tunnel bore 50 years The ADS recovery periods for property not listed above can be found in the tables in Appendix B. 2010 electronic tax filing Rent-to-own property, qualified leasehold improvement property, qualified restaurant property, residential rental property, and nonresidential real property are defined earlier under Which Property Class Applies Under GDS . 2010 electronic tax filing Tax-exempt use property subject to a lease. 2010 electronic tax filing   The ADS recovery period for any property leased under a lease agreement 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. 2010 electronic tax filing Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. 2010 electronic tax filing See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. 2010 electronic tax filing Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. 2010 electronic tax filing The recovery period begins on the later of the following dates. 2010 electronic tax filing The date you place the addition or improvement in service. 2010 electronic tax filing The date you place in service the property to which you made the addition or improvement. 2010 electronic tax filing If the improvement you make is qualified leasehold improvement property, qualified restaurant property, or qualified retail improvement property, the GDS recovery period is 15 years (39 years under ADS). 2010 electronic tax filing Example. 2010 electronic tax filing You own a rental home that you have been renting out since 1981. 2010 electronic tax filing If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. 2010 electronic tax filing Under GDS, the property class for the addition is residential rental property and its recovery period is 27. 2010 electronic tax filing 5 years because the home to which the addition is made would be residential rental property if you had placed it in service this year. 2010 electronic tax filing Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. 2010 electronic tax filing The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. 2010 electronic tax filing The mid-month convention. 2010 electronic tax filing   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. 2010 electronic tax filing   Under this convention, you treat all property placed in service or disposed of during a month as placed in service or disposed of at the midpoint of the month. 2010 electronic tax filing This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. 2010 electronic tax filing   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. 2010 electronic tax filing The mid-quarter convention. 2010 electronic tax filing   Use this convention if the mid-month convention does not apply and the total depreciable bases of MACRS property you placed in service during the last 3 months of the tax year (excluding nonresidential real property, residential rental property, any railroad grading or tunnel bore, property placed in service and disposed of in the same year, and property that is being depreciated under a method other than MACRS) are more than 40% of the total depreciable bases of all MACRS property you placed in service during the entire year. 2010 electronic tax filing   Under this convention, you treat all property placed in service or disposed of during any quarter of the tax year as placed in service or disposed of at the midpoint of that quarter. 2010 electronic tax filing This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. 2010 electronic tax filing   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. 2010 electronic tax filing    For purposes of determining whether the mid-quarter convention applies, the depreciable basis of property you placed in service during the tax year reflects the reduction in basis for amounts expensed under section 179 and the part of the basis of property attributable to personal use. 2010 electronic tax filing However, it does not reflect any reduction in basis for any special depreciation allowance. 2010 electronic tax filing The half-year convention. 2010 electronic tax filing   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. 2010 electronic tax filing   Under this convention, you treat all property placed in service or disposed of during a tax year as placed in service or disposed of at the midpoint of the year. 2010 electronic tax filing This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. 2010 electronic tax filing   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. 2010 electronic tax filing Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. 2010 electronic tax filing The 200% declining balance method over a GDS recovery period. 2010 electronic tax filing The 150% declining balance method over a GDS recovery period. 2010 electronic tax filing The straight line method over a GDS recovery period. 2010 electronic tax filing The straight line method over an ADS recovery period. 2010 electronic tax filing For property placed in service before 1999, you could have elected the 150% declining balance method using the ADS recovery periods for certain property classes. 2010 electronic tax filing If you made this election, continue to use the same method and recovery period for that property. 2010 electronic tax filing Table 4–1 lists the types of property you can depreciate under each method. 2010 electronic tax filing It also gives a brief explanation of the method, including any benefits that may apply. 2010 electronic tax filing Depreciation Methods for Farm Property If you place personal property in service in a farming business after 1988, you generally must depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under GDS or ADS using the straight line method. 2010 electronic tax filing You can depreciate real property using the straight line method under either GDS or ADS. 2010 electronic tax filing Fruit or nut trees and vines. 2010 electronic tax filing   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. 2010 electronic tax filing ADS required for some farmers. 2010 electronic tax filing   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. 2010 electronic tax filing You must use ADS for all property you place in service in any year the election is in effect. 2010 electronic tax filing See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. 2010 electronic tax filing Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. 2010 electronic tax filing You must make the election by the due date of the return (including extensions) for the year you placed the property in service. 2010 electronic tax filing However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2010 electronic tax filing Attach the election to the amended return and write “Filed pursuant to section 301. 2010 electronic tax filing 9100-2” on the election statement. 2010 electronic tax filing File the amended return at the same address you filed the original return. 2010 electronic tax filing Once you make the election, you cannot change it. 2010 electronic tax filing If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. 2010 electronic tax filing However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. 2010 electronic tax filing 150% election. 2010 electronic tax filing   Instead of using the 200% declining balance method over the GDS recovery period for nonfarm property in the 3-, 5-, 7-, and 10-year property classes, you can elect to use the 150% declining balance method. 2010 electronic tax filing Make the election by entering “150 DB” under column (f) in Part III of Form 4562. 2010 electronic tax filing Straight line election. 2010 electronic tax filing   Instead of using either the 200% or 150% declining balance methods over the GDS recovery period, you can elect to use the straight line method over the GDS recovery period. 2010 electronic tax filing Make the election by entering  “S/L” under column (f) in Part III of Form 4562. 2010 electronic tax filing Election of ADS. 2010 electronic tax filing   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. 2010 electronic tax filing ADS uses the straight line method of depreciation over fixed ADS recovery periods. 2010 electronic tax filing Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. 2010 electronic tax filing   Make the election by completing line 20 in Part III of Form 4562. 2010 electronic tax filing Farm property. 2010 electronic tax filing   Instead of using the 150% declining balance method over a GDS recovery period for property you use in a farming business (other than real property), you can elect to depreciate it using either of the following methods. 2010 electronic tax filing The straight line method over a GDS recovery period. 2010 electronic tax filing The straight line method over an ADS recovery period. 2010 electronic tax filing Table 4-1. 2010 electronic tax filing Depreciation Methods Note. 2010 electronic tax filing The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. 2010 electronic tax filing Method Type of Property Benefit GDS using 200% DB • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction GDS using 150% DB • All farm property (except real property) • All 15- and 20-year property (except qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service before January 1, 2014) • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction1 GDS using SL • Nonresidential real property • Qualified leasehold improvement property placed in service before January 1, 2014 • Qualified restaurant property placed in service before January 1, 2014 • Qualified retail improvement property placed in service before January 1, 2014 • Residential rental property • Trees or vines bearing fruit or nuts • Water utility property • All 3-, 5-, 7-, 10-, 15-, and 20-year property2 • Property for which you elected section 168(k)(4) • Provides for equal yearly deductions (except for the first and last years) ADS using SL • Listed property used 50% or less for business • Property used predominantly outside the U. 2010 electronic tax filing S. 2010 electronic tax filing  • Tax-exempt property • Tax-exempt bond-financed property • Farm property used when an election not to apply the uniform capitalization rules is in effect • Imported property3 • Any property for which you elect to use this method4 • Provides for equal yearly deductions (except for the first and last years) 1The MACRS percentage tables in Appendix A have the switch to the straight line method built into their rates 2See section 168(b)(5) of the Internal Revenue Code. 2010 electronic tax filing 3See section 168(g)(6) of the Internal Revenue Code 4See section 168(g)(7) of the Internal Revenue Code How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that applies to your property. 2010 electronic tax filing Then, you are ready to figure your depreciation deduction. 2010 electronic tax filing You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. 2010 electronic tax filing Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. 2010 electronic tax filing These percentage tables are in Appendix A near the end of this publication. 2010 electronic tax filing Which table to use. 2010 electronic tax filing    Appendix A contains the MACRS Percentage Table Guide, which is designed to help you locate the correct percentage table to use for depreciating your property. 2010 electronic tax filing The percentage tables immediately follow the guide. 2010 electronic tax filing Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. 2010 electronic tax filing You must apply the rates in the percentage tables to your property's unadjusted basis. 2010 electronic tax filing You cannot use the percentage tables for a short tax year. 2010 electronic tax filing See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. 2010 electronic tax filing Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the property. 2010 electronic tax filing You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to that property that is depreciated as a separate item of property. 2010 electronic tax filing Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss. 2010 electronic tax filing Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. 2010 electronic tax filing   If you increase the basis of your property because of the recapture of part or all of a deduction for clean-fuel vehicles or the credit for clean-fuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. 2010 electronic tax filing For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. 2010 electronic tax filing See Figuring the Deduction Without Using the Tables, later. 2010 electronic tax filing Basis adjustment due to casualty loss. 2010 electronic tax filing   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. 2010 electronic tax filing For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. 2010 electronic tax filing See Figuring the Deduction Without Using the Tables, later. 2010 electronic tax filing Example. 2010 electronic tax filing On October 26, 2012, Sandra Elm, a calendar year taxpayer, bought and placed in service in her business a new item of 7-year property. 2010 electronic tax filing It cost $39,000 and she elected a section 179 deduction of $24,000. 2010 electronic tax filing She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. 2010 electronic tax filing Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). 2010 electronic tax filing She figured her MACRS depreciation deduction using the percentage tables. 2010 electronic tax filing For 2012, her MACRS depreciation deduction was $268. 2010 electronic tax filing In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. 2010 electronic tax filing She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. 2010 electronic tax filing Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. 2010 electronic tax filing She figures that amount by subtracting the 2012 MACRS depreciation of $268 and the casualty loss of $3,000 from the unadjusted basis of $7,500. 2010 electronic tax filing She must now figure her depreciation for 2013 without using the percentage tables. 2010 electronic tax filing Figuring the Unadjusted Basis of Your Property You must apply the table rates to your property's unadjusted basis each year of the recovery period. 2010 electronic tax filing Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. 2010 electronic tax filing However, you do reduce your original basis by other amounts, including the following. 2010 electronic tax filing Any amortization taken on the property. 2010 electronic tax filing Any section 179 deduction claimed. 2010 electronic tax filing Any special depreciation allowance taken on the property. 2010 electronic tax filing For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. 2010 electronic tax filing If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments. 2010 electronic tax filing MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. 2010 electronic tax filing Use a separate worksheet for each item of property. 2010 electronic tax filing Then, use the information from this worksheet to prepare Form 4562. 2010 electronic tax filing Do not use this worksheet for automobiles. 2010 electronic tax filing Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. 2010 electronic tax filing MACRS Worksheet Part I   1. 2010 electronic tax filing MACRS system (GDS or ADS)   2. 2010 electronic tax filing Property class   3. 2010 electronic tax filing Date placed in service   4. 2010 electronic tax filing Recovery period   5. 2010 electronic tax filing Method and convention   6. 2010 electronic tax filing Depreciation rate (from tables)   Part II   7. 2010 electronic tax filing Cost or other basis* $     8. 2010 electronic tax filing Business/investment use   %   9. 2010 electronic tax filing Multiply line 7 by line 8   $ 10. 2010 electronic tax filing Total claimed for section 179 deduction and other items   $ 11. 2010 electronic tax filing Subtract line 10 from line 9. 2010 electronic tax filing This is your tentative basis for depreciation   $ 12. 2010 electronic tax filing Multiply line 11 by . 2010 electronic tax filing 50 if the 50% special depreciation allowance applies. 2010 electronic tax filing This is your special depreciation allowance. 2010 electronic tax filing Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   $ 13. 2010 electronic tax filing Subtract line 12 from line 11. 2010 electronic tax filing This is your basis for depreciation     14. 2010 electronic tax filing Depreciation rate (from line 6)     15. 2010 electronic tax filing Multiply line 13 by line 14. 2010 electronic tax filing This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. 2010 electronic tax filing The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. 2010 electronic tax filing Example. 2010 electronic tax filing You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. 2010 electronic tax filing You use the furniture only for business. 2010 electronic tax filing This is the only property you placed in service this year. 2010 electronic tax filing You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance so your property's unadjusted basis is its cost, $10,000. 2010 electronic tax filing You use GDS and the half-year convention to figure your depreciation. 2010 electronic tax filing You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. 2010 electronic tax filing Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. 2010 electronic tax filing You figure your depreciation deduction using the MACRS worksheet as follows. 2010 electronic tax filing MACRS Worksheet Part I 1. 2010 electronic tax filing MACRS system (GDS or ADS) GDS 2. 2010 electronic tax filing Property class 7-year 3. 2010 electronic tax filing Date placed in service 8/11/13 4. 2010 electronic tax filing Recovery period 7-Year 5. 2010 electronic tax filing Method and convention 200%DB/Half-Year 6. 2010 electronic tax filing Depreciation rate (from tables) . 2010 electronic tax filing 1429 Part II 7. 2010 electronic tax filing Cost or other basis* $10,000     8. 2010 electronic tax filing Business/investment use 100 %   9. 2010 electronic tax filing Multiply line 7 by line 8   $10,000 10. 2010 electronic tax filing Total claimed for section 179 deduction and other items   -0- 11. 2010 electronic tax filing Subtract line 10 from line 9. 2010 electronic tax filing This is your tentative basis for depreciation   $10,000 12. 2010 electronic tax filing Multiply line 11 by . 2010 electronic tax filing 50 if the 50% special depreciation allowance applies. 2010 electronic tax filing This is your special depreciation allowance. 2010 electronic tax filing Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   -0- 13. 2010 electronic tax filing Subtract line 12 from line 11. 2010 electronic tax filing This is your basis for depreciation   $10,000 14. 2010 electronic tax filing Depreciation rate (from line 6)   . 2010 electronic tax filing 1429 15. 2010 electronic tax filing Multiply line 13 by line 14. 2010 electronic tax filing This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. 2010 electronic tax filing If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows. 2010 electronic tax filing Year   Basis Percentage Deduction 2014 $ 10,000 24. 2010 electronic tax filing 49%   $2,449   2015   10,000 17. 2010 electronic tax filing 49   1,749   2016   10,000 12. 2010 electronic tax filing 49   1,249   2017   10,000 8. 2010 electronic tax filing 93   893   2018   10,000 8. 2010 electronic tax filing 92   892   2019   10,000 8. 2010 electronic tax filing 93   893   2020   10,000 4. 2010 electronic tax filing 46   446   Examples The following examples are provided to show you how to use the percentage tables. 2010 electronic tax filing In both examples, assume the following. 2010 electronic tax filing You use the property only for business. 2010 electronic tax filing You use the calendar year as your tax year. 2010 electronic tax filing You use GDS for all the properties. 2010 electronic tax filing Example 1. 2010 electronic tax filing You bought a building and land for $120,000 and placed it in service on March 8. 2010 electronic tax filing The sales contract showed that the building cost $100,000 and the land cost $20,000. 2010 electronic tax filing It is nonresidential real property. 2010 electronic tax filing The building's unadjusted basis is its original cost, $100,000. 2010 electronic tax filing You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. 2010 electronic tax filing March is the third month of your tax year, so multiply the building's unadjusted basis, $100,000, by the percentages for the third month in Table A-7a. 2010 electronic tax filing Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. 2010 electronic tax filing 033%   $2,033   2nd   100,000 2. 2010 electronic tax filing 564   2,564   3rd   100,000 2. 2010 electronic tax filing 564   2,564   Example 2. 2010 electronic tax filing During the year, you bought a machine (7-year property) for $4,000, office furniture (7-year property) for $1,000, and a computer (5-year property) for $5,000. 2010 electronic tax filing You placed the machine in service in January, the furniture in September, and the computer in October. 2010 electronic tax filing You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. 2010 electronic tax filing You placed property in service during the last 3 months of the year, so you must first determine if you have to use the mid-quarter convention. 2010 electronic tax filing The total bases of all property you placed in service during the year is $10,000. 2010 electronic tax filing The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. 2010 electronic tax filing Therefore, you must use the mid-quarter convention for all three items. 2010 electronic tax filing You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. 2010 electronic tax filing The machine is 7-year property placed in service in the first quarter, so you use Table A-2. 2010 electronic tax filing The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. 2010 electronic tax filing Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. 2010 electronic tax filing Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. 2010 electronic tax filing Year Property Basis Percentage Deduction 1st Machine $4,000 25. 2010 electronic tax filing 00 $1,000   2nd Machine 4,000 21. 2010 electronic tax filing 43 857   1st Furniture 1,000 10. 2010 electronic tax filing 71 107   2nd Furniture 1,000 25. 2010 electronic tax filing 51 255   1st Computer 5,000 5. 2010 electronic tax filing 00 250   2nd Computer 5,000 38. 2010 electronic tax filing 00 1,900   Sale or Other Disposition Before the Recovery Period Ends If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. 2010 electronic tax filing You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. 2010 electronic tax filing After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. 2010 electronic tax filing Half-year convention used. 2010 electronic tax filing   For property for which you used a half-year convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year. 2010 electronic tax filing Mid-quarter convention used. 2010 electronic tax filing   For property for which you used the mid-quarter convention, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter in which you disposed of the property. 2010 electronic tax filing Quarter Percentage First 12. 2010 electronic tax filing 5% Second 37. 2010 electronic tax filing 5 Third 62. 2010 electronic tax filing 5 Fourth 87. 2010 electronic tax filing 5 Example. 2010 electronic tax filing On December 2, 2010, you placed in service an item of 5-year property costing $10,000. 2010 electronic tax filing You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. 2010 electronic tax filing Your unadjusted basis for the property was $10,000. 2010 electronic tax filing You used the mid-quarter convention because this was the only item of business property you placed in service in 2010 and it was placed in service during the last 3 months of your tax year. 2010 electronic tax filing Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. 2010 electronic tax filing Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. 2010 electronic tax filing 80% of $10,000). 2010 electronic tax filing You disposed of the property on April 6, 2013. 2010 electronic tax filing To determine your depreciation deduction for 2013, first figure the deduction for the full year. 2010 electronic tax filing This is $1,368 (13. 2010 electronic tax filing 68% of $10,000). 2010 electronic tax filing April is in the second quarter of the year, so you multiply $1,368 by 37. 2010 electronic tax filing 5% to get your depreciation deduction of $513 for 2013. 2010 electronic tax filing Mid-month convention used. 2010 electronic tax filing   If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. 2010 electronic tax filing The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. 2010 electronic tax filing The denominator is 12. 2010 electronic tax filing Example. 2010 electronic tax filing On July 2, 2011, you purchased and placed in service residential rental property. 2010 electronic tax filing The property cost $100,000, not including the cost of land. 2010 electronic tax filing You used Table A-6 to figure your MACRS depreciation for this property. 2010 electronic tax filing You sold the property on March 2, 2013. 2010 electronic tax filing You file your tax return based on the calendar year. 2010 electronic tax filing A full year of depreciation for 2013 is $3,636. 2010 electronic tax filing This is $100,000 multiplied by . 2010 electronic tax filing 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . 2010 electronic tax filing You then apply the mid-month convention for the 2½ months of use in 2013. 2010 electronic tax filing Treat the month of disposition as one-half month of use. 2010 electronic tax filing Multiply $3,636 by the fraction, 2. 2010 electronic tax filing 5 over 12, to get your 2013 depreciation deduction of $757. 2010 electronic tax filing 50. 2010 electronic tax filing Figuring the Deduction Without Using the Tables Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. 2010 electronic tax filing Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. 2010 electronic tax filing Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. 2010 electronic tax filing Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. 2010 electronic tax filing You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. 2010 electronic tax filing The straight line method is explained later. 2010 electronic tax filing You figure depreciation for the year you place property in service as follows. 2010 electronic tax filing Multiply your adjusted basis in the property by the declining balance rate. 2010 electronic tax filing Apply the applicable convention. 2010 electronic tax filing You figure depreciation for all other years (before the year you switch to the straight line method) as follows. 2010 electronic tax filing Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. 2010 electronic tax filing Multiply this new adjusted basis by the same declining balance rate used in earlier years. 2010 electronic tax filing If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it. 2010 electronic tax filing Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. 2010 electronic tax filing Declining balance rate. 2010 electronic tax filing   You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. 2010 electronic tax filing For example, for 3-year property depreciated using the 200% declining balance method, divide 2. 2010 electronic tax filing 00 (200%) by 3 to get 0. 2010 electronic tax filing 6667, or a 66. 2010 electronic tax filing 67% declining balance rate. 2010 electronic tax filing For 15-year property depreciated using the 150% declining balance method, divide 1. 2010 electronic tax filing 50 (150%) by 15 to get 0. 2010 electronic tax filing 10, or a 10% declining balance rate. 2010 electronic tax filing   The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction. 2010 electronic tax filing Property Class Method Declining Balance Rate Year 3-year 200% DB 66. 2010 electronic tax filing 667% 3rd 5-year 200% DB 40. 2010 electronic tax filing 0 4th 7-year 200% DB 28. 2010 electronic tax filing 571 5th 10-year 200% DB 20. 2010 electronic tax filing 0 7th 15-year 150% DB 10. 2010 electronic tax filing 0 7th 20-year 150% DB 7. 2010 electronic tax filing 5 9th Straight Line Method When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. 2010 electronic tax filing You must use the applicable convention in the year you place the property in service and the year you dispose of the property. 2010 electronic tax filing You figure depreciation for the year you place property in service as follows. 2010 electronic tax filing Multiply your adjusted basis in the property by the straight line rate. 2010 electronic tax filing Apply the applicable convention. 2010 electronic tax filing You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. 2010 electronic tax filing Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). 2010 electronic tax filing Determine the depreciation rate for the year. 2010 electronic tax filing Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). 2010 electronic tax filing If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it. 2010 electronic tax filing Straight line rate. 2010 electronic tax filing   You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. 2010 electronic tax filing When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. 2010 electronic tax filing If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. 2010 electronic tax filing 0 (100%). 2010 electronic tax filing Using the Applicable Convention The applicable convention (discussed earlier under Which Convention Applies ) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. 2010 electronic tax filing It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. 2010 electronic tax filing See Straight line rate in the previous discussion. 2010 electronic tax filing Use the applicable convention as explained in the following discussions. 2010 electronic tax filing Half-year convention. 2010 electronic tax filing   If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. 2010 electronic tax filing You deduct a full year of depreciation for any other year during the recovery period. 2010 electronic tax filing   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. 2010 electronic tax filing If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. 2010 electronic tax filing If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property. 2010 electronic tax filing Mid-quarter convention. 2010 electronic tax filing   If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service. 2010 electronic tax filing   A quarter of a full 12-month tax year is a period of 3 months. 2010 electronic tax filing The first quarter in a year begins on the first day of the tax year. 2010 electronic tax filing The second quarter begins on the first day of the fourth month of the tax year. 2010 electronic tax filing The third quarter begins on the first day of the seventh month of the tax year. 2010 electronic tax filing The fourth quarter begins on the first day of the tenth month of the tax year. 2010 electronic tax filing A calendar year is divided into the following quarters. 2010 electronic tax filing Quarter Months First January, February, March Second April, May, June Third July, August, September Fourth October, November, December   Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service. 2010 electronic tax filing Quarter Percentage First 87. 2010 electronic tax filing 5% Second 62. 2010 electronic tax filing 5 Third 37. 2010 electronic tax filing 5 Fourth 12. 2010 electronic tax filing 5   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property. 2010 electronic tax filing Quarter Percentage First 12. 2010 electronic tax filing 5% Second 37. 2010 electronic tax filing 5 Third 62. 2010 electronic tax filing 5 Fourth 87. 2010 electronic tax filing 5   If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property. 2010 electronic tax filing Mid-month convention. 2010 electronic tax filing   If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. 2010 electronic tax filing Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. 2010 electronic tax filing The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. 2010 electronic tax filing 5). 2010 electronic tax filing The denominator is 12. 2010 electronic tax filing   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. 2010 electronic tax filing If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property. 2010 electronic tax filing Example. 2010 electronic tax filing You use the calendar year and place nonresidential real property in service in August. 2010 electronic tax filing The property is in service 4 full months (September, October, November, and December). 2010 electronic tax filing Your numerator is 4. 2010 electronic tax filing 5 (4 full months plus 0. 2010 electronic tax filing 5). 2010 electronic tax filing You multiply the depreciation for a full year by 4. 2010 electronic tax filing 5/12, or 0. 2010 electronic tax filing 375. 2010 electronic tax filing Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. 2010 electronic tax filing Figures are rounded for purposes of the examples. 2010 electronic tax filing Assume for all the examples that you use a calendar year as your tax year. 2010 electronic tax filing Example 1—200% DB method and half-year convention. 2010 electronic tax filing In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. 2010 electronic tax filing You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. 2010 electronic tax filing You use GDS and the 200% declining balance (DB) method to figure your depreciation. 2010 electronic tax filing When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. 2010 electronic tax filing You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. 2010 electronic tax filing First year. 2010 electronic tax filing You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). 2010 electronic tax filing The result is 40%. 2010 electronic tax filing You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. 2010 electronic tax filing You apply the half-year convention by dividing the result ($400) by 2. 2010 electronic tax filing Depreciation for the first year under the 200% DB method is $200. 2010 electronic tax filing You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. 2010 electronic tax filing The result is 20%. 2010 electronic tax filing You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. 2010 electronic tax filing You apply the half-year convention by dividing the result ($200) by 2. 2010 electronic tax filing Depreciation for the first year under the SL method is $100. 2010 electronic tax filing The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. 2010 electronic tax filing Second year. 2010 electronic tax filing You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). 2010 electronic tax filing You multiply the result ($800) by the DB rate (40%). 2010 electronic tax filing Depreciation for the second year under the 200% DB method is $320. 2010 electronic tax filing You figure the SL depreciation rate by dividing 1 by 4. 2010 electronic tax filing 5, the number of years remaining in the recovery period. 2010 electronic tax filing (Based on the half-year convention, you used only half a year of the recovery period in the first year. 2010 electronic tax filing ) You multiply the reduced adjusted basis ($800) by the result (22. 2010 electronic tax filing 22%). 2010 electronic tax filing Depreciation under the SL method for the second year is $178. 2010 electronic tax filing The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. 2010 electronic tax filing Third year. 2010 electronic tax filing You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). 2010 electronic tax filing You multiply the result ($480) by the DB rate (40%). 2010 electronic tax filing Depreciation for the third year under the 200% DB method is $192. 2010 electronic tax filing You figure the SL depreciation rate by dividing 1 by 3. 2010 electronic tax filing 5. 2010 electronic tax filing You multiply the reduced adjusted basis ($480) by the result (28. 2010 electronic tax filing 57%). 2010 electronic tax filing Depreciation under the SL method for the third year is $137. 2010 electronic tax filing The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. 2010 electronic tax filing Fourth year. 2010 electronic tax filing You reduce the adjusted basis ($480) by the de
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The 2010 Electronic Tax Filing

2010 electronic tax filing 6. 2010 electronic tax filing   Retail Tax on Heavy Trucks, Trailers, and Tractors Table of Contents Highway vehicle. 2010 electronic tax filing Vehicles not considered highway vehicles. 2010 electronic tax filing Idling reduction device. 2010 electronic tax filing Separate purchase. 2010 electronic tax filing Leases. 2010 electronic tax filing Exported vehicle. 2010 electronic tax filing Tax on resale of tax-paid trailers and semitrailers. 2010 electronic tax filing Use treated as sale. 2010 electronic tax filing Sale. 2010 electronic tax filing Long-term lease. 2010 electronic tax filing Short-term lease. 2010 electronic tax filing Related person. 2010 electronic tax filing Exclusions from tax base. 2010 electronic tax filing Sales not at arm's length. 2010 electronic tax filing Installment sales. 2010 electronic tax filing Repairs and modifications. 2010 electronic tax filing Further manufacture. 2010 electronic tax filing Rail trailers and rail vans. 2010 electronic tax filing Parts and accessories. 2010 electronic tax filing Trash containers. 2010 electronic tax filing House trailers. 2010 electronic tax filing Camper coaches or bodies for self-propelled mobile homes. 2010 electronic tax filing Farm feed, seed, and fertilizer equipment. 2010 electronic tax filing Ambulances and hearses. 2010 electronic tax filing Truck-tractors. 2010 electronic tax filing Concrete mixers. 2010 electronic tax filing Registration requirement. 2010 electronic tax filing Further manufacture. 2010 electronic tax filing A tax of 12% of the sales price is imposed on the first retail sale of the following articles, including related parts and accessories sold on or in connection with, or with the sale of, the articles. 2010 electronic tax filing Truck chassis and bodies. 2010 electronic tax filing Truck trailer and semitrailer chassis and bodies. 2010 electronic tax filing Tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. 2010 electronic tax filing A truck is a highway vehicle primarily designed to transport its load on the same chassis as the engine, even if it is equipped to tow a vehicle, such as a trailer or semitrailer. 2010 electronic tax filing A tractor is a highway vehicle designed to tow a vehicle, such as a trailer or semitrailer. 2010 electronic tax filing A tractor may carry incidental items of cargo when towing or limited amounts of cargo when not towing. 2010 electronic tax filing A sale of a truck, truck trailer, or semitrailer is considered a sale of a chassis and a body. 2010 electronic tax filing The seller is liable for the tax. 2010 electronic tax filing Chassis or body. 2010 electronic tax filing   A chassis or body is taxable only if you sell it for use as a component part of a highway vehicle that is a truck, truck trailer or semitrailer, or a tractor of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. 2010 electronic tax filing Highway vehicle. 2010 electronic tax filing   A highway vehicle is any self-propelled vehicle designed to carry a load over public highways, whether or not it is also designed to perform other functions. 2010 electronic tax filing Examples of vehicles designed to carry a load over public highways are passenger automobiles, motorcycles, buses, and highway-type trucks and truck tractors. 2010 electronic tax filing A vehicle is a highway vehicle even though the vehicle's design allows it to perform a highway transportation function for only one of the following. 2010 electronic tax filing A particular type of load, such as passengers, furnishings, and personal effects (as in a house, office, or utility trailer). 2010 electronic tax filing A special kind of cargo, goods, supplies, or materials. 2010 electronic tax filing Some off-highway task unrelated to highway transportation, except as discussed next. 2010 electronic tax filing Vehicles not considered highway vehicles. 2010 electronic tax filing   Generally, the following kinds of vehicles are not considered highway vehicles for purposes of the retail tax. 2010 electronic tax filing Specially designed mobile machinery for nontransportation functions. 2010 electronic tax filing A self-propelled vehicle is not a highway vehicle if all the following apply. 2010 electronic tax filing The chassis has permanently mounted to it machinery or equipment used to perform certain operations (construction, manufacturing, drilling, mining, timbering, processing, farming, or similar operations) if the operation of the machinery or equipment is unrelated to transportation on or off the public highways. 2010 electronic tax filing The chassis has been specially designed to serve only as a mobile carriage and mount (and power source, if applicable) for the machinery or equipment, whether or not the machinery or equipment is in operation. 2010 electronic tax filing The chassis could not, because of its special design and without substantial structural modification, be used as part of a vehicle designed to carry any other load. 2010 electronic tax filing Vehicles specially designed for off-highway transportation. 2010 electronic tax filing A vehicle is not treated as a highway vehicle if the vehicle is specially designed for the primary function of transporting a particular type of load other than over the public highway and because of this special design, the vehicles's capability to transport a load over a public highway is substantially limited or impaired. 2010 electronic tax filing To make this determination, you can take into account the vehicle's size, whether the vehicle is subject to licensing, safety, or other requirements, and whether the vehicle can transport a load at a sustained speed of at least 25 miles per hour. 2010 electronic tax filing It does not matter that the vehicle can carry heavier loads off highway than it is allowed to carry over the highway. 2010 electronic tax filing Nontransportation trailers and semitrailers. 2010 electronic tax filing A trailer or semitrailer is not treated as a highway vehicle if it is specially designed to function only as an enclosed stationary shelter for carrying on a nontransportation function at an off-highway site. 2010 electronic tax filing For example, a trailer that is capable only of functioning as an office for an off-highway construction operation is not a highway vehicle. 2010 electronic tax filing Gross vehicle weight. 2010 electronic tax filing   The tax does not apply to truck chassis and bodies suitable for use with a vehicle that has a gross vehicle weight (defined below) of 33,000 pounds or less. 2010 electronic tax filing It also does not apply to truck trailer and semitrailer chassis and bodies suitable for use with a trailer or semitrailer that has a gross vehicle weight of 26,000 pounds or less. 2010 electronic tax filing Tractors that have a gross vehicle weight of 19,500 pounds or less and a gross combined weight of 33,000 pounds or less are excluded from the 12% retail tax. 2010 electronic tax filing   The following four classifications of truck body types meet the suitable for use standard and will be excluded from the retail excise tax. 2010 electronic tax filing Platform truck bodies 21 feet or less in length. 2010 electronic tax filing Dry freight and refrigerated truck van bodies 24 feet or less in length. 2010 electronic tax filing Dump truck bodies with load capacities of 8 cubic yards or less. 2010 electronic tax filing Refuse packer truck bodies with load capacities of 20 cubic yards or less. 2010 electronic tax filing For more information on these classifications, see Revenue Procedure 2005-19, which is on page 832 of I. 2010 electronic tax filing R. 2010 electronic tax filing B. 2010 electronic tax filing 2005-14 at www. 2010 electronic tax filing irs. 2010 electronic tax filing gov/pub/irs-irbs/irb05-14. 2010 electronic tax filing pdf. 2010 electronic tax filing   The gross vehicle weight means the maximum total weight of a loaded vehicle. 2010 electronic tax filing Generally, this maximum total weight is the gross vehicle weight rating provided by the manufacturer or determined by the seller of the completed article. 2010 electronic tax filing The seller's gross vehicle weight rating is determined solely on the basis of the strength of the chassis frame and the axle capacity and placement. 2010 electronic tax filing The seller may not take into account any readily attachable components (such as tires or rim assemblies) in determining the gross vehicle weight. 2010 electronic tax filing See Regulations section 145. 2010 electronic tax filing 4051-1(e)(3) for more information. 2010 electronic tax filing Parts or accessories. 2010 electronic tax filing   The tax applies to parts or accessories sold on or in connection with, or with the sale of, a taxable article. 2010 electronic tax filing For example, if at the time of the sale by the retailer, the part or accessory has been ordered from the retailer, the part or accessory will be considered as sold in connection with the sale of the vehicle. 2010 electronic tax filing The tax applies in this case whether or not the retailer bills the parts or accessories separately. 2010 electronic tax filing   If the retailer sells a taxable chassis, body, or tractor without parts or accessories considered essential for the operation or appearance of the taxable article, the sale of the parts or accessories by the retailer to the purchaser is considered made in connection with the sale of the taxable article even though they are shipped separately, at the same time, or on a different date. 2010 electronic tax filing The tax applies unless there is evidence to the contrary. 2010 electronic tax filing For example, if a retailer sells to any person a chassis and the bumpers for the chassis, or sells a taxable tractor and the fifth wheel and attachments, the tax applies to the parts or accessories regardless of the method of billing or the time at which the shipments were made. 2010 electronic tax filing The tax does not apply to parts and accessories that are spares or replacements. 2010 electronic tax filing   The tax imposed on parts and accessories sold on or in connection with the taxable articles listed earlier and the tax imposed on the separate purchase of parts and accessories (discussed next) for the taxable articles listed earlier do not apply to an idling reduction device or insulation that has an R value of at least R35 per inch. 2010 electronic tax filing Idling reduction device. 2010 electronic tax filing   An idling reduction device is any device or system of devices that provide the tractor with services, such as heat, air conditioning, and electricity, without the use of the main drive engine while the tractor is temporarily parked or stationary. 2010 electronic tax filing The device must be affixed to the tractor and determined by the Administrator of the EPA, in consultation with the Secretary of Energy and Secretary of Transportation, to reduce idling while parked or stationary. 2010 electronic tax filing The EPA discusses idling reduction technologies on its website at www. 2010 electronic tax filing epa. 2010 electronic tax filing gov/smartway/technology/idling. 2010 electronic tax filing htm. 2010 electronic tax filing Separate purchase. 2010 electronic tax filing   The tax generally applies to the price of a part or accessory and its installation if the following conditions are met. 2010 electronic tax filing The owner, lessee, or operator of any vehicle that contains a taxable article installs any part or accessory on the vehicle. 2010 electronic tax filing The installation occurs within 6 months after the vehicle is first placed in service. 2010 electronic tax filing   The owners of the trade or business installing the parts or accessories are secondarily liable for the tax. 2010 electronic tax filing   A vehicle is placed in service on the date the owner takes actual possession of the vehicle. 2010 electronic tax filing This date is established by a signed delivery ticket or other comparable document indicating delivery to and acceptance by the owner. 2010 electronic tax filing   The tax does not apply if the installed part or accessory is a replacement part or accessory. 2010 electronic tax filing The tax also does not apply if the total price of the parts and accessories, including installation charges, during the 6-month period is $1,000 or less. 2010 electronic tax filing However, if the total price is more than $1,000, the tax applies to the cost of all parts and accessories (and installation charges) during that period. 2010 electronic tax filing Example. 2010 electronic tax filing You bought a taxable vehicle and placed it in service on April 8. 2010 electronic tax filing On May 3, you bought and installed parts and accessories at a cost of $850. 2010 electronic tax filing On July 15, you bought and installed parts and accessories for $300. 2010 electronic tax filing Tax of $138 (12% of $1,150) applies on July 15. 2010 electronic tax filing Also, tax will apply to any costs of additional parts and accessories installed on the vehicle before October 8. 2010 electronic tax filing First retail sale defined. 2010 electronic tax filing   The sale of an article is treated as the first retail sale, and the seller will be liable for the tax imposed on the sale unless one of the following exceptions applies. 2010 electronic tax filing There has been a prior taxable sale, lease, or use of the article (however, see Tax on resale of tax-paid trailers and semitrailers, later). 2010 electronic tax filing The sale qualifies as a tax-free sale under section 4221 (see Sales exempt from tax, later). 2010 electronic tax filing The seller in good faith accepts from the purchaser a statement signed under penalties of perjury and executed in good faith that the purchaser intends to resell the article or lease it on a long-term basis. 2010 electronic tax filing There is no registration requirement. 2010 electronic tax filing Leases. 2010 electronic tax filing   A long-term lease (a lease with a term of 1 year or more, taking into account options to renew) before a first retail sale is treated as a taxable sale. 2010 electronic tax filing The tax is imposed on the lessor at the time of the lease. 2010 electronic tax filing   A short-term lease (a lease with a term of less than 1 year, taking into account options to renew) before a first retail sale is treated as a taxable use. 2010 electronic tax filing The tax is imposed on the lessor at the time of the lease. 2010 electronic tax filing Exported vehicle. 2010 electronic tax filing   A vehicle exported before its first retail sale, used in a foreign country, and then returned to the United States is subject to the retail tax on its first domestic use or retail sale after importation. 2010 electronic tax filing Tax on resale of tax-paid trailers and semitrailers. 2010 electronic tax filing   The tax applies to a trailer or semitrailer resold within 6 months after having been sold in a taxable sale. 2010 electronic tax filing The seller liable for the tax on the resale can claim a credit equal to the tax paid on the prior taxable sale. 2010 electronic tax filing The credit cannot exceed the tax on the resale. 2010 electronic tax filing See Regulations section 145. 2010 electronic tax filing 4052-1(a)(4) for information on the conditions to allowance for the credit. 2010 electronic tax filing Use treated as sale. 2010 electronic tax filing   If any person uses a taxable article before the first retail sale of the article, that person is liable for the tax as if the article had been sold at retail by that person. 2010 electronic tax filing Figure the tax on the price at which similar articles are sold in the ordinary course of trade by retailers. 2010 electronic tax filing The tax attaches when the use begins. 2010 electronic tax filing   If the seller of an article regularly sells the articles at retail in arm's-length transactions, figure the tax on its use on the lowest established retail price for the articles in effect at the time of the taxable use. 2010 electronic tax filing   If the seller of an article does not regularly sell the articles at retail in arm's-length transactions, a constructive price on which the tax is figured will be determined by the IRS after considering the selling practices and price structures of sellers of similar articles. 2010 electronic tax filing   If a seller of an article incurs liability for tax on the use of the article and later sells or leases the article in a transaction that otherwise would be taxable, liability for tax is not incurred on the later sale or lease. 2010 electronic tax filing Presumptive retail sales price. 2010 electronic tax filing   There are rules to ensure that the tax base of transactions considered to be taxable sales includes either an actual or presumed markup percentage. 2010 electronic tax filing If the person liable for tax is the vehicle's manufacturer, producer, or importer, the following discussions show how you figure the presumptive retail sales price depending on the type of transaction and the persons involved in the transaction. 2010 electronic tax filing Table 6-1 outlines the appropriate tax base calculation for various transactions. 2010 electronic tax filing   The presumed markup percentage to be used for trucks and truck-tractors is 4%. 2010 electronic tax filing But for truck trailers and semitrailers and remanufactured trucks and tractors, the presumed markup percentage is zero. 2010 electronic tax filing Sale. 2010 electronic tax filing   For a taxable sale by a manufacturer, producer, importer, or related person, you generally figure the tax on a tax base of the sales price plus an amount equal to the presumed markup percentage times that sales price. 2010 electronic tax filing Long-term lease. 2010 electronic tax filing   In the case of a long-term lease by a manufacturer, producer, importer, or related person, figure the tax on a tax base of the constructive sales price plus an amount equal to the presumed markup percentage times the constructive sales price. 2010 electronic tax filing Short-term lease. 2010 electronic tax filing   When a manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a constructive sales price at which those or similar articles generally are sold in the ordinary course of trade by retailers. 2010 electronic tax filing   But if the lessor in this situation regularly sells articles at retail in arm's-length transactions, figure the tax on the lowest established retail price in effect at the time of the taxable use. 2010 electronic tax filing   If a person other than the manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a tax base of the price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor and a presumed markup percentage. 2010 electronic tax filing Related person. 2010 electronic tax filing   A related person is any member of the same controlled group as the manufacturer, producer, or importer. 2010 electronic tax filing Do not treat as a related person a person that sells the articles through a permanent retail establishment in the normal course of being a retailer if that person has records to prove the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. 2010 electronic tax filing Table 6-1. 2010 electronic tax filing Tax Base IF the transaction is a. 2010 electronic tax filing . 2010 electronic tax filing . 2010 electronic tax filing THEN figuring the base by using the. 2010 electronic tax filing . 2010 electronic tax filing . 2010 electronic tax filing Sale by the manufacturer, producer, importer, or related person Sales price plus (presumed markup percentage × sales price) Sale by the dealer Total consideration paid for the item including any charges incident to placing it in a condition ready for use Long-term lease by the manufacturer, producer, importer, or related person Constructive sales price plus (presumed markup percentage × constructive sales price) Short-term lease by the manufacturer, producer, importer, or related person Constructive sales price at which such or similar articles are sold Short-term lease by a lessor other than the manufacturer, producer, importer, or related person Price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor plus a presumed markup percentage Short-term lease where the articles are regularly sold at arm's length Lowest established retail price in effect at the time of the taxable use General rule for sales by dealers to the consumer. 2010 electronic tax filing   For a taxable sale, other than a long-term lease, by a person other than a manufacturer, producer, importer, or related person, your tax base is the retail sales price as discussed next under Determination of tax base. 2010 electronic tax filing   When you sell an article to the consumer, generally you do not add a presumed markup to the tax base. 2010 electronic tax filing However, you do add a markup if all the following apply. 2010 electronic tax filing You do not perform any significant activities relating to the processing of the sale of a taxable article. 2010 electronic tax filing The main reason for processing the sale through you is to avoid or evade the presumed markup. 2010 electronic tax filing You do not have records proving that the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. 2010 electronic tax filing In these situations, your tax base is the sales price plus an amount equal to the presumed markup percentage times that selling price. 2010 electronic tax filing Determination of tax base. 2010 electronic tax filing   These rules apply to both normal retail sales price and presumptive retail sales price computations. 2010 electronic tax filing To arrive at the tax base, the price is the total consideration paid (including trade-in allowance) for the item and includes any charge incident to placing the article in a condition ready for use. 2010 electronic tax filing However, see Presumptive retail sales price, earlier. 2010 electronic tax filing Exclusions from tax base. 2010 electronic tax filing   Exclude from the tax base the retail excise tax imposed on the sale. 2010 electronic tax filing Exclude any state or local retail sales tax if stated as a separate charge from the price whether the sales tax is imposed on the seller or purchaser. 2010 electronic tax filing Also exclude the value of any used component of the article furnished by the first user of the article. 2010 electronic tax filing   Exclude charges for transportation, delivery, insurance, and installation (other than installation charges for parts and accessories, discussed earlier) and other expenses incurred in connection with the delivery of an article to a purchaser. 2010 electronic tax filing These expenses are those incurred in delivery from the retail dealer to the customer. 2010 electronic tax filing In the case of delivery directly from the manufacturer to the dealer's customer, include the transportation and delivery charges to the extent the charges do not exceed what it would have cost to ship the article to the dealer. 2010 electronic tax filing   Exclude amounts charged for machinery or equipment that does not contribute to the highway transportation function of the vehicle, provided those charges are supported by adequate records. 2010 electronic tax filing For example, for an industrial vacuum loader vehicle, exclude amounts charged for the vacuum pump and hose, filter system, material separator, silencer or muffler, control cabinet, and ladder. 2010 electronic tax filing Similarly, for a sewer cleaning vehicle, exclude amounts charged for the high pressure water pump, hose components, and the vacuum pipe. 2010 electronic tax filing Sales not at arm's length. 2010 electronic tax filing   For any taxable article sold (not at arm's length) at less than the fair market price, figure the excise tax on the price for which similar articles are sold at retail in the ordinary course of trade. 2010 electronic tax filing   A sale is not at arm's length if either of the following apply. 2010 electronic tax filing One of the parties is controlled (in law or in fact) by the other or there is common control, whether or not the control is actually exercised to influence the sales price. 2010 electronic tax filing The sale is made under special arrangements between a seller and a purchaser. 2010 electronic tax filing Installment sales. 2010 electronic tax filing   If the first retail sale is an installment sale, or other form of sale in which the sales price is paid in installments, tax liability arises at the time of the sale. 2010 electronic tax filing The tax is figured on the entire sales price. 2010 electronic tax filing No part of the tax is deferred because the sales price is paid in installments. 2010 electronic tax filing Repairs and modifications. 2010 electronic tax filing   The tax does not apply to the sale or use of an article that has been repaired or modified unless the cost of the repairs and modifications is more than 75% of the retail price of a comparable new article. 2010 electronic tax filing This includes modifications that change the transportation function of an article or restore a wrecked article to a functional condition. 2010 electronic tax filing However, this exception generally does not apply to an article that was not subject to the tax when it was new. 2010 electronic tax filing Further manufacture. 2010 electronic tax filing   The tax does not apply to the use by a person of a taxable article as material in the manufacture or production of, or as a component part of, another article to be manufactured or produced by that person. 2010 electronic tax filing Do not treat a person as engaged in the manufacture of any article merely because that person combines the article with a: Coupling device (including any fifth wheel); Wrecker crane; Loading and unloading equipment (including any crane, hoist, winch, or power liftgate); Aerial ladder or tower; Ice and snow control equipment; Earth moving, excavation, and construction equipment; Spreader; Sleeper cab; Cab shield; or Wood or metal floor. 2010 electronic tax filing Combining an article with an item in this list does not give rise to taxability. 2010 electronic tax filing However, see Parts or accessories discussed earlier. 2010 electronic tax filing Articles exempt from tax. 2010 electronic tax filing   The tax on heavy trucks, trailers, and tractors does not apply to sales of the articles described in the following discussions. 2010 electronic tax filing Rail trailers and rail vans. 2010 electronic tax filing   This is any chassis or body of a trailer or semitrailer designed for use both as a highway vehicle and a railroad car (including any parts and accessories designed primarily for use on and in connection with it). 2010 electronic tax filing Do not treat a piggyback trailer or semitrailer as designed for use as a railroad car. 2010 electronic tax filing Parts and accessories. 2010 electronic tax filing   This is any part or accessory sold separately from the truck or trailer, except as described earlier under Parts or accessories and Separate purchase. 2010 electronic tax filing Trash containers. 2010 electronic tax filing   This is any box, container, receptacle, bin, or similar article that meets all the following conditions. 2010 electronic tax filing It is designed to be used as a trash container. 2010 electronic tax filing It is not designed to carry freight other than trash. 2010 electronic tax filing It is not designed to be permanently mounted on or affixed to a truck chassis or body. 2010 electronic tax filing House trailers. 2010 electronic tax filing   This is any house trailer (regardless of size) suitable for use in connection with either passenger automobiles or trucks. 2010 electronic tax filing Camper coaches or bodies for self-propelled mobile homes. 2010 electronic tax filing   This is any article designed to be mounted or placed on trucks, truck chassis, or automobile chassis and to be used primarily as living quarters or camping accommodations. 2010 electronic tax filing Further, the tax does not apply to chassis specifically designed and constructed to accommodate and transport self-propelled mobile home bodies. 2010 electronic tax filing Farm feed, seed, and fertilizer equipment. 2010 electronic tax filing   This is any body primarily designed to process or prepare, haul, spread, load, or unload feed, seed, or fertilizer to or on farms. 2010 electronic tax filing This exemption applies only to the farm equipment body (and parts and accessories) and not to the chassis upon which the farm equipment is mounted. 2010 electronic tax filing Ambulances and hearses. 2010 electronic tax filing   This is any ambulance, hearse, or combination ambulance-hearse. 2010 electronic tax filing Truck-tractors. 2010 electronic tax filing   This is any truck-tractor specifically designed for use in shifting semitrailers in and around freight yards and freight terminals. 2010 electronic tax filing Concrete mixers. 2010 electronic tax filing   This is any article designed to be placed or mounted on a truck, truck trailer, or semitrailer chassis to be used to process or prepare concrete. 2010 electronic tax filing This exemption does not apply to the chassis on which the article is mounted. 2010 electronic tax filing Sales exempt from tax. 2010 electronic tax filing   The following sales are ordinarily exempt from tax. 2010 electronic tax filing Sales to a state or local government for its exclusive use. 2010 electronic tax filing Sales to Indian tribal governments, but only if the transaction involves the exercise of an essential tribal government function. 2010 electronic tax filing Sales to a nonprofit educational organization for its exclusive use. 2010 electronic tax filing Sales to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. 2010 electronic tax filing Sales for use by the purchaser for further manufacture of other taxable articles (see below). 2010 electronic tax filing Sales for export or for resale by the purchaser to a second purchaser for export. 2010 electronic tax filing Sales to the United Nations for official use. 2010 electronic tax filing Registration requirement. 2010 electronic tax filing   In general, the seller and buyer must be registered for a sale to be tax free. 2010 electronic tax filing See the Form 637 instructions for more information. 2010 electronic tax filing Certain registration exceptions apply in the case of sales to state and local governments, sales to foreign purchasers for export, and sales for resale or long term leasing. 2010 electronic tax filing Further manufacture. 2010 electronic tax filing   If you buy articles tax free and resell or use them other than in the manufacture of another article, you are liable for the tax on their resale or use just as if you had manufactured and made the first retail sale of them. 2010 electronic tax filing Credits or refunds. 2010 electronic tax filing   A credit or refund (without interest) of the retail tax on the taxable articles described earlier may be allowable if the tax has been paid with respect to an article and, before any other use, such article is used by any person as a component part of another taxable article manufactured or produced. 2010 electronic tax filing The person using the article as a component part is eligible for the credit or refund. 2010 electronic tax filing   A credit or refund is allowable if, before any other use, an article is, by any person: Exported, Used or sold for use as supplies for vessels, Sold to a state or local government for its exclusive use, Sold to a nonprofit educational organization for its exclusive use, or Sold to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. 2010 electronic tax filing A credit or refund is also allowable if there is a price readjustment by reason of the return or repossession of an article or by reason of a bona fide discount, rebate, or allowance. 2010 electronic tax filing   See also Conditions to allowance in chapter 5. 2010 electronic tax filing Tire credit. 2010 electronic tax filing   A credit is allowed against the retail tax on the taxable articles described earlier if taxable tires are sold on or in connection with the sale of the article. 2010 electronic tax filing The credit is equal to the manufacturers excise tax imposed on the taxable tires (discussed earlier). 2010 electronic tax filing This is the section 4051(d) taxable tire credit and is claimed on Schedule C (Form 720) for the same quarter for which the tax on the heavy vehicle is reported. 2010 electronic tax filing Prev  Up  Next   Home   More Online Publications