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

E-file state return for free Publication 534 - Introductory Material Table of Contents Important Change for 1995 Introduction How To Use This Publication Important Change for 1995 Major changes to Publications 534 and 946. E-file state return for free  This publication, as well as Publication 946,How To Depreciate Property, has been changed. E-file state return for free Publication 534 has been shortened. E-file state return for free It no longer contains general information on MACRS and the section 179 deduction. E-file state return for free It contains a discussion of the accelerated cost recovery system (ACRS), the ACRS Percentage Tables, a discussion of other methods of depreciation, and a limited discussion of listed property. E-file state return for free We expanded Publication 946 by adding material taken from Publication 534. E-file state return for free We added more detail to the discussions of the section 179 deduction, the modified accelerated cost recovery system (MACRS), and listed property. E-file state return for free We replaced the partialMACRS Percentage Tables with the complete ones from Publication 534. E-file state return for free We also added the Table of Class Lives and Recovery Periods from Publication 534. E-file state return for free We made these changes to eliminate most of the duplication that existed in the two publications. E-file state return for free This will save money and make it easier for you to decide which publication you need. E-file state return for free Use this publication to figure depreciation on property you placed in service before 1987; use Publication 946 to figure depreciation on property you placed in service after 1986. E-file state return for free Introduction The law allows you to recover your cost in business or income-producing property through yearly tax deductions. E-file state return for free You do this by depreciating your property, that is, by deducting some of your cost on your tax return each year. E-file state return for free You can depreciate both tangible property, such as a car, building, or machinery, and certain intangible property, such as a copyright or a patent. E-file state return for free The amount you can deduct depends on: How much the property cost, When you began using it, How long it will take to recover your cost, and Which of several depreciation methods you use. E-file state return for free Depreciation defined. E-file state return for free   Depreciation is a loss in the value of property over the time the property is being used. E-file state return for free Events that can cause property to depreciate include wear and tear, age, deterioration, and obsolescence. E-file state return for free You can get back your cost of certain property, such as equipment you use in your business or property used for the production of income by taking deductions for depreciation. E-file state return for free Black's Law Dictionary Amortization. E-file state return for free   Amortization is similar to depreciation. E-file state return for free Using amortization, you can recover your cost or basis in certain property proportionately over a specific number of years or months. E-file state return for free Examples of costs you can amortize are the costs of starting a business, reforestation, and pollution control facilities. E-file state return for free You can find information on amortization inchapter 12 of Publication 535, Business Expenses. E-file state return for free Alternative minimum tax. E-file state return for free   If you use accelerated depreciation for real property, or personal property that is leased to others, you may be liable for the alternative minimum tax. E-file state return for free Accelerated depreciation is any method, that allows recovery at a faster rate in the earlier years than the straight line method. E-file state return for free For more information, you may wish to see the following: Form 6251, Alternative Minimum Tax-Individuals, and Publication 542, Tax Information on Corporations. E-file state return for free Ordering publications and forms. E-file state return for free   To order free publications and forms, 1-800-TAX-FORM (1-800-829-3676). E-file state return for free You can also write to the IRS Forms Distribution Center nearest you. E-file state return for free Check your income tax package for the address. E-file state return for free   If you have access to a personal computer and a modem, you can also get many forms and publications electronically. E-file state return for free See How To Get Forms and Publications in your income tax package for details. E-file state return for free Telephone help. E-file state return for free   You can call the IRS with your tax question Monday through Friday during regular business hours. E-file state return for free Check your telephone book for the local number or you can call1-800-829-1040. E-file state return for free Telephone help for hearing-impaired persons. E-file state return for free   If you have access to TDD equipment, you can call 1-800-829-4059 with your tax question or to order forms and publications. E-file state return for free See your tax package for the hours of operation. E-file state return for free How To Use This Publication This publication describes the kinds of property that can be depreciated and the methods used to figure depreciation on property placed in service before 1987. E-file state return for free It is divided into three chapters and contains an appendix. E-file state return for free Chapter 1 explains the rules for depreciating property under the Accelerated Cost Recovery System (ACRS). E-file state return for free Chapter 2 explains the rules for depreciating property first used before 1981. E-file state return for free Chapter 3 explains the rules for listed property. E-file state return for free Also this chapter defines listed property. E-file state return for free The appendix contains the ACRS Percentage Tables. E-file state return for free Prev  Up  Next   Home   More Online Publications