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E file taxes Publication 504 - Main Content Table of Contents Filing StatusUnmarried persons. E file taxes Married persons. E file taxes Same-sex marriage. E file taxes Exception. E file taxes Married Filing Jointly Married Filing Separately Head of Household ExemptionsPersonal Exemptions Exemptions for Dependents Phaseout of Exemptions AlimonyInvalid decree. E file taxes Amended instrument. E file taxes General Rules Instruments Executed After 1984 Instruments Executed Before 1985 Qualified Domestic Relations OrderRollovers. E file taxes Individual Retirement Arrangements Property SettlementsTransfer Between Spouses Gift Tax on Property Settlements Sale of Jointly-Owned Property Costs of Getting a Divorce Tax Withholding and Estimated Tax Community PropertyCommunity Income Alimony (Community Income) How To Get Tax Help Filing Status Your filing status is used in determining whether you must file a return, your standard deduction, and the correct tax. E file taxes It may also be used in determining whether you can claim certain other deductions and credits. E file taxes The filing status you can choose depends partly on your marital status on the last day of your tax year. E file taxes Marital status. E file taxes   If you are unmarried, your filing status is single or, if you meet certain requirements, head of household or qualifying widow(er). E file taxes If you are married, your filing status is either married filing a joint return or married filing a separate return. E file taxes For information about the single and qualifying widow(er) filing statuses, see Publication 501. E file taxes Unmarried persons. E file taxes   You are unmarried for the whole year if either of the following applies. E file taxes You have obtained a final decree of divorce or separate maintenance by the last day of your tax year. E file taxes You must follow your state law to determine if you are divorced or legally separated. E file taxes Exception. E file taxes If you and your spouse obtain a divorce in one year for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to remarry each other and do so in the next tax year, you and your spouse must file as married individuals. E file taxes You have obtained a decree of annulment, which holds that no valid marriage ever existed. E file taxes You must file amended returns (Form 1040X, Amended U. E file taxes S. E file taxes Individual Income Tax Return) for all tax years affected by the annulment that are not closed by the statute of limitations. E file taxes The statute of limitations generally does not end until 3 years (including extensions) after the date you file your original return or within 2 years after the date you pay the tax. E file taxes On the amended return you will change your filing status to single or, if you meet certain requirements, head of household. E file taxes Married persons. E file taxes   You are married for the whole year if you are separated but you have not obtained a final decree of divorce or separate maintenance by the last day of your tax year. E file taxes An interlocutory decree is not a final decree. E file taxes Same-sex marriage. E file taxes   For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. E file taxes The term "spouse" includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. E file taxes However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage under state (or foreign) law are not considered married for federal tax purposes. E file taxes For more details, see Publication 501. E file taxes Exception. E file taxes   If you live apart from your spouse, under certain circumstances, you may be considered unmarried and can file as head of household. E file taxes See Head of Household , later. E file taxes Married Filing Jointly If you are married, you and your spouse can choose to file a joint return. E file taxes If you file jointly, you both must include all your income, exemptions, deductions, and credits on that return. E file taxes You can file a joint return even if one of you had no income or deductions. E file taxes If both you and your spouse have income, you should usually figure your tax on both a joint return and separate returns (using the filing status of married filing separately) to see which gives the two of you the lower combined tax. E file taxes Nonresident alien. E file taxes   To file a joint return, at least one of you must be a U. E file taxes S. E file taxes citizen or resident alien at the end of the tax year. E file taxes If either of you was a nonresident alien at any time during the tax year, you can file a joint return only if you agree to treat the nonresident spouse as a resident of the United States. E file taxes This means that your combined worldwide incomes are subject to U. E file taxes S. E file taxes income tax. E file taxes These rules are explained in Publication 519, U. E file taxes S. E file taxes Tax Guide for Aliens. E file taxes Signing a joint return. E file taxes   Both you and your spouse generally must sign the return, or it will not be considered a joint return. E file taxes Joint and individual liability. E file taxes   Both you and your spouse may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. E file taxes This means that one spouse may be held liable for all the tax due even if all the income was earned by the other spouse. E file taxes Divorced taxpayers. E file taxes   If you are divorced, you are jointly and individually responsible for any tax, interest, and penalties due on a joint return for a tax year ending before your divorce. E file taxes This responsibility applies even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. E file taxes Relief from joint liability. E file taxes   In some cases, a spouse may be relieved of the tax, interest, and penalties on a joint return. E file taxes You can ask for relief no matter how small the liability. E file taxes   There are three types of relief available. E file taxes Innocent spouse relief. E file taxes Separation of liability, which applies to joint filers who are divorced, widowed, legally separated, or who have not lived together for the 12 months ending on the date election of this relief is filed. E file taxes Equitable relief. E file taxes   Married persons who live in community property states, but who did not file joint returns, may also qualify for relief from liability arising from community property law or for equitable relief. E file taxes See Relief from liability arising from community property law , later, under Community Property. E file taxes    Each kind of relief has different requirements. E file taxes You must file Form 8857 to request relief under any of these categories. E file taxes Publication 971 explains these kinds of relief and who may qualify for them. E file taxes You can also find information on our website at IRS. E file taxes gov. E file taxes Tax refund applied to spouse's debts. E file taxes   The overpayment shown on your joint return may be used to pay the past-due amount of your spouse's debts. E file taxes This includes your spouse's federal tax, state income tax, child or spousal support payments, or a federal nontax debt, such as a student loan. E file taxes You can get a refund of your share of the overpayment if you qualify as an injured spouse. E file taxes Injured spouse. E file taxes   You are an injured spouse if you file a joint return and all or part of your share of the overpayment was, or is expected to be, applied against your spouse's past-due debts. E file taxes An injured spouse can get a refund for his or her share of the overpayment that would otherwise be used to pay the past-due amount. E file taxes   To be considered an injured spouse, you must: Have made and reported tax payments (such as federal income tax withheld from wages or estimated tax payments), or claimed a refundable tax credit, such as the earned income credit or additional child tax credit on the joint return, and Not be legally obligated to pay the past-due amount. E file taxes Note. E file taxes If the injured spouse's permanent home is in a community property state, then the injured spouse must only meet (2). E file taxes For more information, see Publication 555. E file taxes    Refunds that involve community property states must be divided according to local law. E file taxes If you live in a community property state in which all community property is subject to the debts of either spouse, your entire refund is generally used to pay those debts. E file taxes   If you are an injured spouse, you must file Form 8379 to have your portion of the overpayment refunded to you. E file taxes Follow the instructions for the form. E file taxes   If you have not filed your joint return and you know that your joint refund will be offset, file Form 8379 with your return. E file taxes You should receive your refund within 14 weeks from the date the paper return is filed or within 11 weeks from the date the return is filed electronically. E file taxes   If you filed your joint return and your joint refund was offset, file Form 8379 by itself. E file taxes When filed after offset, it can take up to 8 weeks to receive your refund. E file taxes Do not attach the previously filed tax return, but do include copies of all Forms W-2, Wage and Tax Statement, and W-2G, Certain Gambling Winnings, for both spouses and any Forms 1099 that show income tax withheld. E file taxes    An injured spouse claim is different from an innocent spouse relief request. E file taxes An injured spouse uses Form 8379 to request an allocation of the tax overpayment attributed to each spouse. E file taxes An innocent spouse uses Form 8857 to request relief from joint liability for tax, interest, and penalties on a joint return for items of the other spouse (or former spouse) that were incorrectly reported on or omitted from the joint return. E file taxes For information on innocent spouses, see Relief from joint liability, earlier. E file taxes Married Filing Separately If you and your spouse file separate returns, you should each report only your own income, exemptions, deductions, and credits on your individual return. E file taxes You can file a separate return even if only one of you had income. E file taxes For information on exemptions you can claim on your separate return, see Exemptions , later. E file taxes Community or separate income. E file taxes   If you live in a community property state and file a separate return, your income may be separate income or community income for income tax purposes. E file taxes For more information, see Community Income under Community Property, later. E file taxes Separate liability. E file taxes   If you and your spouse file separately, you each are responsible only for the tax due on your own return. E file taxes Itemized deductions. E file taxes   If you and your spouse file separate returns and one of you itemizes deductions, the other spouse cannot use the standard deduction and should also itemize deductions. E file taxes Table 1. E file taxes Itemized Deductions on Separate Returns This table shows itemized deductions you can claim on your married filing separate return whether you paid the expenses separately with your own funds or jointly with your spouse. E file taxes  Caution: If you live in a community property state, these rules do not apply. E file taxes See Community Property. E file taxes IF you paid . E file taxes . E file taxes . E file taxes AND you . E file taxes . E file taxes . E file taxes THEN you can deduct on your separate federal return. E file taxes . E file taxes . E file taxes   medical expenses   paid with funds deposited in a joint checking account in which you and your spouse have an equal interest     half of the total medical expenses, subject to certain limits, unless you can show that you alone paid the expenses. E file taxes     state income tax   file a separate state income tax return     the state income tax you alone paid during the year. E file taxes         file a joint state income tax return and you and your spouse are jointly and individually liable for the full amount of the state income tax     the state income tax you alone paid during the year. E file taxes         file a joint state income tax return and you  are liable for only your own share of state  income tax     the smaller of: the state income tax you alone paid during the year, or the total state income tax you and your spouse paid during the year multiplied by the following fraction. E file taxes The numerator is your gross income and the denominator  is your combined gross income. E file taxes     property tax   paid the tax on property held as tenants by the entirety     the property tax you alone paid. E file taxes     mortgage interest   paid the interest on a qualified home1 held  as tenants by the entirety     the mortgage interest you alone paid. E file taxes     casualty loss   have a casualty loss on a home you own  as tenants by the entirety     half of the loss, subject to the deduction limits. E file taxes Neither spouse may report the total casualty loss. E file taxes 1 For more information on a qualified home and deductible mortgage interest, see Publication 936, Home Mortgage Interest Deduction. E file taxes Dividing itemized deductions. E file taxes   You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. E file taxes See Table 1, later. E file taxes Separate returns may give you a higher tax. E file taxes   Some married couples file separate returns because each wants to be responsible only for his or her own tax. E file taxes There is no joint liability. E file taxes But in almost all instances, if you file separate returns, you will pay more combined federal tax than you would with a joint return. E file taxes This is because the following special rules apply if you file a separate return. E file taxes Your tax rate generally will be higher than it would be on a joint return. E file taxes Your exemption amount for figuring the alternative minimum tax will be half of that allowed a joint return filer. E file taxes You cannot take the credit for child and dependent care expenses in most cases. E file taxes You cannot take the earned income credit. E file taxes You cannot take the exclusion or credit for adoption expenses in most cases. E file taxes You cannot take the credit for higher education expenses (American opportunity and lifetime learning credits), the deduction for student loan interest, or the tuition and fees deduction. E file taxes You cannot exclude the interest from qualified savings bonds that you used for higher education expenses. E file taxes If you lived with your spouse at any time during the tax year: You cannot claim the credit for the elderly or the disabled, and You will have to include in income more (up to 85%) of any social security or equivalent railroad retirement benefits you received. E file taxes Your income limits that reduce the child tax credit, the retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are half of the limits for a joint return filer. E file taxes Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). E file taxes Your basic standard deduction, if allowable, is half of that allowed a joint return filer. E file taxes See Itemized deductions , earlier. E file taxes Joint return after separate returns. E file taxes   If either you or your spouse (or both of you) file a separate return, you generally can change to a joint return within 3 years from the due date (not including extensions) of the separate return or returns. E file taxes This applies to a return either of you filed claiming married filing separately, single, or head of household filing status. E file taxes Use Form 1040X to change your filing status. E file taxes Separate returns after joint return. E file taxes   After the due date of your return, you and your spouse cannot file separate returns if you previously filed a joint return. E file taxes Exception. E file taxes   A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. E file taxes The personal representative has 1 year from the due date (including extensions) of the joint return to make the change. E file taxes Head of Household Filing as head of household has the following advantages. E file taxes You can claim the standard deduction even if your spouse files a separate return and itemizes deductions. E file taxes Your standard deduction is higher than is allowed if you claim a filing status of single or married filing separately. E file taxes Your tax rate usually will be lower than it is if you claim a filing status of single or married filing separately. E file taxes You may be able to claim certain credits (such as the dependent care credit and the earned income credit) you cannot claim if your filing status is married filing separately. E file taxes Income limits that reduce your child tax credit, retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are higher than the income limits if you claim a filing status of married filing separately. E file taxes Requirements. E file taxes   You may be able to file as head of household if you meet all the following requirements. E file taxes You are unmarried or “considered unmarried” on the last day of the year. E file taxes You paid more than half the cost of keeping up a home for the year. E file taxes A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). E file taxes However, if the “qualifying person” is your dependent parent, he or she does not have to live with you. E file taxes See Special rule for parent , later, under Qualifying person. E file taxes Considered unmarried. E file taxes   You are considered unmarried on the last day of the tax year if you meet all the following tests. E file taxes You file a separate return. E file taxes A separate return includes a return claiming married filing separately, single, or head of household filing status. E file taxes You paid more than half the cost of keeping up your home for the tax year. E file taxes Your spouse did not live in your home during the last 6 months of the tax year. E file taxes Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. E file taxes See Temporary absences , later. E file taxes Your home was the main home of your child, stepchild, or foster child for more than half the year. E file taxes (See Qualifying person , later, for rules applying to a child's birth, death, or temporary absence during the year. E file taxes ) You must be able to claim an exemption for the child. E file taxes However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rule described later in Special rule for divorced or separated parents (or parents who live apart) under Exemptions for Dependents. E file taxes The general rules for claiming an exemption for a dependent are shown later in Table 3. E file taxes    If you were considered married for part of the year and lived in a community property state (one of the states listed later under Community Property), special rules may apply in determining your income and expenses. E file taxes See Publication 555 for more information. E file taxes Nonresident alien spouse. E file taxes   If your spouse was a nonresident alien at any time during the tax year, and you have not chosen to treat your spouse as a resident alien, you are considered unmarried for head of household purposes. E file taxes However, your spouse is not a qualifying person for head of household purposes. E file taxes You must have another qualifying person and meet the other requirements to file as head of household. E file taxes Keeping up a home. E file taxes   You are keeping up a home only if you pay more than half the cost of its upkeep for the year. E file taxes This includes rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. E file taxes This does not include the cost of clothing, education, medical treatment, vacations, life insurance, or transportation for any member of the household. E file taxes Qualifying person. E file taxes    Table 2, later, shows who can be a qualifying person. E file taxes Any person not described in Table 2 is not a qualifying person. E file taxes   Generally, the qualifying person must live with you for more than half of the year. E file taxes Table 2. E file taxes Who Is a Qualifying Person Qualifying You To File as Head of Household?1 Caution. E file taxes See the text of this publication for the other requirements you must meet to claim head of household filing status. E file taxes IF the person is your . E file taxes . E file taxes . E file taxes AND . E file taxes . E file taxes . E file taxes THEN that person is . E file taxes . E file taxes . E file taxes   qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2 he or she is single a qualifying person, whether or not you can claim an exemption for the person. E file taxes     he or she is married and you can claim an exemption for him or her a qualifying person. E file taxes     he or she is married and you cannot claim an exemption for him or her not a qualifying person. E file taxes 3     qualifying relative4 who is your father or mother you can claim an exemption for him or her5 a qualifying person. E file taxes 6     you cannot claim an exemption for him or her not a qualifying person. E file taxes     qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests) he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 and you can claim an exemption for him or her5 a qualifying person. E file taxes     he or she did not live with you more than half the year not a qualifying person. E file taxes     he or she is not related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 and is your qualifying relative only because he or she lived with you all year as a member of your household not a qualifying person. E file taxes     you cannot claim an exemption for him or her not a qualifying person. E file taxes   1 A person cannot qualify more than one taxpayer to use the head of household filing status for the year. E file taxes 2 See Table 3, later, for the tests that must be met to be a qualifying child. E file taxes Note. E file taxes If you are a noncustodial parent, the term “qualifying child” for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of Divorced or Separated Parents (or Parents Who Live Apart) under Exemptions for Dependents, later. E file taxes If you are the custodial parent and those rules apply, the child is generally your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption. E file taxes 3 This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return. E file taxes 4 See Table 3, later, for the tests that must be met to be a qualifying relative. E file taxes 5 If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. E file taxes See Multiple Support Agreement in Publication 501. E file taxes 6 See Special rule for parent . E file taxes Special rule for parent. E file taxes   If your qualifying person is your father or mother, you may be eligible to file as head of household even if your father or mother does not live with you. E file taxes However, you must be able to claim an exemption for your father or mother. E file taxes Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. E file taxes You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly. E file taxes Death or birth. E file taxes   If the person for whom you kept up a home was born or died in 2013, you still may be able to file as head of household. E file taxes If the person is your qualifying child, the child must have lived with you for more than half the part of the year he or she was alive. E file taxes If the person is anyone else, see Publication 501. E file taxes Temporary absences. E file taxes   You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. E file taxes It must be reasonable to assume that the absent person will return to the home after the temporary absence. E file taxes You must continue to keep up the home during the absence. E file taxes Kidnapped child. E file taxes   You may be eligible to file as head of household even if the child who is your qualifying person has been kidnapped. E file taxes You can claim head of household filing status if all the following statements are true. E file taxes The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. E file taxes In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping. E file taxes You would have qualified for head of household filing status if the child had not been kidnapped. E file taxes   This treatment applies for all years until the earlier of: The year the child is returned, The year there is a determination that the child is dead, or The year the child would have reached age 18. E file taxes More information. E file taxes   For more information on filing as head of household, see Publication 501. E file taxes Exemptions You can deduct $3,900 for each exemption you claim in 2013. E file taxes However, if your adjusted gross income is more than $150,000, see Phaseout of Exemptions , later. E file taxes There are two types of exemptions: personal exemptions and exemptions for dependents. E file taxes If you are entitled to claim an exemption for a dependent (such as your child), that dependent cannot claim his or her personal exemption on his or her own tax return. E file taxes Personal Exemptions You can claim your own exemption unless someone else can claim it. E file taxes If you are married, you may be able to take an exemption for your spouse. E file taxes These are called personal exemptions. E file taxes Exemption for Your Spouse Your spouse is never considered your dependent. E file taxes Joint return. E file taxes   On a joint return, you can claim one exemption for yourself and one for your spouse. E file taxes   If your spouse had any gross income, you can claim his or her exemption only if you file a joint return. E file taxes Separate return. E file taxes   If you file a separate return, you can take an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. E file taxes If your spouse is the dependent of another taxpayer, you cannot claim an exemption for your spouse even if the other taxpayer does not actually claim your spouse's exemption. E file taxes Alimony paid. E file taxes   If you paid alimony to your spouse, you cannot take an exemption for your spouse. E file taxes This is because alimony is gross income to the spouse who received it. E file taxes Divorced or separated spouse. E file taxes   If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. E file taxes This rule applies even if you provided all of your former spouse's support. E file taxes Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. E file taxes You can claim an exemption for a dependent even if your dependent files a return. E file taxes The term “dependent” means: A qualifying child, or A qualifying relative. E file taxes Table 3 shows the tests that must be met to be either a qualifying child or qualifying relative, plus the additional requirements for claiming an exemption for a dependent. E file taxes For detailed information, see Publication 501. E file taxes   Dependent not allowed a personal exemption. E file taxes If you can claim an exemption for your dependent, the dependent cannot claim his or her own exemption on his or her own tax return. E file taxes This is true even if you do not claim the dependent's exemption on your return. E file taxes It is also true if the decedent's exemption on your return is reduced or eliminated under the phaseout rule described under Phaseout of Exemptions, later. E file taxes Table 3. E file taxes Overview of the Rules for Claiming an Exemption for a Dependent Caution. E file taxes This table is only an overview of the rules. E file taxes For details, see Publication 501. E file taxes • You cannot claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer. E file taxes • You cannot claim a married person who files a joint return as a dependent unless that joint return is only a claim for refund and there would be no tax liability for either spouse on separate returns. E file taxes • You cannot claim a person as a dependent unless that person is a U. E file taxes S. E file taxes citizen, U. E file taxes S. E file taxes resident alien, U. E file taxes S. E file taxes national, or a resident of Canada or Mexico. E file taxes 1 • You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. E file taxes   Tests To Be a Qualifying Child   Tests To Be a Qualifying Relative 1. E file taxes     2. E file taxes       3. E file taxes    4. E file taxes    5. E file taxes    The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. E file taxes   The child must be (a) under age 19 at the end of the year and younger than you (or your spouse if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse if filing jointly), or (c) any age if permanently and totally disabled. E file taxes   The child must have lived with you for more than half of the year. E file taxes 2   The child must not have provided more than half of his or her own support for the year. E file taxes   The child is not filing a joint return for the year (unless that joint return is filed only as a claim for refund of withheld income tax or estimated tax paid). E file taxes   1. E file taxes    2. E file taxes       3. E file taxes    4. E file taxes The person cannot be your qualifying child or the qualifying child of anyone else. E file taxes   The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 or (b) must live with you all year as a member of your household 2 (and your relationship must not violate local law). E file taxes   The person's gross income for the year must be less than $3,900. E file taxes 3   You must provide more than half of the person's total support for the year. E file taxes 4 If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child. E file taxes See Special Rule for Qualifying Child of More Than One Person , later, to find out which person is the person entitled to claim the child as a qualifying child. E file taxes     1 Exception exists for certain adopted children. E file taxes 2 Exceptions exist for temporary absences, children who were born or died during the year, children of divorced or separated parents (or parents who live apart), and kidnapped children. E file taxes 3 Exception exists for persons who are disabled and have income from a sheltered workshop. E file taxes 4 Exceptions exist for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. E file taxes See Publication 501. E file taxes You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. E file taxes For more information, see the instructions for your tax return if you file Form 1040A or 1040. E file taxes Children of Divorced or Separated Parents (or Parents Who Live Apart) In most cases, because of the residency test (see item 3 under Tests To Be a Qualifying Child in Table 3), a child of divorced or separated parents is the qualifying child of the custodial parent. E file taxes However, the child will be treated as the qualifying child of the noncustodial parent if the special rule (discussed next) applies. E file taxes Special rule for divorced or separated parents (or parents who live apart). E file taxes   A child will be treated as the qualifying child of his or her noncustodial parent if all four of the following statements are true. E file taxes The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of the year, whether or not they are or were married. E file taxes The child received over half of his or her support for the year from the parents. E file taxes The child is in the custody of one or both parents for more than half of the year. E file taxes Either of the following applies. E file taxes The custodial parent signs a written declaration, discussed later, that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return. E file taxes (If the decree or agreement went into effect after 1984, see Divorce decree or separation agreement that went into effect after 1984 and before 2009 , later. E file taxes A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 states that the noncustodial parent can claim the child as a dependent, the decree or agreement was not changed after 1984 to say the noncustodial parent cannot claim the child as a dependent, and the noncustodial parent provides at least $600 for the child's support during 2013. E file taxes See Child support under pre-1985 agreement , later. E file taxes Custodial parent and noncustodial parent. E file taxes   The custodial parent is the parent with whom the child lived for the greater number of nights during the year. E file taxes The other parent is the noncustodial parent. E file taxes   If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year. E file taxes   A child is treated as living with a parent for a night if the child sleeps: At that parent's home, whether or not the parent is present, or In the company of the parent, when the child does not sleep at a parent's home (for example, the parent and child are on vacation together). E file taxes Equal number of nights. E file taxes   If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income. E file taxes December 31. E file taxes   The night of December 31 is treated as part of the year in which it begins. E file taxes For example, December 31, 2013, is treated as part of 2013. E file taxes Emancipated child. E file taxes   If a child is emancipated under state law, the child is treated as not living with either parent. E file taxes See Examples 5 and 6 . E file taxes Absences. E file taxes    If a child was not with either parent on a particular night (because, for example, the child was staying at a friend's house), the child is treated as living with the parent with whom the child normally would have lived for that night, except for the absence. E file taxes But if it cannot be determined with which parent the child normally would have lived or if the child would not have lived with either parent that night, the child is treated as not living with either parent that night. E file taxes Parent works at night. E file taxes   If, due to a parent's nighttime work schedule, a child lives for a greater number of days but not nights with the parent who works at night, that parent is treated as the custodial parent. E file taxes On a school day, the child is treated as living at the primary residence registered with the school. E file taxes Example 1 – child lived with one parent greater number of nights. E file taxes You and your child’s other parent are divorced. E file taxes In 2013, your child lived with you 210 nights and with the other parent 156 nights. E file taxes You are the custodial parent. E file taxes Example 2 – child is away at camp. E file taxes In 2013, your daughter lives with each parent for alternate weeks. E file taxes In the summer, she spends 6 weeks at summer camp. E file taxes During the time she is at camp, she is treated as living with you for 3 weeks and with her other parent, your ex-spouse, for 3 weeks because this is how long she would have lived with each parent if she had not attended summer camp. E file taxes Example 3 – child lived same number of days with each parent. E file taxes Your son lived with you 180 nights during the year and lived the same number of nights with his other parent, your ex-spouse. E file taxes Your adjusted gross income is $40,000. E file taxes Your ex-spouse's adjusted gross income is $25,000. E file taxes You are treated as your son's custodial parent because you have the higher adjusted gross income. E file taxes Example 4 – child is at parent’s home but with other parent. E file taxes Your son normally lives with you during the week and with his other parent, your ex-spouse, every other weekend. E file taxes You become ill and are hospitalized. E file taxes The other parent lives in your home with your son for 10 consecutive days while you are in the hospital. E file taxes Your son is treated as living with you during this 10-day period because he was living in your home. E file taxes Example 5 – child emancipated in May. E file taxes When your son turned age 18 in May 2013, he became emancipated under the law of the state where he lives. E file taxes As a result, he is not considered in the custody of his parents for more than half of the year. E file taxes The special rule for children of divorced or separated parents (or parents who live apart) does not apply. E file taxes Example 6 – child emancipated in August. E file taxes Your daughter lives with you from January 1, 2013, until May 31, 2013, and lives with her other parent, your ex-spouse, from June 1, 2013, through the end of the year. E file taxes She turns 18 and is emancipated under state law on August 1, 2013. E file taxes Because she is treated as not living with either parent beginning on August 1, she is treated as living with you the greater number of nights in 2013. E file taxes You are the custodial parent. E file taxes Written declaration. E file taxes    The custodial parent must use either Form 8332 or a similar statement (containing the same information required by the form) to make the written declaration to release the exemption to the noncustodial parent. E file taxes The noncustodial parent must attach a copy of the form or statement to his or her tax return. E file taxes   The exemption can be released for 1 year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration. E file taxes Divorce decree or separation agreement that went into effect after 1984 and before 2009. E file taxes   If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. E file taxes To be able to do this, the decree or agreement must state all three of the following. E file taxes The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support. E file taxes The custodial parent will not claim the child as a dependent for the year. E file taxes The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent. E file taxes   The noncustodial parent must attach all of the following pages of the decree or agreement to his or her return. E file taxes The cover page (write the other parent's social security number on this page). E file taxes The pages that include all of the information identified in items (1) through (3) above. E file taxes The signature page with the other parent's signature and the date of the agreement. E file taxes Post-2008 divorce decree or separation agreement. E file taxes   If the decree or agreement went into effect after 2008, a noncustodial parent claiming an exemption for a child cannot attach pages from a divorce decree or separation agreement instead of Form 8332. E file taxes The custodial parent must sign either a Form 8332 or a similar statement. E file taxes The only purpose of this statement must be to release the custodial parent's claim to the child's exemption. E file taxes The noncustodial parent must attach a copy to his or her return. E file taxes The form or statement must release the custodial parent's claim to the child without any conditions. E file taxes For example, the release must not depend on the noncustodial parent paying support. E file taxes    The noncustodial parent must attach the required information even if it was filed with a return in an earlier year. E file taxes Revocation of release of claim to an exemption. E file taxes   The custodial parent can revoke a release of claim to exemption that he or she previously released to the noncustodial parent on Form 8332 or a similar statement. E file taxes In order for the revocation to be effective for 2013, the custodial parent must have given (or made reasonable efforts to give) written notice of the revocation to the noncustodial parent in 2012 or earlier. E file taxes The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to his or her return for each tax year he or she claims the child as a dependent as a result of the revocation. E file taxes Remarried parent. E file taxes   If you remarry, the support provided by your new spouse is treated as provided by you. E file taxes Child support under pre-1985 agreement. E file taxes   All child support payments actually received from the noncustodial parent under a pre-1985 agreement are considered used for the support of the child, even if such amounts are not actually spent for child support. E file taxes Example. E file taxes Under a pre-1985 agreement, the noncustodial parent provides $1,200 for the child's support. E file taxes This amount is considered support provided by the noncustodial parent even if the $1,200 was actually spent on things other than support. E file taxes Parents who never married. E file taxes   The special rule for divorced or separated parents also applies to parents who never married and lived apart at all times during the last 6 months of the year. E file taxes Alimony. E file taxes   Payments to your spouse that are includible in his or her gross income as either alimony, separate maintenance payments, or similar payments from an estate or trust, are not treated as a payment for the support of a dependent. E file taxes Special Rule for Qualifying Child of More Than One Person If your qualifying child is not a qualifying child of anyone else, this special rule does not apply to you and you do not need to read about it. E file taxes This is also true if your qualifying child is not a qualifying child of anyone else except your spouse with whom you file a joint return. E file taxes If a child is treated as the qualifying child of the noncustodial parent under the Special rule for divorced or separated parents (or parents who live apart), earlier, see Applying this special rule to divorced or separated parents (or parents who live apart), later. E file taxes Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. E file taxes (For a description of these tests, see list items 1 through 5 under Tests To Be a Qualifying Child in Table 3). E file taxes Although the child meets the conditions to be a qualifying child of each of these persons, only one person can actually use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). E file taxes The exemption for the child. E file taxes The child tax credit. E file taxes Head of household filing status. E file taxes The credit for child and dependent care expenses. E file taxes The exclusion from income for dependent care benefits. E file taxes The earned income credit. E file taxes The other person cannot take any of these benefits based on this qualifying child. E file taxes In other words, you and the other person cannot agree to divide these tax benefits between you. E file taxes The other person cannot take any of these tax benefits unless he or she has a different qualifying child. E file taxes Tiebreaker rules. E file taxes   To determine which person can treat the child as a qualifying child to claim these six tax benefits, the following tiebreaker rules apply. E file taxes If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. E file taxes If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. E file taxes If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. E file taxes If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. E file taxes If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. E file taxes If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' total AGI evenly between them; see Publication 501 for details. E file taxes   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. E file taxes Example 1—separated parents. E file taxes You, your husband, and your 10-year-old son lived together until August 1, 2013, when your husband moved out of the household. E file taxes In August and September, your son lived with you. E file taxes For the rest of the year, your son lived with your husband, the boy's father. E file taxes Your son is a qualifying child of both you and your husband because your son lived with each of you for more than half the year and because he met the relationship, age, support, and joint return tests for both of you. E file taxes At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) does not apply. E file taxes You and your husband will file separate returns. E file taxes Your husband agrees to let you treat your son as a qualifying child. E file taxes This means, if your husband does not claim your son as a qualifying child, you can claim your son as a dependent and treat him as a qualifying child for the child tax credit and exclusion for dependent care benefits, if you qualify for each of those tax benefits. E file taxes However, you cannot claim head of household filing status because you and your husband did not live apart the last 6 months of the year. E file taxes And, as a result of your filing status being married filing separately, you cannot claim the earned income credit or the credit for child and dependent care expenses. E file taxes Example 2—separated parents claim same child. E file taxes The facts are the same as in Example 1 except that you and your husband both claim your son as a qualifying child. E file taxes In this case, only your husband will be allowed to treat your son as a qualifying child. E file taxes This is because, during 2013, the boy lived with him longer than with you. E file taxes If you claimed an exemption, the child tax credit, or the exclusion for dependent care benefits for your son, the IRS will disallow your claim to all these tax benefits, unless you have another qualifying child. E file taxes In addition, because you and your husband did not live apart the last 6 months of the year, your husband cannot claim head of household filing status. E file taxes And, as a result of his filing status being married filing separately, he cannot claim the earned income credit or the credit for child and dependent care expenses. E file taxes Applying this special rule to divorced or separated parents (or parents who live apart). E file taxes   If a child is treated as the qualifying child of the noncustodial parent under the special rule for divorced or separated parents (or parents who live apart) described earlier, only the noncustodial parent can claim an exemption and the child tax credit for the child. E file taxes However, the noncustodial parent cannot claim the child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. E file taxes Only the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for those four tax benefits. E file taxes If the child is the qualifying child of more than one person for those tax benefits, the tiebreaker rules determine which person can treat the child as a qualifying child. E file taxes Example 1. E file taxes You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. E file taxes Your AGI is $10,000. E file taxes Your mother's AGI is $25,000. E file taxes Your son's father does not live with you or your son. E file taxes Under the rules for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child if he meets all the requirements to do so. E file taxes Because of this, you cannot claim an exemption or the child tax credit for your son. E file taxes However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the earned income credit. E file taxes You and your mother did not have any child care expenses or dependent care benefits, but the boy is a qualifying child of both you and your mother for head of household filing status and the earned income credit because he meets the relationship, age, residency, support, and joint return tests for both you and your mother. E file taxes (Note: The support test does not apply for the earned income credit. E file taxes ) However, you agree to let your mother claim your son. E file taxes This means she can claim him for head of household filing status and the earned income credit if she qualifies for each and if you do not claim him as a qualifying child for the earned income credit. E file taxes (You cannot claim head of household filing status because your mother paid the entire cost of keeping up the home. E file taxes ) Example 2. E file taxes The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. E file taxes Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. E file taxes Example 3. E file taxes The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the earned income credit. E file taxes Your mother also claims him as a qualifying child for head of household filing status. E file taxes You, as the child's parent, will be the only one allowed to claim your son as a qualifying child for the earned income credit. E file taxes The IRS will disallow your mother's claim to the earned income credit and head of household filing status unless she has another qualifying child. E file taxes Phaseout of Exemptions The amount you can claim as a deduction for exemptions is reduced once your adjusted gross income (AGI) goes above a certain level for your filing status. E file taxes These levels are as follows:    Filing Status AGI Level That Reduces Exemption Amount Married filing separately $150,000 Single 250,000 Head of household 275,000 Married filing jointly 300,000 Qualifying widow(er) 300,000 You must reduce the dollar amount of your exemptions by 2% for each $2,500, or part of $2,500 ($1,250 if you are married filing separately), that your AGI exceeds the amount shown above for your filing status. E file taxes If your AGI exceeds the amount shown above by more than $122,500 ($61,250 if married filing separately), the amount of your deduction for exemptions is reduced to zero. E file taxes If your AGI exceeds the level for your filing status, use the Deduction for Exemptions Worksheet found in the instructions for Form 1040 or Form 1040NR to figure the amount of your deduction for exemptions. E file taxes Alimony Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. E file taxes It does not include voluntary payments that are not made under a divorce or separation instrument. E file taxes Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. E file taxes Although this discussion is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony. E file taxes To be alimony, a payment must meet certain requirements. E file taxes There are some differences between the requirements that apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. E file taxes The general requirements that apply to payments regardless of when the divorce or separation instrument was executed and the specific requirements that apply to post-1984 instruments (and, in certain cases, some pre-1985 instruments) are discussed in this publication. E file taxes See, Instruments Executed Before 1985 , later, if you are looking for information on where to find the specific requirements that apply to pre-1985 instruments. E file taxes Spouse or former spouse. E file taxes   Unless otherwise stated, the term “spouse” includes former spouse. E file taxes Divorce or separation instrument. E file taxes   The term “divorce or separation instrument” means: A decree of divorce or separate maintenance or a written instrument incident to that decree, A written separation agreement, or A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. E file taxes This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement). E file taxes Invalid decree. E file taxes   Payments under a divorce decree can be alimony even if the decree's validity is in question. E file taxes A divorce decree is valid for tax purposes until a court having proper jurisdiction holds it invalid. E file taxes Amended instrument. E file taxes   An amendment to a divorce decree may change the nature of your payments. E file taxes Amendments are not ordinarily retroactive for federal tax purposes. E file taxes However, a retroactive amendment to a divorce decree correcting a clerical error to reflect the original intent of the court will generally be effective retroactively for federal tax purposes. E file taxes Example 1. E file taxes A court order retroactively corrected a mathematical error under your divorce decree to express the original intent to spread the payments over more than 10 years. E file taxes This change also is effective retroactively for federal tax purposes. E file taxes Example 2. E file taxes Your original divorce decree did not fix any part of the payment as child support. E file taxes To reflect the true intention of the court, a court order retroactively corrected the error by designating a part of the payment as child support. E file taxes The amended order is effective retroactively for federal tax purposes. E file taxes Deducting alimony paid. E file taxes   You can deduct alimony you paid, whether or not you itemize deductions on your return. E file taxes You must file Form 1040. E file taxes You cannot use Form 1040A, 1040EZ, or 1040NR. E file taxes Enter the amount of alimony you paid on Form 1040, line 31a. E file taxes In the space provided on line 31b, enter your spouse's social security number (SSN) or IRS individual taxpayer identification number (ITIN). E file taxes If you paid alimony to more than one person, enter the SSN or ITIN of one of the recipients. E file taxes Show the SSN or ITIN and amount paid to each other recipient on an attached statement. E file taxes Enter your total payments on line 31a. E file taxes If you do not provide your spouse's SSN or ITIN, you may have to pay a $50 penalty and your deduction may be disallowed. E file taxes Reporting alimony received. E file taxes   Report alimony you received as income on Form 1040, line 11, or on Schedule NEC (Form 1040NR), line 12. E file taxes You cannot use Form 1040A, 1040EZ, or 1040NR-EZ. E file taxes    You must give the person who paid the alimony your SSN or ITIN. E file taxes If you do not, you may have to pay a $50 penalty. E file taxes Withholding on nonresident aliens. E file taxes   If you are a U. E file taxes S. E file taxes citizen or resident alien and you pay alimony to a nonresident alien spouse, you may have to withhold income tax at a rate of 30% on each payment. E file taxes However, many tax treaties provide for an exemption from withholding for alimony payments. E file taxes For more information, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. E file taxes General Rules The following rules apply to alimony regardless of when the divorce or separation instrument was executed. E file taxes Payments not alimony. E file taxes   Not all payments under a divorce or separation instrument are alimony. E file taxes Alimony does not include: Child support, Noncash property settlements, Payments that are your spouse's part of community income, as explained later under Community Property , Payments to keep up the payer's property, or Use of the payer's property. E file taxes Example. E file taxes Under your written separation agreement, your spouse lives rent-free in a home you own and you must pay the mortgage, real estate taxes, insurance, repairs, and utilities for the home. E file taxes Because you own the home and the debts are yours, your payments for the mortgage, real estate taxes, insurance, and repairs are not alimony. E file taxes Neither is the value of your spouse's use of the home. E file taxes If they otherwise qualify, you can deduct the payments for utilities as alimony. E file taxes Your spouse must report them as income. E file taxes If you itemize deductions, you can deduct the real estate taxes and, if the home is a qualified home, you can also include the interest on the mortgage in figuring your deductible interest. E file taxes However, if your spouse owned the home, see Example 2 under Payments to a third party, later. E file taxes If you owned the home jointly with your spouse, see Table 4. E file taxes For more information on a qualified home and deductible mortgage interest, see Publication 936, Home Mortgage Interest Deduction. E file taxes Child support. E file taxes   To determine whether a payment is child support, see the discussion under Instruments Executed After 1984 , later. E file taxes If your divorce or separation agreement was executed before 1985, see the 2004 revision of Publication 504 available at www. E file taxes irs. E file taxes gov/formspubs. E file taxes Underpayment. E file taxes   If both alimony and child support payments are called for by your divorce or separation instrument, and you pay less than the total required, the payments apply first to child support and then to alimony. E file taxes Example. E file taxes Your divorce decree calls for you to pay your former spouse $200 a month ($2,400 ($200 x 12) a year) as child support and $150 a month ($1,800 ($150 x 12) a year) as alimony. E file taxes If you pay the full amount of $4,200 ($2,400 + $1,800) during the year, you can deduct $1,800 as alimony and your former spouse must report $1,800 as alimony received. E file taxes If you pay only $3,600 during the year, $2,400 is child support. E file taxes You can deduct only $1,200 ($3,600 – $2,400) as alimony and your former spouse must report $1,200 as alimony received. E file taxes Payments to a third party. E file taxes   Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. E file taxes These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc. E file taxes ), taxes, tuition, etc. E file taxes The payments are treated as received by your spouse and then paid to the third party. E file taxes Example 1. E file taxes Under your divorce decree, you must pay your former spouse's medical and dental expenses. E file taxes If the payments otherwise qualify, you can deduct them as alimony on your return. E file taxes Your former spouse must report them as alimony received and can include them in figuring deductible medical expenses. E file taxes Example 2. E file taxes Under your separation agreement, you must pay the real estate taxes, mortgage payments, and insurance premiums on a home owned by your spouse. E file taxes If they otherwise qualify, you can deduct the payments as alimony on your return, and your spouse must report them as alimony received. E file taxes If itemizing deductions, your spouse can deduct the real estate taxes and, if the home is a qualified home, also include the interest on the mortgage in figuring deductible interest. E file taxes However, if you owned the home, see the example under Payments not alimony , earlier. E file taxes If you owned the home jointly with your spouse, see Table 4. E file taxes Life insurance premiums. E file taxes   Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy. E file taxes Payments for jointly-owned home. E file taxes   If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse or former spouse, some of your payments may be alimony. E file taxes See Table 4. E file taxes   However, if your spouse owned the home, see Example 2 under Payments to a third party, earlier. E file taxes If you owned the home, see the example under Payments not alimony , earlier. E file taxes Table 4. E file taxes Expenses for a Jointly-Owned Home Use the table below to find how much of your payment is alimony and how much you can claim as an itemized deduction. E file taxes IF you must pay all of the . E file taxes . E file taxes . E file taxes AND your home is . E file taxes . E file taxes . E file taxes THEN you can deduct and your spouse (or former spouse) must include as alimony . E file taxes . E file taxes . E file taxes AND you can claim as an itemized deduction . E file taxes . E file taxes . E file taxes   mortgage payments (principal and interest) jointly owned half of the total payments half of the interest as interest expense (if the home is a qualified home). E file taxes 1   real estate taxes and home insurance held as tenants in common half of the total payments half of the real estate taxes2 and none of the home insurance. E file taxes     held as tenants by the entirety or in joint tenancy none of the payments all of the real estate taxes and none of the home insurance. E file taxes 1 Your spouse (or former spouse) can deduct the other half of the interest if the home is a qualified home. E file taxes  2 Your spouse (or former spouse) can deduct the other half of the real estate taxes. E file taxes Instruments Executed After 1984 The following rules for alimony apply to payments under divorce or separation instruments executed after 1984. E file taxes Exception for instruments executed before 1985. E file taxes   There are two situations where the rules for instruments executed after 1984 apply to instruments executed before 1985. E file taxes A divorce or separation instrument executed before 1985 and then modified after 1984 to specify that the after-1984 rules will apply. E file taxes A temporary divorce or separation instrument executed before 1985 and incorporated into, or adopted by, a final decree executed after 1984 that: Changes the amount or period of payment, or Adds or deletes any contingency or condition. E file taxes   For the rules for alimony payments under pre-1985 instruments not meeting these exceptions, see the 2004 revision of Publication 504 available at www. E file taxes irs. E file taxes gov/formspubs. E file taxes Example 1. E file taxes In November 1984, you and your former spouse executed a written separation agreement. E file taxes In February 1985, a decree of divorce was substituted for the written separation agreement. E file taxes The decree of divorce did not change the terms for the alimony you pay your former spouse. E file taxes The decree of divorce is treated as executed before 1985. E file taxes Alimony payments under this decree are not subject to the rules for payments under instruments executed after 1984. E file taxes Example 2. E file taxes The facts are the same as in Example 1 except that the decree of divorce changed the amount of the alimony. E file taxes In this example, the decree of divorce is not treated as executed before 1985. E file taxes The alimony payments are subject to the rules for payments under instruments executed after 1984. E file taxes Alimony Requirements A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met. E file taxes The payment is in cash. E file taxes The instrument does not designate the payment as not alimony. E file taxes The spouses are not members of the same household at the time the payments are made. E file taxes This requirement applies only if the spouses are legally separated under a decree of divorce or separate maintenance. E file taxes There is no liability to make any payment (in cash or property) after the death of the recipient spouse. E file taxes The payment is not treated as child support. E file taxes Each of these requirements is discussed next. E file taxes Cash payment requirement. E file taxes   Only cash payments, including checks and money orders, qualify as alimony. E file taxes The following do not qualify as alimony. E file taxes Transfers of services or property (including a debt instrument of a third party or an annuity contract). E file taxes Execution of a debt instrument by the payer. E file taxes The use of the payer's property. E file taxes Payments to a third party. E file taxes   Cash payments to a third party under the terms of your divorce or separation instrument can qualify as cash payments to your spouse. E file taxes See Payments to a third party under General Rules, earlier. E file taxes   Also, cash payments made to a third party at the written request of your spouse may qualify as alimony if all the following requirements are met. E file taxes The payments are in lieu of payments of alimony directly to your spouse. E file taxes The written request states that both spouses intend the payments to be treated as alimony. E file taxes You receive the written request from your spouse before you file your return for the year you made the payments. E file taxes Payments designated as not alimony. E file taxes   You and your spouse can designate that otherwise qualifying payments are not alimony. E file taxes You do this by including a provision in your divorce or separation instrument that states the payments are not deductible as alimony by you and are excludable from your spouse's income. E file taxes For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). E file taxes If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order. E file taxes   Your spouse can exclude the payments from income only if he or she attaches a copy of the instrument designating them as not alimony to his or her return. E file taxes The copy must be attached each year the designation applies. E file taxes Spouses cannot be members of the same household. E file taxes   Payments to your spouse while you are members of the same household are not alimony if you are legally separated under a decree of divorce or separate maintenance. E file taxes A home you formerly shared is considered one household, even if you physically separate yourselves in the home. E file taxes   You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment. E file taxes Exception. E file taxes   If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if you are members of the same household when the payment is made. E file taxes Liability for payments after death of recipient spouse. E file taxes   If any part of payments you make must continue to be made for any period after your spouse's death, that part of your payments is not alimony whether made before or after the death. E file taxes If all of the payments would continue, then none of the payments made before or after the death are alimony. E file taxes   The divorce or separation instrument does not have to expressly state that the payments cease upon the
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The Tax Gap

The tax gap is defined as the amount of tax liability faced by taxpayers that is not paid on time. The Internal Revenue Service collects more than $2 trillion annually in taxes so producing an estimate of the tax gap is a major statistical effort that it undertakes every few years.

This month, the IRS released a new set of tax gap estimates for tax year 2006. The new tax gap estimate represents the first full update of the report in five years, and it shows the nation’s compliance rate is essentially unchanged at about 83 percent from the last review covering tax year 2001.

Tax Gap Estimates for Tax Year 2006

Related Item: Additional Materials on the Tax Gap

Page Last Reviewed or Updated: 03-Dec-2013

The E File Taxes

E file taxes 4. E file taxes   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. E file taxes Rent-to-own contract. E file taxes 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. E file taxes MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). E file taxes Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. E file taxes 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. E file taxes This chapter explains how to determine which MACRS depreciation system applies to your property. E file taxes It also discusses other information you need to know before you can figure depreciation under MACRS. E file taxes 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. E file taxes 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. E file taxes Finally, it explains when and how to recapture MACRS depreciation. E file taxes 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. E file taxes 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. E file taxes You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. E file taxes If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. E file taxes Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. E file taxes 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. E file taxes Required use of ADS. E file taxes   You must use ADS for the following property. E file taxes Listed property used 50% or less in a qualified business use. E file taxes See chapter 5 for information on listed property. E file taxes Any tangible property used predominantly outside the United States during the year. E file taxes Any tax-exempt use property. E file taxes Any tax-exempt bond-financed property. E file taxes 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. E file taxes 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. E file taxes 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. E file taxes Electing ADS. E file taxes   Although your property may qualify for GDS, you can elect to use ADS. E file taxes The election generally must cover all property in the same property class that you placed in service during the year. E file taxes However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. E file taxes Once you make this election, you can never revoke it. E file taxes   You make the election by completing line 20 in Part III of Form 4562. E file taxes 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. E file taxes These property classes are also listed under column (a) in section B, Part III, of Form 4562. E file taxes For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. E file taxes 3-year property. E file taxes Tractor units for over-the-road use. E file taxes Any race horse over 2 years old when placed in service. E file taxes (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. E file taxes ) Any other horse (other than a race horse) over 12 years old when placed in service. E file taxes Qualified rent-to-own property (defined later). E file taxes 5-year property. E file taxes Automobiles, taxis, buses, and trucks. E file taxes Computers and peripheral equipment. E file taxes Office machinery (such as typewriters, calculators, and copiers). E file taxes Any property used in research and experimentation. E file taxes Breeding cattle and dairy cattle. E file taxes Appliances, carpets, furniture, etc. E file taxes , used in a residential rental real estate activity. E file taxes Certain geothermal, solar, and wind energy property. E file taxes 7-year property. E file taxes Office furniture and fixtures (such as desks, files, and safes). E file taxes Agricultural machinery and equipment. E file taxes Any property that does not have a class life and has not been designated by law as being in any other class. E file taxes Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. E file taxes Any natural gas gathering line placed in service after April 11, 2005. E file taxes See Natural gas gathering line and electric transmission property , later. E file taxes 10-year property. E file taxes Vessels, barges, tugs, and similar water transportation equipment. E file taxes Any single purpose agricultural or horticultural structure. E file taxes Any tree or vine bearing fruits or nuts. E file taxes Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. E file taxes 15-year property. E file taxes Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). E file taxes Any retail motor fuels outlet (defined later), such as a convenience store. E file taxes Any municipal wastewater treatment plant. E file taxes Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. E file taxes Any qualified restaurant property (defined later) placed in service before January 1, 2014. E file taxes Initial clearing and grading land improvements for gas utility property. E file taxes 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. E file taxes See Natural gas gathering line and electric transmission property , later. E file taxes Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. E file taxes Any qualified retail improvement property placed in service before January 1, 2014. E file taxes 20-year property. E file taxes Farm buildings (other than single purpose agricultural or horticultural structures). E file taxes Municipal sewers not classified as 25-year property. E file taxes Initial clearing and grading land improvements for electric utility transmission and distribution plants. E file taxes 25-year property. E file taxes This class is water utility property, which is either of the following. E file taxes 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. E file taxes Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. E file taxes Residential rental property. E file taxes 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. E file taxes A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. E file taxes 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. E file taxes 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. E file taxes Nonresidential real property. E file taxes 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. E file taxes 5 years. E file taxes Qualified rent-to-own property. E file taxes   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. E file taxes It is tangible personal property generally used in the home for personal use. E file taxes It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. E file taxes Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. E file taxes   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. E file taxes 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. E file taxes Rent-to-own dealer. E file taxes   You are a rent-to-own dealer if you meet all the following requirements. E file taxes You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. E file taxes A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. E file taxes The property is tangible personal property of a type generally used within the home for personal use. E file taxes Rent-to-own contract. E file taxes   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. E file taxes 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). E file taxes Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. E file taxes If the payments are decreasing, no payment can be less than 40% of the largest payment. E file taxes Provides for total payments that generally exceed the normal retail price of the property plus interest. E file taxes Provides for total payments that do not exceed $10,000 for each item of property. E file taxes 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. E file taxes 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. E file taxes 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. E file taxes Motorsports entertainment complex. E file taxes   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. E file taxes The events must be open to the public for the price of admission. E file taxes Qualified smart electric grid system. E file taxes   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. E file taxes 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. E file taxes Retail motor fuels outlet. E file taxes   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. E file taxes It is not larger than 1,400 square feet. E file taxes 50% or more of the gross revenues generated from the property are derived from petroleum sales. E file taxes 50% or more of the floor space in the property is devoted to petroleum marketing sales. E file taxes A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. E file taxes Qualified leasehold improvement property. E file taxes    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. E file taxes   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. E file taxes 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. E file taxes Examples include the following. E file taxes A complete liquidation of a subsidiary. E file taxes A transfer to a corporation controlled by the transferor. E file taxes An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. E file taxes Qualified restaurant property. E file taxes   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. E file taxes 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. E file taxes Qualified smart electric meter. E file taxes   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. E file taxes 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. E file taxes Natural gas gathering line and electric transmission property. E file taxes   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. E file taxes The original use of the property must have begun with you after April 11, 2005. E file taxes Original use means the first use to which the property is put, whether or not by you. E file taxes Therefore, property used by any person before April 12, 2005, is not original use. E file taxes Original use includes additional capital expenditures you incurred to recondition or rebuild your property. E file taxes However, original use does not include the cost of reconditioned or rebuilt property you acquired. E file taxes 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. E file taxes The property must not be placed in service under a binding contract in effect before April 12, 2005. E file taxes 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. E file taxes 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. E file taxes 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. E file taxes The placed in service date for your property is the date the property is ready and available for a specific use. E file taxes It is therefore not necessarily the date it is first used. E file taxes 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. E file taxes See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. E file taxes 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. E file taxes 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 . E file taxes Reduce that amount by any credits and deductions allocable to the property. E file taxes The following are examples of some credits and deductions that reduce basis. E file taxes Any deduction for section 179 property. E file taxes Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. E file taxes 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. E file taxes 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. E file taxes 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 . E file taxes Any deduction for removal of barriers to the disabled and the elderly. E file taxes Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. E file taxes Any special depreciation allowance. E file taxes Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. E file taxes For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. E file taxes Enter the basis for depreciation under column (c) in Part III of Form 4562. E file taxes 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 . E file taxes Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. E file taxes It is determined based on the depreciation system (GDS or ADS) used. E file taxes Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. E file taxes 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. E file taxes 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. E file taxes 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. E file taxes 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. E file taxes 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. E file taxes 431. E file taxes 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). E file taxes The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. E file taxes Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. E file taxes 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). E file taxes Office in the home. E file taxes   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. E file taxes 5 years if you began using it for business before May 13, 1993). E file taxes 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. E file taxes 5 years. E file taxes See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. E file taxes Home changed to rental use. E file taxes   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. E file taxes 5 years. E file taxes 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. E file taxes The following table shows these shorter recovery periods. E file taxes 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 . E file taxes Use this chart to find the correct percentage table to use for qualified Indian reservation property. E file taxes 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. E file taxes   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. E file taxes You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. E file taxes 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. E file taxes   The following property is not qualified property. E file taxes Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. E file taxes Property acquired directly or indirectly from a related person. E file taxes Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. E file taxes These activities are defined in section 4 of the Indian Regulatory Act (25 U. E file taxes S. E file taxes C. E file taxes 2703). E file taxes Any property you must depreciate under ADS. E file taxes 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). E file taxes Qualified infrastructure property. E file taxes   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. E file taxes Qualified infrastructure property is property that meets all the following rules. E file taxes It is qualified property, as defined earlier, except that it is outside the reservation. E file taxes It benefits the tribal infrastructure. E file taxes It is available to the general public. E file taxes It is placed in service in connection with the active conduct of a trade or business within a reservation. E file taxes Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. E file taxes Related person. E file taxes   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. E file taxes Indian reservation. E file taxes   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. E file taxes S. E file taxes C. E file taxes 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. E file taxes S. E file taxes C. E file taxes 1903(10)). E file taxes Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. E file taxes For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. E file taxes Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. E file taxes The following table shows some of the ADS recovery periods. E file taxes 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. E file taxes 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 . E file taxes Tax-exempt use property subject to a lease. E file taxes   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. E file taxes Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. E file taxes See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. E file taxes 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. E file taxes The recovery period begins on the later of the following dates. E file taxes The date you place the addition or improvement in service. E file taxes The date you place in service the property to which you made the addition or improvement. E file taxes 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). E file taxes Example. E file taxes You own a rental home that you have been renting out since 1981. E file taxes 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. E file taxes Under GDS, the property class for the addition is residential rental property and its recovery period is 27. E file taxes 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. E file taxes Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. E file taxes 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. E file taxes The mid-month convention. E file taxes   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. E file taxes   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. E file taxes This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. E file taxes   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. E file taxes The mid-quarter convention. E file taxes   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. E file taxes   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. E file taxes This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. E file taxes   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. E file taxes    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. E file taxes However, it does not reflect any reduction in basis for any special depreciation allowance. E file taxes The half-year convention. E file taxes   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. E file taxes   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. E file taxes This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. E file taxes   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. E file taxes Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. E file taxes The 200% declining balance method over a GDS recovery period. E file taxes The 150% declining balance method over a GDS recovery period. E file taxes The straight line method over a GDS recovery period. E file taxes The straight line method over an ADS recovery period. E file taxes 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. E file taxes If you made this election, continue to use the same method and recovery period for that property. E file taxes Table 4–1 lists the types of property you can depreciate under each method. E file taxes It also gives a brief explanation of the method, including any benefits that may apply. E file taxes 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. E file taxes You can depreciate real property using the straight line method under either GDS or ADS. E file taxes Fruit or nut trees and vines. E file taxes   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. E file taxes ADS required for some farmers. E file taxes   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. E file taxes You must use ADS for all property you place in service in any year the election is in effect. E file taxes See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. E file taxes Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. E file taxes You must make the election by the due date of the return (including extensions) for the year you placed the property in service. E file taxes 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). E file taxes Attach the election to the amended return and write “Filed pursuant to section 301. E file taxes 9100-2” on the election statement. E file taxes File the amended return at the same address you filed the original return. E file taxes Once you make the election, you cannot change it. E file taxes 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. E file taxes However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. E file taxes 150% election. E file taxes   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. E file taxes Make the election by entering “150 DB” under column (f) in Part III of Form 4562. E file taxes Straight line election. E file taxes   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. E file taxes Make the election by entering  “S/L” under column (f) in Part III of Form 4562. E file taxes Election of ADS. E file taxes   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. E file taxes ADS uses the straight line method of depreciation over fixed ADS recovery periods. E file taxes Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. E file taxes   Make the election by completing line 20 in Part III of Form 4562. E file taxes Farm property. E file taxes   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. E file taxes The straight line method over a GDS recovery period. E file taxes The straight line method over an ADS recovery period. E file taxes Table 4-1. E file taxes Depreciation Methods Note. E file taxes The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. E file taxes 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. E file taxes S. E file taxes  • 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. E file taxes 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. E file taxes Then, you are ready to figure your depreciation deduction. E file taxes You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. E file taxes 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. E file taxes These percentage tables are in Appendix A near the end of this publication. E file taxes Which table to use. E file taxes    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. E file taxes The percentage tables immediately follow the guide. E file taxes Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. E file taxes You must apply the rates in the percentage tables to your property's unadjusted basis. E file taxes You cannot use the percentage tables for a short tax year. E file taxes See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. E file taxes 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. E file taxes 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. E file taxes 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. E file taxes Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. E file taxes   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. E file taxes 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. E file taxes See Figuring the Deduction Without Using the Tables, later. E file taxes Basis adjustment due to casualty loss. E file taxes   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. E file taxes 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. E file taxes See Figuring the Deduction Without Using the Tables, later. E file taxes Example. E file taxes 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. E file taxes It cost $39,000 and she elected a section 179 deduction of $24,000. E file taxes She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. E file taxes Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). E file taxes She figured her MACRS depreciation deduction using the percentage tables. E file taxes For 2012, her MACRS depreciation deduction was $268. E file taxes In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. E file taxes She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. E file taxes Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. E file taxes 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. E file taxes She must now figure her depreciation for 2013 without using the percentage tables. E file taxes 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. E file taxes 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. E file taxes However, you do reduce your original basis by other amounts, including the following. E file taxes Any amortization taken on the property. E file taxes Any section 179 deduction claimed. E file taxes Any special depreciation allowance taken on the property. E file taxes For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. E file taxes 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. E file taxes MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. E file taxes Use a separate worksheet for each item of property. E file taxes Then, use the information from this worksheet to prepare Form 4562. E file taxes Do not use this worksheet for automobiles. E file taxes Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. E file taxes MACRS Worksheet Part I   1. E file taxes MACRS system (GDS or ADS)   2. E file taxes Property class   3. E file taxes Date placed in service   4. E file taxes Recovery period   5. E file taxes Method and convention   6. E file taxes Depreciation rate (from tables)   Part II   7. E file taxes Cost or other basis* $     8. E file taxes Business/investment use   %   9. E file taxes Multiply line 7 by line 8   $ 10. E file taxes Total claimed for section 179 deduction and other items   $ 11. E file taxes Subtract line 10 from line 9. E file taxes This is your tentative basis for depreciation   $ 12. E file taxes Multiply line 11 by . E file taxes 50 if the 50% special depreciation allowance applies. E file taxes This is your special depreciation allowance. E file taxes 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. E file taxes Subtract line 12 from line 11. E file taxes This is your basis for depreciation     14. E file taxes Depreciation rate (from line 6)     15. E file taxes Multiply line 13 by line 14. E file taxes This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. E file taxes The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. E file taxes Example. E file taxes You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. E file taxes You use the furniture only for business. E file taxes This is the only property you placed in service this year. E file taxes 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. E file taxes You use GDS and the half-year convention to figure your depreciation. E file taxes You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. E file taxes Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. E file taxes You figure your depreciation deduction using the MACRS worksheet as follows. E file taxes MACRS Worksheet Part I 1. E file taxes MACRS system (GDS or ADS) GDS 2. E file taxes Property class 7-year 3. E file taxes Date placed in service 8/11/13 4. E file taxes Recovery period 7-Year 5. E file taxes Method and convention 200%DB/Half-Year 6. E file taxes Depreciation rate (from tables) . E file taxes 1429 Part II 7. E file taxes Cost or other basis* $10,000     8. E file taxes Business/investment use 100 %   9. E file taxes Multiply line 7 by line 8   $10,000 10. E file taxes Total claimed for section 179 deduction and other items   -0- 11. E file taxes Subtract line 10 from line 9. E file taxes This is your tentative basis for depreciation   $10,000 12. E file taxes Multiply line 11 by . E file taxes 50 if the 50% special depreciation allowance applies. E file taxes This is your special depreciation allowance. E file taxes 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. E file taxes Subtract line 12 from line 11. E file taxes This is your basis for depreciation   $10,000 14. E file taxes Depreciation rate (from line 6)   . E file taxes 1429 15. E file taxes Multiply line 13 by line 14. E file taxes This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. E file taxes 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. E file taxes Year   Basis Percentage Deduction 2014 $ 10,000 24. E file taxes 49%   $2,449   2015   10,000 17. E file taxes 49   1,749   2016   10,000 12. E file taxes 49   1,249   2017   10,000 8. E file taxes 93   893   2018   10,000 8. E file taxes 92   892   2019   10,000 8. E file taxes 93   893   2020   10,000 4. E file taxes 46   446   Examples The following examples are provided to show you how to use the percentage tables. E file taxes In both examples, assume the following. E file taxes You use the property only for business. E file taxes You use the calendar year as your tax year. E file taxes You use GDS for all the properties. E file taxes Example 1. E file taxes You bought a building and land for $120,000 and placed it in service on March 8. E file taxes The sales contract showed that the building cost $100,000 and the land cost $20,000. E file taxes It is nonresidential real property. E file taxes The building's unadjusted basis is its original cost, $100,000. E file taxes You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. E file taxes 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. E file taxes Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. E file taxes 033%   $2,033   2nd   100,000 2. E file taxes 564   2,564   3rd   100,000 2. E file taxes 564   2,564   Example 2. E file taxes 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. E file taxes You placed the machine in service in January, the furniture in September, and the computer in October. E file taxes You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. E file taxes 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. E file taxes The total bases of all property you placed in service during the year is $10,000. E file taxes 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. E file taxes Therefore, you must use the mid-quarter convention for all three items. E file taxes You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. E file taxes The machine is 7-year property placed in service in the first quarter, so you use Table A-2. E file taxes The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. E file taxes Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. E file taxes Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. E file taxes Year Property Basis Percentage Deduction 1st Machine $4,000 25. E file taxes 00 $1,000   2nd Machine 4,000 21. E file taxes 43 857   1st Furniture 1,000 10. E file taxes 71 107   2nd Furniture 1,000 25. E file taxes 51 255   1st Computer 5,000 5. E file taxes 00 250   2nd Computer 5,000 38. E file taxes 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. E file taxes 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. E file taxes After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. E file taxes Half-year convention used. E file taxes   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. E file taxes Mid-quarter convention used. E file taxes   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. E file taxes Quarter Percentage First 12. E file taxes 5% Second 37. E file taxes 5 Third 62. E file taxes 5 Fourth 87. E file taxes 5 Example. E file taxes On December 2, 2010, you placed in service an item of 5-year property costing $10,000. E file taxes You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. E file taxes Your unadjusted basis for the property was $10,000. E file taxes 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. E file taxes Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. E file taxes Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. E file taxes 80% of $10,000). E file taxes You disposed of the property on April 6, 2013. E file taxes To determine your depreciation deduction for 2013, first figure the deduction for the full year. E file taxes This is $1,368 (13. E file taxes 68% of $10,000). E file taxes April is in the second quarter of the year, so you multiply $1,368 by 37. E file taxes 5% to get your depreciation deduction of $513 for 2013. E file taxes Mid-month convention used. E file taxes   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. E file taxes The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. E file taxes The denominator is 12. E file taxes Example. E file taxes On July 2, 2011, you purchased and placed in service residential rental property. E file taxes The property cost $100,000, not including the cost of land. E file taxes You used Table A-6 to figure your MACRS depreciation for this property. E file taxes You sold the property on March 2, 2013. E file taxes You file your tax return based on the calendar year. E file taxes A full year of depreciation for 2013 is $3,636. E file taxes This is $100,000 multiplied by . E file taxes 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . E file taxes You then apply the mid-month convention for the 2½ months of use in 2013. E file taxes Treat the month of disposition as one-half month of use. E file taxes Multiply $3,636 by the fraction, 2. E file taxes 5 over 12, to get your 2013 depreciation deduction of $757. E file taxes 50. E file taxes 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. E file taxes Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. E file taxes Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. E file taxes Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. E file taxes 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. E file taxes The straight line method is explained later. E file taxes You figure depreciation for the year you place property in service as follows. E file taxes Multiply your adjusted basis in the property by the declining balance rate. E file taxes Apply the applicable convention. E file taxes You figure depreciation for all other years (before the year you switch to the straight line method) as follows. E file taxes Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. E file taxes Multiply this new adjusted basis by the same declining balance rate used in earlier years. E file taxes 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. E file taxes Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. E file taxes Declining balance rate. E file taxes   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. E file taxes For example, for 3-year property depreciated using the 200% declining balance method, divide 2. E file taxes 00 (200%) by 3 to get 0. E file taxes 6667, or a 66. E file taxes 67% declining balance rate. E file taxes For 15-year property depreciated using the 150% declining balance method, divide 1. E file taxes 50 (150%) by 15 to get 0. E file taxes 10, or a 10% declining balance rate. E file taxes   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. E file taxes Property Class Method Declining Balance Rate Year 3-year 200% DB 66. E file taxes 667% 3rd 5-year 200% DB 40. E file taxes 0 4th 7-year 200% DB 28. E file taxes 571 5th 10-year 200% DB 20. E file taxes 0 7th 15-year 150% DB 10. E file taxes 0 7th 20-year 150% DB 7. E file taxes 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. E file taxes You must use the applicable convention in the year you place the property in service and the year you dispose of the property. E file taxes You figure depreciation for the year you place property in service as follows. E file taxes Multiply your adjusted basis in the property by the straight line rate. E file taxes Apply the applicable convention. E file taxes You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. E file taxes Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). E file taxes Determine the depreciation rate for the year. E file taxes Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). E file taxes 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. E file taxes Straight line rate. E file taxes   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. E file taxes When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. E file taxes If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. E file taxes 0 (100%). E file taxes 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. E file taxes 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. E file taxes See Straight line rate in the previous discussion. E file taxes Use the applicable convention as explained in the following discussions. E file taxes Half-year convention. E file taxes   If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. E file taxes You deduct a full year of depreciation for any other year during the recovery period. E file taxes   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. E file taxes 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. E file taxes 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. E file taxes Mid-quarter convention. E file taxes   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. E file taxes   A quarter of a full 12-month tax year is a period of 3 months. E file taxes The first quarter in a year begins on the first day of the tax year. E file taxes The second quarter begins on the first day of the fourth month of the tax year. E file taxes The third quarter begins on the first day of the seventh month of the tax year. E file taxes The fourth quarter begins on the first day of the tenth month of the tax year. E file taxes A calendar year is divided into the following quarters. E file taxes 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. E file taxes Quarter Percentage First 87. E file taxes 5% Second 62. E file taxes 5 Third 37. E file taxes 5 Fourth 12. E file taxes 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. E file taxes Quarter Percentage First 12. E file taxes 5% Second 37. E file taxes 5 Third 62. E file taxes 5 Fourth 87. E file taxes 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. E file taxes Mid-month convention. E file taxes   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. E file taxes Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. E file taxes The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. E file taxes 5). E file taxes The denominator is 12. E file taxes   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. E file taxes 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. E file taxes Example. E file taxes You use the calendar year and place nonresidential real property in service in August. E file taxes The property is in service 4 full months (September, October, November, and December). E file taxes Your numerator is 4. E file taxes 5 (4 full months plus 0. E file taxes 5). E file taxes You multiply the depreciation for a full year by 4. E file taxes 5/12, or 0. E file taxes 375. E file taxes Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. E file taxes Figures are rounded for purposes of the examples. E file taxes Assume for all the examples that you use a calendar year as your tax year. E file taxes Example 1—200% DB method and half-year convention. E file taxes In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. E file taxes You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. E file taxes You use GDS and the 200% declining balance (DB) method to figure your depreciation. E file taxes When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. E file taxes You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. E file taxes First year. E file taxes You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). E file taxes The result is 40%. E file taxes You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. E file taxes You apply the half-year convention by dividing the result ($400) by 2. E file taxes Depreciation for the first year under the 200% DB method is $200. E file taxes You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. E file taxes The result is 20%. E file taxes You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. E file taxes You apply the half-year convention by dividing the result ($200) by 2. E file taxes Depreciation for the first year under the SL method is $100. E file taxes The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. E file taxes Second year. E file taxes You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). E file taxes You multiply the result ($800) by the DB rate (40%). E file taxes Depreciation for the second year under the 200% DB method is $320. E file taxes You figure the SL depreciation rate by dividing 1 by 4. E file taxes 5, the number of years remaining in the recovery period. E file taxes (Based on the half-year convention, you used only half a year of the recovery period in the first year. E file taxes ) You multiply the reduced adjusted basis ($800) by the result (22. E file taxes 22%). E file taxes Depreciation under the SL method for the second year is $178. E file taxes The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. E file taxes Third year. E file taxes You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). E file taxes You multiply the result ($480) by the DB rate (40%). E file taxes Depreciation for the third year under the 200% DB method is $192. E file taxes You figure the SL depreciation rate by dividing 1 by 3. E file taxes 5. E file taxes You multiply the reduced adjusted basis ($480) by the result (28. E file taxes 57%). E file taxes Depreciation under the SL method for the third year is $137. E file taxes The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. E file taxes Fourth year. E file taxes You reduce the adjusted basis ($480) by the de