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File For Extension 2012 Taxes

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File For Extension 2012 Taxes

File for extension 2012 taxes Publication 523 - Introductory Material Table of Contents Future Developments Reminders IntroductionOrdering forms and publications. File for extension 2012 taxes Tax questions. File for extension 2012 taxes Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 523, such as legislation enacted after it was published, go to www. File for extension 2012 taxes irs. File for extension 2012 taxes gov/pub523. File for extension 2012 taxes Reminders Change of address. File for extension 2012 taxes  If you change your mailing address, be sure to notify the Internal Revenue Service (IRS) using Form 8822, Change of Address. File for extension 2012 taxes Mail it to the Internal Revenue Service Center for your old address. File for extension 2012 taxes (Addresses for the Service Centers are on the back of the form. File for extension 2012 taxes ) Home sold with undeducted points. File for extension 2012 taxes  If you have not deducted all the points you paid to secure a mortgage on your old home, you may be able to deduct the remaining points in the year of sale. File for extension 2012 taxes See Points in Publication 936, Home Mortgage Interest Deduction. File for extension 2012 taxes Photographs of missing children. File for extension 2012 taxes  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. File for extension 2012 taxes Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. File for extension 2012 taxes You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. File for extension 2012 taxes Introduction This publication explains the tax rules that apply when you sell your main home. File for extension 2012 taxes In most cases, your main home is the one in which you live most of the time. File for extension 2012 taxes If you sold your main home in 2013, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). File for extension 2012 taxes See Excluding the Gain , later. File for extension 2012 taxes Generally, if you can exclude all the gain, you do not need to report the sale on your tax return. File for extension 2012 taxes If you have gain that cannot be excluded, you generally must report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040), Capital Gains and Losses. File for extension 2012 taxes You may also have to complete Form 4797, Sales of Business Property. File for extension 2012 taxes See Reporting the Sale , later. File for extension 2012 taxes If you have a loss on the sale, you generally cannot deduct it on your return. File for extension 2012 taxes However, you may need to report it. File for extension 2012 taxes See Reporting the Sale , later. File for extension 2012 taxes The main topics in this publication are: Figuring gain or loss, Basis, Excluding the gain, Ownership and use tests, and Reporting the sale. File for extension 2012 taxes Other topics include: Business use or rental of home, Deducting taxes in the year of sale, and Recapturing a federal mortgage subsidy. File for extension 2012 taxes Net Investment Income Tax (NIIT). File for extension 2012 taxes   If any part of the gain on the sale of a home is not excluded under the rules discussed in this publication, it may be subject to the NIIT. File for extension 2012 taxes For more details, see Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions. File for extension 2012 taxes Worksheets. File for extension 2012 taxes   Near the end of this publication you will find worksheets you can use to figure your gain (or loss) and your exclusion. File for extension 2012 taxes Use Worksheet 1 to figure the adjusted basis of the home you sold. File for extension 2012 taxes Use Worksheet 2 to figure the gain (or loss), the exclusion, and the taxable gain (if any) on the sale. File for extension 2012 taxes If you do not qualify for the maximum exclusion, use Worksheet 3 to figure your reduced maximum exclusion. File for extension 2012 taxes Date of sale. File for extension 2012 taxes    If you received a Form 1099-S, Proceeds From Real Estate Transactions, the date of sale should be shown in box 1. File for extension 2012 taxes If you did not receive this form, the date of sale is the earlier of (a) the date title transferred or (b) the date the economic burdens and benefits of ownership shifted to the buyer. File for extension 2012 taxes In most cases, these dates are the same. File for extension 2012 taxes What is not covered in this publication. File for extension 2012 taxes   This publication does not cover the sale of rental property, second homes, or vacation homes. File for extension 2012 taxes For information on how to report any gain or loss from those sales, see Publication 544, Sales and Other Dispositions of Assets. File for extension 2012 taxes Comments and suggestions. File for extension 2012 taxes   We welcome your comments about this publication and your suggestions for future editions. File for extension 2012 taxes   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. File for extension 2012 taxes NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. File for extension 2012 taxes Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. File for extension 2012 taxes   You can send your comments from www. File for extension 2012 taxes irs. File for extension 2012 taxes gov/formspubs/. File for extension 2012 taxes Click on “More Information” and then on “Comment on Tax Forms and Publications”. File for extension 2012 taxes   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. File for extension 2012 taxes Ordering forms and publications. File for extension 2012 taxes   Visit www. File for extension 2012 taxes irs. File for extension 2012 taxes gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. File for extension 2012 taxes Internal Revenue Service 1201 N. File for extension 2012 taxes Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. File for extension 2012 taxes   If you have a tax question, check the information available on IRS. File for extension 2012 taxes gov or call 1-800-829-1040. File for extension 2012 taxes We cannot answer tax questions sent to either of the above addresses. File for extension 2012 taxes Useful Items - You may want to see: Publication 527 Residential Rental Property 530 Tax Information for Homeowners 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 551 Basis of Assets 587 Business Use of Your Home 936 Home Mortgage Interest Deduction 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule D (Form 1040) Capital Gains and Losses 982 Reduction of Tax Attributes Due to Discharge of Indebtedness 1040 U. File for extension 2012 taxes S. File for extension 2012 taxes Individual Income Tax Return 1040NR U. File for extension 2012 taxes S. File for extension 2012 taxes Nonresident Alien Income Tax Return 1040X Amended U. File for extension 2012 taxes S. File for extension 2012 taxes Individual Income Tax Return 1099-S Proceeds From Real Estate Transactions 4797 Sales of Business Property 5405 Repayment of the First-Time Homebuyer Credit 8822 Change of Address 8828 Recapture of Federal Mortgage Subsidy 8939 Allocation of Increase in Basis for Property Acquired From a Decedent 8949 Sales and Other Dispositions of Capital Assets W-2 Wage and Tax Statement See How To Get Tax Help , near the end of this publication, for information about getting these publications and forms. File for extension 2012 taxes Prev  Up  Next   Home   More Online Publications
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Sales Tax Deduction Calculator

If you file a Form 1040, and itemize deductions on Schedule A, you have the option of claiming either state and local income taxes or state and local sales taxes. (You can’t claim both.) If you saved your receipts throughout the year, you can add up the total amount of sales taxes you actually paid and claim that amount.

If you didn’t save all your receipts, you can still choose to claim state and local sales taxes. You could fill out the worksheet and use the optional general sales tax tables in the Instructions for Schedule A (Form 1040) , but why not take the easy route and use the Sales Tax Deduction Calculator!

 

Using the Sales Tax Deduction Calculator
To figure the amount of optional general sales tax you are eligible to claim, just answer a few online questions and the system does the rest. First select the tax year for which you are preparing a return. Then, using your ZIP Code and just a few entries from your draft Form 1040, the Sales Tax Deduction Calculator will automatically figure the amount of state and local sales tax you can claim. You will see the results from your entries immediately on your computer screen. Even if your state and local sales tax rates changed during the year (e.g., because the rates changed or because you moved your personal residence), the Sales Tax Deduction Calculator can handle it.

Note:  If a city has more than one tax jurisdiction sharing the same ZIP Code and County but having different local tax rates, the calculator uses the average local tax rate for those jurisdictions.

Sales Tax Deduction Calculator updated with U.S. Military District ZIP Codes
The Sales Tax Deduction Calculator has been updated with overseas U.S. Military Zones and Districts where members of U.S. Military pay no sales tax. U.S. Military Personnel who are deployed overseas can use the calculator to determine the sales tax they paid while they were within the United States. The calculator provides the ability to choose military regions using Military Zone abbreviations and ZIP codes. Members of U.S. Military can choose from one of the following Military Zone abbreviations:

 

AA  - Military Personnel in the Americas, excluding Canada

APO - Military Post Office for U.S. Army & Air Force Personnel

AE - Military Personnel in Europe, Middle East, Africa and Canada

FPO - Military Post Office for U.S. Navy Personnel
AP - Military Personnel in Asia Pacific DPO - Post Office for U.S. Embassy, State Department and other Diplomatic Personnel

 

Your entries are anonymous and the information is collected solely to allow you to determine your total allowable deduction. All entries are erased when you exit or start over. See the “IRS Privacy Policy” below for more information.

Ready to start? Continue to the Sales Tax Deduction Calculator.

Additional Resources:

Sales Tax Deduction Calculator Frequently Asked Questions

Page Last Reviewed or Updated: 14-Jan-2014

The File For Extension 2012 Taxes

File for extension 2012 taxes 3. File for extension 2012 taxes   Ordinary or Capital Gain or Loss for Business Property Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. File for extension 2012 taxes Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sales Gifts Transfers at Death Like-Kind Exchanges and Involuntary Conversions Multiple Properties Introduction When you dispose of business property, your taxable gain or loss is usually a section 1231 gain or loss. File for extension 2012 taxes Its treatment as ordinary or capital is determined under rules for section 1231 transactions. File for extension 2012 taxes When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. File for extension 2012 taxes Any remaining gain is a section 1231 gain. File for extension 2012 taxes Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 537 Installment Sales 547 Casualties, Disasters and Thefts 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) 4797 Sales of Business Property See chapter 5 for information about getting publications and forms. File for extension 2012 taxes Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (discussed below). File for extension 2012 taxes Their treatment as ordinary or capital depends on whether you have a net gain or a net loss from all your section 1231 transactions. File for extension 2012 taxes If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). File for extension 2012 taxes Do not take that gain into account as section 1231 gain. File for extension 2012 taxes Section 1231 transactions. File for extension 2012 taxes   The following transactions result in gain or loss subject to section 1231 treatment. File for extension 2012 taxes Sales or exchanges of real property or depreciable personal property. File for extension 2012 taxes This property must be used in a trade or business and held longer than 1 year. File for extension 2012 taxes Generally, property held for the production of rents or royalties is considered to be used in a trade or business. File for extension 2012 taxes Depreciable personal property includes amortizable section 197 intangibles (described in chapter 2 under Other Dispositions). File for extension 2012 taxes Sales or exchanges of leaseholds. File for extension 2012 taxes The leasehold must be used in a trade or business and held longer than 1 year. File for extension 2012 taxes Sales or exchanges of cattle and horses. File for extension 2012 taxes The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 2 years or longer. File for extension 2012 taxes Sales or exchanges of other livestock. File for extension 2012 taxes This livestock does not include poultry. File for extension 2012 taxes It must be held for draft, breeding, dairy, or sporting purposes and held for 1 year or longer. File for extension 2012 taxes Sales or exchanges of unharvested crops. File for extension 2012 taxes The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person and the land must be held longer than 1 year. File for extension 2012 taxes You cannot keep any right or option to directly or indirectly reacquire the land (other than a right customarily incident to a mortgage or other security transaction). File for extension 2012 taxes Growing crops sold with a lease on the land, though sold to the same person in the same transaction, are not included. File for extension 2012 taxes Cutting of timber or disposal of timber, coal, or iron ore. File for extension 2012 taxes The cutting or disposal must be treated as a sale, as described in chapter 2 under Timber and Coal and Iron Ore. File for extension 2012 taxes Condemnations. File for extension 2012 taxes The condemned property must have been held longer than 1 year. File for extension 2012 taxes It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. File for extension 2012 taxes It cannot be property held for personal use. File for extension 2012 taxes Casualties and thefts. File for extension 2012 taxes The casualty or theft must have affected business property, property held for the production of rents and royalties, or investment property (such as notes and bonds). File for extension 2012 taxes You must have held the property longer than 1 year. File for extension 2012 taxes However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. File for extension 2012 taxes For more information on casualties and thefts, see Publication 547. File for extension 2012 taxes Property for sale to customers. File for extension 2012 taxes   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. File for extension 2012 taxes If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. File for extension 2012 taxes Example. File for extension 2012 taxes You manufacture and sell steel cable, which you deliver on returnable reels that are depreciable property. File for extension 2012 taxes Customers make deposits on the reels, which you refund if the reels are returned within a year. File for extension 2012 taxes If they are not returned, you keep each deposit as the agreed-upon sales price. File for extension 2012 taxes Most reels are returned within the 1-year period. File for extension 2012 taxes You keep adequate records showing depreciation and other charges to the capitalized cost of the reels. File for extension 2012 taxes Under these conditions, the reels are not property held for sale to customers in the ordinary course of your business. File for extension 2012 taxes Any gain or loss resulting from their not being returned may be capital or ordinary, depending on your section 1231 transactions. File for extension 2012 taxes Copyrights. File for extension 2012 taxes    The sale of a copyright, a literary, musical, or artistic composition, or similar property is not a section 1231 transaction if your personal efforts created the property, or if you acquired the property in a way that entitled you to the basis of the previous owner whose personal efforts created it (for example, if you receive the property as a gift). File for extension 2012 taxes The sale of such property results in ordinary income and generally is reported in Part II of Form 4797. File for extension 2012 taxes Treatment as ordinary or capital. File for extension 2012 taxes   To determine the treatment of section 1231 gains and losses, combine all your section 1231 gains and losses for the year. File for extension 2012 taxes If you have a net section 1231 loss, it is ordinary loss. File for extension 2012 taxes If you have a net section 1231 gain, it is ordinary income up to the amount of your nonrecaptured section 1231 losses from previous years. File for extension 2012 taxes The rest, if any, is long-term capital gain. File for extension 2012 taxes Nonrecaptured section 1231 losses. File for extension 2012 taxes   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain. File for extension 2012 taxes Therefore, if in any of your five preceding tax years you had section 1231 losses, a net gain for the current year from the sale of section 1231 assets is ordinary gain to the extent of your prior losses. File for extension 2012 taxes These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. File for extension 2012 taxes Example. File for extension 2012 taxes In 2013, Ben has a $2,000 net section 1231 gain. File for extension 2012 taxes To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. File for extension 2012 taxes From 2008 through 2012 he had the following section 1231 gains and losses. File for extension 2012 taxes Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800 Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. File for extension 2012 taxes 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if otherwise nontaxable) as ordinary income. File for extension 2012 taxes To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. File for extension 2012 taxes This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis. File for extension 2012 taxes On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information. File for extension 2012 taxes Whether the adjusted basis was figured using depreciation or amortization you claimed on other property. File for extension 2012 taxes Whether the adjusted basis was figured using depreciation or amortization another person claimed. File for extension 2012 taxes Corporate distributions. File for extension 2012 taxes   For information on property distributed by corporations, see Distributions to Shareholders in Publication 542, Corporations. File for extension 2012 taxes General asset accounts. File for extension 2012 taxes   Different rules apply to dispositions of property you depreciated using a general asset account. File for extension 2012 taxes For information on these rules, see Publication 946. File for extension 2012 taxes Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable on the property. File for extension 2012 taxes See Gain Treated as Ordinary Income, later. File for extension 2012 taxes Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain. File for extension 2012 taxes See Treatment as ordinary or capital under Section 1231 Gains and Losses, earlier. File for extension 2012 taxes Section 1245 property defined. File for extension 2012 taxes   Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. File for extension 2012 taxes Personal property (either tangible or intangible). File for extension 2012 taxes Other tangible property (except buildings and their structural components) used as any of the following. File for extension 2012 taxes See Buildings and structural components below. File for extension 2012 taxes An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services. File for extension 2012 taxes A research facility in any of the activities in (a). File for extension 2012 taxes A facility in any of the activities in (a) for the bulk storage of fungible commodities (discussed on the next page). File for extension 2012 taxes That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. File for extension 2012 taxes Amortization of certified pollution control facilities. File for extension 2012 taxes The section 179 expense deduction. File for extension 2012 taxes Deduction for clean-fuel vehicles and certain refueling property. File for extension 2012 taxes Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations. File for extension 2012 taxes Deduction for certain qualified refinery property. File for extension 2012 taxes Deduction for qualified energy efficient commercial building property. File for extension 2012 taxes Amortization of railroad grading and tunnel bores, if in effect before the repeal by the Revenue Reconciliation Act of 1990. File for extension 2012 taxes (Repealed by Public Law 99-514, Tax Reform Act of 1986, section 242(a). File for extension 2012 taxes ) Certain expenditures for child care facilities if in effect before repeal by Public Law 101-58, Omnibus Budget Reconciliation Act of 1990, section 11801(a)(13) (except with regards to deductions made prior to November 5, 1990). File for extension 2012 taxes Expenditures to remove architectural and transportation barriers to the handicapped and elderly. File for extension 2012 taxes Deduction for qualified tertiary injectant expenses. File for extension 2012 taxes Certain reforestation expenditures. File for extension 2012 taxes Deduction for election to expense qualified advanced mine safety equipment property. File for extension 2012 taxes Single purpose agricultural (livestock) or horticultural structures. File for extension 2012 taxes Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. File for extension 2012 taxes Any railroad grading or tunnel bore. File for extension 2012 taxes Buildings and structural components. File for extension 2012 taxes   Section 1245 property does not include buildings and structural components. File for extension 2012 taxes The term building includes a house, barn, warehouse, or garage. File for extension 2012 taxes The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. File for extension 2012 taxes   Do not treat a structure that is essentially machinery or equipment as a building or structural component. File for extension 2012 taxes Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. File for extension 2012 taxes   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. File for extension 2012 taxes Structures such as oil and gas storage tanks, grain storage bins, silos, fractionating towers, blast furnaces, basic oxygen furnaces, coke ovens, brick kilns, and coal tipples are not treated as buildings, but as section 1245 property. File for extension 2012 taxes Facility for bulk storage of fungible commodities. File for extension 2012 taxes   This term includes oil or gas storage tanks and grain storage bins. File for extension 2012 taxes Bulk storage means the storage of a commodity in a large mass before it is used. File for extension 2012 taxes For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. File for extension 2012 taxes To be fungible, a commodity must be such that one part may be used in place of another. File for extension 2012 taxes   Stored materials that vary in composition, size, and weight are not fungible. File for extension 2012 taxes Materials are not fungible if one part cannot be used in place of another part and the materials cannot be estimated and replaced by simple reference to weight, measure, and number. File for extension 2012 taxes For example, the storage of different grades and forms of aluminum scrap is not storage of fungible commodities. File for extension 2012 taxes Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. File for extension 2012 taxes The depreciation and amortization allowed or allowable on the property. File for extension 2012 taxes The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). File for extension 2012 taxes A limit on this amount for gain on like-kind exchanges and involuntary conversions is explained later. File for extension 2012 taxes For any other disposition of section 1245 property, ordinary income is the lesser of (1) earlier or the amount by which its fair market value is more than its adjusted basis. File for extension 2012 taxes See Gifts and Transfers at Death, later. File for extension 2012 taxes Use Part III of Form 4797 to figure the ordinary income part of the gain. File for extension 2012 taxes Depreciation taken on other property or taken by other taxpayers. File for extension 2012 taxes   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. File for extension 2012 taxes Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. File for extension 2012 taxes Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift). File for extension 2012 taxes Depreciation and amortization. File for extension 2012 taxes   Depreciation and amortization that must be recaptured as ordinary income include (but are not limited to) the following items. File for extension 2012 taxes Ordinary depreciation deductions. File for extension 2012 taxes Any special depreciation allowance you claimed. File for extension 2012 taxes Amortization deductions for all the following costs. File for extension 2012 taxes Acquiring a lease. File for extension 2012 taxes Lessee improvements. File for extension 2012 taxes Certified pollution control facilities. File for extension 2012 taxes Certain reforestation expenses. File for extension 2012 taxes Section 197 intangibles. File for extension 2012 taxes Childcare facility expenses made before 1982, if in effect before the repeal of IRC 188. File for extension 2012 taxes Franchises, trademarks, and trade names acquired before August 11, 1993. File for extension 2012 taxes The section 179 deduction. File for extension 2012 taxes Deductions for all the following costs. File for extension 2012 taxes Removing barriers to the disabled and the elderly. File for extension 2012 taxes Tertiary injectant expenses. File for extension 2012 taxes Depreciable clean-fuel vehicles and refueling property (minus the amount of any recaptured deduction). File for extension 2012 taxes Environmental cleanup costs. File for extension 2012 taxes Certain reforestation expenses. File for extension 2012 taxes Qualified disaster expenses. File for extension 2012 taxes Any basis reduction for the investment credit (minus any basis increase for credit recapture). File for extension 2012 taxes Any basis reduction for the qualified electric vehicle credit (minus any basis increase for credit recapture). File for extension 2012 taxes Example. File for extension 2012 taxes You file your returns on a calendar year basis. File for extension 2012 taxes In February 2011, you bought and placed in service for 100% use in your business a light-duty truck (5-year property) that cost $10,000. File for extension 2012 taxes You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2011 and $3,200 in 2012. File for extension 2012 taxes You did not take the section 179 deduction. File for extension 2012 taxes You sold the truck in May 2013 for $7,000. File for extension 2012 taxes The MACRS deduction in 2013, the year of sale, is $960 (½ of $1,920). File for extension 2012 taxes Figure the gain treated as ordinary income as follows. File for extension 2012 taxes 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $2,000 + $3,200 + $960) 6,160   4) Adjusted basis (subtract line 3 from line 2) $3,840 5) Gain realized (subtract line 4 from line 1) $3,160 6) Gain treated as ordinary income (lesser of line 3 or line 5) $3,160 Depreciation on other tangible property. File for extension 2012 taxes   You must take into account depreciation during periods when the property was not used as an integral part of an activity or did not constitute a research or storage facility, as described earlier under Section 1245 property. File for extension 2012 taxes   For example, if depreciation deductions taken on certain storage facilities amounted to $10,000, of which $6,000 is from the periods before their use in a prescribed business activity, you must use the entire $10,000 in determining ordinary income from depreciation. File for extension 2012 taxes Depreciation allowed or allowable. File for extension 2012 taxes   The greater of the depreciation allowed or allowable is generally the amount to use in figuring the part of gain to report as ordinary income. File for extension 2012 taxes However, if in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. File for extension 2012 taxes If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. File for extension 2012 taxes   This treatment applies only when figuring what part of gain is treated as ordinary income under the rules for section 1245 depreciation recapture. File for extension 2012 taxes Multiple asset accounts. File for extension 2012 taxes   In figuring ordinary income from depreciation, you can treat any number of units of section 1245 property in a single depreciation account as one item if the total ordinary income from depreciation figured by using this method is not less than it would be if depreciation on each unit were figured separately. File for extension 2012 taxes Example. File for extension 2012 taxes In one transaction you sold 50 machines, 25 trucks, and certain other property that is not section 1245 property. File for extension 2012 taxes All of the depreciation was recorded in a single depreciation account. File for extension 2012 taxes After dividing the total received among the various assets sold, you figured that each unit of section 1245 property was sold at a gain. File for extension 2012 taxes You can figure the ordinary income from depreciation as if the 50 machines and 25 trucks were one item. File for extension 2012 taxes However, if five of the trucks had been sold at a loss, only the 50 machines and 20 of the trucks could be treated as one item in determining the ordinary income from depreciation. File for extension 2012 taxes Normal retirement. File for extension 2012 taxes   The normal retirement of section 1245 property in multiple asset accounts does not require recognition of gain as ordinary income from depreciation if your method of accounting for asset retirements does not require recognition of that gain. File for extension 2012 taxes Section 1250 Property Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable on the property. File for extension 2012 taxes To determine the additional depreciation on section 1250 property, see Additional Depreciation, below. File for extension 2012 taxes Section 1250 property defined. File for extension 2012 taxes   This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. File for extension 2012 taxes It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. File for extension 2012 taxes A fee simple interest in land is not included because it is not depreciable. File for extension 2012 taxes   If your section 1250 property becomes section 1245 property because you change its use, you can never again treat it as section 1250 property. File for extension 2012 taxes Additional Depreciation If you hold section 1250 property longer than 1 year, the additional depreciation is the actual depreciation adjustments that are more than the depreciation figured using the straight line method. File for extension 2012 taxes For a list of items treated as depreciation adjustments, see Depreciation and amortization under Gain Treated as Ordinary Income, earlier. File for extension 2012 taxes For the treatment of unrecaptured section 1250 gain, see Capital Gains Tax Rate, later. File for extension 2012 taxes If you hold section 1250 property for 1 year or less, all the depreciation is additional depreciation. File for extension 2012 taxes You will not have additional depreciation if any of the following conditions apply to the property disposed of. File for extension 2012 taxes You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method; you held the property longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. File for extension 2012 taxes In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction for property placed in service before January 1, 2010. File for extension 2012 taxes The property was residential low-income rental property you held for 162/3 years or longer. File for extension 2012 taxes For low-income rental housing on which the special 60-month depreciation for rehabilitation expenses was allowed, the 162/3 years start when the rehabilitated property is placed in service. File for extension 2012 taxes You chose the alternate ACRS method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. File for extension 2012 taxes The property was residential rental property or nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made); you held it longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. File for extension 2012 taxes These properties are depreciated using the straight line method. File for extension 2012 taxes In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction. File for extension 2012 taxes Depreciation taken by other taxpayers or on other property. File for extension 2012 taxes   Additional depreciation includes all depreciation adjustments to the basis of section 1250 property whether allowed to you or another person (as carryover basis property). File for extension 2012 taxes Example. File for extension 2012 taxes Larry Johnson gives his son section 1250 property on which he took $2,000 in depreciation deductions, of which $500 is additional depreciation. File for extension 2012 taxes Immediately after the gift, the son's adjusted basis in the property is the same as his father's and reflects the $500 additional depreciation. File for extension 2012 taxes On January 1 of the next year, after taking depreciation deductions of $1,000 on the property, of which $200 is additional depreciation, the son sells the property. File for extension 2012 taxes At the time of sale, the additional depreciation is $700 ($500 allowed the father plus $200 allowed the son). File for extension 2012 taxes Depreciation allowed or allowable. File for extension 2012 taxes   The greater of depreciation allowed or allowable (to any person who held the property if the depreciation was used in figuring its adjusted basis in your hands) generally is the amount to use in figuring the part of the gain to be reported as ordinary income. File for extension 2012 taxes If you can show that the deduction allowed for any tax year was less than the amount allowable, the lesser figure will be the depreciation adjustment for figuring additional depreciation. File for extension 2012 taxes Retired or demolished property. File for extension 2012 taxes   The adjustments reflected in adjusted basis generally do not include deductions for depreciation on retired or demolished parts of section 1250 property unless these deductions are reflected in the basis of replacement property that is section 1250 property. File for extension 2012 taxes Example. File for extension 2012 taxes A wing of your building is totally destroyed by fire. File for extension 2012 taxes The depreciation adjustments figured in the adjusted basis of the building after the wing is destroyed do not include any deductions for depreciation on the destroyed wing unless it is replaced and the adjustments for depreciation on it are reflected in the basis of the replacement property. File for extension 2012 taxes Figuring straight line depreciation. File for extension 2012 taxes   The useful life and salvage value you would have used to figure straight line depreciation are the same as those used under the depreciation method you actually used. File for extension 2012 taxes If you did not use a useful life under the depreciation method actually used (such as with the units-of-production method) or if you did not take salvage value into account (such as with the declining balance method), the useful life or salvage value for figuring what would have been the straight line depreciation is the useful life and salvage value you would have used under the straight line method. File for extension 2012 taxes   Salvage value and useful life are not used for the ACRS method of depreciation. File for extension 2012 taxes Figure straight line depreciation for ACRS real property by using its 15-, 18-, or 19-year recovery period as the property's useful life. File for extension 2012 taxes   The straight line method is applied without any basis reduction for the investment credit. File for extension 2012 taxes Property held by lessee. File for extension 2012 taxes   If a lessee makes a leasehold improvement, the lease period for figuring what would have been the straight line depreciation adjustments includes all renewal periods. File for extension 2012 taxes This inclusion of the renewal periods cannot extend the lease period taken into account to a period that is longer than the remaining useful life of the improvement. File for extension 2012 taxes The same rule applies to the cost of acquiring a lease. File for extension 2012 taxes   The term renewal period means any period for which the lease may be renewed, extended, or continued under an option exercisable by the lessee. File for extension 2012 taxes However, the inclusion of renewal periods cannot extend the lease by more than two-thirds of the period that was the basis on which the actual depreciation adjustments were allowed. File for extension 2012 taxes Applicable Percentage The applicable percentage used to figure the ordinary income because of additional depreciation depends on whether the real property you disposed of is nonresidential real property, residential rental property, or low-income housing. File for extension 2012 taxes The percentages for these types of real property are as follows. File for extension 2012 taxes Nonresidential real property. File for extension 2012 taxes   For real property that is not residential rental property, the applicable percentage for periods after 1969 is 100%. File for extension 2012 taxes For periods before 1970, the percentage is zero and no ordinary income because of additional depreciation before 1970 will result from its disposition. File for extension 2012 taxes Residential rental property. File for extension 2012 taxes   For residential rental property (80% or more of the gross income is from dwelling units) other than low-income housing, the applicable percentage for periods after 1975 is 100%. File for extension 2012 taxes The percentage for periods before 1976 is zero. File for extension 2012 taxes Therefore, no ordinary income because of additional depreciation before 1976 will result from a disposition of residential rental property. File for extension 2012 taxes Low-income housing. File for extension 2012 taxes    Low-income housing includes all the following types of residential rental property. File for extension 2012 taxes Federally assisted housing projects if the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. File for extension 2012 taxes Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed. File for extension 2012 taxes Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under provisions of state or local laws that authorize similar subsidies for low-income families. File for extension 2012 taxes Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. File for extension 2012 taxes   The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. File for extension 2012 taxes If you have held low-income housing at least 16 years and 8 months, the percentage is zero and no ordinary income will result from its disposition. File for extension 2012 taxes Foreclosure. File for extension 2012 taxes   If low-income housing is disposed of because of foreclosure or similar proceedings, the monthly applicable percentage reduction is figured as if you disposed of the property on the starting date of the proceedings. File for extension 2012 taxes Example. File for extension 2012 taxes On June 1, 2001, you acquired low-income housing property. File for extension 2012 taxes On April 3, 2012 (130 months after the property was acquired), foreclosure proceedings were started on the property and on December 3, 2013 (150 months after the property was acquired), the property was disposed of as a result of the foreclosure proceedings. File for extension 2012 taxes The property qualifies for a reduced applicable percentage because it was held more than 100 full months. File for extension 2012 taxes The applicable percentage reduction is 30% (130 months minus 100 months) rather than 50% (150 months minus 100 months) because it does not apply after April 3, 2012, the starting date of the foreclosure proceedings. File for extension 2012 taxes Therefore, 70% of the additional depreciation is treated as ordinary income. File for extension 2012 taxes Holding period. File for extension 2012 taxes   The holding period used to figure the applicable percentage for low-income housing generally starts on the day after you acquired it. File for extension 2012 taxes For example, if you bought low-income housing on January 1, 1997, the holding period starts on January 2, 1997. File for extension 2012 taxes If you sold it on January 2, 2013, the holding period is exactly 192 full months. File for extension 2012 taxes The applicable percentage for additional depreciation is 8%, or 100% minus 1% for each full month the property was held over 100 full months. File for extension 2012 taxes Holding period for constructed, reconstructed, or erected property. File for extension 2012 taxes   The holding period used to figure the applicable percentage for low-income housing you constructed, reconstructed, or erected starts on the first day of the month it is placed in service in a trade or business, in an activity for the production of income, or in a personal activity. File for extension 2012 taxes Property acquired by gift or received in a tax-free transfer. File for extension 2012 taxes   For low-income housing you acquired by gift or in a tax-free transfer the basis of which is figured by reference to the basis in the hands of the transferor, the holding period for the applicable percentage includes the holding period of the transferor. File for extension 2012 taxes   If the adjusted basis of the property in your hands just after acquiring it is more than its adjusted basis to the transferor just before transferring it, the holding period of the difference is figured as if it were a separate improvement. File for extension 2012 taxes See Low-Income Housing With Two or More Elements, next. File for extension 2012 taxes Low-Income Housing With Two or More Elements If you dispose of low-income housing property that has two or more separate elements, the applicable percentage used to figure ordinary income because of additional depreciation may be different for each element. File for extension 2012 taxes The gain to be reported as ordinary income is the sum of the ordinary income figured for each element. File for extension 2012 taxes The following are the types of separate elements. File for extension 2012 taxes A separate improvement (defined below). File for extension 2012 taxes The basic section 1250 property plus improvements not qualifying as separate improvements. File for extension 2012 taxes The units placed in service at different times before all the section 1250 property is finished. File for extension 2012 taxes For example, this happens when a taxpayer builds an apartment building of 100 units and places 30 units in service (available for renting) on January 4, 2011, 50 on July 18, 2011, and the remaining 20 on January 18, 2012. File for extension 2012 taxes As a result, the apartment house consists of three separate elements. File for extension 2012 taxes The 36-month test for separate improvements. File for extension 2012 taxes   A separate improvement is any improvement (qualifying under The 1-year test, below) added to the capital account of the property, but only if the total of the improvements during the 36-month period ending on the last day of any tax year is more than the greatest of the following amounts. File for extension 2012 taxes Twenty-five percent of the adjusted basis of the property at the start of the first day of the 36-month period, or the first day of the holding period of the property, whichever is later. File for extension 2012 taxes Ten percent of the unadjusted basis (adjusted basis plus depreciation and amortization adjustments) of the property at the start of the period determined in (1). File for extension 2012 taxes $5,000. File for extension 2012 taxes The 1-year test. File for extension 2012 taxes   An addition to the capital account for any tax year (including a short tax year) is treated as an improvement only if the sum of all additions for the year is more than the greater of $2,000 or 1% of the unadjusted basis of the property. File for extension 2012 taxes The unadjusted basis is figured as of the start of that tax year or the holding period of the property, whichever is later. File for extension 2012 taxes In applying the 36-month test, improvements in any one of the 3 years are omitted entirely if the total improvements in that year do not qualify under the 1-year test. File for extension 2012 taxes Example. File for extension 2012 taxes The unadjusted basis of a calendar year taxpayer's property was $300,000 on January 1 of this year. File for extension 2012 taxes During the year, the taxpayer made improvements A, B, and C, which cost $1,000, $600, and $700, respectively. File for extension 2012 taxes The sum of the improvements, $2,300, is less than 1% of the unadjusted basis ($3,000), so the improvements do not satisfy the 1-year test and are not treated as improvements for the 36-month test. File for extension 2012 taxes However, if improvement C had cost $1,500, the sum of these improvements would have been $3,100. File for extension 2012 taxes Then, it would be necessary to apply the 36-month test to figure if the improvements must be treated as separate improvements. File for extension 2012 taxes Addition to the capital account. File for extension 2012 taxes   Any addition to the capital account made after the initial acquisition or completion of the property by you or any person who held the property during a period included in your holding period is to be considered when figuring the total amount of separate improvements. File for extension 2012 taxes   The addition to the capital account of depreciable real property is the gross addition not reduced by amounts attributable to replaced property. File for extension 2012 taxes For example, if a roof with an adjusted basis of $20,000 is replaced by a new roof costing $50,000, the improvement is the gross addition to the account, $50,000, and not the net addition of $30,000. File for extension 2012 taxes The $20,000 adjusted basis of the old roof is no longer reflected in the basis of the property. File for extension 2012 taxes The status of an addition to the capital account is not affected by whether it is treated as a separate property for determining depreciation deductions. File for extension 2012 taxes   Whether an expense is treated as an addition to the capital account may depend on the final disposition of the entire property. File for extension 2012 taxes If the expense item property and the basic property are sold in two separate transactions, the entire section 1250 property is treated as consisting of two distinct properties. File for extension 2012 taxes Unadjusted basis. File for extension 2012 taxes   In figuring the unadjusted basis as of a certain date, include the actual cost of all previous additions to the capital account plus those that did not qualify as separate improvements. File for extension 2012 taxes However, the cost of components retired before that date is not included in the unadjusted basis. File for extension 2012 taxes Holding period. File for extension 2012 taxes   Use the following guidelines for figuring the applicable percentage for property with two or more elements. File for extension 2012 taxes The holding period of a separate element placed in service before the entire section 1250 property is finished starts on the first day of the month that the separate element is placed in service. File for extension 2012 taxes The holding period for each separate improvement qualifying as a separate element starts on the day after the improvement is acquired or, for improvements constructed, reconstructed, or erected, the first day of the month that the improvement is placed in service. File for extension 2012 taxes The holding period for each improvement not qualifying as a separate element takes the holding period of the basic property. File for extension 2012 taxes   If an improvement by itself does not meet the 1-year test (greater of $2,000 or 1% of the unadjusted basis), but it does qualify as a separate improvement that is a separate element (when grouped with other improvements made during the tax year), determine the start of its holding period as follows. File for extension 2012 taxes Use the first day of a calendar month that is closest to the middle of the tax year. File for extension 2012 taxes If there are two first days of a month that are equally close to the middle of the year, use the earlier date. File for extension 2012 taxes Figuring ordinary income attributable to each separate element. File for extension 2012 taxes   Figure ordinary income attributable to each separate element as follows. File for extension 2012 taxes   Step 1. File for extension 2012 taxes Divide the element's additional depreciation after 1975 by the sum of all the elements' additional depreciation after 1975 to determine the percentage used in Step 2. File for extension 2012 taxes   Step 2. File for extension 2012 taxes Multiply the percentage figured in Step 1 by the lesser of the additional depreciation after 1975 for the entire property or the gain from disposition of the entire property (the difference between the fair market value or amount realized and the adjusted basis). File for extension 2012 taxes   Step 3. File for extension 2012 taxes Multiply the result in Step 2 by the applicable percentage for the element. File for extension 2012 taxes Example. File for extension 2012 taxes You sold at a gain of $25,000 low-income housing property subject to the ordinary income rules of section 1250. File for extension 2012 taxes The property consisted of four elements (W, X, Y, and Z). File for extension 2012 taxes Step 1. File for extension 2012 taxes The additional depreciation for each element is: W-$12,000; X-None; Y-$6,000; and Z-$6,000. File for extension 2012 taxes The sum of the additional depreciation for all the elements is $24,000. File for extension 2012 taxes Step 2. File for extension 2012 taxes The depreciation deducted on element X was $4,000 less than it would have been under the straight line method. File for extension 2012 taxes Additional depreciation on the property as a whole is $20,000 ($24,000 − $4,000). File for extension 2012 taxes $20,000 is lower than the $25,000 gain on the sale, so $20,000 is used in Step 2. File for extension 2012 taxes Step 3. File for extension 2012 taxes The applicable percentages to be used in Step 3 for the elements are: W-68%; X-85%; Y-92%; and Z-100%. File for extension 2012 taxes From these facts, the sum of the ordinary income for each element is figured as follows. File for extension 2012 taxes   Step 1 Step 2 Step 3 Ordinary Income W . File for extension 2012 taxes 50 $10,000 68% $ 6,800 X -0- -0- 85% -0- Y . File for extension 2012 taxes 25 5,000 92% 4,600 Z . File for extension 2012 taxes 25 5,000 100% 5,000 Sum of ordinary income of separate elements $16,400 Gain Treated as Ordinary Income To find what part of the gain from the disposition of section 1250 property is treated as ordinary income, follow these steps. File for extension 2012 taxes In a sale, exchange, or involuntary conversion of the property, figure the amount realized that is more than the adjusted basis of the property. File for extension 2012 taxes In any other disposition of the property, figure the fair market value that is more than the adjusted basis. File for extension 2012 taxes Figure the additional depreciation for the periods after 1975. File for extension 2012 taxes Multiply the lesser of (1) or (2) by the applicable percentage, discussed earlier under Applicable Percentage. File for extension 2012 taxes Stop here if this is residential rental property or if (2) is equal to or more than (1). File for extension 2012 taxes This is the gain treated as ordinary income because of additional depreciation. File for extension 2012 taxes Subtract (2) from (1). File for extension 2012 taxes Figure the additional depreciation for periods after 1969 but before 1976. File for extension 2012 taxes Add the lesser of (4) or (5) to the result in (3). File for extension 2012 taxes This is the gain treated as ordinary income because of additional depreciation. File for extension 2012 taxes A limit on the amount treated as ordinary income for gain on like-kind exchanges and involuntary conversions is explained later. File for extension 2012 taxes Use Form 4797, Part III, to figure the ordinary income part of the gain. File for extension 2012 taxes Corporations. File for extension 2012 taxes   Corporations, other than S corporations, must recognize an additional amount as ordinary income on the sale or other disposition of section 1250 property. File for extension 2012 taxes The additional amount treated as ordinary income is 20% of the excess of the amount that would have been ordinary income if the property were section 1245 property over the amount treated as ordinary income under section 1250. File for extension 2012 taxes Report this additional ordinary income on Form 4797, Part III, line 26 (f). File for extension 2012 taxes Installment Sales If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. File for extension 2012 taxes This applies even if no payments are received in that year. File for extension 2012 taxes If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. File for extension 2012 taxes For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. File for extension 2012 taxes If you dispose of more than one asset in a single transaction, you must figure the gain on each asset separately so that it may be properly reported. File for extension 2012 taxes To do this, allocate the selling price and the payments you receive in the year of sale to each asset. File for extension 2012 taxes Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. File for extension 2012 taxes For a detailed discussion of installment sales, see Publication 537. File for extension 2012 taxes Gifts If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. File for extension 2012 taxes However, if the person who receives it (donee) sells or otherwise disposes of the property in a disposition subject to recapture, the donee must take into account the depreciation you deducted in figuring the gain to be reported as ordinary income. File for extension 2012 taxes For low-income housing, the donee must take into account the donor's holding period to figure the applicable percentage. File for extension 2012 taxes See Applicable Percentage and its discussion Holding period under Section 1250 Property, earlier. File for extension 2012 taxes Part gift and part sale or exchange. File for extension 2012 taxes   If you transfer depreciable personal property or real property for less than its fair market value in a transaction considered to be partly a gift and partly a sale or exchange and you have a gain because the amount realized is more than your adjusted basis, you must report ordinary income (up to the amount of gain) to recapture depreciation. File for extension 2012 taxes If the depreciation (additional depreciation, if section 1250 property) is more than the gain, the balance is carried over to the transferee to be taken into account on any later disposition of the property. File for extension 2012 taxes However, see Bargain sale to charity, later. File for extension 2012 taxes Example. File for extension 2012 taxes You transferred depreciable personal property to your son for $20,000. File for extension 2012 taxes When transferred, the property had an adjusted basis to you of $10,000 and a fair market value of $40,000. File for extension 2012 taxes You took depreciation of $30,000. File for extension 2012 taxes You are considered to have made a gift of $20,000, the difference between the $40,000 fair market value and the $20,000 sale price to your son. File for extension 2012 taxes You have a taxable gain on the transfer of $10,000 ($20,000 sale price minus $10,000 adjusted basis) that must be reported as ordinary income from depreciation. File for extension 2012 taxes You report $10,000 of your $30,000 depreciation as ordinary income on the transfer of the property, so the remaining $20,000 depreciation is carried over to your son for him to take into account on any later disposition of the property. File for extension 2012 taxes Gift to charitable organization. File for extension 2012 taxes   If you give property to a charitable organization, you figure your deduction for your charitable contribution by reducing the fair market value of the property by the ordinary income and short-term capital gain that would have resulted had you sold the property at its fair market value at the time of the contribution. File for extension 2012 taxes Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation. File for extension 2012 taxes   You also may have to reduce the fair market value of the contributed property by the long-term capital gain (including any section 1231 gain) that would have resulted had the property been sold. File for extension 2012 taxes For more information, see Giving Property That Has Increased in Value in Publication 526. File for extension 2012 taxes Bargain sale to charity. File for extension 2012 taxes   If you transfer section 1245 or section 1250 property to a charitable organization for less than its fair market value and a deduction for the contribution part of the transfer is allowable, your ordinary income from depreciation is figured under different rules. File for extension 2012 taxes First, figure the ordinary income as if you had sold the property at its fair market value. File for extension 2012 taxes Then, allocate that amount between the sale and the contribution parts of the transfer in the same proportion that you allocated your adjusted basis in the property to figure your gain. File for extension 2012 taxes See Bargain Sale under Gain or Loss From Sales and Exchanges in chapter 1. File for extension 2012 taxes Report as ordinary income the lesser of the ordinary income allocated to the sale or your gain from the sale. File for extension 2012 taxes Example. File for extension 2012 taxes You sold section 1245 property in a bargain sale to a charitable organization and are allowed a deduction for your contribution. File for extension 2012 taxes Your gain on the sale was $1,200, figured by allocating 20% of your adjusted basis in the property to the part sold. File for extension 2012 taxes If you had sold the property at its fair market value, your ordinary income would have been $5,000. File for extension 2012 taxes Your ordinary income is $1,000 ($5,000 × 20%) and your section 1231 gain is $200 ($1,200 – $1,000). File for extension 2012 taxes Transfers at Death When a taxpayer dies, no gain is reported on depreciable personal property or real property transferred to his or her estate or beneficiary. File for extension 2012 taxes For information on the tax liability of a decedent, see Publication 559, Survivors, Executors, and Administrators. File for extension 2012 taxes However, if the decedent disposed of the property while alive and, because of his or her method of accounting or for any other reason, the gain from the disposition is reportable by the estate or beneficiary, it must be reported in the same way the decedent would have had to report it if he or she were still alive. File for extension 2012 taxes Ordinary income due to depreciation must be reported on a transfer from an executor, administrator, or trustee to an heir, beneficiary, or other individual if the transfer is a sale or exchange on which gain is realized. File for extension 2012 taxes Example 1. File for extension 2012 taxes Janet Smith owned depreciable property that, upon her death, was inherited by her son. File for extension 2012 taxes No ordinary income from depreciation is reportable on the transfer, even though the value used for estate tax purposes is more than the adjusted basis of the property to Janet when she died. File for extension 2012 taxes However, if she sold the property before her death and realized a gain and if, because of her method of accounting, the proceeds from the sale are income in respect of a decedent reportable by her son, he must report ordinary income from depreciation. File for extension 2012 taxes Example 2. File for extension 2012 taxes The trustee of a trust created by a will transfers depreciable property to a beneficiary in satisfaction of a specific bequest of $10,000. File for extension 2012 taxes If the property had a value of $9,000 at the date used for estate tax valuation purposes, the $1,000 increase in value to the date of distribution is a gain realized by the trust. File for extension 2012 taxes Ordinary income from depreciation must be reported by the trust on the transfer. File for extension 2012 taxes Like-Kind Exchanges and Involuntary Conversions A like-kind exchange of your depreciable property or an involuntary conversion of the property into similar or related property will not result in your having to report ordinary income from depreciation unless money or property other than like-kind, similar, or related property is also received in the transaction. File for extension 2012 taxes For information on like-kind exchanges and involuntary conversions, see chapter 1. File for extension 2012 taxes Depreciable personal property. File for extension 2012 taxes   If you have a gain from either a like-kind exchange or an involuntary conversion of your depreciable personal property, the amount to be reported as ordinary income from depreciation is the amount figured under the rules explained earlier (see Section 1245 Property), limited to the sum of the following amounts. File for extension 2012 taxes The gain that must be included in income under the rules for like-kind exchanges or involuntary conversions. File for extension 2012 taxes The fair market value of the like-kind, similar, or related property other than depreciable personal property acquired in the transaction. File for extension 2012 taxes Example 1. File for extension 2012 taxes You bought a new machine for $4,300 cash plus your old machine for which you were allowed a $1,360 trade-in. File for extension 2012 taxes The old machine cost you $5,000 two years ago. File for extension 2012 taxes You took depreciation deductions of $3,950. File for extension 2012 taxes Even though you deducted depreciation of $3,950, the $310 gain ($1,360 trade-in allowance minus $1,050 adjusted basis) is not reported because it is postponed under the rules for like-kind exchanges and you received only depreciable personal property in the exchange. File for extension 2012 taxes Example 2. File for extension 2012 taxes You bought office machinery for $1,500 two years ago and deducted $780 depreciation. File for extension 2012 taxes This year a fire destroyed the machinery and you received $1,200 from your fire insurance, realizing a gain of $480 ($1,200 − $720 adjusted basis). File for extension 2012 taxes You choose to postpone reporting gain, but replacement machinery cost you only $1,000. File for extension 2012 taxes Your taxable gain under the rules for involuntary conversions is limited to the remaining $200 insurance payment. File for extension 2012 taxes All your replacement property is depreciable personal property, so your ordinary income from depreciation is limited to $200. File for extension 2012 taxes Example 3. File for extension 2012 taxes A fire destroyed office machinery you bought for $116,000. File for extension 2012 taxes The depreciation deductions were $91,640 and the machinery had an adjusted basis of $24,360. File for extension 2012 taxes You received a $117,000 insurance payment, realizing a gain of $92,640. File for extension 2012 taxes You immediately spent $105,000 of the insurance payment for replacement machinery and $9,000 for stock that qualifies as replacement property and you choose to postpone reporting the gain. File for extension 2012 taxes $114,000 of the $117,000 insurance payment was used to buy replacement property, so the gain that must be included in income under the rules for involuntary conversions is the part not spent, or $3,000. File for extension 2012 taxes The part of the insurance payment ($9,000) used to buy the nondepreciable property (the stock) also must be included in figuring the gain from depreciation. File for extension 2012 taxes The amount you must report as ordinary income on the transaction is $12,000, figured as follows. File for extension 2012 taxes 1) Gain realized on the transaction ($92,640) limited to depreciation ($91,640) $91,640 2) Gain includible in income (amount not spent) 3,000     Plus: fair market value of property other than depreciable personal property (the stock) 9,000 12,000 Amount reportable as ordinary income (lesser of (1) or (2)) $12,000   If, instead of buying $9,000 in stock, you bought $9,000 worth of depreciable personal property similar or related in use to the destroyed property, you would only report $3,000 as ordinary income. File for extension 2012 taxes Depreciable real property. File for extension 2012 taxes   If you have a gain from either a like-kind exchange or involuntary conversion of your depreciable real property, ordinary income from additional depreciation is figured under the rules explained earlier (see Section 1250 Property), limited to the greater of the following amounts. File for extension 2012 taxes The gain that must be reported under the rules for like-kind exchanges or involuntary conversions plus the fair market value of stock bought as replacement property in acquiring control of a corporation. File for extension 2012 taxes The gain you would have had to report as ordinary income from additional depreciation had the transaction been a cash sale minus the cost (or fair market value in an exchange) of the depreciable real property acquired. File for extension 2012 taxes   The ordinary income not reported for the year of the disposition is carried over to the depreciable real property acquired in the like-kind exchange or involuntary conversion as additional depreciation from the property disposed of. File for extension 2012 taxes Further, to figure the applicable percentage of additional depreciation to be treated as ordinary income, the holding period starts over for the new property. File for extension 2012 taxes Example. File for extension 2012 taxes The state paid you $116,000 when it condemned your depreciable real property for public use. File for extension 2012 taxes You bought other real property similar in use to the property condemned for $110,000 ($15,000 for depreciable real property and $95,000 for land). File for extension 2012 taxes You also bought stock for $5,000 to get control of a corporation owning property similar in use to the property condemned. File for extension 2012 taxes You choose to postpone reporting the gain. File for extension 2012 taxes If the transaction had been a sale for cash only, under the rules described earlier, $20,000 would have been reportable as ordinary income because of additional depreciation. File for extension 2012 taxes The ordinary income to be reported is $6,000, which is the greater of the following amounts. File for extension 2012 taxes The gain that must be reported under the rules for involuntary conversions, $1,000 ($116,000 − $115,000) plus the fair market value of stock bought as qualified replacement property, $5,000, for a total of $6,000. File for extension 2012 taxes The gain you would have had to report as ordinary income from additional depreciation ($20,000) had this transaction been a cash sale minus the cost of the depreciable real property bought ($15,000), or $5,000. File for extension 2012 taxes   The ordinary income not reported, $14,000 ($20,000 − $6,000), is carried over to the depreciable real property you bought as additional depreciation. File for extension 2012 taxes Basis of property acquired. File for extension 2012 taxes   If the ordinary income you have to report because of additional depreciation is limited, the total basis of the property you acquired is its fair market value (its cost, if bought to replace property involuntarily converted into money) minus the gain postponed. File for extension 2012 taxes   If you acquired more than one item of property, allocate the total basis among the properties in proportion to their fair market value (their cost, in an involuntary conversion into money). File for extension 2012 taxes However, if you acquired both depreciable real property and other property, allocate the total basis as follows. File for extension 2012 taxes Subtract the ordinary income because of additional depreciation that you do not have to report from the fair market value (or cost) of the depreciable real property acquired. File for extension 2012 taxes Add the fair market value (or cost) of the other property acquired to the result in (1). File for extension 2012 taxes Divide the result in (1) by the result in (2). File for extension 2012 taxes Multiply the total basis by the result in (3). File for extension 2012 taxes This is the basis of the depreciable real property acquired. File for extension 2012 taxes If you acquired more than one item of depreciable real property, allocate this basis amount among the properties in proportion to their fair market value (or cost). File for extension 2012 taxes Subtract the result in (4) from the total basis. File for extension 2012 taxes This is the basis of the other property acquired. File for extension 2012 taxes If you acquired more than one item of other property, allocate this basis amount among the properties in proportion to their fair market value (or cost). File for extension 2012 taxes Example 1. File for extension 2012 taxes In 1988, low-income housing property that you acquired and placed in service in 1983 was destroyed by fire and you received a $90,000 insurance payment. File for extension 2012 taxes The property's adjusted basis was $38,400, with additional depreciation of $14,932. File for extension 2012 taxes On December 1, 1988, you used the insurance payment to acquire and place in service replacement low-income housing property. File for extension 2012 taxes Your realized gain from the involuntary conversion was $51,600 ($90,000 − $38,400). File for extension 2012 taxes You chose to postpone reporting the gain under the involuntary conversion rules. File for extension 2012 taxes Under the rules for depreciation recapture on real property, the ordinary gain was $14,932, but you did not have to report any of it because of the limit for involuntary conversions. File for extension 2012 taxes The basis of the replacement low-income housing property was its $90,000 cost minus the $51,600 gain you postponed, or $38,400. File for extension 2012 taxes The $14,932 ordinary gain you did not report is treated as additional depreciation on the replacement property. File for extension 2012 taxes If you sold the property in 2013, your holding period for figuring the applicable percentage of additional depreciation to report as ordinary income will have begun December 2, 1988, the day after you acquired the property. File for extension 2012 taxes Example 2. File for extension 2012 taxes John Adams received a $90,000 fire insurance payment for depreciable real property (office building) with an adjusted basis of $30,000. File for extension 2012 taxes He uses the whole payment to buy property similar in use, spending $42,000 for depreciable real property and $48,000 for land. File for extension 2012 taxes He chooses to postpone reporting the $60,000 gain realized on the involuntary conversion. File for extension 2012 taxes Of this gain, $10,000 is ordinary income from additional depreciation but is not reported because of the limit for involuntary conversions of depreciable real property. File for extension 2012 taxes The basis of the property bought is $30,000 ($90,000 − $60,000), allocated as follows. File for extension 2012 taxes The $42,000 cost of depreciable real property minus $10,000 ordinary income not reported is $32,000. File for extension 2012 taxes The $48,000 cost of other property (land) plus the $32,000 figured in (1) is $80,000. File for extension 2012 taxes The $32,000 figured in (1) divided by the $80,000 figured in (2) is 0. File for extension 2012 taxes 4. File for extension 2012 taxes The basis of the depreciable real property is $12,000. File for extension 2012 taxes This is the $30,000 total basis multiplied by the 0. File for extension 2012 taxes 4 figured in (3). File for extension 2012 taxes The basis of the other property (land) is $18,000. File for extension 2012 taxes This is the $30,000 total basis minus the $12,000 figured in (4). File for extension 2012 taxes The ordinary income that is not reported ($10,000) is carried over as additional depreciation to the depreciable real property that was bought and may be taxed as ordinary income on a later disposition. File for extension 2012 taxes Multiple Properties If you dispose of depreciable property and other property in one transaction and realize a gain, you must allocate the amount realized between the two types of property in proportion to their respective fair market values to figure the part of your gain to be reported as ordinary income from depreciation. File for extension 2012 taxes Different rules may apply to the allocation of the amount realized on the sale of a business that includes a group of assets. File for extension 2012 taxes See chapter 2. File for extension 2012 taxes In general, if a buyer and seller have adverse interests as to the allocation of the amount realized between the depreciable property and other property, any arm's length agreement between them will establish the allocation. File for extension 2012 taxes In the absence of an agreement, the allocation should be made by taking into account the appropriate facts and circumstances. File for extension 2012 taxes These include, but are not limited to, a comparison between the depreciable property and all the other property being disposed of in the transaction. File for extension 2012 taxes The comparison should take into account all the following facts and circumstances. File for extension 2012 taxes The original cost and reproduction cost of construction, erection, or production. File for extension 2012 taxes The remaining economic useful life. File for extension 2012 taxes The state of obsolescence. File for extension 2012 taxes The anticipated expenditures required to maintain, renovate, or modernize the properties. File for extension 2012 taxes Like-kind exchanges and involuntary conversions. File for extension 2012 taxes   If you dispose of and acquire depreciable personal property and other property (other than depreciable real property) in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. File for extension 2012 taxes The amount allocated to the depreciable personal property disposed of is treated as consisting of, first, the fair market value of the depreciable personal property acquired and, second (to the extent of any remaining balance), the fair market value of the other property acquired. File for extension 2012 taxes The amount allocated to the other property disposed of is treated as consisting of the fair market value of all property acquired that has not already been taken into account. File for extension 2012 taxes   If you dispose of and acquire depreciable real property and other property in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. File for extension 2012 taxes The amount allocated to each of the three types of property (depreciable real property, depreciable personal property, or other property) disposed of is treated as consisting of, first, the fair market value of that type of property acquired and, second (to the extent of any remaining balance), any excess fair market value of the other types of property acquired. File for extension 2012 taxes If the excess fair market value is more than the remaining balance of the amount realized and is from both of the other two types of property, you can apply the unallocated amount in any manner you choose. File for extension 2012 taxes Example. File for extension 2012 taxes A fire destroyed your property with a total fair market value of $50,000. File for extension 2012 taxes It consisted of machinery worth $30,000 and nondepreciable property worth $20,000. File for extension 2012 taxes You received an insurance payment of $40,000 and immediately used it with $10,000 of your own funds (for a total of $50,000) to buy machinery with a fair market value of $15,000 and nondepreciable property with a fair market value of $35,000. File for extension 2012 taxes The adjusted basis of the destroyed machinery was $5,000 and your depreciation on it was $35,000. File for extension 2012 taxes You choose to postpone reporting your gain from the involuntary conversion. File for extension 2012 taxes You must report $9,000 as ordinary income from depreciation arising from this transaction, figured as follows. File for extension 2012 taxes The $40,000 insurance payment must be allocated between the machinery and the other property destroyed in proportion to the fair market value of each. File for extension 2012 taxes The amount allocated to the machinery is 30,000/50,000 × $40,000, or $24,000. File for extension 2012 taxes The amount allocated to the other property is 20,000/50,000 × $40,000, or $16,000. File for extension 2012 taxes Your gain on the involuntary conversion of the machinery is $24,000 minus $5,000 adjusted basis, or $19,000. File for extension 2012 taxes The $24,000 allocated to the machinery disposed of is treated as consisting of the $15,000 fair market value of the replacement machinery bought and $9,000 of the fair market value of other property bought in the transaction. File for extension 2012 taxes All $16,000 allocated to the other property disposed of is treated as consisting of the fair market value of the other property that was bought. File for extension 2012 taxes Your potential ordinary income from depreciation is $19,000, the gain on the machinery, because it is less than the $35,000 depreciation. File for extension 2012 taxes However, the amount you must report as ordinary income is limited to the $9,000 included in the amount realized for the machinery that represents the fair market value of property other than the depreciable property you bought. File for extension 2012 taxes Prev  Up  Next   Home   More Online Publications