Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Free Tax Software

State E FilePrintable Tax Forms 1040ez2011 Income Tax Forms 1040ezFree 1040x Filing OnlineWhat If I Didn T File My 2012 TaxesFile Tax ReturnFree E File ExtensionIrs 2012 Taxes2012 1040 Irs Tax Forms2008 1040xH&r Block On LineHow Many Years Can You File Back TaxesTax Form 1040xMilitary Pay ScaleE File 1040x Free1040ez Tax Form 2012Aarp Org Taxaide2011 Federal Tax Form 1040How Do You File An Amended Tax ReturnTurbotax Amended Return 2013Form 1040-xAmend 2011 Tax Return Online1040ez Tax TablesFreestatefilingIrs 1040x 2012Fed Tax Forms 2012Can I Efile 2011 TaxesPrint State Tax Form1040ez InstructionsTax Tips For 2012Free Federal Tax Filing 2012W2 Ez FormsFiling Taxes Online 1040ezFree Online Tax Extension Form1040a Income Tax FormWww Irs Gov Efile ComTaxDownload 1040x FormFree State Tax E-filingNew York State Unemployment Tax Forms

Free Tax Software

Free tax software 3. Free tax software   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. Free tax software 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. Free tax software Its treatment as ordinary or capital is determined under rules for section 1231 transactions. Free tax software 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. Free tax software Any remaining gain is a section 1231 gain. Free tax software 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. Free tax software Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (discussed below). Free tax software Their treatment as ordinary or capital depends on whether you have a net gain or a net loss from all your section 1231 transactions. Free tax software 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). Free tax software Do not take that gain into account as section 1231 gain. Free tax software Section 1231 transactions. Free tax software   The following transactions result in gain or loss subject to section 1231 treatment. Free tax software Sales or exchanges of real property or depreciable personal property. Free tax software This property must be used in a trade or business and held longer than 1 year. Free tax software Generally, property held for the production of rents or royalties is considered to be used in a trade or business. Free tax software Depreciable personal property includes amortizable section 197 intangibles (described in chapter 2 under Other Dispositions). Free tax software Sales or exchanges of leaseholds. Free tax software The leasehold must be used in a trade or business and held longer than 1 year. Free tax software Sales or exchanges of cattle and horses. Free tax software The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 2 years or longer. Free tax software Sales or exchanges of other livestock. Free tax software This livestock does not include poultry. Free tax software It must be held for draft, breeding, dairy, or sporting purposes and held for 1 year or longer. Free tax software Sales or exchanges of unharvested crops. Free tax software 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. Free tax software 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). Free tax software Growing crops sold with a lease on the land, though sold to the same person in the same transaction, are not included. Free tax software Cutting of timber or disposal of timber, coal, or iron ore. Free tax software The cutting or disposal must be treated as a sale, as described in chapter 2 under Timber and Coal and Iron Ore. Free tax software Condemnations. Free tax software The condemned property must have been held longer than 1 year. Free tax software 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. Free tax software It cannot be property held for personal use. Free tax software Casualties and thefts. Free tax software 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). Free tax software You must have held the property longer than 1 year. Free tax software 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. Free tax software For more information on casualties and thefts, see Publication 547. Free tax software Property for sale to customers. Free tax software   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. Free tax software 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. Free tax software Example. Free tax software You manufacture and sell steel cable, which you deliver on returnable reels that are depreciable property. Free tax software Customers make deposits on the reels, which you refund if the reels are returned within a year. Free tax software If they are not returned, you keep each deposit as the agreed-upon sales price. Free tax software Most reels are returned within the 1-year period. Free tax software You keep adequate records showing depreciation and other charges to the capitalized cost of the reels. Free tax software Under these conditions, the reels are not property held for sale to customers in the ordinary course of your business. Free tax software Any gain or loss resulting from their not being returned may be capital or ordinary, depending on your section 1231 transactions. Free tax software Copyrights. Free tax software    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). Free tax software The sale of such property results in ordinary income and generally is reported in Part II of Form 4797. Free tax software Treatment as ordinary or capital. Free tax software   To determine the treatment of section 1231 gains and losses, combine all your section 1231 gains and losses for the year. Free tax software If you have a net section 1231 loss, it is ordinary loss. Free tax software 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. Free tax software The rest, if any, is long-term capital gain. Free tax software Nonrecaptured section 1231 losses. Free tax software   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. Free tax software 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. Free tax software These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Free tax software Example. Free tax software In 2013, Ben has a $2,000 net section 1231 gain. Free tax software 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. Free tax software From 2008 through 2012 he had the following section 1231 gains and losses. Free tax software 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. Free tax software 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. Free tax software 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. Free tax software This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis. Free tax software On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information. Free tax software Whether the adjusted basis was figured using depreciation or amortization you claimed on other property. Free tax software Whether the adjusted basis was figured using depreciation or amortization another person claimed. Free tax software Corporate distributions. Free tax software   For information on property distributed by corporations, see Distributions to Shareholders in Publication 542, Corporations. Free tax software General asset accounts. Free tax software   Different rules apply to dispositions of property you depreciated using a general asset account. Free tax software For information on these rules, see Publication 946. Free tax software 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. Free tax software See Gain Treated as Ordinary Income, later. Free tax software Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain. Free tax software See Treatment as ordinary or capital under Section 1231 Gains and Losses, earlier. Free tax software Section 1245 property defined. Free tax software   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. Free tax software Personal property (either tangible or intangible). Free tax software Other tangible property (except buildings and their structural components) used as any of the following. Free tax software See Buildings and structural components below. Free tax software An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services. Free tax software A research facility in any of the activities in (a). Free tax software A facility in any of the activities in (a) for the bulk storage of fungible commodities (discussed on the next page). Free tax software That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. Free tax software Amortization of certified pollution control facilities. Free tax software The section 179 expense deduction. Free tax software Deduction for clean-fuel vehicles and certain refueling property. Free tax software Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations. Free tax software Deduction for certain qualified refinery property. Free tax software Deduction for qualified energy efficient commercial building property. Free tax software Amortization of railroad grading and tunnel bores, if in effect before the repeal by the Revenue Reconciliation Act of 1990. Free tax software (Repealed by Public Law 99-514, Tax Reform Act of 1986, section 242(a). Free tax software ) 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). Free tax software Expenditures to remove architectural and transportation barriers to the handicapped and elderly. Free tax software Deduction for qualified tertiary injectant expenses. Free tax software Certain reforestation expenditures. Free tax software Deduction for election to expense qualified advanced mine safety equipment property. Free tax software Single purpose agricultural (livestock) or horticultural structures. Free tax software Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. Free tax software Any railroad grading or tunnel bore. Free tax software Buildings and structural components. Free tax software   Section 1245 property does not include buildings and structural components. Free tax software The term building includes a house, barn, warehouse, or garage. Free tax software The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. Free tax software   Do not treat a structure that is essentially machinery or equipment as a building or structural component. Free tax software 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. Free tax software   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. Free tax software 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. Free tax software Facility for bulk storage of fungible commodities. Free tax software   This term includes oil or gas storage tanks and grain storage bins. Free tax software Bulk storage means the storage of a commodity in a large mass before it is used. Free tax software For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. Free tax software To be fungible, a commodity must be such that one part may be used in place of another. Free tax software   Stored materials that vary in composition, size, and weight are not fungible. Free tax software 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. Free tax software For example, the storage of different grades and forms of aluminum scrap is not storage of fungible commodities. Free tax software 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. Free tax software The depreciation and amortization allowed or allowable on the property. Free tax software The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). Free tax software A limit on this amount for gain on like-kind exchanges and involuntary conversions is explained later. Free tax software 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. Free tax software See Gifts and Transfers at Death, later. Free tax software Use Part III of Form 4797 to figure the ordinary income part of the gain. Free tax software Depreciation taken on other property or taken by other taxpayers. Free tax software   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. Free tax software Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. Free tax software 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). Free tax software Depreciation and amortization. Free tax software   Depreciation and amortization that must be recaptured as ordinary income include (but are not limited to) the following items. Free tax software Ordinary depreciation deductions. Free tax software Any special depreciation allowance you claimed. Free tax software Amortization deductions for all the following costs. Free tax software Acquiring a lease. Free tax software Lessee improvements. Free tax software Certified pollution control facilities. Free tax software Certain reforestation expenses. Free tax software Section 197 intangibles. Free tax software Childcare facility expenses made before 1982, if in effect before the repeal of IRC 188. Free tax software Franchises, trademarks, and trade names acquired before August 11, 1993. Free tax software The section 179 deduction. Free tax software Deductions for all the following costs. Free tax software Removing barriers to the disabled and the elderly. Free tax software Tertiary injectant expenses. Free tax software Depreciable clean-fuel vehicles and refueling property (minus the amount of any recaptured deduction). Free tax software Environmental cleanup costs. Free tax software Certain reforestation expenses. Free tax software Qualified disaster expenses. Free tax software Any basis reduction for the investment credit (minus any basis increase for credit recapture). Free tax software Any basis reduction for the qualified electric vehicle credit (minus any basis increase for credit recapture). Free tax software Example. Free tax software You file your returns on a calendar year basis. Free tax software 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. Free tax software You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2011 and $3,200 in 2012. Free tax software You did not take the section 179 deduction. Free tax software You sold the truck in May 2013 for $7,000. Free tax software The MACRS deduction in 2013, the year of sale, is $960 (½ of $1,920). Free tax software Figure the gain treated as ordinary income as follows. Free tax software 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. Free tax software   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. Free tax software   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. Free tax software Depreciation allowed or allowable. Free tax software   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. Free tax software 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. Free tax software 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. Free tax software   This treatment applies only when figuring what part of gain is treated as ordinary income under the rules for section 1245 depreciation recapture. Free tax software Multiple asset accounts. Free tax software   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. Free tax software Example. Free tax software In one transaction you sold 50 machines, 25 trucks, and certain other property that is not section 1245 property. Free tax software All of the depreciation was recorded in a single depreciation account. Free tax software After dividing the total received among the various assets sold, you figured that each unit of section 1245 property was sold at a gain. Free tax software You can figure the ordinary income from depreciation as if the 50 machines and 25 trucks were one item. Free tax software 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. Free tax software Normal retirement. Free tax software   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. Free tax software 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. Free tax software To determine the additional depreciation on section 1250 property, see Additional Depreciation, below. Free tax software Section 1250 property defined. Free tax software   This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. Free tax software It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. Free tax software A fee simple interest in land is not included because it is not depreciable. Free tax software   If your section 1250 property becomes section 1245 property because you change its use, you can never again treat it as section 1250 property. Free tax software 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. Free tax software For a list of items treated as depreciation adjustments, see Depreciation and amortization under Gain Treated as Ordinary Income, earlier. Free tax software For the treatment of unrecaptured section 1250 gain, see Capital Gains Tax Rate, later. Free tax software If you hold section 1250 property for 1 year or less, all the depreciation is additional depreciation. Free tax software You will not have additional depreciation if any of the following conditions apply to the property disposed of. Free tax software 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. Free tax software 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. Free tax software The property was residential low-income rental property you held for 162/3 years or longer. Free tax software 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. Free tax software 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. Free tax software 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. Free tax software These properties are depreciated using the straight line method. Free tax software In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction. Free tax software Depreciation taken by other taxpayers or on other property. Free tax software   Additional depreciation includes all depreciation adjustments to the basis of section 1250 property whether allowed to you or another person (as carryover basis property). Free tax software Example. Free tax software Larry Johnson gives his son section 1250 property on which he took $2,000 in depreciation deductions, of which $500 is additional depreciation. Free tax software 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. Free tax software 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. Free tax software At the time of sale, the additional depreciation is $700 ($500 allowed the father plus $200 allowed the son). Free tax software Depreciation allowed or allowable. Free tax software   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. Free tax software 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. Free tax software Retired or demolished property. Free tax software   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. Free tax software Example. Free tax software A wing of your building is totally destroyed by fire. Free tax software 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. Free tax software Figuring straight line depreciation. Free tax software   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. Free tax software 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. Free tax software   Salvage value and useful life are not used for the ACRS method of depreciation. Free tax software Figure straight line depreciation for ACRS real property by using its 15-, 18-, or 19-year recovery period as the property's useful life. Free tax software   The straight line method is applied without any basis reduction for the investment credit. Free tax software Property held by lessee. Free tax software   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. Free tax software 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. Free tax software The same rule applies to the cost of acquiring a lease. Free tax software   The term renewal period means any period for which the lease may be renewed, extended, or continued under an option exercisable by the lessee. Free tax software 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. Free tax software 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. Free tax software The percentages for these types of real property are as follows. Free tax software Nonresidential real property. Free tax software   For real property that is not residential rental property, the applicable percentage for periods after 1969 is 100%. Free tax software For periods before 1970, the percentage is zero and no ordinary income because of additional depreciation before 1970 will result from its disposition. Free tax software Residential rental property. Free tax software   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%. Free tax software The percentage for periods before 1976 is zero. Free tax software Therefore, no ordinary income because of additional depreciation before 1976 will result from a disposition of residential rental property. Free tax software Low-income housing. Free tax software    Low-income housing includes all the following types of residential rental property. Free tax software 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. Free tax software Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed. Free tax software 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. Free tax software Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Free tax software   The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. Free tax software 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. Free tax software Foreclosure. Free tax software   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. Free tax software Example. Free tax software On June 1, 2001, you acquired low-income housing property. Free tax software 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. Free tax software The property qualifies for a reduced applicable percentage because it was held more than 100 full months. Free tax software 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. Free tax software Therefore, 70% of the additional depreciation is treated as ordinary income. Free tax software Holding period. Free tax software   The holding period used to figure the applicable percentage for low-income housing generally starts on the day after you acquired it. Free tax software For example, if you bought low-income housing on January 1, 1997, the holding period starts on January 2, 1997. Free tax software If you sold it on January 2, 2013, the holding period is exactly 192 full months. Free tax software The applicable percentage for additional depreciation is 8%, or 100% minus 1% for each full month the property was held over 100 full months. Free tax software Holding period for constructed, reconstructed, or erected property. Free tax software   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. Free tax software Property acquired by gift or received in a tax-free transfer. Free tax software   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. Free tax software   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. Free tax software See Low-Income Housing With Two or More Elements, next. Free tax software 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. Free tax software The gain to be reported as ordinary income is the sum of the ordinary income figured for each element. Free tax software The following are the types of separate elements. Free tax software A separate improvement (defined below). Free tax software The basic section 1250 property plus improvements not qualifying as separate improvements. Free tax software The units placed in service at different times before all the section 1250 property is finished. Free tax software 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. Free tax software As a result, the apartment house consists of three separate elements. Free tax software The 36-month test for separate improvements. Free tax software   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. Free tax software 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. Free tax software 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). Free tax software $5,000. Free tax software The 1-year test. Free tax software   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. Free tax software The unadjusted basis is figured as of the start of that tax year or the holding period of the property, whichever is later. Free tax software 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. Free tax software Example. Free tax software The unadjusted basis of a calendar year taxpayer's property was $300,000 on January 1 of this year. Free tax software During the year, the taxpayer made improvements A, B, and C, which cost $1,000, $600, and $700, respectively. Free tax software 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. Free tax software However, if improvement C had cost $1,500, the sum of these improvements would have been $3,100. Free tax software Then, it would be necessary to apply the 36-month test to figure if the improvements must be treated as separate improvements. Free tax software Addition to the capital account. Free tax software   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. Free tax software   The addition to the capital account of depreciable real property is the gross addition not reduced by amounts attributable to replaced property. Free tax software 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. Free tax software The $20,000 adjusted basis of the old roof is no longer reflected in the basis of the property. Free tax software 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. Free tax software   Whether an expense is treated as an addition to the capital account may depend on the final disposition of the entire property. Free tax software 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. Free tax software Unadjusted basis. Free tax software   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. Free tax software However, the cost of components retired before that date is not included in the unadjusted basis. Free tax software Holding period. Free tax software   Use the following guidelines for figuring the applicable percentage for property with two or more elements. Free tax software 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. Free tax software 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. Free tax software The holding period for each improvement not qualifying as a separate element takes the holding period of the basic property. Free tax software   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. Free tax software Use the first day of a calendar month that is closest to the middle of the tax year. Free tax software If there are two first days of a month that are equally close to the middle of the year, use the earlier date. Free tax software Figuring ordinary income attributable to each separate element. Free tax software   Figure ordinary income attributable to each separate element as follows. Free tax software   Step 1. Free tax software 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. Free tax software   Step 2. Free tax software 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). Free tax software   Step 3. Free tax software Multiply the result in Step 2 by the applicable percentage for the element. Free tax software Example. Free tax software You sold at a gain of $25,000 low-income housing property subject to the ordinary income rules of section 1250. Free tax software The property consisted of four elements (W, X, Y, and Z). Free tax software Step 1. Free tax software The additional depreciation for each element is: W-$12,000; X-None; Y-$6,000; and Z-$6,000. Free tax software The sum of the additional depreciation for all the elements is $24,000. Free tax software Step 2. Free tax software The depreciation deducted on element X was $4,000 less than it would have been under the straight line method. Free tax software Additional depreciation on the property as a whole is $20,000 ($24,000 − $4,000). Free tax software $20,000 is lower than the $25,000 gain on the sale, so $20,000 is used in Step 2. Free tax software Step 3. Free tax software The applicable percentages to be used in Step 3 for the elements are: W-68%; X-85%; Y-92%; and Z-100%. Free tax software From these facts, the sum of the ordinary income for each element is figured as follows. Free tax software   Step 1 Step 2 Step 3 Ordinary Income W . Free tax software 50 $10,000 68% $ 6,800 X -0- -0- 85% -0- Y . Free tax software 25 5,000 92% 4,600 Z . Free tax software 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. Free tax software In a sale, exchange, or involuntary conversion of the property, figure the amount realized that is more than the adjusted basis of the property. Free tax software In any other disposition of the property, figure the fair market value that is more than the adjusted basis. Free tax software Figure the additional depreciation for the periods after 1975. Free tax software Multiply the lesser of (1) or (2) by the applicable percentage, discussed earlier under Applicable Percentage. Free tax software Stop here if this is residential rental property or if (2) is equal to or more than (1). Free tax software This is the gain treated as ordinary income because of additional depreciation. Free tax software Subtract (2) from (1). Free tax software Figure the additional depreciation for periods after 1969 but before 1976. Free tax software Add the lesser of (4) or (5) to the result in (3). Free tax software This is the gain treated as ordinary income because of additional depreciation. Free tax software A limit on the amount treated as ordinary income for gain on like-kind exchanges and involuntary conversions is explained later. Free tax software Use Form 4797, Part III, to figure the ordinary income part of the gain. Free tax software Corporations. Free tax software   Corporations, other than S corporations, must recognize an additional amount as ordinary income on the sale or other disposition of section 1250 property. Free tax software 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. Free tax software Report this additional ordinary income on Form 4797, Part III, line 26 (f). Free tax software 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. Free tax software This applies even if no payments are received in that year. Free tax software If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. Free tax software For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. Free tax software 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. Free tax software To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Free tax software Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. Free tax software For a detailed discussion of installment sales, see Publication 537. Free tax software Gifts If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. Free tax software 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. Free tax software For low-income housing, the donee must take into account the donor's holding period to figure the applicable percentage. Free tax software See Applicable Percentage and its discussion Holding period under Section 1250 Property, earlier. Free tax software Part gift and part sale or exchange. Free tax software   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. Free tax software 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. Free tax software However, see Bargain sale to charity, later. Free tax software Example. Free tax software You transferred depreciable personal property to your son for $20,000. Free tax software When transferred, the property had an adjusted basis to you of $10,000 and a fair market value of $40,000. Free tax software You took depreciation of $30,000. Free tax software 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. Free tax software 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. Free tax software 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. Free tax software Gift to charitable organization. Free tax software   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. Free tax software Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation. Free tax software   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. Free tax software For more information, see Giving Property That Has Increased in Value in Publication 526. Free tax software Bargain sale to charity. Free tax software   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. Free tax software First, figure the ordinary income as if you had sold the property at its fair market value. Free tax software 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. Free tax software See Bargain Sale under Gain or Loss From Sales and Exchanges in chapter 1. Free tax software Report as ordinary income the lesser of the ordinary income allocated to the sale or your gain from the sale. Free tax software Example. Free tax software You sold section 1245 property in a bargain sale to a charitable organization and are allowed a deduction for your contribution. Free tax software Your gain on the sale was $1,200, figured by allocating 20% of your adjusted basis in the property to the part sold. Free tax software If you had sold the property at its fair market value, your ordinary income would have been $5,000. Free tax software Your ordinary income is $1,000 ($5,000 × 20%) and your section 1231 gain is $200 ($1,200 – $1,000). Free tax software 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. Free tax software For information on the tax liability of a decedent, see Publication 559, Survivors, Executors, and Administrators. Free tax software 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. Free tax software 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. Free tax software Example 1. Free tax software Janet Smith owned depreciable property that, upon her death, was inherited by her son. Free tax software 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. Free tax software 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. Free tax software Example 2. Free tax software The trustee of a trust created by a will transfers depreciable property to a beneficiary in satisfaction of a specific bequest of $10,000. Free tax software 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. Free tax software Ordinary income from depreciation must be reported by the trust on the transfer. Free tax software 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. Free tax software For information on like-kind exchanges and involuntary conversions, see chapter 1. Free tax software Depreciable personal property. Free tax software   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. Free tax software The gain that must be included in income under the rules for like-kind exchanges or involuntary conversions. Free tax software The fair market value of the like-kind, similar, or related property other than depreciable personal property acquired in the transaction. Free tax software Example 1. Free tax software You bought a new machine for $4,300 cash plus your old machine for which you were allowed a $1,360 trade-in. Free tax software The old machine cost you $5,000 two years ago. Free tax software You took depreciation deductions of $3,950. Free tax software 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. Free tax software Example 2. Free tax software You bought office machinery for $1,500 two years ago and deducted $780 depreciation. Free tax software 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). Free tax software You choose to postpone reporting gain, but replacement machinery cost you only $1,000. Free tax software Your taxable gain under the rules for involuntary conversions is limited to the remaining $200 insurance payment. Free tax software All your replacement property is depreciable personal property, so your ordinary income from depreciation is limited to $200. Free tax software Example 3. Free tax software A fire destroyed office machinery you bought for $116,000. Free tax software The depreciation deductions were $91,640 and the machinery had an adjusted basis of $24,360. Free tax software You received a $117,000 insurance payment, realizing a gain of $92,640. Free tax software 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. Free tax software $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. Free tax software 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. Free tax software The amount you must report as ordinary income on the transaction is $12,000, figured as follows. Free tax software 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. Free tax software Depreciable real property. Free tax software   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. Free tax software 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. Free tax software 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. Free tax software   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. Free tax software Further, to figure the applicable percentage of additional depreciation to be treated as ordinary income, the holding period starts over for the new property. Free tax software Example. Free tax software The state paid you $116,000 when it condemned your depreciable real property for public use. Free tax software 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). Free tax software You also bought stock for $5,000 to get control of a corporation owning property similar in use to the property condemned. Free tax software You choose to postpone reporting the gain. Free tax software 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. Free tax software The ordinary income to be reported is $6,000, which is the greater of the following amounts. Free tax software 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. Free tax software 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. Free tax software   The ordinary income not reported, $14,000 ($20,000 − $6,000), is carried over to the depreciable real property you bought as additional depreciation. Free tax software Basis of property acquired. Free tax software   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. Free tax software   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). Free tax software However, if you acquired both depreciable real property and other property, allocate the total basis as follows. Free tax software 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. Free tax software Add the fair market value (or cost) of the other property acquired to the result in (1). Free tax software Divide the result in (1) by the result in (2). Free tax software Multiply the total basis by the result in (3). Free tax software This is the basis of the depreciable real property acquired. Free tax software 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). Free tax software Subtract the result in (4) from the total basis. Free tax software This is the basis of the other property acquired. Free tax software 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). Free tax software Example 1. Free tax software 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. Free tax software The property's adjusted basis was $38,400, with additional depreciation of $14,932. Free tax software On December 1, 1988, you used the insurance payment to acquire and place in service replacement low-income housing property. Free tax software Your realized gain from the involuntary conversion was $51,600 ($90,000 − $38,400). Free tax software You chose to postpone reporting the gain under the involuntary conversion rules. Free tax software 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. Free tax software The basis of the replacement low-income housing property was its $90,000 cost minus the $51,600 gain you postponed, or $38,400. Free tax software The $14,932 ordinary gain you did not report is treated as additional depreciation on the replacement property. Free tax software 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. Free tax software Example 2. Free tax software John Adams received a $90,000 fire insurance payment for depreciable real property (office building) with an adjusted basis of $30,000. Free tax software He uses the whole payment to buy property similar in use, spending $42,000 for depreciable real property and $48,000 for land. Free tax software He chooses to postpone reporting the $60,000 gain realized on the involuntary conversion. Free tax software 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. Free tax software The basis of the property bought is $30,000 ($90,000 − $60,000), allocated as follows. Free tax software The $42,000 cost of depreciable real property minus $10,000 ordinary income not reported is $32,000. Free tax software The $48,000 cost of other property (land) plus the $32,000 figured in (1) is $80,000. Free tax software The $32,000 figured in (1) divided by the $80,000 figured in (2) is 0. Free tax software 4. Free tax software The basis of the depreciable real property is $12,000. Free tax software This is the $30,000 total basis multiplied by the 0. Free tax software 4 figured in (3). Free tax software The basis of the other property (land) is $18,000. Free tax software This is the $30,000 total basis minus the $12,000 figured in (4). Free tax software 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. Free tax software 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. Free tax software Different rules may apply to the allocation of the amount realized on the sale of a business that includes a group of assets. Free tax software See chapter 2. Free tax software 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. Free tax software In the absence of an agreement, the allocation should be made by taking into account the appropriate facts and circumstances. Free tax software These include, but are not limited to, a comparison between the depreciable property and all the other property being disposed of in the transaction. Free tax software The comparison should take into account all the following facts and circumstances. Free tax software The original cost and reproduction cost of construction, erection, or production. Free tax software The remaining economic useful life. Free tax software The state of obsolescence. Free tax software The anticipated expenditures required to maintain, renovate, or modernize the properties. Free tax software Like-kind exchanges and involuntary conversions. Free tax software   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. Free tax software 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. Free tax software 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. Free tax software   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. Free tax software 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. Free tax software 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. Free tax software Example. Free tax software A fire destroyed your property with a total fair market value of $50,000. Free tax software It consisted of machinery worth $30,000 and nondepreciable property worth $20,000. Free tax software 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. Free tax software The adjusted basis of the destroyed machinery was $5,000 and your depreciation on it was $35,000. Free tax software You choose to postpone reporting your gain from the involuntary conversion. Free tax software You must report $9,000 as ordinary income from depreciation arising from this transaction, figured as follows. Free tax software 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. Free tax software The amount allocated to the machinery is 30,000/50,000 × $40,000, or $24,000. Free tax software The amount allocated to the other property is 20,000/50,000 × $40,000, or $16,000. Free tax software Your gain on the involuntary conversion of the machinery is $24,000 minus $5,000 adjusted basis, or $19,000. Free tax software 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. Free tax software 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. Free tax software Your potential ordinary income from depreciation is $19,000, the gain on the machinery, because it is less than the $35,000 depreciation. Free tax software 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. Free tax software Prev  Up  Next   Home   More Online Publications
Español

Rural Business and Cooperative Programs

The Department of Agriculture's Rural Business and Cooperative programs provide support for rural businesses primarily through grants and loans.

Contact the Agency or Department

Website: Rural Business and Cooperative Programs

Contact In-Person: Find an Office in Your State

Address: USDA Rural Development, Room 5045-S
1400 Independence Ave SW

Washington, DC 20250-3201

Phone Number: (202) 690-4730

TTY: (800) 877-8339 (Federal Relay Service)

Parent Agency

The Free Tax Software

Free tax software Index A Alien Resident, Resident alien. Free tax software American Institute in Taiwan, U. Free tax software S. Free tax software employees of, American Institute in Taiwan. Free tax software American Samoa, possession exclusion, American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands Apprentices, treaty benefits for, Common Benefits Assistance (see Tax help) B Binational social security agreements, Bilateral Social Security (Totalization) Agreements Blocked income, Blocked Income Bona fide residence test Defined, Bona Fide Residence Test First year, Bona fide resident for part of a year. Free tax software Last year, Bona fide resident for part of a year. Free tax software Meeting the requirements, Publication 54 - Additional Material Qualifying for, Bona fide residence. Free tax software , Reassignment. Free tax software Treaty provisions, Special agreements and treaties. Free tax software Voting by absentee ballot, Effect of voting by absentee ballot. Free tax software Waiver of time requirements, Waiver of Time Requirements, U. Free tax software S. Free tax software Travel Restrictions C Camps, foreign, Foreign camps. Free tax software Carryover of housing deduction, Carryover. Free tax software Change of address, Reminders Choosing the exclusion, Choosing the Exclusion, When You Can Choose the Exclusion Clergy, self-employment tax on, Members of the Clergy Community income, Community income. Free tax software Competent authority assistance, Competent Authority Assistance Contributions To foreign charitable organizations, Contributions to Foreign Charitable Organizations To IRAs, Contributions to Individual Retirement Arrangements Conventions, income tax, Purpose of Tax Treaties Credit Earned income, Earned income credit. Free tax software , Earned income credit. Free tax software Foreign tax, Foreign tax credit. Free tax software , Taxes of Foreign Countries and U. Free tax software S. Free tax software Possessions, Deduction for Other Foreign Taxes, Common Benefits Related to excluded income, Items Related to Excluded Income Currency Foreign, Foreign Currency D Deductions Contributions to foreign charitable organizations, Contributions to Foreign Charitable Organizations Foreign taxes, Taxes of Foreign Countries and U. Free tax software S. Free tax software Possessions, Deduction for Other Foreign Taxes, Common Benefits, Publication 54 - Additional Material Housing, foreign, Foreign Housing Deduction IRA contributions, Contributions to Individual Retirement Arrangements Moving expenses, Moving Expenses, Forms To File Related to excluded income, Items Related to Excluded Income Reporting, How To Report Deductions Dependents Exemption for, Exemptions, Publication 54 - Additional Material Individual taxpayer identification number (ITIN), Social security number. Free tax software Social security number, Social security number. Free tax software Deposit of foreign currency with disbursing officer, Deposit of foreign currency with disbursing officer. Free tax software E Earned income Foreign, Foreign Earned Income, Foreign camps. Free tax software , Publication 54 - Additional Material Source of, Source of Earned Income Types of, Earned and Unearned Income, Storage expense reimbursements. Free tax software Earned income credit, Earned income credit. Free tax software , Earned income credit. Free tax software Employer-provided amounts, Employer-provided amounts. Free tax software Estimated tax, Estimated Tax Exclusion Foreign earned income, Foreign Earned Income Exclusion, When You Can Choose the Exclusion Housing, Foreign Housing Exclusion, Choosing the exclusion. Free tax software Meals and lodging, Exclusion of Meals and Lodging U. Free tax software S. Free tax software possessions, American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands Exemptions Dependents, Exemptions, Publication 54 - Additional Material Spouse, Exemptions, Publication 54 - Additional Material Extensions Filing income tax return, Extensions, Return filed before test is met. Free tax software Meeting bona fide residence or physical presence test, Extension of time to meet tests. Free tax software F Fellowships, Scholarships and fellowships. Free tax software Figuring estimated tax on nonconvertible foreign income, Figuring estimated tax on nonconvertible foreign currency. Free tax software Figuring U. Free tax software S. Free tax software income tax, Figuring actual tax. Free tax software Filing information Estimated tax, Estimated Tax Filing requirements, Filing Requirements Nonresident spouse treated as resident, Nonresident Alien Spouse Treated as a Resident, Foreign earned income exclusion. Free tax software Filing requirements By filing status, Filing Requirements Foreign currency, Foreign Currency When to file and pay, When To File and Pay, Return filed before test is met. Free tax software , Publication 54 - Additional Material Where to file, Where To File, Publication 54 - Additional Material Foreign Camps, Foreign camps. Free tax software Country, defined, Foreign Country Currency, Foreign Currency Earned income, Foreign Earned Income, Foreign camps. Free tax software , Publication 54 - Additional Material Household, second, Second foreign household. Free tax software Foreign currency, deposit with disbursing officer, Deposit of foreign currency with disbursing officer. Free tax software Foreign earned income Defined, Foreign Earned Income, More information. Free tax software U. Free tax software S. Free tax software Government employees, U. Free tax software S. Free tax software Government Employees, More information. Free tax software Foreign earned income exclusion Choosing, Choosing the Exclusion, When You Can Choose the Exclusion Defined, Foreign Earned Income Exclusion Earned income credit, Earned income credit. Free tax software Foreign tax credit, Foreign tax credit or deduction. Free tax software Income received after year earned, Paid in year following work. Free tax software , Example. Free tax software Limit, Limit on Excludable Amount, Physical presence test. Free tax software , Publication 54 - Additional Material Maximum exclusion, Limit on Excludable Amount, Physical presence test. Free tax software Part-year exclusion, Part-year exclusion. Free tax software Physical presence test, maximum exclusion, Physical presence test. Free tax software Requirements, Who Qualifies for the Exclusions and the Deduction?, Foreign camps. Free tax software Revoking choice, Revoking the Exclusion Foreign housing exclusion Earned income credit, Earned income credit. Free tax software Foreign tax credit, Foreign tax credit or deduction. Free tax software Foreign housing exclusion/deduction Carryover of deduction, Carryover. Free tax software Deduction, figuring, Foreign Housing Deduction Exclusion, figuring, Foreign Housing Exclusion, Choosing the exclusion. Free tax software Housing amount, Housing Amount Housing expenses, Housing expenses. Free tax software Married couples, Married Couples Requirements, Who Qualifies for the Exclusions and the Deduction?, Foreign camps. Free tax software Second foreign household, Second foreign household. Free tax software Foreign tax credit Earned income exclusion, Foreign tax credit or deduction. Free tax software , Foreign tax credit or deduction. Free tax software Foreign taxes Credit for, Foreign tax credit. Free tax software , Taxes of Foreign Countries and U. Free tax software S. Free tax software Possessions, Deduction for Other Foreign Taxes, Common Benefits Deduction for, Taxes of Foreign Countries and U. Free tax software S. Free tax software Possessions, Deduction for Other Foreign Taxes, Common Benefits, Publication 54 - Additional Material Paid on excluded income, Foreign taxes paid on excluded income. Free tax software Form 1040-ES, Estimated Tax 1040X, Return filed before test is met. Free tax software , How To Make the Choice 1116, Credit for Foreign Income Taxes 2032, Foreign affiliate. Free tax software 2350, How to get an extension. Free tax software 2555, Choosing the Exclusion, Form 2555 and Form 2555-EZ, Form 2555 2555-EZ, Choosing the Exclusion, Form 2555 and Form 2555-EZ, Form 2555 3115, Blocked Income 3903, Forms To File 4361, Members of the Clergy 4563, American Samoa. Free tax software 4868, Automatic 6-month extension. Free tax software 673, Statement. Free tax software 8689, Non-USVI resident with USVI income. Free tax software 8822, Reminders W-4, Foreign tax credit. Free tax software Free tax services, Free help with your tax return. Free tax software Frequently asked questions (FAQs), Publication 54 - Additional Material Fulbright grant, Fulbright Grant, Publication 54 - Additional Material G General tax questions, Publication 54 - Additional Material Green card test, Resident alien. Free tax software Guam Possession exclusion, American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands Residents of, Resident of Guam. Free tax software Where to file, Resident of Guam. Free tax software H Help (see Tax help) Housing Amount, Housing Amount, Self-employed and employer-provided amounts. Free tax software Deduction, Foreign Housing Exclusion and Deduction, Foreign Housing Deduction Exclusion, Foreign Housing Exclusion and Deduction, Choosing the exclusion. Free tax software Expenses, Housing expenses. Free tax software I Income Apprentices, treaty benefits for, Common Benefits Artist, Income of an artist. Free tax software Blocked, Blocked Income Community, Community income. Free tax software Corporation, Income from a corporation. Free tax software Earned, Foreign Earned Income, Foreign camps. Free tax software , Publication 54 - Additional Material Employer's property or facilities, use of, Use of employer's property or facilities. Free tax software Investment, treaty benefits for, Common Benefits Partnership, Income from a sole proprietorship or partnership. Free tax software Pensions and annuities, Pensions and annuities. Free tax software , Common Benefits Personal service, treaty benefits for, Common Benefits Professional fees, Professional fees. Free tax software Professors, treaty benefits for, Common Benefits Railroad retirement benefits, Publication 54 - Additional Material Reimbursement of employee expenses, Reimbursement of employee expenses. Free tax software Reimbursement of moving expenses, Reimbursement of moving expenses. Free tax software Rental, Rental income. Free tax software Royalties, Royalties. Free tax software Social security benefits, Publication 54 - Additional Material Sole proprietorship, Income from a sole proprietorship or partnership. Free tax software Source of, Source of Earned Income Stock options, Stock options. Free tax software Students, treaty benefits for, Common Benefits Teachers, treaty benefits for, Common Benefits Trainees, treaty benefits for, Common Benefits Unearned, Earned and Unearned Income Indefinite assignment, Temporary or Indefinite Assignment Individual retirement arrangements (IRAs), Contributions to Individual Retirement Arrangements Individual taxpayer identification number (ITIN), Social security number. Free tax software Investment income, treaty benefits for, Common Benefits IRAs, Contributions to Individual Retirement Arrangements L Limit on Foreign housing deduction, Limit Housing expenses, Limit on housing expenses. Free tax software Income exclusion, Limit on Excludable Amount, Physical presence test. Free tax software Lodging, exclusion of, Exclusion of Meals and Lodging M Married couples, Married Couples Meals and lodging, exclusion of, Exclusion of Meals and Lodging Moving Allocating expenses, Allocation of Moving Expenses Deducting expenses, Moving Expenses, Forms To File Reimbursement of expenses, Reimbursement of moving expenses. Free tax software N Nonresident spouse Social security number, Social Security Number (SSN) Treated as resident, Nonresident Alien Spouse Treated as a Resident, Foreign earned income exclusion. Free tax software Northern Mariana Islands Possession exclusion, American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands Residents of, Resident of the Commonwealth of the Northern Mariana Islands. Free tax software Where to file, Resident of the Commonwealth of the Northern Mariana Islands. Free tax software P Part-year exclusion, Part-year exclusion. Free tax software Pay for personal services, Earned income. Free tax software , Common Benefits Paying U. Free tax software S. Free tax software tax in foreign currency, Paying U. Free tax software S. Free tax software tax in foreign currency. Free tax software Payment of tax, When To File and Pay Penalties and interest, Publication 54 - Additional Material Pensions and annuities Income from, Pensions and annuities. Free tax software , Common Benefits Withholding from, Withholding from pension payments. Free tax software Physical presence test 12-month period, How to figure the 12-month period. Free tax software Defined, Physical Presence Test Maximum exclusion, Physical presence test. Free tax software Meeting the requirements, Publication 54 - Additional Material Waiver of time requirements, Waiver of Time Requirements, U. Free tax software S. Free tax software Travel Restrictions Professors, treaty benefits for, Common Benefits Publications (see Tax help) Puerto Rico Possession exclusion, Puerto Rico and U. Free tax software S. Free tax software Virgin Islands Residents of, Puerto Rico. Free tax software Q Questions and answers, Publication 54 - Additional Material R Railroad retirement benefits, Publication 54 - Additional Material Reimbursement Accountable plan, Accountable plan. Free tax software Employee expenses, Reimbursement of employee expenses. Free tax software Moving expenses, Reimbursement of moving expenses. Free tax software Resident alien defined, Resident alien. Free tax software Revoking choice to exclude, Revoking the Exclusion S Scholarship and fellowship grants, Publication 54 - Additional Material Scholarships, Scholarships and fellowships. Free tax software Second foreign household, Second foreign household. Free tax software , Married Couples Self-employment tax Clergy, Members of the Clergy Exemption from, Exemption From Social Security and Medicare Taxes How to pay, Publication 54 - Additional Material Who must pay, Who Must Pay Self-Employment Tax? Social security and Medicare taxes, Social Security and Medicare Taxes Social security benefits, Publication 54 - Additional Material Social security number Dependents, Social security number. Free tax software Nonresident spouse, Social Security Number (SSN) Source of earned income, Source of Earned Income Spouse, exemption for, Exemptions, Publication 54 - Additional Material Students, treaty benefits for, Common Benefits Substantial presence test, Resident alien. Free tax software T Taiwan, American Institute in, American Institute in Taiwan. Free tax software Tax help, How To Get Tax Help Tax home, Tax Home in Foreign Country, Temporary or Indefinite Assignment Tax treaties Benefits of, Common Benefits, More information on treaties. Free tax software Competent authority assistance, Competent Authority Assistance Determining residence, Special agreements and treaties. Free tax software Obtaining copies of, Obtaining Copies of Tax Treaties Purpose of, Purpose of Tax Treaties Teachers, treaty benefits for, Common Benefits Temporary assignment, expenses, Temporary or Indefinite Assignment Totalization agreements, Bilateral Social Security (Totalization) Agreements Trainees, treaty benefits for, Common Benefits Travel restrictions, U. Free tax software S. Free tax software Travel Restrictions Treaties (see Tax treaties) TTY/TDD information, How To Get Tax Help U U. Free tax software S. Free tax software Government employees, U. Free tax software S. Free tax software Government Employees, More information. Free tax software U. Free tax software S. Free tax software Virgin Islands Possession exclusion, Puerto Rico and U. Free tax software S. Free tax software Virgin Islands V Virgin Islands Nonresidents of, Non-USVI resident with USVI income. Free tax software Residents of, Resident of U. Free tax software S. Free tax software Virgin Islands (USVI). Free tax software Where to file, Resident of U. Free tax software S. Free tax software Virgin Islands (USVI). Free tax software W Waiver of time requirements, Waiver of Time Requirements, U. Free tax software S. Free tax software Travel Restrictions When to file and pay, When To File and Pay, Return filed before test is met. Free tax software , Publication 54 - Additional Material Where to file Claiming exclusion/deduction, Where To File Commonwealth of the Northern Mariana Islands residents, Resident of the Commonwealth of the Northern Mariana Islands. Free tax software Guam residents, Resident of Guam. Free tax software No legal residence in U. Free tax software S. Free tax software , Where To File Virgin Islands residents, nonresidents, Resident of U. Free tax software S. Free tax software Virgin Islands (USVI). Free tax software Withholding Income tax, Income Tax Withholding , Publication 54 - Additional Material Pension payments, Withholding from pension payments. Free tax software Prev  Up     Home   More Online Publications