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

How To File 1040ez Online

How To File An Amended Tax Return For 2013Taxes 2008Free File For State Taxes2012 Tax Forms IrsIrs Form1040Amended 1040 Tax ReturnHow Can I Amend My 2010 Tax ReturnE File State Taxes Free OnlineH And R Block LoginFile Amended Tax Return 2011 Online1040ez Free Online FileHow Do I File My 2010 Tax ReturnHow To Amend Tax Return1040ez Tax FilingEz Form Online1040ez ComEztaxformIrs Mailing Address 1040ez2010 Electronic Tax Filing1040ez BookletIrsFiling Amended Tax ReturnTax Planning Us 1040aHr Block Free Tax ReturnIrs Tax Forms 2007E File ExtensionHow To File Back Taxes For FreeFile Late Taxes Online Free2012 Tax ReturnIncome Taxes 2012Irs 2012 Taxes QuestionsFree EfileH And R Block Free Tax FilingHow To File Tax ReturnFilling Out 1040x OnlineFree Income Tax ServiceCan I Fill 2010 Taxes This YearFree Tax2011 Irs Form 1040ezForm 1040ez Instructions

How To File 1040ez Online

How to file 1040ez online 8. How to file 1040ez online   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. How to file 1040ez online Cash method. How to file 1040ez online Car and Truck ExpensesOffice in the home. How to file 1040ez online Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. How to file 1040ez online InsuranceHow to figure the deduction. How to file 1040ez online Interest Legal and Professional FeesTax preparation fees. How to file 1040ez online Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. How to file 1040ez online Taxi, commuter bus, and limousine. How to file 1040ez online Baggage and shipping. How to file 1040ez online Car or truck. How to file 1040ez online Meals and lodging. How to file 1040ez online Cleaning. How to file 1040ez online Telephone. How to file 1040ez online Tips. How to file 1040ez online More information. How to file 1040ez online Business Use of Your HomeExceptions to exclusive use. How to file 1040ez online Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. How to file 1040ez online These costs are known as business expenses. How to file 1040ez online These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. How to file 1040ez online To be deductible, a business expense must be both ordinary and necessary. How to file 1040ez online An ordinary expense is one that is common and accepted in your field of business. How to file 1040ez online A necessary expense is one that is helpful and appropriate for your business. How to file 1040ez online An expense does not have to be indispensable to be considered necessary. How to file 1040ez online For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. How to file 1040ez online If you have an expense that is partly for business and partly personal, separate the personal part from the business part. How to file 1040ez online The personal part is not deductible. How to file 1040ez online Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. How to file 1040ez online Bad Debts If someone owes you money you cannot collect, you have a bad debt. How to file 1040ez online There are two kinds of bad debts, business bad debts and nonbusiness bad debts. How to file 1040ez online A business bad debt is generally one that comes from operating your trade or business. How to file 1040ez online You may be able to deduct business bad debts as an expense on your business tax return. How to file 1040ez online Business bad debt. How to file 1040ez online   A business bad debt is a loss from the worthlessness of a debt that was either of the following. How to file 1040ez online Created or acquired in your business. How to file 1040ez online Closely related to your business when it became partly or totally worthless. How to file 1040ez online A debt is closely related to your business if your primary motive for incurring the debt is a business reason. How to file 1040ez online   Business bad debts are mainly the result of credit sales to customers. How to file 1040ez online They can also be the result of loans to suppliers, clients, employees, or distributors. How to file 1040ez online Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. How to file 1040ez online If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. How to file 1040ez online    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. How to file 1040ez online Accrual method. How to file 1040ez online   If you use an accrual method of accounting, you normally report income as you earn it. How to file 1040ez online You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. How to file 1040ez online Cash method. How to file 1040ez online   If you use the cash method of accounting, you normally report income when you receive payment. How to file 1040ez online You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. How to file 1040ez online More information. How to file 1040ez online   For more information about business bad debts, see chapter 10 in Publication 535. How to file 1040ez online Nonbusiness bad debts. How to file 1040ez online   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). How to file 1040ez online For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. How to file 1040ez online Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. How to file 1040ez online You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. How to file 1040ez online You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. How to file 1040ez online See Form 8936 and Form 8910 for more information. How to file 1040ez online Local transportation expenses. How to file 1040ez online   Local transportation expenses include the ordinary and necessary costs of all the following. How to file 1040ez online Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. How to file 1040ez online Tax home is defined later. How to file 1040ez online Visiting clients or customers. How to file 1040ez online Going to a business meeting away from your regular workplace. How to file 1040ez online Getting from your home to a temporary workplace when you have one or more regular places of work. How to file 1040ez online These temporary workplaces can be either within the area of your tax home or outside that area. How to file 1040ez online Local business transportation does not include expenses you have while traveling away from home overnight. How to file 1040ez online Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. How to file 1040ez online However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. How to file 1040ez online   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. How to file 1040ez online It includes the entire city or general area in which your business or work is located. How to file 1040ez online Example. How to file 1040ez online You operate a printing business out of rented office space. How to file 1040ez online You use your van to deliver completed jobs to your customers. How to file 1040ez online You can deduct the cost of round-trip transportation between your customers and your print shop. How to file 1040ez online    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. How to file 1040ez online These costs are personal commuting expenses. How to file 1040ez online Office in the home. How to file 1040ez online   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. How to file 1040ez online For more information, see Business Use of Your Home, later. How to file 1040ez online Example. How to file 1040ez online You are a graphics designer. How to file 1040ez online You operate your business out of your home. How to file 1040ez online Your home qualifies as your principal place of business. How to file 1040ez online You occasionally have to drive to your clients to deliver your completed work. How to file 1040ez online You can deduct the cost of the round-trip transportation between your home and your clients. How to file 1040ez online Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. How to file 1040ez online Standard mileage rate. How to file 1040ez online Actual expenses. How to file 1040ez online Standard mileage rate. How to file 1040ez online   You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. How to file 1040ez online For 2013, the standard mileage rate is 56. How to file 1040ez online 5 cents per mile. How to file 1040ez online    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. How to file 1040ez online Choosing the standard mileage rate. How to file 1040ez online   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. How to file 1040ez online In later years, you can choose to use either the standard mileage rate or actual expenses. How to file 1040ez online   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). How to file 1040ez online Standard mileage rate not allowed. How to file 1040ez online   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. How to file 1040ez online Parking fees and tolls. How to file 1040ez online   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. How to file 1040ez online (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. How to file 1040ez online ) Actual expenses. How to file 1040ez online   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. How to file 1040ez online    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. How to file 1040ez online   Actual car expenses include the costs of the following items. How to file 1040ez online Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. How to file 1040ez online You can divide your expenses based on the miles driven for each purpose. How to file 1040ez online Example. How to file 1040ez online You are the sole proprietor of a flower shop. How to file 1040ez online You drove your van 20,000 miles during the year. How to file 1040ez online 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). How to file 1040ez online You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. How to file 1040ez online More information. How to file 1040ez online   For more information about the rules for claiming car and truck expenses, see Publication 463. How to file 1040ez online Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. How to file 1040ez online The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. How to file 1040ez online For details, see chapter 11 in Publication 535. How to file 1040ez online That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. How to file 1040ez online Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. How to file 1040ez online You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. How to file 1040ez online This method of deducting the cost of business property is called depreciation. How to file 1040ez online The discussion here is brief. How to file 1040ez online You will find more information about depreciation in Publication 946. How to file 1040ez online What property can be depreciated?   You can depreciate property if it meets all the following requirements. How to file 1040ez online It must be property you own. How to file 1040ez online It must be used in business or held to produce income. How to file 1040ez online You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. How to file 1040ez online It must have a useful life that extends substantially beyond the year it is placed in service. How to file 1040ez online It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. How to file 1040ez online You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. How to file 1040ez online It must not be excepted property. How to file 1040ez online This includes property placed in service and disposed of in the same year. How to file 1040ez online Repairs. How to file 1040ez online    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. How to file 1040ez online You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. How to file 1040ez online Depreciation method. How to file 1040ez online   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). How to file 1040ez online MACRS is discussed in detail in Publication 946. How to file 1040ez online Section 179 deduction. How to file 1040ez online   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. How to file 1040ez online This deduction is known as the “section 179 deduction. How to file 1040ez online ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). How to file 1040ez online See IRC 179(e). How to file 1040ez online   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. How to file 1040ez online The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). How to file 1040ez online Special rules apply to trucks and vans. How to file 1040ez online For more information, see Publication 946. How to file 1040ez online It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. How to file 1040ez online    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. How to file 1040ez online For more information, see the Instructions for Form 4562 or Publication 946. How to file 1040ez online Listed property. How to file 1040ez online   You must follow special rules and recordkeeping requirements when depreciating listed property. How to file 1040ez online Listed property is any of the following. How to file 1040ez online Most passenger automobiles. How to file 1040ez online Most other property used for transportation. How to file 1040ez online Any property of a type generally used for entertainment, recreation, or amusement. How to file 1040ez online Certain computers and related peripheral equipment. How to file 1040ez online   For more information about listed property, see Publication 946. How to file 1040ez online Form 4562. How to file 1040ez online   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. How to file 1040ez online Depreciation on property placed in service during the current tax year. How to file 1040ez online A section 179 deduction. How to file 1040ez online Depreciation on any listed property (regardless of when it was placed in service). How to file 1040ez online    If you have to use Form 4562, you must file Schedule C. How to file 1040ez online You cannot use Schedule C-EZ. How to file 1040ez online   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. How to file 1040ez online The pay may be in cash, property, or services. How to file 1040ez online To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. How to file 1040ez online In addition, the pay must meet both the following tests. How to file 1040ez online The pay must be reasonable. How to file 1040ez online The pay must be for services performed. How to file 1040ez online Chapter 2 in Publication 535 explains and defines these requirements. How to file 1040ez online You cannot deduct your own salary or any personal withdrawals you make from your business. How to file 1040ez online As a sole proprietor, you are not an employee of the business. How to file 1040ez online If you had employees during the year, you must use Schedule C. How to file 1040ez online You cannot use Schedule C-EZ. How to file 1040ez online Kinds of pay. How to file 1040ez online   Some of the ways you may provide pay to your employees are listed below. How to file 1040ez online For an explanation of each of these items, see chapter 2 in Publication 535. How to file 1040ez online Awards. How to file 1040ez online Bonuses. How to file 1040ez online Education expenses. How to file 1040ez online Fringe benefits (discussed later). How to file 1040ez online Loans or advances you do not expect the employee to repay if they are for personal services actually performed. How to file 1040ez online Property you transfer to an employee as payment for services. How to file 1040ez online Reimbursements for employee business expenses. How to file 1040ez online Sick pay. How to file 1040ez online Vacation pay. How to file 1040ez online Fringe benefits. How to file 1040ez online   A fringe benefit is a form of pay for the performance of services. How to file 1040ez online The following are examples of fringe benefits. How to file 1040ez online Benefits under qualified employee benefit programs. How to file 1040ez online Meals and lodging. How to file 1040ez online The use of a car. How to file 1040ez online Flights on airplanes. How to file 1040ez online Discounts on property or services. How to file 1040ez online Memberships in country clubs or other social clubs. How to file 1040ez online Tickets to entertainment or sporting events. How to file 1040ez online   Employee benefit programs include the following. How to file 1040ez online Accident and health plans. How to file 1040ez online Adoption assistance. How to file 1040ez online Cafeteria plans. How to file 1040ez online Dependent care assistance. How to file 1040ez online Educational assistance. How to file 1040ez online Group-term life insurance coverage. How to file 1040ez online Welfare benefit funds. How to file 1040ez online   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. How to file 1040ez online For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. How to file 1040ez online If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. How to file 1040ez online    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. How to file 1040ez online For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. How to file 1040ez online Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. How to file 1040ez online Fire, theft, flood, or similar insurance. How to file 1040ez online Credit insurance that covers losses from business bad debts. How to file 1040ez online Group hospitalization and medical insurance for employees, including long-term care insurance. How to file 1040ez online Liability insurance. How to file 1040ez online Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. How to file 1040ez online Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. How to file 1040ez online Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. How to file 1040ez online Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. How to file 1040ez online Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. How to file 1040ez online If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. How to file 1040ez online If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. How to file 1040ez online Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. How to file 1040ez online Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. How to file 1040ez online Nondeductible premiums. How to file 1040ez online   You cannot deduct premiums on the following kinds of insurance. How to file 1040ez online Self-insurance reserve funds. How to file 1040ez online You cannot deduct amounts credited to a reserve set up for self-insurance. How to file 1040ez online This applies even if you cannot get business insurance coverage for certain business risks. How to file 1040ez online However, your actual losses may be deductible. How to file 1040ez online For more information, see Publication 547, Casualties, Disasters, and Thefts. How to file 1040ez online Loss of earnings. How to file 1040ez online You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. How to file 1040ez online However, see item (8) in the previous list. How to file 1040ez online Certain life insurance and annuities. How to file 1040ez online For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. How to file 1040ez online You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. How to file 1040ez online A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. How to file 1040ez online For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. How to file 1040ez online The disallowance applies without regard to whom the policy covers. How to file 1040ez online Insurance to secure a loan. How to file 1040ez online If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. How to file 1040ez online Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. How to file 1040ez online In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. How to file 1040ez online Self-employed health insurance deduction. How to file 1040ez online   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. How to file 1040ez online How to figure the deduction. How to file 1040ez online   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. How to file 1040ez online However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. How to file 1040ez online You have more than one source of income subject to self-employment tax. How to file 1040ez online You file Form 2555 or Form 2555-EZ (relating to foreign earned income). How to file 1040ez online You are using amounts paid for qualified long-term care insurance to figure the deduction. How to file 1040ez online Prepayment. How to file 1040ez online   You cannot deduct expenses in advance, even if you pay them in advance. How to file 1040ez online This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. How to file 1040ez online Example. How to file 1040ez online In 2013, you signed a 3-year insurance contract. How to file 1040ez online Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. How to file 1040ez online You can deduct in 2014 and 2015 the premium allocable to those years. How to file 1040ez online More information. How to file 1040ez online   For more information about deducting insurance, see chapter 6 in Publication 535. How to file 1040ez online Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. How to file 1040ez online Interest relates to your business if you use the proceeds of the loan for a business expense. How to file 1040ez online It does not matter what type of property secures the loan. How to file 1040ez online You can deduct interest on a debt only if you meet all of the following requirements. How to file 1040ez online You are legally liable for that debt. How to file 1040ez online Both you and the lender intend that the debt be repaid. How to file 1040ez online You and the lender have a true debtor-creditor relationship. How to file 1040ez online You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. How to file 1040ez online If a loan is part business and part personal, you must divide the interest between the personal part and the business part. How to file 1040ez online Example. How to file 1040ez online In 2013, you paid $600 interest on a car loan. How to file 1040ez online During 2013, you used the car 60% for business and 40% for personal purposes. How to file 1040ez online You are claiming actual expenses on the car. How to file 1040ez online You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. How to file 1040ez online The remaining interest of $240 is a nondeductible personal expense. How to file 1040ez online More information. How to file 1040ez online   For more information about deducting interest, see chapter 4 in Publication 535. How to file 1040ez online That chapter explains the following items. How to file 1040ez online Interest you can deduct. How to file 1040ez online Interest you cannot deduct. How to file 1040ez online How to allocate interest between personal and business use. How to file 1040ez online When to deduct interest. How to file 1040ez online The rules for a below-market interest rate loan. How to file 1040ez online (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. How to file 1040ez online ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. How to file 1040ez online However, you usually cannot deduct legal fees you pay to acquire business assets. How to file 1040ez online Add them to the basis of the property. How to file 1040ez online If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. How to file 1040ez online The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. How to file 1040ez online For more information, see Publication 529, Miscellaneous Deductions. How to file 1040ez online Tax preparation fees. How to file 1040ez online   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. How to file 1040ez online You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. How to file 1040ez online   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. How to file 1040ez online Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. How to file 1040ez online SEP (Simplified Employee Pension) plans. How to file 1040ez online SIMPLE (Savings Incentive Match Plan for Employees) plans. How to file 1040ez online Qualified plans (including Keogh or H. How to file 1040ez online R. How to file 1040ez online 10 plans). How to file 1040ez online SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. How to file 1040ez online You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. How to file 1040ez online If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. How to file 1040ez online You can also deduct trustees' fees if contributions to the plan do not cover them. How to file 1040ez online Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. How to file 1040ez online You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. How to file 1040ez online Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. How to file 1040ez online These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. How to file 1040ez online For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). How to file 1040ez online Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. How to file 1040ez online Rent Expense Rent is any amount you pay for the use of property you do not own. How to file 1040ez online In general, you can deduct rent as a business expense only if the rent is for property you use in your business. How to file 1040ez online If you have or will receive equity in or title to the property, you cannot deduct the rent. How to file 1040ez online Unreasonable rent. How to file 1040ez online   You cannot take a rental deduction for unreasonable rents. How to file 1040ez online Ordinarily, the issue of reasonableness arises only if you and the lessor are related. How to file 1040ez online Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. How to file 1040ez online Rent is not unreasonable just because it is figured as a percentage of gross receipts. How to file 1040ez online   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. How to file 1040ez online For a list of the other related persons, see section 267 of the Internal Revenue Code. How to file 1040ez online Rent on your home. How to file 1040ez online   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. How to file 1040ez online You must meet the requirements for business use of your home. How to file 1040ez online For more information, see Business Use of Your Home , later. How to file 1040ez online Rent paid in advance. How to file 1040ez online   Generally, rent paid in your business is deductible in the year paid or accrued. How to file 1040ez online If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. How to file 1040ez online You can deduct the rest of your payment only over the period to which it applies. How to file 1040ez online More information. How to file 1040ez online   For more information about rent, see chapter 3 in Publication 535. How to file 1040ez online Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. How to file 1040ez online Income taxes. How to file 1040ez online   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. How to file 1040ez online You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. How to file 1040ez online Do not deduct federal income tax. How to file 1040ez online Employment taxes. How to file 1040ez online   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. How to file 1040ez online Employment taxes are discussed briefly in chapter 1. How to file 1040ez online You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. How to file 1040ez online Deduct these payments as taxes. How to file 1040ez online Self-employment tax. How to file 1040ez online   You can deduct one-half of your self-employment tax on line 27 of Form 1040. How to file 1040ez online Self-employment tax is discussed in chapters 1 and 10. How to file 1040ez online Personal property tax. How to file 1040ez online   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. How to file 1040ez online   You can also deduct registration fees for the right to use property within a state or local area. How to file 1040ez online Example. How to file 1040ez online May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. How to file 1040ez online They had to pay $25 for their annual state license tags and $20 for their city registration sticker. How to file 1040ez online They also paid $235 in city personal property tax on the car, for a total of $280. How to file 1040ez online They are claiming their actual car expenses. How to file 1040ez online Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. How to file 1040ez online Real estate taxes. How to file 1040ez online   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. How to file 1040ez online Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. How to file 1040ez online The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. How to file 1040ez online   For more information about real estate taxes, see chapter 5 in Publication 535. How to file 1040ez online That chapter explains special rules for deducting the following items. How to file 1040ez online Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. How to file 1040ez online Real estate taxes when you buy or sell property during the year. How to file 1040ez online Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. How to file 1040ez online Sales tax. How to file 1040ez online   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. How to file 1040ez online If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. How to file 1040ez online If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. How to file 1040ez online If the property is depreciable, add the sales tax to the basis for depreciation. How to file 1040ez online For information on the basis of property, see Publication 551, Basis of Assets. How to file 1040ez online    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. How to file 1040ez online Do not include these taxes in gross receipts or sales. How to file 1040ez online Excise taxes. How to file 1040ez online   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. How to file 1040ez online Excise taxes are discussed briefly in chapter 1. How to file 1040ez online Fuel taxes. How to file 1040ez online   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. How to file 1040ez online Do not deduct these taxes as a separate item. How to file 1040ez online   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. How to file 1040ez online For more information, see Publication 510, Excise Taxes. How to file 1040ez online Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. How to file 1040ez online Table 8-1. How to file 1040ez online When Are Entertainment Expenses Deductible? (Note. How to file 1040ez online The following is a summary of the rules for deducting entertainment expenses. How to file 1040ez online For more details about these rules, see Publication 463. How to file 1040ez online ) General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. How to file 1040ez online Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. How to file 1040ez online An ordinary expense is one that is common and accepted in your field of business, trade, or profession. How to file 1040ez online A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. How to file 1040ez online Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. How to file 1040ez online   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. How to file 1040ez online Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. How to file 1040ez online You cannot deduct expenses that are lavish or extravagant under the circumstances. How to file 1040ez online You generally can deduct only 50% of your unreimbursed entertainment expenses. How to file 1040ez online Travel expenses. How to file 1040ez online   These are the ordinary and necessary expenses of traveling away from home for your business. How to file 1040ez online You are traveling away from home if both the following conditions are met. How to file 1040ez online Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work. How to file 1040ez online You need to get sleep or rest to meet the demands of your work while away from home. How to file 1040ez online Generally, your tax home is your regular place of business, regardless of where you maintain your family home. How to file 1040ez online It includes the entire city or general area in which your business is located. How to file 1040ez online See Publication 463 for more information. How to file 1040ez online   The following is a brief discussion of the expenses you can deduct. How to file 1040ez online Transportation. How to file 1040ez online   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. How to file 1040ez online Taxi, commuter bus, and limousine. How to file 1040ez online   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. How to file 1040ez online Baggage and shipping. How to file 1040ez online   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. How to file 1040ez online Car or truck. How to file 1040ez online   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. How to file 1040ez online You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. How to file 1040ez online If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. How to file 1040ez online Meals and lodging. How to file 1040ez online   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. How to file 1040ez online In most cases, you can deduct only 50% of your meal expenses. How to file 1040ez online Cleaning. How to file 1040ez online   You can deduct the costs of dry cleaning and laundry while on your business trip. How to file 1040ez online Telephone. How to file 1040ez online   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. How to file 1040ez online Tips. How to file 1040ez online   You can deduct the tips you pay for any expense in this list. How to file 1040ez online More information. How to file 1040ez online   For more information about travel expenses, see Publication 463. How to file 1040ez online Entertainment expenses. How to file 1040ez online   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. How to file 1040ez online In most cases, you can deduct only 50% of these expenses. How to file 1040ez online   The following are examples of entertainment expenses. How to file 1040ez online Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. How to file 1040ez online Providing meals, a hotel suite, or a car to business customers or their families. How to file 1040ez online To be deductible, the expenses must meet the rules listed in Table 8-1. How to file 1040ez online For details about these rules, see Publication 463. How to file 1040ez online Reimbursing your employees for expenses. How to file 1040ez online   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. How to file 1040ez online The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. How to file 1040ez online For details, see chapter 11 in Publication 535. How to file 1040ez online That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. How to file 1040ez online Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. How to file 1040ez online Even then, your deduction may be limited. How to file 1040ez online To qualify to claim expenses for business use of your home, you must meet the following tests. How to file 1040ez online Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your business, and The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your business, or A separate structure (not attached to your home) you use in connection with your business. How to file 1040ez online Exclusive use. How to file 1040ez online   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. How to file 1040ez online The area used for business can be a room or other separately identifiable space. How to file 1040ez online The space does not need to be marked off by a permanent partition. How to file 1040ez online   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. How to file 1040ez online Example. How to file 1040ez online You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. How to file 1040ez online Your family also uses the den for recreation. How to file 1040ez online The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. How to file 1040ez online Exceptions to exclusive use. How to file 1040ez online   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. How to file 1040ez online For the storage of inventory or product samples. How to file 1040ez online As a daycare facility. How to file 1040ez online For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). How to file 1040ez online Regular use. How to file 1040ez online   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. How to file 1040ez online You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. How to file 1040ez online Principal place of business. How to file 1040ez online   You can have more than one business location, including your home, for a single trade or business. How to file 1040ez online To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. How to file 1040ez online To determine your principal place of business, you must consider all the facts and circumstances. How to file 1040ez online   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. How to file 1040ez online You use it exclusively and regularly for administrative or management activities of your business. How to file 1040ez online You have no other fixed location where you conduct substantial administrative or management activities of your business. How to file 1040ez online   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. How to file 1040ez online The relative importance of the activities performed at each location. How to file 1040ez online If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. How to file 1040ez online   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. How to file 1040ez online However, for other ways to qualify to deduct home office expenses, see Publication 587. How to file 1040ez online Deduction limit. How to file 1040ez online   If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. How to file 1040ez online If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. How to file 1040ez online   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. How to file 1040ez online The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). How to file 1040ez online The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. How to file 1040ez online Do not include in (2) above your deduction for one-half of your self-employment tax. How to file 1040ez online   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. How to file 1040ez online New simplified method. How to file 1040ez online    The IRS now provides a simplified method to determine your expenses for business use of your home. How to file 1040ez online The simplified method is an alternative to calculating and substantiating actual expenses. How to file 1040ez online In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. How to file 1040ez online The area you use to figure your deduction is limited to 300 square feet. How to file 1040ez online For more information, see the Instructions for Schedule C. How to file 1040ez online More information. How to file 1040ez online   For more information on deducting expenses for the business use of your home, see Publication 587. How to file 1040ez online Other Expenses You Can Deduct You may also be able to deduct the following expenses. How to file 1040ez online See Publication 535 to find out whether you can deduct them. How to file 1040ez online Advertising. How to file 1040ez online Bank fees. How to file 1040ez online Donations to business organizations. How to file 1040ez online Education expenses. How to file 1040ez online Energy efficient commercial buildings deduction expenses. How to file 1040ez online Impairment-related expenses. How to file 1040ez online Interview expense allowances. How to file 1040ez online Licenses and regulatory fees. How to file 1040ez online Moving machinery. How to file 1040ez online Outplacement services. How to file 1040ez online Penalties and fines you pay for late performance or nonperformance of a contract. How to file 1040ez online Repairs that keep your property in a normal efficient operating condition. How to file 1040ez online Repayments of income. How to file 1040ez online Subscriptions to trade or professional publications. How to file 1040ez online Supplies and materials. How to file 1040ez online Utilities. How to file 1040ez online Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. How to file 1040ez online For more information, see Publication 535. How to file 1040ez online Bribes and kickbacks. How to file 1040ez online Charitable contributions. How to file 1040ez online Demolition expenses or losses. How to file 1040ez online Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. How to file 1040ez online Lobbying expenses. How to file 1040ez online Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. How to file 1040ez online Personal, living, and family expenses. How to file 1040ez online Political contributions. How to file 1040ez online Repairs that add to the value of your property or significantly increase its life. How to file 1040ez online Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

HCTC: Information for Health Plan Administrators (HPAs)

Important Update: The legislation that authorizes the Health Coverage Tax Credit (HCTC) has expired. The tax credit will no longer be available for tax years after 2013. 

Health Plan Administrators (HPAs) are vital to the success of the HCTC program. Your role as an HPA can vary, depending on your level of involvement in helping eligible individuals receive the tax credit.  Below you will find information about how you can help individuals receive this important tax credit.

Complete Ongoing Responsibilities
When individuals claim the Yearly HCTC on their federal tax return, they must submit supporting documents (such as a health insurance bill, COBRA Election Letter, or substitute letter that has the same information that a health insurance bill contains) to show they have the insurance they are claiming.  As an HPA, you can help these individuals if they request information or documentation from you concerning their health coverage.

Returning Funds to the HCTC Program
An HPA can return funds to the HCTC Program for many reasons, including: a member's coverage ended or was cancelled, their premium amount changed, the member changed HPA or Third Party Administrator (TPA), the member is no longer eligible for the HCTC, the member is receiving Medicare benefits, or because an incorrect HPA or TPA was paid.

Prior to returning funds to the HCTC Program, you should:
1.    Contact your HCTC HPA Analyst to inform them of the pending return.
2.    Fill out the Return of Funds Form in its entirety.
3.    Fax copies of the completed Return of Funds Form to your HCTC HPA Analyst with the returned funds. 
4.    Reference the Return of Funds Form to determine the correct mailing address for the type of funds you are returning. Include a copy of the Returned Funds Form with the check, and send to the appropriate address.
 

Please note: An updated Return of Funds Form with new contact information and instructions will be provided in early 2014 for use beginning in April 2014.

Return to the HCTC Program home page
Go to the HCTC Quick References page to view a glossary of terms, frequently asked questions (FAQs) and additional resources.

Page Last Reviewed or Updated: 01-Jan-2014

The How To File 1040ez Online

How to file 1040ez online 3. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online Its treatment as ordinary or capital is determined under rules for section 1231 transactions. How to file 1040ez online 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. How to file 1040ez online Any remaining gain is a section 1231 gain. How to file 1040ez online 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. How to file 1040ez online Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (discussed below). How to file 1040ez online Their treatment as ordinary or capital depends on whether you have a net gain or a net loss from all your section 1231 transactions. How to file 1040ez online 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). How to file 1040ez online Do not take that gain into account as section 1231 gain. How to file 1040ez online Section 1231 transactions. How to file 1040ez online   The following transactions result in gain or loss subject to section 1231 treatment. How to file 1040ez online Sales or exchanges of real property or depreciable personal property. How to file 1040ez online This property must be used in a trade or business and held longer than 1 year. How to file 1040ez online Generally, property held for the production of rents or royalties is considered to be used in a trade or business. How to file 1040ez online Depreciable personal property includes amortizable section 197 intangibles (described in chapter 2 under Other Dispositions). How to file 1040ez online Sales or exchanges of leaseholds. How to file 1040ez online The leasehold must be used in a trade or business and held longer than 1 year. How to file 1040ez online Sales or exchanges of cattle and horses. How to file 1040ez online The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 2 years or longer. How to file 1040ez online Sales or exchanges of other livestock. How to file 1040ez online This livestock does not include poultry. How to file 1040ez online It must be held for draft, breeding, dairy, or sporting purposes and held for 1 year or longer. How to file 1040ez online Sales or exchanges of unharvested crops. How to file 1040ez online 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. How to file 1040ez online 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). How to file 1040ez online Growing crops sold with a lease on the land, though sold to the same person in the same transaction, are not included. How to file 1040ez online Cutting of timber or disposal of timber, coal, or iron ore. How to file 1040ez online The cutting or disposal must be treated as a sale, as described in chapter 2 under Timber and Coal and Iron Ore. How to file 1040ez online Condemnations. How to file 1040ez online The condemned property must have been held longer than 1 year. How to file 1040ez online 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. How to file 1040ez online It cannot be property held for personal use. How to file 1040ez online Casualties and thefts. How to file 1040ez online 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). How to file 1040ez online You must have held the property longer than 1 year. How to file 1040ez online 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. How to file 1040ez online For more information on casualties and thefts, see Publication 547. How to file 1040ez online Property for sale to customers. How to file 1040ez online   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. How to file 1040ez online 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. How to file 1040ez online Example. How to file 1040ez online You manufacture and sell steel cable, which you deliver on returnable reels that are depreciable property. How to file 1040ez online Customers make deposits on the reels, which you refund if the reels are returned within a year. How to file 1040ez online If they are not returned, you keep each deposit as the agreed-upon sales price. How to file 1040ez online Most reels are returned within the 1-year period. How to file 1040ez online You keep adequate records showing depreciation and other charges to the capitalized cost of the reels. How to file 1040ez online Under these conditions, the reels are not property held for sale to customers in the ordinary course of your business. How to file 1040ez online Any gain or loss resulting from their not being returned may be capital or ordinary, depending on your section 1231 transactions. How to file 1040ez online Copyrights. How to file 1040ez online    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). How to file 1040ez online The sale of such property results in ordinary income and generally is reported in Part II of Form 4797. How to file 1040ez online Treatment as ordinary or capital. How to file 1040ez online   To determine the treatment of section 1231 gains and losses, combine all your section 1231 gains and losses for the year. How to file 1040ez online If you have a net section 1231 loss, it is ordinary loss. How to file 1040ez online 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. How to file 1040ez online The rest, if any, is long-term capital gain. How to file 1040ez online Nonrecaptured section 1231 losses. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. How to file 1040ez online Example. How to file 1040ez online In 2013, Ben has a $2,000 net section 1231 gain. How to file 1040ez online 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. How to file 1040ez online From 2008 through 2012 he had the following section 1231 gains and losses. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis. How to file 1040ez online On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information. How to file 1040ez online Whether the adjusted basis was figured using depreciation or amortization you claimed on other property. How to file 1040ez online Whether the adjusted basis was figured using depreciation or amortization another person claimed. How to file 1040ez online Corporate distributions. How to file 1040ez online   For information on property distributed by corporations, see Distributions to Shareholders in Publication 542, Corporations. How to file 1040ez online General asset accounts. How to file 1040ez online   Different rules apply to dispositions of property you depreciated using a general asset account. How to file 1040ez online For information on these rules, see Publication 946. How to file 1040ez online 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. How to file 1040ez online See Gain Treated as Ordinary Income, later. How to file 1040ez online Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain. How to file 1040ez online See Treatment as ordinary or capital under Section 1231 Gains and Losses, earlier. How to file 1040ez online Section 1245 property defined. How to file 1040ez online   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. How to file 1040ez online Personal property (either tangible or intangible). How to file 1040ez online Other tangible property (except buildings and their structural components) used as any of the following. How to file 1040ez online See Buildings and structural components below. How to file 1040ez online An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services. How to file 1040ez online A research facility in any of the activities in (a). How to file 1040ez online A facility in any of the activities in (a) for the bulk storage of fungible commodities (discussed on the next page). How to file 1040ez online That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. How to file 1040ez online Amortization of certified pollution control facilities. How to file 1040ez online The section 179 expense deduction. How to file 1040ez online Deduction for clean-fuel vehicles and certain refueling property. How to file 1040ez online Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations. How to file 1040ez online Deduction for certain qualified refinery property. How to file 1040ez online Deduction for qualified energy efficient commercial building property. How to file 1040ez online Amortization of railroad grading and tunnel bores, if in effect before the repeal by the Revenue Reconciliation Act of 1990. How to file 1040ez online (Repealed by Public Law 99-514, Tax Reform Act of 1986, section 242(a). How to file 1040ez online ) 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). How to file 1040ez online Expenditures to remove architectural and transportation barriers to the handicapped and elderly. How to file 1040ez online Deduction for qualified tertiary injectant expenses. How to file 1040ez online Certain reforestation expenditures. How to file 1040ez online Deduction for election to expense qualified advanced mine safety equipment property. How to file 1040ez online Single purpose agricultural (livestock) or horticultural structures. How to file 1040ez online Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. How to file 1040ez online Any railroad grading or tunnel bore. How to file 1040ez online Buildings and structural components. How to file 1040ez online   Section 1245 property does not include buildings and structural components. How to file 1040ez online The term building includes a house, barn, warehouse, or garage. How to file 1040ez online The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. How to file 1040ez online   Do not treat a structure that is essentially machinery or equipment as a building or structural component. How to file 1040ez online 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. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online Facility for bulk storage of fungible commodities. How to file 1040ez online   This term includes oil or gas storage tanks and grain storage bins. How to file 1040ez online Bulk storage means the storage of a commodity in a large mass before it is used. How to file 1040ez online For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. How to file 1040ez online To be fungible, a commodity must be such that one part may be used in place of another. How to file 1040ez online   Stored materials that vary in composition, size, and weight are not fungible. How to file 1040ez online 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. How to file 1040ez online For example, the storage of different grades and forms of aluminum scrap is not storage of fungible commodities. How to file 1040ez online 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. How to file 1040ez online The depreciation and amortization allowed or allowable on the property. How to file 1040ez online The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). How to file 1040ez online A limit on this amount for gain on like-kind exchanges and involuntary conversions is explained later. How to file 1040ez online 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. How to file 1040ez online See Gifts and Transfers at Death, later. How to file 1040ez online Use Part III of Form 4797 to figure the ordinary income part of the gain. How to file 1040ez online Depreciation taken on other property or taken by other taxpayers. How to file 1040ez online   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. How to file 1040ez online Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. How to file 1040ez online 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). How to file 1040ez online Depreciation and amortization. How to file 1040ez online   Depreciation and amortization that must be recaptured as ordinary income include (but are not limited to) the following items. How to file 1040ez online Ordinary depreciation deductions. How to file 1040ez online Any special depreciation allowance you claimed. How to file 1040ez online Amortization deductions for all the following costs. How to file 1040ez online Acquiring a lease. How to file 1040ez online Lessee improvements. How to file 1040ez online Certified pollution control facilities. How to file 1040ez online Certain reforestation expenses. How to file 1040ez online Section 197 intangibles. How to file 1040ez online Childcare facility expenses made before 1982, if in effect before the repeal of IRC 188. How to file 1040ez online Franchises, trademarks, and trade names acquired before August 11, 1993. How to file 1040ez online The section 179 deduction. How to file 1040ez online Deductions for all the following costs. How to file 1040ez online Removing barriers to the disabled and the elderly. How to file 1040ez online Tertiary injectant expenses. How to file 1040ez online Depreciable clean-fuel vehicles and refueling property (minus the amount of any recaptured deduction). How to file 1040ez online Environmental cleanup costs. How to file 1040ez online Certain reforestation expenses. How to file 1040ez online Qualified disaster expenses. How to file 1040ez online Any basis reduction for the investment credit (minus any basis increase for credit recapture). How to file 1040ez online Any basis reduction for the qualified electric vehicle credit (minus any basis increase for credit recapture). How to file 1040ez online Example. How to file 1040ez online You file your returns on a calendar year basis. How to file 1040ez online 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. How to file 1040ez online You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2011 and $3,200 in 2012. How to file 1040ez online You did not take the section 179 deduction. How to file 1040ez online You sold the truck in May 2013 for $7,000. How to file 1040ez online The MACRS deduction in 2013, the year of sale, is $960 (½ of $1,920). How to file 1040ez online Figure the gain treated as ordinary income as follows. How to file 1040ez online 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. How to file 1040ez online   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. How to file 1040ez online   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. How to file 1040ez online Depreciation allowed or allowable. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online   This treatment applies only when figuring what part of gain is treated as ordinary income under the rules for section 1245 depreciation recapture. How to file 1040ez online Multiple asset accounts. How to file 1040ez online   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. How to file 1040ez online Example. How to file 1040ez online In one transaction you sold 50 machines, 25 trucks, and certain other property that is not section 1245 property. How to file 1040ez online All of the depreciation was recorded in a single depreciation account. How to file 1040ez online After dividing the total received among the various assets sold, you figured that each unit of section 1245 property was sold at a gain. How to file 1040ez online You can figure the ordinary income from depreciation as if the 50 machines and 25 trucks were one item. How to file 1040ez online 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. How to file 1040ez online Normal retirement. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online To determine the additional depreciation on section 1250 property, see Additional Depreciation, below. How to file 1040ez online Section 1250 property defined. How to file 1040ez online   This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. How to file 1040ez online It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. How to file 1040ez online A fee simple interest in land is not included because it is not depreciable. How to file 1040ez online   If your section 1250 property becomes section 1245 property because you change its use, you can never again treat it as section 1250 property. How to file 1040ez online 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. How to file 1040ez online For a list of items treated as depreciation adjustments, see Depreciation and amortization under Gain Treated as Ordinary Income, earlier. How to file 1040ez online For the treatment of unrecaptured section 1250 gain, see Capital Gains Tax Rate, later. How to file 1040ez online If you hold section 1250 property for 1 year or less, all the depreciation is additional depreciation. How to file 1040ez online You will not have additional depreciation if any of the following conditions apply to the property disposed of. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online The property was residential low-income rental property you held for 162/3 years or longer. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online These properties are depreciated using the straight line method. How to file 1040ez online In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction. How to file 1040ez online Depreciation taken by other taxpayers or on other property. How to file 1040ez online   Additional depreciation includes all depreciation adjustments to the basis of section 1250 property whether allowed to you or another person (as carryover basis property). How to file 1040ez online Example. How to file 1040ez online Larry Johnson gives his son section 1250 property on which he took $2,000 in depreciation deductions, of which $500 is additional depreciation. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online At the time of sale, the additional depreciation is $700 ($500 allowed the father plus $200 allowed the son). How to file 1040ez online Depreciation allowed or allowable. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online Retired or demolished property. How to file 1040ez online   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. How to file 1040ez online Example. How to file 1040ez online A wing of your building is totally destroyed by fire. How to file 1040ez online 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. How to file 1040ez online Figuring straight line depreciation. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online   Salvage value and useful life are not used for the ACRS method of depreciation. How to file 1040ez online Figure straight line depreciation for ACRS real property by using its 15-, 18-, or 19-year recovery period as the property's useful life. How to file 1040ez online   The straight line method is applied without any basis reduction for the investment credit. How to file 1040ez online Property held by lessee. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online The same rule applies to the cost of acquiring a lease. How to file 1040ez online   The term renewal period means any period for which the lease may be renewed, extended, or continued under an option exercisable by the lessee. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online The percentages for these types of real property are as follows. How to file 1040ez online Nonresidential real property. How to file 1040ez online   For real property that is not residential rental property, the applicable percentage for periods after 1969 is 100%. How to file 1040ez online For periods before 1970, the percentage is zero and no ordinary income because of additional depreciation before 1970 will result from its disposition. How to file 1040ez online Residential rental property. How to file 1040ez online   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%. How to file 1040ez online The percentage for periods before 1976 is zero. How to file 1040ez online Therefore, no ordinary income because of additional depreciation before 1976 will result from a disposition of residential rental property. How to file 1040ez online Low-income housing. How to file 1040ez online    Low-income housing includes all the following types of residential rental property. How to file 1040ez online 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. How to file 1040ez online Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed. How to file 1040ez online 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. How to file 1040ez online Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. How to file 1040ez online   The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. How to file 1040ez online 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. How to file 1040ez online Foreclosure. How to file 1040ez online   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. How to file 1040ez online Example. How to file 1040ez online On June 1, 2001, you acquired low-income housing property. How to file 1040ez online 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. How to file 1040ez online The property qualifies for a reduced applicable percentage because it was held more than 100 full months. How to file 1040ez online 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. How to file 1040ez online Therefore, 70% of the additional depreciation is treated as ordinary income. How to file 1040ez online Holding period. How to file 1040ez online   The holding period used to figure the applicable percentage for low-income housing generally starts on the day after you acquired it. How to file 1040ez online For example, if you bought low-income housing on January 1, 1997, the holding period starts on January 2, 1997. How to file 1040ez online If you sold it on January 2, 2013, the holding period is exactly 192 full months. How to file 1040ez online The applicable percentage for additional depreciation is 8%, or 100% minus 1% for each full month the property was held over 100 full months. How to file 1040ez online Holding period for constructed, reconstructed, or erected property. How to file 1040ez online   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. How to file 1040ez online Property acquired by gift or received in a tax-free transfer. How to file 1040ez online   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. How to file 1040ez online   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. How to file 1040ez online See Low-Income Housing With Two or More Elements, next. How to file 1040ez online 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. How to file 1040ez online The gain to be reported as ordinary income is the sum of the ordinary income figured for each element. How to file 1040ez online The following are the types of separate elements. How to file 1040ez online A separate improvement (defined below). How to file 1040ez online The basic section 1250 property plus improvements not qualifying as separate improvements. How to file 1040ez online The units placed in service at different times before all the section 1250 property is finished. How to file 1040ez online 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. How to file 1040ez online As a result, the apartment house consists of three separate elements. How to file 1040ez online The 36-month test for separate improvements. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online 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). How to file 1040ez online $5,000. How to file 1040ez online The 1-year test. How to file 1040ez online   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. How to file 1040ez online The unadjusted basis is figured as of the start of that tax year or the holding period of the property, whichever is later. How to file 1040ez online 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. How to file 1040ez online Example. How to file 1040ez online The unadjusted basis of a calendar year taxpayer's property was $300,000 on January 1 of this year. How to file 1040ez online During the year, the taxpayer made improvements A, B, and C, which cost $1,000, $600, and $700, respectively. How to file 1040ez online 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. How to file 1040ez online However, if improvement C had cost $1,500, the sum of these improvements would have been $3,100. How to file 1040ez online Then, it would be necessary to apply the 36-month test to figure if the improvements must be treated as separate improvements. How to file 1040ez online Addition to the capital account. How to file 1040ez online   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. How to file 1040ez online   The addition to the capital account of depreciable real property is the gross addition not reduced by amounts attributable to replaced property. How to file 1040ez online 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. How to file 1040ez online The $20,000 adjusted basis of the old roof is no longer reflected in the basis of the property. How to file 1040ez online 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. How to file 1040ez online   Whether an expense is treated as an addition to the capital account may depend on the final disposition of the entire property. How to file 1040ez online 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. How to file 1040ez online Unadjusted basis. How to file 1040ez online   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. How to file 1040ez online However, the cost of components retired before that date is not included in the unadjusted basis. How to file 1040ez online Holding period. How to file 1040ez online   Use the following guidelines for figuring the applicable percentage for property with two or more elements. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online The holding period for each improvement not qualifying as a separate element takes the holding period of the basic property. How to file 1040ez online   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. How to file 1040ez online Use the first day of a calendar month that is closest to the middle of the tax year. How to file 1040ez online If there are two first days of a month that are equally close to the middle of the year, use the earlier date. How to file 1040ez online Figuring ordinary income attributable to each separate element. How to file 1040ez online   Figure ordinary income attributable to each separate element as follows. How to file 1040ez online   Step 1. How to file 1040ez online 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. How to file 1040ez online   Step 2. How to file 1040ez online 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). How to file 1040ez online   Step 3. How to file 1040ez online Multiply the result in Step 2 by the applicable percentage for the element. How to file 1040ez online Example. How to file 1040ez online You sold at a gain of $25,000 low-income housing property subject to the ordinary income rules of section 1250. How to file 1040ez online The property consisted of four elements (W, X, Y, and Z). How to file 1040ez online Step 1. How to file 1040ez online The additional depreciation for each element is: W-$12,000; X-None; Y-$6,000; and Z-$6,000. How to file 1040ez online The sum of the additional depreciation for all the elements is $24,000. How to file 1040ez online Step 2. How to file 1040ez online The depreciation deducted on element X was $4,000 less than it would have been under the straight line method. How to file 1040ez online Additional depreciation on the property as a whole is $20,000 ($24,000 − $4,000). How to file 1040ez online $20,000 is lower than the $25,000 gain on the sale, so $20,000 is used in Step 2. How to file 1040ez online Step 3. How to file 1040ez online The applicable percentages to be used in Step 3 for the elements are: W-68%; X-85%; Y-92%; and Z-100%. How to file 1040ez online From these facts, the sum of the ordinary income for each element is figured as follows. How to file 1040ez online   Step 1 Step 2 Step 3 Ordinary Income W . How to file 1040ez online 50 $10,000 68% $ 6,800 X -0- -0- 85% -0- Y . How to file 1040ez online 25 5,000 92% 4,600 Z . How to file 1040ez online 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. How to file 1040ez online In a sale, exchange, or involuntary conversion of the property, figure the amount realized that is more than the adjusted basis of the property. How to file 1040ez online In any other disposition of the property, figure the fair market value that is more than the adjusted basis. How to file 1040ez online Figure the additional depreciation for the periods after 1975. How to file 1040ez online Multiply the lesser of (1) or (2) by the applicable percentage, discussed earlier under Applicable Percentage. How to file 1040ez online Stop here if this is residential rental property or if (2) is equal to or more than (1). How to file 1040ez online This is the gain treated as ordinary income because of additional depreciation. How to file 1040ez online Subtract (2) from (1). How to file 1040ez online Figure the additional depreciation for periods after 1969 but before 1976. How to file 1040ez online Add the lesser of (4) or (5) to the result in (3). How to file 1040ez online This is the gain treated as ordinary income because of additional depreciation. How to file 1040ez online A limit on the amount treated as ordinary income for gain on like-kind exchanges and involuntary conversions is explained later. How to file 1040ez online Use Form 4797, Part III, to figure the ordinary income part of the gain. How to file 1040ez online Corporations. How to file 1040ez online   Corporations, other than S corporations, must recognize an additional amount as ordinary income on the sale or other disposition of section 1250 property. How to file 1040ez online 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. How to file 1040ez online Report this additional ordinary income on Form 4797, Part III, line 26 (f). How to file 1040ez online 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. How to file 1040ez online This applies even if no payments are received in that year. How to file 1040ez online If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. How to file 1040ez online For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. How to file 1040ez online 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. How to file 1040ez online To do this, allocate the selling price and the payments you receive in the year of sale to each asset. How to file 1040ez online Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. How to file 1040ez online For a detailed discussion of installment sales, see Publication 537. How to file 1040ez online Gifts If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. How to file 1040ez online 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. How to file 1040ez online For low-income housing, the donee must take into account the donor's holding period to figure the applicable percentage. How to file 1040ez online See Applicable Percentage and its discussion Holding period under Section 1250 Property, earlier. How to file 1040ez online Part gift and part sale or exchange. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online However, see Bargain sale to charity, later. How to file 1040ez online Example. How to file 1040ez online You transferred depreciable personal property to your son for $20,000. How to file 1040ez online When transferred, the property had an adjusted basis to you of $10,000 and a fair market value of $40,000. How to file 1040ez online You took depreciation of $30,000. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online Gift to charitable organization. How to file 1040ez online   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. How to file 1040ez online Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation. How to file 1040ez online   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. How to file 1040ez online For more information, see Giving Property That Has Increased in Value in Publication 526. How to file 1040ez online Bargain sale to charity. How to file 1040ez online   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. How to file 1040ez online First, figure the ordinary income as if you had sold the property at its fair market value. How to file 1040ez online 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. How to file 1040ez online See Bargain Sale under Gain or Loss From Sales and Exchanges in chapter 1. How to file 1040ez online Report as ordinary income the lesser of the ordinary income allocated to the sale or your gain from the sale. How to file 1040ez online Example. How to file 1040ez online You sold section 1245 property in a bargain sale to a charitable organization and are allowed a deduction for your contribution. How to file 1040ez online Your gain on the sale was $1,200, figured by allocating 20% of your adjusted basis in the property to the part sold. How to file 1040ez online If you had sold the property at its fair market value, your ordinary income would have been $5,000. How to file 1040ez online Your ordinary income is $1,000 ($5,000 × 20%) and your section 1231 gain is $200 ($1,200 – $1,000). How to file 1040ez online 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. How to file 1040ez online For information on the tax liability of a decedent, see Publication 559, Survivors, Executors, and Administrators. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online Example 1. How to file 1040ez online Janet Smith owned depreciable property that, upon her death, was inherited by her son. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online Example 2. How to file 1040ez online The trustee of a trust created by a will transfers depreciable property to a beneficiary in satisfaction of a specific bequest of $10,000. How to file 1040ez online 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. How to file 1040ez online Ordinary income from depreciation must be reported by the trust on the transfer. How to file 1040ez online 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. How to file 1040ez online For information on like-kind exchanges and involuntary conversions, see chapter 1. How to file 1040ez online Depreciable personal property. How to file 1040ez online   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. How to file 1040ez online The gain that must be included in income under the rules for like-kind exchanges or involuntary conversions. How to file 1040ez online The fair market value of the like-kind, similar, or related property other than depreciable personal property acquired in the transaction. How to file 1040ez online Example 1. How to file 1040ez online You bought a new machine for $4,300 cash plus your old machine for which you were allowed a $1,360 trade-in. How to file 1040ez online The old machine cost you $5,000 two years ago. How to file 1040ez online You took depreciation deductions of $3,950. How to file 1040ez online 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. How to file 1040ez online Example 2. How to file 1040ez online You bought office machinery for $1,500 two years ago and deducted $780 depreciation. How to file 1040ez online 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). How to file 1040ez online You choose to postpone reporting gain, but replacement machinery cost you only $1,000. How to file 1040ez online Your taxable gain under the rules for involuntary conversions is limited to the remaining $200 insurance payment. How to file 1040ez online All your replacement property is depreciable personal property, so your ordinary income from depreciation is limited to $200. How to file 1040ez online Example 3. How to file 1040ez online A fire destroyed office machinery you bought for $116,000. How to file 1040ez online The depreciation deductions were $91,640 and the machinery had an adjusted basis of $24,360. How to file 1040ez online You received a $117,000 insurance payment, realizing a gain of $92,640. How to file 1040ez online 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. How to file 1040ez online $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. How to file 1040ez online 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. How to file 1040ez online The amount you must report as ordinary income on the transaction is $12,000, figured as follows. How to file 1040ez online 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. How to file 1040ez online Depreciable real property. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online   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. How to file 1040ez online Further, to figure the applicable percentage of additional depreciation to be treated as ordinary income, the holding period starts over for the new property. How to file 1040ez online Example. How to file 1040ez online The state paid you $116,000 when it condemned your depreciable real property for public use. How to file 1040ez online 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). How to file 1040ez online You also bought stock for $5,000 to get control of a corporation owning property similar in use to the property condemned. How to file 1040ez online You choose to postpone reporting the gain. How to file 1040ez online 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. How to file 1040ez online The ordinary income to be reported is $6,000, which is the greater of the following amounts. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online   The ordinary income not reported, $14,000 ($20,000 − $6,000), is carried over to the depreciable real property you bought as additional depreciation. How to file 1040ez online Basis of property acquired. How to file 1040ez online   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. How to file 1040ez online   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). How to file 1040ez online However, if you acquired both depreciable real property and other property, allocate the total basis as follows. How to file 1040ez online 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. How to file 1040ez online Add the fair market value (or cost) of the other property acquired to the result in (1). How to file 1040ez online Divide the result in (1) by the result in (2). How to file 1040ez online Multiply the total basis by the result in (3). How to file 1040ez online This is the basis of the depreciable real property acquired. How to file 1040ez online 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). How to file 1040ez online Subtract the result in (4) from the total basis. How to file 1040ez online This is the basis of the other property acquired. How to file 1040ez online 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). How to file 1040ez online Example 1. How to file 1040ez online 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. How to file 1040ez online The property's adjusted basis was $38,400, with additional depreciation of $14,932. How to file 1040ez online On December 1, 1988, you used the insurance payment to acquire and place in service replacement low-income housing property. How to file 1040ez online Your realized gain from the involuntary conversion was $51,600 ($90,000 − $38,400). How to file 1040ez online You chose to postpone reporting the gain under the involuntary conversion rules. How to file 1040ez online 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. How to file 1040ez online The basis of the replacement low-income housing property was its $90,000 cost minus the $51,600 gain you postponed, or $38,400. How to file 1040ez online The $14,932 ordinary gain you did not report is treated as additional depreciation on the replacement property. How to file 1040ez online 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. How to file 1040ez online Example 2. How to file 1040ez online John Adams received a $90,000 fire insurance payment for depreciable real property (office building) with an adjusted basis of $30,000. How to file 1040ez online He uses the whole payment to buy property similar in use, spending $42,000 for depreciable real property and $48,000 for land. How to file 1040ez online He chooses to postpone reporting the $60,000 gain realized on the involuntary conversion. How to file 1040ez online 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. How to file 1040ez online The basis of the property bought is $30,000 ($90,000 − $60,000), allocated as follows. How to file 1040ez online The $42,000 cost of depreciable real property minus $10,000 ordinary income not reported is $32,000. How to file 1040ez online The $48,000 cost of other property (land) plus the $32,000 figured in (1) is $80,000. How to file 1040ez online The $32,000 figured in (1) divided by the $80,000 figured in (2) is 0. How to file 1040ez online 4. How to file 1040ez online The basis of the depreciable real property is $12,000. How to file 1040ez online This is the $30,000 total basis multiplied by the 0. How to file 1040ez online 4 figured in (3). How to file 1040ez online The basis of the other property (land) is $18,000. How to file 1040ez online This is the $30,000 total basis minus the $12,000 figured in (4). How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online Different rules may apply to the allocation of the amount realized on the sale of a business that includes a group of assets. How to file 1040ez online See chapter 2. How to file 1040ez online 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. How to file 1040ez online In the absence of an agreement, the allocation should be made by taking into account the appropriate facts and circumstances. How to file 1040ez online These include, but are not limited to, a comparison between the depreciable property and all the other property being disposed of in the transaction. How to file 1040ez online The comparison should take into account all the following facts and circumstances. How to file 1040ez online The original cost and reproduction cost of construction, erection, or production. How to file 1040ez online The remaining economic useful life. How to file 1040ez online The state of obsolescence. How to file 1040ez online The anticipated expenditures required to maintain, renovate, or modernize the properties. How to file 1040ez online Like-kind exchanges and involuntary conversions. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online   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. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online Example. How to file 1040ez online A fire destroyed your property with a total fair market value of $50,000. How to file 1040ez online It consisted of machinery worth $30,000 and nondepreciable property worth $20,000. How to file 1040ez online 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. How to file 1040ez online The adjusted basis of the destroyed machinery was $5,000 and your depreciation on it was $35,000. How to file 1040ez online You choose to postpone reporting your gain from the involuntary conversion. How to file 1040ez online You must report $9,000 as ordinary income from depreciation arising from this transaction, figured as follows. How to file 1040ez online 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. How to file 1040ez online The amount allocated to the machinery is 30,000/50,000 × $40,000, or $24,000. How to file 1040ez online The amount allocated to the other property is 20,000/50,000 × $40,000, or $16,000. How to file 1040ez online Your gain on the involuntary conversion of the machinery is $24,000 minus $5,000 adjusted basis, or $19,000. How to file 1040ez online 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. How to file 1040ez online 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. How to file 1040ez online Your potential ordinary income from depreciation is $19,000, the gain on the machinery, because it is less than the $35,000 depreciation. How to file 1040ez online 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. How to file 1040ez online Prev  Up  Next   Home   More Online Publications