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How to fill out 1040x Publication 15-A - Introductory Material Table of Contents Future Developments What's New Reminders Introduction Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 15-A, such as legislation enacted after it was published, go to www. How to fill out 1040x irs. How to fill out 1040x gov/pub15a. How to fill out 1040x What's New Social security and Medicare tax for 2014. How to fill out 1040x  The social security tax rate is 6. How to fill out 1040x 2% each for the employee and employer, unchanged from 2013. How to fill out 1040x The social security wage base limit is $117,000. How to fill out 1040x The Medicare tax rate is 1. How to fill out 1040x 45% each for the employee and employer, unchanged from 2013. How to fill out 1040x There is no wage base limit for Medicare tax. How to fill out 1040x Social security and Medicare taxes apply to the wages of household workers you pay $1,900 or more in cash or an equivalent form of compensation. How to fill out 1040x Social security and Medicare taxes apply to election workers who are paid $1,600 or more in cash or an equivalent form of compensation. How to fill out 1040x Withholding allowance. How to fill out 1040x  The 2014 amount for one withholding allowance on an annual basis is $3,950. How to fill out 1040x Same-sex marriage. How to fill out 1040x  For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. How to fill out 1040x For more information, see Revenue Ruling 2013-17, 2013-38 I. How to fill out 1040x R. How to fill out 1040x B. How to fill out 1040x 201, available at www. How to fill out 1040x irs. How to fill out 1040x gov/irb/2013-38_IRB/ar07. How to fill out 1040x html. How to fill out 1040x Notice 2013-61 provides special administrative procedures for employers to make claims for refunds or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. How to fill out 1040x Notice 2013-61, 2013-44 I. How to fill out 1040x R. How to fill out 1040x B. How to fill out 1040x 432, is available at www. How to fill out 1040x irs. How to fill out 1040x gov/irb/2013-44_IRB/ar10. How to fill out 1040x html. How to fill out 1040x Reminders Additional Medicare Tax withholding. How to fill out 1040x . How to fill out 1040x  In addition to withholding Medicare tax at 1. How to fill out 1040x 45%, you must withhold a 0. How to fill out 1040x 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. How to fill out 1040x You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. How to fill out 1040x Additional Medicare Tax is only imposed on the employee. How to fill out 1040x There is no employer share of Additional Medicare Tax. How to fill out 1040x All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. How to fill out 1040x For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E), Employer's Tax Guide. How to fill out 1040x For more information on Additional Medicare Tax, visit IRS. How to fill out 1040x gov and enter “Additional Medicare Tax” in the search box. How to fill out 1040x Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans. How to fill out 1040x  The work opportunity tax credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2014. How to fill out 1040x Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. How to fill out 1040x For more information, visit IRS. How to fill out 1040x gov and enter “work opportunity tax credit” in the search box. How to fill out 1040x COBRA premium assistance credit. How to fill out 1040x  The credit for COBRA premium assistance payments applies to premiums paid for employees involuntarily terminated between September 1, 2008, and May 31, 2010, and to premiums paid for up to 15 months. How to fill out 1040x For more information, see COBRA premium assistance credit in Publication 15 (Circular E). How to fill out 1040x Federal tax deposits must be made by electronic funds transfer. How to fill out 1040x  You must use electronic funds transfer to make all federal tax deposits. How to fill out 1040x Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). How to fill out 1040x If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. How to fill out 1040x Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. How to fill out 1040x EFTPS is a free service provided by the Department of Treasury. How to fill out 1040x Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. How to fill out 1040x For more information on making federal tax deposits, see How To Deposit in Publication 15 (Circular E). How to fill out 1040x To get more information about EFTPS or to enroll in EFTPS, visit www. How to fill out 1040x eftps. How to fill out 1040x gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). How to fill out 1040x Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. How to fill out 1040x You must receive written notice from the IRS to file Form 944. How to fill out 1040x  If you have been filing Forms 941, Employer's QUARTERLY Federal Tax Return (or Forms 941-SS, Employer's QUARTERLY Federal Tax Return—American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U. How to fill out 1040x S. How to fill out 1040x Virgin Islands, or Formularios 941-PR, Planilla para la Declaración Federal TRIMESTRAL del Patrono), and believe your employment taxes for the calendar year will be $1,000 or less, and you would like to file Form 944, Employer's ANNUAL Federal Tax Return, instead of Forms 941, you must contact the IRS to request to file Form 944. How to fill out 1040x You must receive written notice from the IRS to file Form 944 instead of Forms 941 before you may file this form. How to fill out 1040x For more information on requesting to file Form 944, visit IRS. How to fill out 1040x gov and enter “file employment taxes annually” in the search box. How to fill out 1040x Employers can request to file Forms 941 instead of Form 944. How to fill out 1040x  If you received notice from the IRS and have been filing Form 944 but would like to file Forms 941 instead, you must contact the IRS to request to file Forms 941. How to fill out 1040x You must receive written notice from the IRS to file Forms 941 instead of Form 944 before you may file these forms. How to fill out 1040x For more information on requesting to file Form 944, visit IRS. How to fill out 1040x gov and enter “file employment taxes annually” in the search box. How to fill out 1040x Aggregate Form 941 filers. How to fill out 1040x  Agents must complete Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, when filing an aggregate Form 941. How to fill out 1040x Aggregate Forms 941 can only be filed by agents approved by the IRS under section 3504 of the Internal Revenue Code. How to fill out 1040x To request approval to act as an agent for an employer, the agent must file Form 2678, Employer/Payer Appointment of Agent, with the IRS. How to fill out 1040x Aggregate Form 940 filers. How to fill out 1040x  Agents must complete Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers, when filing an aggregate Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. How to fill out 1040x Aggregate Forms 940 may only be filed by agents acting on behalf of home care service recipients who receive home care services through a program administered by a federal, state, or local government. How to fill out 1040x To request approval to act as an agent on behalf of home care service recipients, the agent must file Form 2678 with the IRS. How to fill out 1040x Electronic filing and payment. How to fill out 1040x  Now, more than ever before, businesses can enjoy the benefits of filing and paying their federal taxes electronically. 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How to fill out 1040x Form W-4, Employee's Withholding Allowance Certificate. How to fill out 1040x Form W-4P, Withholding Certificate for Pension or Annuity Payments. How to fill out 1040x Form W-4S, Request for Federal Income Tax Withholding From Sick Pay. How to fill out 1040x Form W-4V, Voluntary Withholding Request. How to fill out 1040x For each form that you establish an electronic submission system for, you must meet each of the following five requirements. How to fill out 1040x The electronic system must ensure that the information received by the payer is the information sent by the payee. How to fill out 1040x The system must document all occasions of user access that result in a submission. How to fill out 1040x In addition, the design and operation of the electronic system, including access procedures, must make it reasonably certain that the person accessing the system and submitting the form is the person identified on the form. 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How to fill out 1040x The electronic system must inform the employee that he or she must make a declaration contained in the perjury statement and that the declaration is made by signing the Form W-4. How to fill out 1040x You must also meet all recordkeeping requirements that apply to the paper forms. How to fill out 1040x For more information, see: Regulations sections 31. How to fill out 1040x 3402(f)(5)-1(c) (for Form W-4), and Announcement 99-6 (for Forms W-4P, W-4S, and W-4V). How to fill out 1040x You can find Announcement 99-6 on page 24 of Internal Revenue Bulletin 1999-4 at www. How to fill out 1040x irs. How to fill out 1040x gov/pub/irs-irbs/irb99-04. How to fill out 1040x pdf. How to fill out 1040x Additional employment tax information. How to fill out 1040x  Visit the IRS website at www. How to fill out 1040x irs. How to fill out 1040x gov/businesses and click on the Employment Taxes link under Businesses Topics. How to fill out 1040x Telephone help. How to fill out 1040x  You can call the IRS Business and Specialty Tax Line with your employment tax questions at 1-800-829-4933. How to fill out 1040x Help for people with disabilities. How to fill out 1040x  You may call 1-800-829-4059 (TDD/TTY for persons who are deaf, heard of hearing, or have a speech disability) with any tax question or to order forms and publications. How to fill out 1040x You may also use this number for assistance with unresolved tax problems. How to fill out 1040x Furnishing Form W-2 to employees electronically. How to fill out 1040x  You may set up a system to furnish Form W-2, Wage and Tax Statement, electronically. How to fill out 1040x Each employee participating must consent (either electronically or by paper document) to receive his or her Form W-2 electronically, and you must notify the employee of all hardware and software requirements to receive the form. How to fill out 1040x You may not send a Form W-2 electronically to any employee who does not consent or who has revoked consent previously provided. How to fill out 1040x To furnish Forms W-2 electronically, you must meet the following disclosure requirements and provide a clear and conspicuous statement of each requirement to your employees. How to fill out 1040x The employee must be informed that he or she will receive a paper Form W-2 if consent is not given to receive it electronically. How to fill out 1040x The employee must be informed of the scope and duration of the consent. How to fill out 1040x The employee must be informed of any procedure for obtaining a paper copy of his or her Form W-2 and whether or not the request for a paper statement is treated as a withdrawal of his or her consent to receiving his or her Form W-2 electronically. How to fill out 1040x The employee must be notified about how to withdraw a consent and the effective date and manner by which the employer will confirm the withdrawn consent. How to fill out 1040x The employee must also be notified that the withdrawn consent does not apply to the previously issued Forms W-2. How to fill out 1040x The employee must be informed about any conditions under which electronic Forms W-2 will no longer be furnished (for example, termination of employment). How to fill out 1040x The employee must be informed of any procedures for updating his or her contact information that enables the employer to provide electronic Forms W-2. How to fill out 1040x The employer must notify the employee of any changes to the employer's contact information. How to fill out 1040x You must furnish electronic Forms W-2 by the same due date as the paper Forms W-2. How to fill out 1040x For more information on furnishing Form W-2 to employees electronically, see Regulations section 31. How to fill out 1040x 6051-1(j). How to fill out 1040x Photographs of missing children. How to fill out 1040x  The IRS is a proud partner with the National Center for Missing and Exploited Children. How to fill out 1040x Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. How to fill out 1040x You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. How to fill out 1040x Introduction This publication supplements Publication 15 (Circular E). How to fill out 1040x It contains specialized and detailed employment tax information supplementing the basic information provided in Publication 15 (Circular E). How to fill out 1040x This publication also contains tables for withholding on distributions of Indian gaming profits to tribal members. How to fill out 1040x Publication 15-B, Employer's Tax Guide to Fringe Benefits, contains information about the employment tax treatment of various types of noncash compensation. How to fill out 1040x Ordering publications and forms. How to fill out 1040x   See Ordering Employer Tax Forms and Publications in Publication 15 (Circular E) and How To Get Tax Help , later, for more information on how to obtain forms and publications. How to fill out 1040x Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 505 Tax Withholding and Estimated Tax 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 583 Starting a Business and Keeping Records 1635 Employer Identification Number: Understanding Your EIN Comments and suggestions. How to fill out 1040x   We welcome your comments about this publication and your suggestions for future editions. How to fill out 1040x    You can write to us at the following address: Internal Revenue Service Tax Forms & Publications Division 1111 Constitution Ave. How to fill out 1040x NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. How to fill out 1040x Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. How to fill out 1040x   You can also send us comments from www. How to fill out 1040x irs. How to fill out 1040x gov/formspubs. How to fill out 1040x Click on More Information and then click on Comment on Tax Forms and Publications. How to fill out 1040x   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. 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General FAQs on Payment Card and Third Party Network Transactions

I received Form 1099-K. How do I report it on my tax return?

Separate reporting of these transactions is not required. However, you should follow the return instructions on the form you are completing to report your gross receipts or sales. You should report items that qualify as a trade or business expense on the appropriate line item of Schedules C, E and F.

What is a participating payee?

A participating payee is:

  • Any person who accepts a payment card as payment, or
  • Any person who accepts payment made by a third party settlement organization on behalf of the purchaser or customer.

Why is this reporting necessary?

This reporting is required by law. Third party information reporting has been shown to increase voluntary tax compliance and improve collections and assessments within IRS.

How are reportable transactions to be reported to IRS?

Gross payment card and third party network transaction amounts are reported on the Form 1099-K, Payment Card and Third Party Network Transactions.

What information must be reported on the Form 1099-K?

The gross amount of reportable payment transactions for the calendar year and its corresponding months are required to be reported for each payee. The reporting of both annual and monthly amounts is necessary to resolve differences between information returns and tax returns of fiscal year filers. The name, address and taxpayer identification number of each participating payee must also be included on the form.

When are Forms 1099-K due?

Information reporting for payment card and third party network transactions is due to the IRS on the last day of February of the year following the transactions. If filing electronically, it is due the first day of April of the year following the transactions.

May Forms 1099-K be filed electronically?

Yes. Those required to file may do so through the FIRE (Filing Information Returns Electronically) system. If a payment settlement entity has more than 250 individual information returns to file in any calendar year, they all must be submitted electronically. Existing users may log into FIRE. New users may create an account and test their file before submitting.

For more information, review Publication 1220, Specifications for Filing Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically. If you are considering filing on paper, review General Instructions for Certain Information Returns.

What are payee statements and when are they due?

Every payment settlement entity required to file a Form 1099-K must also furnish to each participating payee a written statement with the same information reported to the IRS. The statements must be furnished to the payee by January 31 of the year following the transactions.

May payee statements be furnished to participating payees electronically?

Yes. With the participating payee’s prior consent, payee statements may be provided electronically. This consent may be granted electronically. (See Treasury regulations section 1.6050W-2 for instructions for receiving consent from payees.) If a payee statement is furnished electronically, an email address for the reporting entity may be provided in lieu of a phone number.

Is there a de minimis exception for Forms 1099-K by third party settlement organizations?  

There is a “de minimis” exception from reporting for a third party settlement organization with respect to third party network transactions. If payments to a participating payee exceed $20,000 and exceed 200 transactions within the calendar year they must file for that participating payee.

Does the de minimis exception described above apply to payment card transactions?

No. The “de minimis” exception does not apply to payment card transactions settled by merchant acquiring entities.

What constitutes the "gross amount" of reportable transactions?

The "gross amount" of reportable transactions means the total unadjusted dollar amount of aggregate payment transactions for each participating payee.  

Are foreign payment settlement entities subject to the reporting requirements?

Yes. The statute and regulations establish that a "payment settlement entity" may be a domestic or foreign entity.

Are payment settlement entities required to report the transactions of governmental units, whether state or federal?

Yes. The term "participating payees" includes any governmental unit.

What is payment card and third party network reporting?

Under section 6050W of the Internal Revenue Code, payment settlement entities (merchant acquiring entities and third party settlement organizations) must report payment card and third party network transactions. This reporting requirement began in early 2012 for payment card and third party network transactions that occurred in 2011.

Are purchases made with stored-value cards or gift cards reportable transactions?

It depends.

  • Purchases are not reportable when the card is accepted as payment by the issuer or someone who is related to the issuer of the card (such as a subsidiary company or the company itself). Under these circumstances, the stored-value cards do not fit the definition of a "payment card" and purchases made with such cards are therefore not reportable. 
  • Purchases are reportable when the stored-value card is accepted by a network of persons unrelated to the issuer and each other.

For the definition of unrelated person see section 267(b) of the Internal Revenue Code, including the application of section 267(b) and (e)(3), or section 707(b)(1).

If transactions are already reportable on other information returns, must they be reported again by payment settlement entities?

No. If a transaction is reportable by a PSE both under section 6041 or section 6041 A(a) and under section 6050W, the transaction must be reported on a Form 1099-K and not a Form 1099-MISC.

If a worker at a trade or business is an independent contractor, and the independent contractor swipes payment cards on behalf of the trade or business in the normal course of business (in other words, the trade or business, not the independent contractor, receives the proceeds), should the trade or business report payments to the worker on Form 1099-K or Form 1099-MISC?

In this situation, the trade or business should continue to report payments made to independent contractors on Form 1099-MISC as they have done in the past. However, the business will receive a Form 1099-K for these payment card transactions from the payment settlement entity.

How can payee TINs be verified?

Verification of payee TINs is done through the Taxpayer Identification Number (TIN) Matching Program.   

For further information please visit General Instructions for Certain Information Returns - Introductory Material or call 1-866-255-0654.

Can the entity responsible for filing Form 1099-K contract with a third party to prepare and file these returns?

Yes. However, the entity responsible for filing (i.e., the entity that submits the instructions to transfer funds) is liable for any applicable penalties under sections 6721 and 6722 if the reporting requirements are not met. In addition, the name, address and Taxpayer Identification Number of the entity responsible for filing must be reported on the Form 1099-K in the box for the filer's information.

What is Form 1099-K?

The Form 1099-K, Payment Card and Third Party Network Transactions, is an information return that reports the gross amount of reportable transactions for the calendar year to the IRS.

If you receive a Form 1099-K, you should retain it for your records and may use it to assist you in completing your tax returns.

I filed Form 1099-K last year. What changes will I see on my 2013 Form 1099-K?

IRS modified calendar year 2013 Form 1099-K to improve compliance effectiveness. These changes include:

  • Box 3 (Number of payment transactions) is no longer optional for calendar year 2013 and should reflect the number of purchase transactions (not including refund transactions) processed through the payment card or the third party network.
  • Box 4 (Federal income tax withheld) was added to reflect amounts that may have been withheld by the payer, such as backup withholding. The recipient of the Form 1099-K should include this amount on their income tax return as tax withheld.
  • Boxes 6, 7 & 8 were added to be consistent with other information returns and reflect the State, State ID Number and State Income Tax Withheld, respectively.

What are payment settlement entities?

A payment settlement entity is an entity that makes payment in settlement of a payment card transaction or third party network transaction. Payment Settlement Entities are often referred to as “PSEs” and can take one of two forms:

  • Merchant Acquiring Entity: A bank or other organization that has the contractual obligation to make payment to participating payees in settlement of payment card transactions
  • Third Party Settlement Organization: The central organization that has the contractual obligation to make payment to participating payees of third party network transactions

If I use a payment card (or a third party settlement organization) to pay for a purchase, do these payment card reporting rules affect me and will I receive a Form 1099-K?

No. Individuals will not receive a Form 1099-K for making a purchase. These provisions affect only businesses or entities that accept payment cards or use third party network settlement organizations for payment of goods or services.

Do payment settlement entities adjust the "gross amount" to account for fees, refunds, charge-backs or other costs and refunded amounts?

No. The "gross amount" is the total unadjusted dollar amount of the payment transactions for a participating payee. This amount is not to be adjusted to account for any fees, refunds, or any other amounts.

What do I do with the information on Form 1099-K?

The Form 1099-K is an information return. Use this information return in conjunction with your other tax records to determine your correct tax. To get further information on record keeping, check out Publication 552, for individuals or Publication 583, Starting a Business and Keeping Record.  

How will IRS use the data?

The IRS will use the data from the Form 1099-K to develop:

  • Taxpayer education and outreach products and services.
  • New examination and collection approaches.    

What do I do if I think my Form 1099-K is incorrect?

If you believe the information on a Form 1099-K is incorrect, the form has been issued in error, or you have a question relating to the form, contact the filer, whose name appears in the upper left corner on the front of the form.

Or you may contact the payer, or PSE, whose name and phone number are shown in the lower left corner of the form. If you cannot get this form corrected, you may attach an explanation to your tax return and report your income correctly.

To get the further information on Information Returns, check out the General Instructions for Certain Information Returns.

Where can I call if I have a question on the Form 1099-K?

Payors who have questions about the Form 1099-K itself, may call the IRS at 1-866-455-7438. Payees who have questions about the information on a Form 1099-K they have received should contact the filer, whose name appears in the upper left corner on the form.  

I own a small business and also have a not-for-profit hobby. I do not accept payment cards for payment for either, but I do use a credit card and third party settlement organization to make purchases for both. Do the payment card reporting rules affect me?

No. The provisions for payment settlement entity reporting affect only those businesses or entities that accept these forms of payment for goods or services.

Since you do not accept these forms of payments, you will not receive a Form 1099-K for your sales.

Additionally, you will not receive a Form 1099-K for your purchases. Individuals and businesses only receive Form 1099-K for receiving payment for goods and services in reportable transactions.

I occasionally sell items on an Internet auction site and accept payment cards. How do the payment settlement entity reporting rules affect me?

If you accept payment cards as a form of payment, you will receive a Form 1099-K for the gross amount of proceeds for the goods or services purchased from you through the use of a payment card in a calendar year. Further, if you accept payments from a third party settlement organization, you should receive a Form 1099-K from that organization only if:

  • The total number of your transactions exceeds 200 

AND 

  • The aggregate value exceeds $20,000 in a calendar year.

If I have a holiday craft business and accept payment cards for payments, how do the payment settlement entity reporting rules affect me?

If you are set up to accept payment cards as a form of payment, you will receive a Form 1099-K for the gross amount of the proceeds for the goods or services purchased from you through the use of a payment card in a calendar year. Further, if you accept payments from a third party settlement organization, you should receive a Form 1099-K only if:

  • the total number of your transactions exceeds 200 

AND

  • the aggregate value exceeds $20,000 in a calendar year.

 

Page Last Reviewed or Updated: 20-Mar-2014

The How To Fill Out 1040x

How to fill out 1040x 4. How to fill out 1040x   Figuring Depreciation Under MACRS Table of Contents Introduction Useful Items - You may want to see: Which Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS?Rent-to-own dealer. How to fill out 1040x Rent-to-own contract. How to fill out 1040x What Is the Placed in Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies?Recovery Periods Under GDS Recovery Periods Under ADS Additions and Improvements Which Convention Applies? Which Depreciation Method Applies?Depreciation Methods for Farm Property Electing a Different Method How Is the Depreciation Deduction Figured?Using the MACRS Percentage Tables Figuring the Deduction Without Using the Tables Figuring the Deduction for Property Acquired in a Nontaxable Exchange Figuring the Deduction for a Short Tax Year How Do You Use General Asset Accounts?Grouping Property Figuring Depreciation for a GAA Disposing of GAA Property Terminating GAA Treatment Electing To Use a GAA When Do You Recapture MACRS Depreciation? Introduction The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. How to fill out 1040x MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). How to fill out 1040x Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. How to fill out 1040x To be sure you can use MACRS to figure depreciation for your property, see What Method Can You Use To Depreciate Your Property in chapter 1. How to fill out 1040x This chapter explains how to determine which MACRS depreciation system applies to your property. How to fill out 1040x It also discusses other information you need to know before you can figure depreciation under MACRS. How to fill out 1040x This information includes the property's recovery class, placed in service date, and basis, as well as the applicable recovery period, convention, and depreciation method. How to fill out 1040x It explains how to use this information to figure your depreciation deduction and how to use a general asset account to depreciate a group of properties. How to fill out 1040x Finally, it explains when and how to recapture MACRS depreciation. How to fill out 1040x Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 463 Travel, Entertainment, Gift, and Car  Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. How to fill out 1040x Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. How to fill out 1040x You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. How to fill out 1040x If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. How to fill out 1040x Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. How to fill out 1040x If you placed your property in service before 2013 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III. How to fill out 1040x Required use of ADS. How to fill out 1040x   You must use ADS for the following property. How to fill out 1040x Listed property used 50% or less in a qualified business use. How to fill out 1040x See chapter 5 for information on listed property. How to fill out 1040x Any tangible property used predominantly outside the United States during the year. How to fill out 1040x Any tax-exempt use property. How to fill out 1040x Any tax-exempt bond-financed property. How to fill out 1040x All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. How to fill out 1040x Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. How to fill out 1040x If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3) for the property. How to fill out 1040x Electing ADS. How to fill out 1040x   Although your property may qualify for GDS, you can elect to use ADS. How to fill out 1040x The election generally must cover all property in the same property class that you placed in service during the year. How to fill out 1040x However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. How to fill out 1040x Once you make this election, you can never revoke it. How to fill out 1040x   You make the election by completing line 20 in Part III of Form 4562. How to fill out 1040x Which Property Class Applies Under GDS? The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. How to fill out 1040x These property classes are also listed under column (a) in section B, Part III, of Form 4562. How to fill out 1040x For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. How to fill out 1040x 3-year property. How to fill out 1040x Tractor units for over-the-road use. How to fill out 1040x Any race horse over 2 years old when placed in service. How to fill out 1040x (All race horses placed in service after December 31, 2008, and before January 1, 2014, are deemed to be 3-year property, regardless of age. How to fill out 1040x ) Any other horse (other than a race horse) over 12 years old when placed in service. How to fill out 1040x Qualified rent-to-own property (defined later). How to fill out 1040x 5-year property. How to fill out 1040x Automobiles, taxis, buses, and trucks. How to fill out 1040x Computers and peripheral equipment. How to fill out 1040x Office machinery (such as typewriters, calculators, and copiers). How to fill out 1040x Any property used in research and experimentation. How to fill out 1040x Breeding cattle and dairy cattle. How to fill out 1040x Appliances, carpets, furniture, etc. How to fill out 1040x , used in a residential rental real estate activity. How to fill out 1040x Certain geothermal, solar, and wind energy property. How to fill out 1040x 7-year property. How to fill out 1040x Office furniture and fixtures (such as desks, files, and safes). How to fill out 1040x Agricultural machinery and equipment. How to fill out 1040x Any property that does not have a class life and has not been designated by law as being in any other class. How to fill out 1040x Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. How to fill out 1040x Any natural gas gathering line placed in service after April 11, 2005. How to fill out 1040x See Natural gas gathering line and electric transmission property , later. How to fill out 1040x 10-year property. How to fill out 1040x Vessels, barges, tugs, and similar water transportation equipment. How to fill out 1040x Any single purpose agricultural or horticultural structure. How to fill out 1040x Any tree or vine bearing fruits or nuts. How to fill out 1040x Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. How to fill out 1040x 15-year property. How to fill out 1040x Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). How to fill out 1040x Any retail motor fuels outlet (defined later), such as a convenience store. How to fill out 1040x Any municipal wastewater treatment plant. How to fill out 1040x Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. How to fill out 1040x Any qualified restaurant property (defined later) placed in service before January 1, 2014. How to fill out 1040x Initial clearing and grading land improvements for gas utility property. How to fill out 1040x Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005. How to fill out 1040x See Natural gas gathering line and electric transmission property , later. How to fill out 1040x Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. How to fill out 1040x Any qualified retail improvement property placed in service before January 1, 2014. How to fill out 1040x 20-year property. How to fill out 1040x Farm buildings (other than single purpose agricultural or horticultural structures). How to fill out 1040x Municipal sewers not classified as 25-year property. How to fill out 1040x Initial clearing and grading land improvements for electric utility transmission and distribution plants. How to fill out 1040x 25-year property. How to fill out 1040x This class is water utility property, which is either of the following. How to fill out 1040x Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property. How to fill out 1040x Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. How to fill out 1040x Residential rental property. How to fill out 1040x This is any building or structure, such as a rental home (including a mobile home), if 80% or more of its gross rental income for the tax year is from dwelling units. How to fill out 1040x A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. How to fill out 1040x It does not include a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis. How to fill out 1040x If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy. How to fill out 1040x Nonresidential real property. How to fill out 1040x This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27. How to fill out 1040x 5 years. How to fill out 1040x Qualified rent-to-own property. How to fill out 1040x   Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. How to fill out 1040x It is tangible personal property generally used in the home for personal use. How to fill out 1040x It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. How to fill out 1040x Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. How to fill out 1040x   If some of the property you rent to others under a rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you still can treat this property as qualified property as long as it does not represent a significant portion of your leasing property. How to fill out 1040x However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property. How to fill out 1040x Rent-to-own dealer. How to fill out 1040x   You are a rent-to-own dealer if you meet all the following requirements. How to fill out 1040x You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. How to fill out 1040x A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. How to fill out 1040x The property is tangible personal property of a type generally used within the home for personal use. How to fill out 1040x Rent-to-own contract. How to fill out 1040x   This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which— Is titled “Rent-to-Own Agreement,” “Lease Agreement with Ownership Option,” or other similar language. How to fill out 1040x Provides a beginning date and a maximum period of time, not to exceed 156 weeks or 36 months from the beginning date, for which the contract can be in effect (including renewals or options to extend). How to fill out 1040x Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. How to fill out 1040x If the payments are decreasing, no payment can be less than 40% of the largest payment. How to fill out 1040x Provides for total payments that generally exceed the normal retail price of the property plus interest. How to fill out 1040x Provides for total payments that do not exceed $10,000 for each item of property. How to fill out 1040x Provides that the customer has no legal obligation to make all payments outlined in the contract and that, at the end of each weekly or monthly payment period, the customer can either continue to use the property by making the next payment or return the property in good working order with no further obligations and no entitlement to a return of any prior payments. How to fill out 1040x Provides that legal title to the property remains with the rent-to-own dealer until the customer makes either all the required payments or the early purchase payments required under the contract to acquire legal title. How to fill out 1040x Provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, or otherwise dispose of the property until all contract payments have been made. How to fill out 1040x Motorsports entertainment complex. How to fill out 1040x   This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. How to fill out 1040x The events must be open to the public for the price of admission. How to fill out 1040x Qualified smart electric grid system. How to fill out 1040x   A qualified smart electric grid system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. How to fill out 1040x Smart grid property includes electronics and related equipment that is capable of: Sensing, collecting, and monitoring data of or from all portions of a utility's electric distribution grid, Providing real-time, two-way communications to monitor or to manage the grid, and Providing real-time analysis of an event prediction based on collected data that can be used to provide electric distribution system reliability, quality, and performance. How to fill out 1040x Retail motor fuels outlet. How to fill out 1040x   Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests. How to fill out 1040x It is not larger than 1,400 square feet. How to fill out 1040x 50% or more of the gross revenues generated from the property are derived from petroleum sales. How to fill out 1040x 50% or more of the floor space in the property is devoted to petroleum marketing sales. How to fill out 1040x A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. How to fill out 1040x Qualified leasehold improvement property. How to fill out 1040x    Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. How to fill out 1040x   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions. How to fill out 1040x A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or reacquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. How to fill out 1040x Examples include the following. How to fill out 1040x A complete liquidation of a subsidiary. How to fill out 1040x A transfer to a corporation controlled by the transferor. How to fill out 1040x An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. How to fill out 1040x Qualified restaurant property. How to fill out 1040x   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. How to fill out 1040x Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premises consumption of prepared meals. How to fill out 1040x Qualified smart electric meter. How to fill out 1040x   A qualified smart electric meter is any time-based meter and related communication equipment which is placed in service by a supplier of electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that: Measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day; Provides for the exchange of information between the supplier or provider and the customer's smart electric meter in support of time-based rates or other forms of demand response; Provides data to the supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and Provides all commercial and residential customers of such supplier or provider with net metering. How to fill out 1040x Net metering means allowing a customer a credit, if any, as complies with applicable federal and state laws and regulations for providing electricity to the supplier or provider. How to fill out 1040x Natural gas gathering line and electric transmission property. How to fill out 1040x   Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met. How to fill out 1040x The original use of the property must have begun with you after April 11, 2005. How to fill out 1040x Original use means the first use to which the property is put, whether or not by you. How to fill out 1040x Therefore, property used by any person before April 12, 2005, is not original use. How to fill out 1040x Original use includes additional capital expenditures you incurred to recondition or rebuild your property. How to fill out 1040x However, original use does not include the cost of reconditioned or rebuilt property you acquired. How to fill out 1040x Property containing used parts will not be treated as reconditioned or rebuilt if the cost of the used parts is not more than 20% of the total cost of the property. How to fill out 1040x The property must not be placed in service under a binding contract in effect before April 12, 2005. How to fill out 1040x The property must not be self-constructed property (property you manufacture, construct, or produce for your own use), if you began the manufacture, construction, or production of the property before April 12, 2005. How to fill out 1040x Property that is manufactured, constructed, or produced for your use by another person under a written binding contract entered into by you or a related party before the manufacture, construction, or production of the property is considered to be manufactured, constructed, or produced by you. How to fill out 1040x What Is the Placed in Service Date? You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. How to fill out 1040x The placed in service date for your property is the date the property is ready and available for a specific use. How to fill out 1040x It is therefore not necessarily the date it is first used. How to fill out 1040x If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. How to fill out 1040x See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. How to fill out 1040x What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. How to fill out 1040x For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . How to fill out 1040x Reduce that amount by any credits and deductions allocable to the property. How to fill out 1040x The following are examples of some credits and deductions that reduce basis. How to fill out 1040x Any deduction for section 179 property. How to fill out 1040x Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. How to fill out 1040x Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005, and before January 1, 2014. How to fill out 1040x Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005, and before January 1, 2014. How to fill out 1040x Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006, and before January 1, 2014 . How to fill out 1040x Any deduction for removal of barriers to the disabled and the elderly. How to fill out 1040x Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. How to fill out 1040x Any special depreciation allowance. How to fill out 1040x Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. How to fill out 1040x For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. How to fill out 1040x Enter the basis for depreciation under column (c) in Part III of Form 4562. How to fill out 1040x For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . How to fill out 1040x Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. How to fill out 1040x It is determined based on the depreciation system (GDS or ADS) used. How to fill out 1040x Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. How to fill out 1040x Property Class Recovery Period 3-year property   3 years 1   5-year property   5 years     7-year property   7 years     10-year property   10 years     15-year property   15 years 2   20-year property   20 years     25-year property   25 years 3   Residential rental property   27. How to fill out 1040x 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. How to fill out 1040x 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. How to fill out 1040x 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. How to fill out 1040x 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. How to fill out 1040x 431. How to fill out 1040x 5 years for property placed in service before May 13, 1993 (or before January 1, 1994, if the purchase or construction of the property is under a binding contract in effect before May 13, 1993, or if construction began before May 13, 1993). How to fill out 1040x The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. How to fill out 1040x Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. How to fill out 1040x Enter the appropriate recovery period on Form 4562 under column (d) in section B of Part III, unless already shown (for 25-year property, residential rental property, and nonresidential real property). How to fill out 1040x Office in the home. How to fill out 1040x   If your home is a personal-use single family residence and you begin to use part of your home as an office, depreciate that part of your home as nonresidential real property over 39 years (31. How to fill out 1040x 5 years if you began using it for business before May 13, 1993). How to fill out 1040x However, if your home is an apartment in an apartment building that you own and the building is residential rental property as defined earlier under Which Depreciation System (GDS or ADS) Applies , depreciate the part used as an office as residential rental property over 27. How to fill out 1040x 5 years. How to fill out 1040x See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. How to fill out 1040x Home changed to rental use. How to fill out 1040x   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. How to fill out 1040x 5 years. How to fill out 1040x Indian Reservation Property The recovery periods for qualified property you placed in service on an Indian reservation after 1993 and before 2014 are shorter than those listed earlier. How to fill out 1040x The following table shows these shorter recovery periods. How to fill out 1040x Property Class Recovery  Period 3-year property 2 years 5-year property 3 years 7-year property 4 years 10-year property 6 years 15-year property 9 years 20-year property 12 years Nonresidential real property 22 years Nonresidential real property is defined earlier under Which Property Class Applies Under GDS . How to fill out 1040x Use this chart to find the correct percentage table to use for qualified Indian reservation property. How to fill out 1040x IF your recovery period is: THEN use the following table in Appendix A: 2 years A-21 3 years A-1, A-2, A-3, A-4, or A-5 4 years A-22 6 years A-23 9 years A-14, A-15, A-16, A-17, or A-18 12 years A-14, A-15, A-16, A-17, or A-18 22 years A-24 Qualified property. How to fill out 1040x   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. How to fill out 1040x You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. How to fill out 1040x The rental of real property that is located on an Indian reservation is treated as the active conduct of a trade or business within an Indian reservation. How to fill out 1040x   The following property is not qualified property. How to fill out 1040x Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. How to fill out 1040x Property acquired directly or indirectly from a related person. How to fill out 1040x Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. How to fill out 1040x These activities are defined in section 4 of the Indian Regulatory Act (25 U. How to fill out 1040x S. How to fill out 1040x C. How to fill out 1040x 2703). How to fill out 1040x Any property you must depreciate under ADS. How to fill out 1040x Determine whether property is qualified without regard to the election to use ADS and after applying the special rules for listed property not used predominantly for qualified business use (discussed in chapter 5). How to fill out 1040x Qualified infrastructure property. How to fill out 1040x   Item (1) above does not apply to qualified infrastructure property located outside the reservation that is used to connect with qualified infrastructure property within the reservation. How to fill out 1040x Qualified infrastructure property is property that meets all the following rules. How to fill out 1040x It is qualified property, as defined earlier, except that it is outside the reservation. How to fill out 1040x It benefits the tribal infrastructure. How to fill out 1040x It is available to the general public. How to fill out 1040x It is placed in service in connection with the active conduct of a trade or business within a reservation. How to fill out 1040x Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. How to fill out 1040x Related person. How to fill out 1040x   For purposes of item (2) above, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 for a description of related persons. How to fill out 1040x Indian reservation. How to fill out 1040x   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. How to fill out 1040x S. How to fill out 1040x C. How to fill out 1040x 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. How to fill out 1040x S. How to fill out 1040x C. How to fill out 1040x 1903(10)). How to fill out 1040x Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. How to fill out 1040x For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. How to fill out 1040x Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. How to fill out 1040x The following table shows some of the ADS recovery periods. How to fill out 1040x Property Recovery  Period Rent-to-own property 4 years Automobiles and light duty trucks 5 years Computers and peripheral equipment 5 years High technology telephone station equipment installed on customer premises 5 years High technology medical equipment 5 years Personal property with no class life 12 years Natural gas gathering lines 14 years Single purpose agricultural and horticultural structures 15 years Any tree or vine bearing fruit or nuts 20 years Initial clearing and grading land  improvements for gas utility property 20 years Initial clearing and grading land  improvements for electric utility  transmission and distribution plants 25 years Electric transmission property used in the transmission at 69 or more kilovolts of electricity 30 years Natural gas distribution lines 35 years Any qualified leasehold improvement property 39 years Any qualified restaurant property 39 years Nonresidential real property 40 years Residential rental property 40 years Section 1245 real property not listed in Appendix B 40 years Railroad grading and tunnel bore 50 years The ADS recovery periods for property not listed above can be found in the tables in Appendix B. How to fill out 1040x Rent-to-own property, qualified leasehold improvement property, qualified restaurant property, residential rental property, and nonresidential real property are defined earlier under Which Property Class Applies Under GDS . How to fill out 1040x Tax-exempt use property subject to a lease. How to fill out 1040x   The ADS recovery period for any property leased under a lease agreement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership) cannot be less than 125% of the lease term. How to fill out 1040x Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. How to fill out 1040x See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. How to fill out 1040x Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. How to fill out 1040x The recovery period begins on the later of the following dates. How to fill out 1040x The date you place the addition or improvement in service. How to fill out 1040x The date you place in service the property to which you made the addition or improvement. How to fill out 1040x If the improvement you make is qualified leasehold improvement property, qualified restaurant property, or qualified retail improvement property, the GDS recovery period is 15 years (39 years under ADS). How to fill out 1040x Example. How to fill out 1040x You own a rental home that you have been renting out since 1981. How to fill out 1040x If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. How to fill out 1040x Under GDS, the property class for the addition is residential rental property and its recovery period is 27. How to fill out 1040x 5 years because the home to which the addition is made would be residential rental property if you had placed it in service this year. How to fill out 1040x Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. How to fill out 1040x The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. How to fill out 1040x The mid-month convention. How to fill out 1040x   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. How to fill out 1040x   Under this convention, you treat all property placed in service or disposed of during a month as placed in service or disposed of at the midpoint of the month. How to fill out 1040x This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. How to fill out 1040x   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. How to fill out 1040x The mid-quarter convention. How to fill out 1040x   Use this convention if the mid-month convention does not apply and the total depreciable bases of MACRS property you placed in service during the last 3 months of the tax year (excluding nonresidential real property, residential rental property, any railroad grading or tunnel bore, property placed in service and disposed of in the same year, and property that is being depreciated under a method other than MACRS) are more than 40% of the total depreciable bases of all MACRS property you placed in service during the entire year. How to fill out 1040x   Under this convention, you treat all property placed in service or disposed of during any quarter of the tax year as placed in service or disposed of at the midpoint of that quarter. How to fill out 1040x This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. How to fill out 1040x   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. How to fill out 1040x    For purposes of determining whether the mid-quarter convention applies, the depreciable basis of property you placed in service during the tax year reflects the reduction in basis for amounts expensed under section 179 and the part of the basis of property attributable to personal use. How to fill out 1040x However, it does not reflect any reduction in basis for any special depreciation allowance. How to fill out 1040x The half-year convention. How to fill out 1040x   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. How to fill out 1040x   Under this convention, you treat all property placed in service or disposed of during a tax year as placed in service or disposed of at the midpoint of the year. How to fill out 1040x This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. How to fill out 1040x   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. How to fill out 1040x Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. How to fill out 1040x The 200% declining balance method over a GDS recovery period. How to fill out 1040x The 150% declining balance method over a GDS recovery period. How to fill out 1040x The straight line method over a GDS recovery period. How to fill out 1040x The straight line method over an ADS recovery period. How to fill out 1040x For property placed in service before 1999, you could have elected the 150% declining balance method using the ADS recovery periods for certain property classes. How to fill out 1040x If you made this election, continue to use the same method and recovery period for that property. How to fill out 1040x Table 4–1 lists the types of property you can depreciate under each method. How to fill out 1040x It also gives a brief explanation of the method, including any benefits that may apply. How to fill out 1040x Depreciation Methods for Farm Property If you place personal property in service in a farming business after 1988, you generally must depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under GDS or ADS using the straight line method. How to fill out 1040x You can depreciate real property using the straight line method under either GDS or ADS. How to fill out 1040x Fruit or nut trees and vines. How to fill out 1040x   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. How to fill out 1040x ADS required for some farmers. How to fill out 1040x   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. How to fill out 1040x You must use ADS for all property you place in service in any year the election is in effect. How to fill out 1040x See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. How to fill out 1040x Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. How to fill out 1040x You must make the election by the due date of the return (including extensions) for the year you placed the property in service. How to fill out 1040x However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). How to fill out 1040x Attach the election to the amended return and write “Filed pursuant to section 301. How to fill out 1040x 9100-2” on the election statement. How to fill out 1040x File the amended return at the same address you filed the original return. How to fill out 1040x Once you make the election, you cannot change it. How to fill out 1040x If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. How to fill out 1040x However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. How to fill out 1040x 150% election. How to fill out 1040x   Instead of using the 200% declining balance method over the GDS recovery period for nonfarm property in the 3-, 5-, 7-, and 10-year property classes, you can elect to use the 150% declining balance method. How to fill out 1040x Make the election by entering “150 DB” under column (f) in Part III of Form 4562. How to fill out 1040x Straight line election. How to fill out 1040x   Instead of using either the 200% or 150% declining balance methods over the GDS recovery period, you can elect to use the straight line method over the GDS recovery period. How to fill out 1040x Make the election by entering  “S/L” under column (f) in Part III of Form 4562. How to fill out 1040x Election of ADS. How to fill out 1040x   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. How to fill out 1040x ADS uses the straight line method of depreciation over fixed ADS recovery periods. How to fill out 1040x Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. How to fill out 1040x   Make the election by completing line 20 in Part III of Form 4562. How to fill out 1040x Farm property. How to fill out 1040x   Instead of using the 150% declining balance method over a GDS recovery period for property you use in a farming business (other than real property), you can elect to depreciate it using either of the following methods. How to fill out 1040x The straight line method over a GDS recovery period. How to fill out 1040x The straight line method over an ADS recovery period. How to fill out 1040x Table 4-1. How to fill out 1040x Depreciation Methods Note. How to fill out 1040x The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. How to fill out 1040x Method Type of Property Benefit GDS using 200% DB • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction GDS using 150% DB • All farm property (except real property) • All 15- and 20-year property (except qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service before January 1, 2014) • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction1 GDS using SL • Nonresidential real property • Qualified leasehold improvement property placed in service before January 1, 2014 • Qualified restaurant property placed in service before January 1, 2014 • Qualified retail improvement property placed in service before January 1, 2014 • Residential rental property • Trees or vines bearing fruit or nuts • Water utility property • All 3-, 5-, 7-, 10-, 15-, and 20-year property2 • Property for which you elected section 168(k)(4) • Provides for equal yearly deductions (except for the first and last years) ADS using SL • Listed property used 50% or less for business • Property used predominantly outside the U. How to fill out 1040x S. How to fill out 1040x  • Tax-exempt property • Tax-exempt bond-financed property • Farm property used when an election not to apply the uniform capitalization rules is in effect • Imported property3 • Any property for which you elect to use this method4 • Provides for equal yearly deductions (except for the first and last years) 1The MACRS percentage tables in Appendix A have the switch to the straight line method built into their rates 2See section 168(b)(5) of the Internal Revenue Code. How to fill out 1040x 3See section 168(g)(6) of the Internal Revenue Code 4See section 168(g)(7) of the Internal Revenue Code How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that applies to your property. How to fill out 1040x Then, you are ready to figure your depreciation deduction. How to fill out 1040x You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. How to fill out 1040x Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. How to fill out 1040x These percentage tables are in Appendix A near the end of this publication. How to fill out 1040x Which table to use. How to fill out 1040x    Appendix A contains the MACRS Percentage Table Guide, which is designed to help you locate the correct percentage table to use for depreciating your property. How to fill out 1040x The percentage tables immediately follow the guide. How to fill out 1040x Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. How to fill out 1040x You must apply the rates in the percentage tables to your property's unadjusted basis. How to fill out 1040x You cannot use the percentage tables for a short tax year. How to fill out 1040x See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. How to fill out 1040x Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the property. How to fill out 1040x You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to that property that is depreciated as a separate item of property. How to fill out 1040x Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss. How to fill out 1040x Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. How to fill out 1040x   If you increase the basis of your property because of the recapture of part or all of a deduction for clean-fuel vehicles or the credit for clean-fuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. How to fill out 1040x For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. How to fill out 1040x See Figuring the Deduction Without Using the Tables, later. How to fill out 1040x Basis adjustment due to casualty loss. How to fill out 1040x   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. How to fill out 1040x For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. How to fill out 1040x See Figuring the Deduction Without Using the Tables, later. How to fill out 1040x Example. How to fill out 1040x On October 26, 2012, Sandra Elm, a calendar year taxpayer, bought and placed in service in her business a new item of 7-year property. How to fill out 1040x It cost $39,000 and she elected a section 179 deduction of $24,000. How to fill out 1040x She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. How to fill out 1040x Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). How to fill out 1040x She figured her MACRS depreciation deduction using the percentage tables. How to fill out 1040x For 2012, her MACRS depreciation deduction was $268. How to fill out 1040x In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. How to fill out 1040x She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. How to fill out 1040x Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. How to fill out 1040x She figures that amount by subtracting the 2012 MACRS depreciation of $268 and the casualty loss of $3,000 from the unadjusted basis of $7,500. How to fill out 1040x She must now figure her depreciation for 2013 without using the percentage tables. How to fill out 1040x Figuring the Unadjusted Basis of Your Property You must apply the table rates to your property's unadjusted basis each year of the recovery period. How to fill out 1040x Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. How to fill out 1040x However, you do reduce your original basis by other amounts, including the following. How to fill out 1040x Any amortization taken on the property. How to fill out 1040x Any section 179 deduction claimed. How to fill out 1040x Any special depreciation allowance taken on the property. How to fill out 1040x For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. How to fill out 1040x If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments. How to fill out 1040x MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. How to fill out 1040x Use a separate worksheet for each item of property. How to fill out 1040x Then, use the information from this worksheet to prepare Form 4562. How to fill out 1040x Do not use this worksheet for automobiles. How to fill out 1040x Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. How to fill out 1040x MACRS Worksheet Part I   1. How to fill out 1040x MACRS system (GDS or ADS)   2. How to fill out 1040x Property class   3. How to fill out 1040x Date placed in service   4. How to fill out 1040x Recovery period   5. How to fill out 1040x Method and convention   6. How to fill out 1040x Depreciation rate (from tables)   Part II   7. How to fill out 1040x Cost or other basis* $     8. How to fill out 1040x Business/investment use   %   9. How to fill out 1040x Multiply line 7 by line 8   $ 10. How to fill out 1040x Total claimed for section 179 deduction and other items   $ 11. How to fill out 1040x Subtract line 10 from line 9. How to fill out 1040x This is your tentative basis for depreciation   $ 12. How to fill out 1040x Multiply line 11 by . How to fill out 1040x 50 if the 50% special depreciation allowance applies. How to fill out 1040x This is your special depreciation allowance. How to fill out 1040x Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   $ 13. How to fill out 1040x Subtract line 12 from line 11. How to fill out 1040x This is your basis for depreciation     14. How to fill out 1040x Depreciation rate (from line 6)     15. How to fill out 1040x Multiply line 13 by line 14. How to fill out 1040x This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. How to fill out 1040x The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. How to fill out 1040x Example. How to fill out 1040x You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. How to fill out 1040x You use the furniture only for business. How to fill out 1040x This is the only property you placed in service this year. How to fill out 1040x You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance so your property's unadjusted basis is its cost, $10,000. How to fill out 1040x You use GDS and the half-year convention to figure your depreciation. How to fill out 1040x You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. How to fill out 1040x Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. How to fill out 1040x You figure your depreciation deduction using the MACRS worksheet as follows. How to fill out 1040x MACRS Worksheet Part I 1. How to fill out 1040x MACRS system (GDS or ADS) GDS 2. How to fill out 1040x Property class 7-year 3. How to fill out 1040x Date placed in service 8/11/13 4. How to fill out 1040x Recovery period 7-Year 5. How to fill out 1040x Method and convention 200%DB/Half-Year 6. How to fill out 1040x Depreciation rate (from tables) . How to fill out 1040x 1429 Part II 7. How to fill out 1040x Cost or other basis* $10,000     8. How to fill out 1040x Business/investment use 100 %   9. How to fill out 1040x Multiply line 7 by line 8   $10,000 10. How to fill out 1040x Total claimed for section 179 deduction and other items   -0- 11. How to fill out 1040x Subtract line 10 from line 9. How to fill out 1040x This is your tentative basis for depreciation   $10,000 12. How to fill out 1040x Multiply line 11 by . How to fill out 1040x 50 if the 50% special depreciation allowance applies. How to fill out 1040x This is your special depreciation allowance. How to fill out 1040x Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   -0- 13. How to fill out 1040x Subtract line 12 from line 11. How to fill out 1040x This is your basis for depreciation   $10,000 14. How to fill out 1040x Depreciation rate (from line 6)   . How to fill out 1040x 1429 15. How to fill out 1040x Multiply line 13 by line 14. How to fill out 1040x This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. How to fill out 1040x If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows. How to fill out 1040x Year   Basis Percentage Deduction 2014 $ 10,000 24. How to fill out 1040x 49%   $2,449   2015   10,000 17. How to fill out 1040x 49   1,749   2016   10,000 12. How to fill out 1040x 49   1,249   2017   10,000 8. How to fill out 1040x 93   893   2018   10,000 8. How to fill out 1040x 92   892   2019   10,000 8. How to fill out 1040x 93   893   2020   10,000 4. How to fill out 1040x 46   446   Examples The following examples are provided to show you how to use the percentage tables. How to fill out 1040x In both examples, assume the following. How to fill out 1040x You use the property only for business. How to fill out 1040x You use the calendar year as your tax year. How to fill out 1040x You use GDS for all the properties. How to fill out 1040x Example 1. How to fill out 1040x You bought a building and land for $120,000 and placed it in service on March 8. How to fill out 1040x The sales contract showed that the building cost $100,000 and the land cost $20,000. How to fill out 1040x It is nonresidential real property. How to fill out 1040x The building's unadjusted basis is its original cost, $100,000. How to fill out 1040x You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. How to fill out 1040x March is the third month of your tax year, so multiply the building's unadjusted basis, $100,000, by the percentages for the third month in Table A-7a. How to fill out 1040x Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. How to fill out 1040x 033%   $2,033   2nd   100,000 2. How to fill out 1040x 564   2,564   3rd   100,000 2. How to fill out 1040x 564   2,564   Example 2. How to fill out 1040x During the year, you bought a machine (7-year property) for $4,000, office furniture (7-year property) for $1,000, and a computer (5-year property) for $5,000. How to fill out 1040x You placed the machine in service in January, the furniture in September, and the computer in October. How to fill out 1040x You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. How to fill out 1040x You placed property in service during the last 3 months of the year, so you must first determine if you have to use the mid-quarter convention. How to fill out 1040x The total bases of all property you placed in service during the year is $10,000. How to fill out 1040x The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. How to fill out 1040x Therefore, you must use the mid-quarter convention for all three items. How to fill out 1040x You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. How to fill out 1040x The machine is 7-year property placed in service in the first quarter, so you use Table A-2. How to fill out 1040x The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. How to fill out 1040x Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. How to fill out 1040x Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. How to fill out 1040x Year Property Basis Percentage Deduction 1st Machine $4,000 25. How to fill out 1040x 00 $1,000   2nd Machine 4,000 21. How to fill out 1040x 43 857   1st Furniture 1,000 10. How to fill out 1040x 71 107   2nd Furniture 1,000 25. How to fill out 1040x 51 255   1st Computer 5,000 5. How to fill out 1040x 00 250   2nd Computer 5,000 38. How to fill out 1040x 00 1,900   Sale or Other Disposition Before the Recovery Period Ends If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. How to fill out 1040x You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. How to fill out 1040x After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. How to fill out 1040x Half-year convention used. How to fill out 1040x   For property for which you used a half-year convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year. How to fill out 1040x Mid-quarter convention used. How to fill out 1040x   For property for which you used the mid-quarter convention, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter in which you disposed of the property. How to fill out 1040x Quarter Percentage First 12. How to fill out 1040x 5% Second 37. How to fill out 1040x 5 Third 62. How to fill out 1040x 5 Fourth 87. How to fill out 1040x 5 Example. How to fill out 1040x On December 2, 2010, you placed in service an item of 5-year property costing $10,000. How to fill out 1040x You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. How to fill out 1040x Your unadjusted basis for the property was $10,000. How to fill out 1040x You used the mid-quarter convention because this was the only item of business property you placed in service in 2010 and it was placed in service during the last 3 months of your tax year. How to fill out 1040x Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. How to fill out 1040x Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. How to fill out 1040x 80% of $10,000). How to fill out 1040x You disposed of the property on April 6, 2013. How to fill out 1040x To determine your depreciation deduction for 2013, first figure the deduction for the full year. How to fill out 1040x This is $1,368 (13. How to fill out 1040x 68% of $10,000). How to fill out 1040x April is in the second quarter of the year, so you multiply $1,368 by 37. How to fill out 1040x 5% to get your depreciation deduction of $513 for 2013. How to fill out 1040x Mid-month convention used. How to fill out 1040x   If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. How to fill out 1040x The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. How to fill out 1040x The denominator is 12. How to fill out 1040x Example. How to fill out 1040x On July 2, 2011, you purchased and placed in service residential rental property. How to fill out 1040x The property cost $100,000, not including the cost of land. How to fill out 1040x You used Table A-6 to figure your MACRS depreciation for this property. How to fill out 1040x You sold the property on March 2, 2013. How to fill out 1040x You file your tax return based on the calendar year. How to fill out 1040x A full year of depreciation for 2013 is $3,636. How to fill out 1040x This is $100,000 multiplied by . How to fill out 1040x 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . How to fill out 1040x You then apply the mid-month convention for the 2½ months of use in 2013. How to fill out 1040x Treat the month of disposition as one-half month of use. How to fill out 1040x Multiply $3,636 by the fraction, 2. How to fill out 1040x 5 over 12, to get your 2013 depreciation deduction of $757. How to fill out 1040x 50. How to fill out 1040x Figuring the Deduction Without Using the Tables Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. How to fill out 1040x Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. How to fill out 1040x Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. How to fill out 1040x Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. How to fill out 1040x You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. How to fill out 1040x The straight line method is explained later. How to fill out 1040x You figure depreciation for the year you place property in service as follows. How to fill out 1040x Multiply your adjusted basis in the property by the declining balance rate. How to fill out 1040x Apply the applicable convention. How to fill out 1040x You figure depreciation for all other years (before the year you switch to the straight line method) as follows. How to fill out 1040x Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. How to fill out 1040x Multiply this new adjusted basis by the same declining balance rate used in earlier years. How to fill out 1040x If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it. How to fill out 1040x Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. How to fill out 1040x Declining balance rate. How to fill out 1040x   You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. How to fill out 1040x For example, for 3-year property depreciated using the 200% declining balance method, divide 2. How to fill out 1040x 00 (200%) by 3 to get 0. How to fill out 1040x 6667, or a 66. How to fill out 1040x 67% declining balance rate. How to fill out 1040x For 15-year property depreciated using the 150% declining balance method, divide 1. How to fill out 1040x 50 (150%) by 15 to get 0. How to fill out 1040x 10, or a 10% declining balance rate. How to fill out 1040x   The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction. How to fill out 1040x Property Class Method Declining Balance Rate Year 3-year 200% DB 66. How to fill out 1040x 667% 3rd 5-year 200% DB 40. How to fill out 1040x 0 4th 7-year 200% DB 28. How to fill out 1040x 571 5th 10-year 200% DB 20. How to fill out 1040x 0 7th 15-year 150% DB 10. How to fill out 1040x 0 7th 20-year 150% DB 7. How to fill out 1040x 5 9th Straight Line Method When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. How to fill out 1040x You must use the applicable convention in the year you place the property in service and the year you dispose of the property. How to fill out 1040x You figure depreciation for the year you place property in service as follows. How to fill out 1040x Multiply your adjusted basis in the property by the straight line rate. How to fill out 1040x Apply the applicable convention. How to fill out 1040x You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. How to fill out 1040x Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). How to fill out 1040x Determine the depreciation rate for the year. How to fill out 1040x Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). How to fill out 1040x If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it. How to fill out 1040x Straight line rate. How to fill out 1040x   You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. How to fill out 1040x When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. How to fill out 1040x If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. How to fill out 1040x 0 (100%). How to fill out 1040x Using the Applicable Convention The applicable convention (discussed earlier under Which Convention Applies ) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. How to fill out 1040x It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. How to fill out 1040x See Straight line rate in the previous discussion. How to fill out 1040x Use the applicable convention as explained in the following discussions. How to fill out 1040x Half-year convention. How to fill out 1040x   If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. How to fill out 1040x You deduct a full year of depreciation for any other year during the recovery period. How to fill out 1040x   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. How to fill out 1040x If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. How to fill out 1040x If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property. How to fill out 1040x Mid-quarter convention. How to fill out 1040x   If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service. How to fill out 1040x   A quarter of a full 12-month tax year is a period of 3 months. How to fill out 1040x The first quarter in a year begins on the first day of the tax year. How to fill out 1040x The second quarter begins on the first day of the fourth month of the tax year. How to fill out 1040x The third quarter begins on the first day of the seventh month of the tax year. How to fill out 1040x The fourth quarter begins on the first day of the tenth month of the tax year. How to fill out 1040x A calendar year is divided into the following quarters. How to fill out 1040x Quarter Months First January, February, March Second April, May, June Third July, August, September Fourth October, November, December   Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service. How to fill out 1040x Quarter Percentage First 87. How to fill out 1040x 5% Second 62. How to fill out 1040x 5 Third 37. How to fill out 1040x 5 Fourth 12. How to fill out 1040x 5   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property. How to fill out 1040x Quarter Percentage First 12. How to fill out 1040x 5% Second 37. How to fill out 1040x 5 Third 62. How to fill out 1040x 5 Fourth 87. How to fill out 1040x 5   If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property. How to fill out 1040x Mid-month convention. How to fill out 1040x   If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. How to fill out 1040x Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. How to fill out 1040x The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. How to fill out 1040x 5). How to fill out 1040x The denominator is 12. How to fill out 1040x   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. How to fill out 1040x If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property. How to fill out 1040x Example. How to fill out 1040x You use the calendar year and place nonresidential real property in service in August. How to fill out 1040x The property is in service 4 full months (September, October, November, and December). How to fill out 1040x Your numerator is 4. How to fill out 1040x 5 (4 full months plus 0. How to fill out 1040x 5). How to fill out 1040x You multiply the depreciation for a full year by 4. How to fill out 1040x 5/12, or 0. How to fill out 1040x 375. How to fill out 1040x Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. How to fill out 1040x Figures are rounded for purposes of the examples. How to fill out 1040x Assume for all the examples that you use a calendar year as your tax year. How to fill out 1040x Example 1—200% DB method and half-year convention. How to fill out 1040x In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. How to fill out 1040x You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. How to fill out 1040x You use GDS and the 200% declining balance (DB) method to figure your depreciation. How to fill out 1040x When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. How to fill out 1040x You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. How to fill out 1040x First year. How to fill out 1040x You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). How to fill out 1040x The result is 40%. How to fill out 1040x You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. How to fill out 1040x You apply the half-year convention by dividing the result ($400) by 2. How to fill out 1040x Depreciation for the first year under the 200% DB method is $200. How to fill out 1040x You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. How to fill out 1040x The result is 20%. How to fill out 1040x You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. How to fill out 1040x You apply the half-year convention by dividing the result ($200) by 2. How to fill out 1040x Depreciation for the first year under the SL method is $100. How to fill out 1040x The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. How to fill out 1040x Second year. How to fill out 1040x You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). How to fill out 1040x You multiply the result ($800) by the DB rate (40%). How to fill out 1040x Depreciation for the second year under the 200% DB method is $320. How to fill out 1040x You figure the SL depreciation rate by dividing 1 by 4. How to fill out 1040x 5, the number of years remaining in the recovery period. How to fill out 1040x (Based on the half-year convention, you used only half a year of the recovery period in the first year. How to fill out 1040x ) You multiply the reduced adjusted basis ($800) by the result (22. How to fill out 1040x 22%). How to fill out 1040x Depreciation under the SL method for the second year is $178. How to fill out 1040x The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. How to fill out 1040x Third year. How to fill out 1040x You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). How to fill out 1040x You multiply the result ($480) by the DB rate (40%). How to fill out 1040x Depreciation for the third year under the 200% DB method is $192. How to fill out 1040x You figure the SL depreciation rate by dividing 1 by 3. How to fill out 1040x 5. How to fill out 1040x You multiply the reduced adjusted basis ($480) by the result (28. How to fill out 1040x 57%). How to fill out 1040x Depreciation under the SL method for the third year is $137. How to fill out 1040x The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. How to fill out 1040x Fourth year. How to fill out 1040x You reduce the adjusted basis ($480) by the de