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Irs Form 1040x

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Irs Form 1040x

Irs form 1040x Publication 584 - Introductory Material Table of Contents What's New Introduction How To Use This Workbook What's New Future developments. Irs form 1040x  The IRS has created a page on IRS. Irs form 1040x gov for information about Publication 584, at www. Irs form 1040x irs. Irs form 1040x gov/pub584. Irs form 1040x Information about any future developments affecting Publication 584 (such as legislation enacted after we release it) will be posted on that page. Irs form 1040x Introduction This workbook is designed to help you figure your loss on personal-use property in the event of a disaster, casualty, or theft. Irs form 1040x It contains schedules to help you figure the loss to your main home, its contents, and your motor vehicles. Irs form 1040x However, these schedules are for your information only. Irs form 1040x You must complete Form 4684, Casualties and Thefts, to report your loss. Irs form 1040x How To Use This Workbook You can use this workbook by following these five steps. Irs form 1040x Read Publication 547 to learn about the tax rules for casualties, disasters, and thefts. Irs form 1040x Know the definitions of cost or other basis and fair market value, discussed later. Irs form 1040x Fill out Schedules 1 through 20. Irs form 1040x Read the instructions for Form 4684. Irs form 1040x Fill out Form 4684 using the information you entered in Schedules 1 through 20. Irs form 1040x Use the chart below to find out how to use Schedules 1 through 19 to fill out Form 4684. Irs form 1040x Take what's in each row of. Irs form 1040x . Irs form 1040x . Irs form 1040x And enter it on Form 4684. Irs form 1040x . Irs form 1040x . Irs form 1040x Column 1 Line 1 Column 2 Line 2 Column 3 Line 3 Column 4 Line 4 Column 5 Line 5 Column 6 Line 6 Column 7 Line 7 Column 8 Line 8 Column 9 Line 9 Prev  Up  Next   Home   More Online Publications
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Tax Information for Charitable Organizations

Life Cycle of a Public Charity/Private Foundation
Links to helpful information about points of intersection between charitable organizations and the IRS, including access to explanatory information and forms that an organization may need to file with the IRS.

Exemption Requirements - 501(c)(3) Organizations
A brief description of the requirements for exemption under IRC Section 501(c)(3).

Application for Recognition of Exemption
Procedures for applying for exemption under Internal Revenue Section 501(c)(3).

Exempt Organizations - Required Filings
Federal annual tax filings for tax-exempt organizations.

Publication 4573, Group Exemptions
A publication describing, in question and answer format, the federal tax rules that apply to group rulings of exemption under Internal Revenue Code section 501.

The Restriction of Political Campaign Intervention by Section 501(c)(3) Tax-Exempt Organizations
Political Campaign Activity by section 501(c)(3) tax-exempt organizations

Unrelated Business Income Tax
Unrelated business income tax requirements for tax-exempt organizations.

Employment Taxes for Exempt Organizations
Links to information about employment taxes for tax-exempt organizations.

Tax Information for Churches and Religious Organizations
Tax Information for Churches and Religious Orgs

Tax Information for Contributors
Tax Information for Contributors

State Links
A collection of links to State government web sites with useful information for exempt organizations.

Web-Based Mini-Course - Deducting Charitable Contributions
A short course to help charities and contributors understand what is a deductible charitable contribution and what is not. Also covers amount and types of deductible contributions, what records to keep and how to report contributions.

Charitable Contributions - YouTube video
YouTube video on Charitable Contributions.

Page Last Reviewed or Updated: 20-Mar-2014

The Irs Form 1040x

Irs form 1040x 2. Irs form 1040x   Depreciation of Rental Property Table of Contents The BasicsWhat Rental Property Can Be Depreciated? When Does Depreciation Begin and End? Depreciation Methods Basis of Depreciable Property Claiming the Special Depreciation Allowance MACRS DepreciationDepreciation Systems Property Classes Under GDS Recovery Periods Under GDS Conventions Figuring Your Depreciation Deduction Figuring MACRS Depreciation Under ADS Claiming the Correct Amount of Depreciation You recover the cost of income producing property through yearly tax deductions. Irs form 1040x You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Irs form 1040x Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Irs form 1040x You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. Irs form 1040x You can deduct depreciation only on the part of your property used for rental purposes. Irs form 1040x Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Irs form 1040x You may have to use Form 4562 to figure and report your depreciation. Irs form 1040x See Which Forms To Use in chapter 3. Irs form 1040x Also see Publication 946. Irs form 1040x Section 179 deduction. Irs form 1040x   The section 179 deduction is a means of recovering part or all of the cost of certain qualifying property in the year you place the property in service. Irs form 1040x This deduction is not allowed for property used in connection with residential rental property. Irs form 1040x See chapter 2 of Publication 946. Irs form 1040x Alternative minimum tax (AMT). Irs form 1040x   If you use accelerated depreciation, you may be subject to the AMT. Irs form 1040x Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Irs form 1040x   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. Irs form 1040x However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). Irs form 1040x   To find out if you are subject to the AMT, see the Instructions for Form 6251. Irs form 1040x The Basics The following section discusses the information you will need to have about the rental property and the decisions to be made before figuring your depreciation deduction. Irs form 1040x What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. Irs form 1040x You own the property. Irs form 1040x You use the property in your business or income-producing activity (such as rental property). Irs form 1040x The property has a determinable useful life. Irs form 1040x The property is expected to last more than one year. Irs form 1040x Property you own. Irs form 1040x   To claim depreciation, you usually must be the owner of the property. Irs form 1040x You are considered as owning property even if it is subject to a debt. Irs form 1040x Rented property. Irs form 1040x   Generally, if you pay rent for property, you cannot depreciate that property. Irs form 1040x Usually, only the owner can depreciate it. Irs form 1040x However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. Irs form 1040x See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Irs form 1040x Cooperative apartments. Irs form 1040x   If you are a tenant-stockholder in a cooperative housing corporation and rent your cooperative apartment to others, you can deduct depreciation on your stock in the corporation. Irs form 1040x See chapter 4, Special Situations. Irs form 1040x Property having a determinable useful life. Irs form 1040x   To be depreciable, your property must have a determinable useful life. Irs form 1040x This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Irs form 1040x What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. Irs form 1040x This includes land and certain excepted property. Irs form 1040x Land. Irs form 1040x   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Irs form 1040x But if it does, the loss is accounted for upon disposition. Irs form 1040x The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Irs form 1040x   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Irs form 1040x These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Irs form 1040x Example. Irs form 1040x You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. Irs form 1040x Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. Irs form 1040x If you replace the house, you would have to destroy the bushes and trees right next to it. Irs form 1040x These bushes and trees are closely associated with the house, so they have a determinable useful life. Irs form 1040x Therefore, you can depreciate them. Irs form 1040x Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Irs form 1040x Excepted property. Irs form 1040x   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. Irs form 1040x Property placed in service and disposed of (or taken out of business use) in the same year. Irs form 1040x Equipment used to build capital improvements. Irs form 1040x You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Irs form 1040x For more information, see chapter 1 of Publication 946. Irs form 1040x When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. Irs form 1040x You stop depreciating it either when you have fully recovered your cost or other basis, or when you retire it from service, whichever happens first. Irs form 1040x Placed in Service You place property in service in a rental activity when it is ready and available for a specific use in that activity. Irs form 1040x Even if you are not using the property, it is in service when it is ready and available for its specific use. Irs form 1040x Example 1. Irs form 1040x On November 22 of last year, you purchased a dishwasher for your rental property. Irs form 1040x The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. Irs form 1040x Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. Irs form 1040x If the appliance had been installed and ready for use when it was delivered in December of last year, it would have been considered placed in service in December, even if it was not actually used until this year. Irs form 1040x Example 2. Irs form 1040x On April 6, you purchased a house to use as residential rental property. Irs form 1040x You made extensive repairs to the house and had it ready for rent on July 5. Irs form 1040x You began to advertise the house for rent in July and actually rented it beginning September 1. Irs form 1040x The house is considered placed in service in July when it was ready and available for rent. Irs form 1040x You can begin to depreciate the house in July. Irs form 1040x Example 3. Irs form 1040x You moved from your home in July. Irs form 1040x During August and September you made several repairs to the house. Irs form 1040x On October 1, you listed the property for rent with a real estate company, which rented it on December 1. Irs form 1040x The property is considered placed in service on October 1, the date when it was available for rent. Irs form 1040x Conversion to business use. Irs form 1040x   If you place property in service in a personal activity, you cannot claim depreciation. Irs form 1040x However, if you change the property's use to business or the production of income, you can begin to depreciate it at the time of the change. Irs form 1040x You place the property in service for business or income-producing use on the date of the change. Irs form 1040x Example. Irs form 1040x You bought a house and used it as your personal home several years before you converted it to rental property. Irs form 1040x Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Irs form 1040x You can begin to claim depreciation in the year you converted it to rental property because at that time its use changed to the production of income. Irs form 1040x Idle Property Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). Irs form 1040x For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent. Irs form 1040x Cost or Other Basis Fully Recovered You must stop depreciating property when the total of your yearly depreciation deductions equals your cost or other basis of your property. Irs form 1040x For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. Irs form 1040x See Basis of Depreciable Property , later. Irs form 1040x Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Irs form 1040x You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Irs form 1040x You sell or exchange the property. Irs form 1040x You convert the property to personal use. Irs form 1040x You abandon the property. Irs form 1040x The property is destroyed. Irs form 1040x Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. Irs form 1040x If you placed rental property in service before 1987, you are using one of the following methods. Irs form 1040x ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. Irs form 1040x Straight line or declining balance method over the useful life of property placed in service before 1981. Irs form 1040x See MACRS Depreciation , later, for more information. Irs form 1040x Rental property placed in service before 2013. Irs form 1040x   Continue to use the same method of figuring depreciation that you used in the past. Irs form 1040x Use of real property changed. Irs form 1040x   Generally, you must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Irs form 1040x This includes your residence that you changed to rental use. Irs form 1040x See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. Irs form 1040x Improvements made after 1986. Irs form 1040x   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Irs form 1040x As a result, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Irs form 1040x For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. Irs form 1040x This publication discusses MACRS depreciation only. Irs form 1040x If you need information about depreciating property placed in service before 1987, see Publication 534. Irs form 1040x Basis of Depreciable Property The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. Irs form 1040x This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity. Irs form 1040x If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and credits with respect to the property. Irs form 1040x Basis and adjusted basis are explained in the following discussions. Irs form 1040x If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its fair market value when you change it to rental use. Irs form 1040x See Basis of Property Changed to Rental Use in chapter 4. Irs form 1040x Cost Basis The basis of property you buy is usually its cost. Irs form 1040x The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. Irs form 1040x Your cost also includes amounts you pay for: Sales tax charged on the purchase (but see Exception next), Freight charges to obtain the property, and Installation and testing charges. Irs form 1040x Exception. Irs form 1040x   If you deducted state and local general sales taxes as an itemized deduction on Schedule A (Form 1040), do not include those sales taxes as part of your cost basis. Irs form 1040x Such taxes were deductible before 1987 and after 2003. Irs form 1040x Loans with low or no interest. Irs form 1040x   If you buy property on any time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, less the amount considered to be unstated interest. Irs form 1040x See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Irs form 1040x Real property. Irs form 1040x   If you buy real property, such as a building and land, certain fees and other expenses you pay are part of your cost basis in the property. Irs form 1040x Real estate taxes. Irs form 1040x   If you buy real property and agree to pay real estate taxes on it that were owed by the seller and the seller does not reimburse you, the taxes you pay are treated as part of your basis in the property. Irs form 1040x You cannot deduct them as taxes paid. Irs form 1040x   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. Irs form 1040x Do not include that amount in your basis in the property. Irs form 1040x Settlement fees and other costs. Irs form 1040x   The following settlement fees and closing costs for buying the property are part of your basis in the property. Irs form 1040x Abstract fees. Irs form 1040x Charges for installing utility services. Irs form 1040x Legal fees. Irs form 1040x Recording fees. Irs form 1040x Surveys. Irs form 1040x Transfer taxes. Irs form 1040x Title insurance. Irs form 1040x Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Irs form 1040x   The following are settlement fees and closing costs you cannot include in your basis in the property. Irs form 1040x Fire insurance premiums. Irs form 1040x Rent or other charges relating to occupancy of the property before closing. Irs form 1040x Charges connected with getting or refinancing a loan, such as: Points (discount points, loan origination fees), Mortgage insurance premiums, Loan assumption fees, Cost of a credit report, and Fees for an appraisal required by a lender. Irs form 1040x   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Irs form 1040x Assumption of a mortgage. Irs form 1040x   If you buy property and become liable for an existing mortgage on the property, your basis is the amount you pay for the property plus the amount remaining to be paid on the mortgage. Irs form 1040x Example. Irs form 1040x You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. Irs form 1040x Your basis is $300,000. Irs form 1040x Separating cost of land and buildings. Irs form 1040x   If you buy buildings and your cost includes the cost of the land on which they stand, you must divide the cost between the land and the buildings to figure the basis for depreciation of the buildings. Irs form 1040x The part of the cost that you allocate to each asset is the ratio of the fair market value of that asset to the fair market value of the whole property at the time you buy it. Irs form 1040x   If you are not certain of the fair market values of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes. Irs form 1040x Example. Irs form 1040x You buy a house and land for $200,000. Irs form 1040x The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. Irs form 1040x The latest real estate tax assessment on the property was based on an assessed value of $160,000, of which $136,000 was for the house and $24,000 was for the land. Irs form 1040x You can allocate 85% ($136,000 ÷ $160,000) of the purchase price to the house and 15% ($24,000 ÷ $160,000) of the purchase price to the land. Irs form 1040x Your basis in the house is $170,000 (85% of $200,000) and your basis in the land is $30,000 (15% of $200,000). Irs form 1040x Basis Other Than Cost You cannot use cost as a basis for property that you received: In return for services you performed; In an exchange for other property; As a gift; From your spouse, or from your former spouse as the result of a divorce; or As an inheritance. Irs form 1040x If you received property in one of these ways, see Publication 551 for information on how to figure your basis. Irs form 1040x Adjusted Basis To figure your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service for business or the production of income. Irs form 1040x The result of these adjustments to the basis is the adjusted basis. Irs form 1040x Increases to basis. Irs form 1040x   You must increase the basis of any property by the cost of all items properly added to a capital account. Irs form 1040x These include the following. Irs form 1040x The cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year. Irs form 1040x Amounts spent after a casualty to restore the damaged property. Irs form 1040x The cost of extending utility service lines to the property. Irs form 1040x Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. Irs form 1040x Additions or improvements. Irs form 1040x   Add to the basis of your property the amount an addition or improvement actually cost you, including any amount you borrowed to make the addition or improvement. Irs form 1040x This includes all direct costs, such as material and labor, but does not include your own labor. Irs form 1040x It also includes all expenses related to the addition or improvement. Irs form 1040x   For example, if you had an architect draw up plans for remodeling your property, the architect's fee is a part of the cost of the remodeling. Irs form 1040x Or, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. Irs form 1040x   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. Irs form 1040x For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Irs form 1040x    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. Irs form 1040x However, see What Rental Property Cannot Be Depreciated, earlier. Irs form 1040x Assessments for local improvements. Irs form 1040x   Assessments for items which tend to increase the value of property, such as streets and sidewalks, must be added to the basis of the property. Irs form 1040x For example, if your city installs curbing on the street in front of your house, and assesses you and your neighbors for its cost, you must add the assessment to the basis of your property. Irs form 1040x Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. Irs form 1040x You cannot deduct these items as taxes or depreciate them. Irs form 1040x    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. Irs form 1040x Do not add them to your basis in the property. Irs form 1040x Deducting vs. Irs form 1040x capitalizing costs. Irs form 1040x   Do not add to your basis costs you can deduct as current expenses. Irs form 1040x However, there are certain costs you can choose either to deduct or to capitalize. Irs form 1040x If you capitalize these costs, include them in your basis. Irs form 1040x If you deduct them, do not include them in your basis. Irs form 1040x   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. Irs form 1040x   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. Irs form 1040x Decreases to basis. Irs form 1040x   You must decrease the basis of your property by any items that represent a return of your cost. Irs form 1040x These include the following. Irs form 1040x Insurance or other payment you receive as the result of a casualty or theft loss. Irs form 1040x Casualty loss not covered by insurance for which you took a deduction. Irs form 1040x Amount(s) you receive for granting an easement. Irs form 1040x Residential energy credits you were allowed before 1986, or after 2005, if you added the cost of the energy items to the basis of your home. Irs form 1040x Exclusion from income of subsidies for energy conservation measures. Irs form 1040x Special depreciation allowance claimed on qualified property. Irs form 1040x Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Irs form 1040x If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. Irs form 1040x   If your rental property was previously used as your main home, you must also decrease the basis by the following. Irs form 1040x Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. Irs form 1040x District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. Irs form 1040x Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. Irs form 1040x Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. Irs form 1040x This allowance is figured before you figure your regular depreciation deduction. Irs form 1040x See Publication 946, chapter 3, for details. Irs form 1040x Also see the Instructions for Form 4562, Line 14. Irs form 1040x If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. Irs form 1040x The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. Irs form 1040x MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. Irs form 1040x This section explains how to determine which MACRS depreciation system applies to your property. Irs form 1040x It also discusses other information you need to know before you can figure depreciation under MACRS. Irs form 1040x This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. Irs form 1040x Depreciation Systems MACRS consists of two systems that determine how you depreciate your property—the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Irs form 1040x You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Irs form 1040x Excluded Property You cannot use MACRS for certain personal property (such as furniture or appliances) placed in service in your rental property in 2013 if it had been previously placed in service before 1987 when MACRS became effective. Irs form 1040x In most cases, personal property is excluded from MACRS if you (or a person related to you) owned or used it in 1986 or if your tenant is a person (or someone related to the person) who owned or used it in 1986. Irs form 1040x However, the property is not excluded if your 2013 deduction under MACRS (using a half-year convention) is less than the deduction you would have under ACRS. Irs form 1040x For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. Irs form 1040x Electing ADS If you choose, you can use the ADS method for most property. Irs form 1040x Under ADS, you use the straight line method of depreciation. Irs form 1040x The election of ADS for one item in a class of property generally applies to all property in that class that is placed in service during the tax year of the election. Irs form 1040x However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. Irs form 1040x If you choose to use ADS for your residential rental property, the election must be made in the first year the property is placed in service. Irs form 1040x Once you make this election, you can never revoke it. Irs form 1040x For property placed in service during 2013, you make the election to use ADS by entering the depreciation on Form 4562, Part III, Section C, line 20c. Irs form 1040x Property Classes Under GDS Each item of property that can be depreciated under MACRS is assigned to a property class, determined by its class life. Irs form 1040x The property class generally determines the depreciation method, recovery period, and convention. Irs form 1040x The property classes under GDS are: 3-year property, 5-year property, 7-year property, 10-year property, 15-year property, 20-year property, Nonresidential real property, and Residential rental property. Irs form 1040x Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. Irs form 1040x 5-year property. Irs form 1040x This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. Irs form 1040x ), automobiles, and light trucks. Irs form 1040x This class also includes appliances, carpeting, furniture, etc. Irs form 1040x , used in a residential rental real estate activity. Irs form 1040x Depreciation on automobiles, other property used for transportation, computers and related peripheral equipment, and property of a type generally used for entertainment, recreation, or amusement is limited. Irs form 1040x See chapter 5 of Publication 946. Irs form 1040x 7-year property. Irs form 1040x This class includes office furniture and equipment (desks, file cabinets, etc. Irs form 1040x ). Irs form 1040x This class also includes any property that does not have a class life and that has not been designated by law as being in any other class. Irs form 1040x 15-year property. Irs form 1040x This class includes roads, fences, and shrubbery (if depreciable). Irs form 1040x Residential rental property. Irs form 1040x This class includes any real property that is a rental building or structure (including a mobile home) for which 80% or more of the gross rental income for the tax year is from dwelling units. Irs form 1040x It does not include a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis. Irs form 1040x If you live in any part of the building or structure, the gross rental income includes the fair rental value of the part you live in. Irs form 1040x The other property classes do not generally apply to property used in rental activities. Irs form 1040x These classes are not discussed in this publication. Irs form 1040x See Publication 946 for more information. Irs form 1040x Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. Irs form 1040x The recovery periods are generally longer under ADS than GDS. Irs form 1040x The recovery period of property depends on its property class. Irs form 1040x Under GDS, the recovery period of an asset is generally the same as its property class. Irs form 1040x Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. Irs form 1040x See Table 2-1 for recovery periods of property commonly used in residential rental activities. Irs form 1040x Qualified Indian reservation property. Irs form 1040x   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. Irs form 1040x For more information, see chapter 4 of Publication 946. Irs form 1040x Additions or improvements to property. Irs form 1040x   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. Irs form 1040x   The property class and recovery period of the addition or improvement is the one that would apply to the original property if you had placed it in service at the same time as the addition or improvement. Irs form 1040x   The recovery period for an addition or improvement to property begins on the later of: The date the addition or improvement is placed in service, or The date the property to which the addition or improvement was made is placed in service. Irs form 1040x Example. Irs form 1040x You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. Irs form 1040x You built an addition onto the house and placed it in service in 2013. Irs form 1040x You must use MACRS for the addition. Irs form 1040x Under GDS, the addition is depreciated as residential rental property over 27. Irs form 1040x 5 years. Irs form 1040x Table 2-1. Irs form 1040x MACRS Recovery Periods for Property Used in Rental Activities   MACRS Recovery Period   Type of Property General Depreciation System Alternative Depreciation System   Computers and their peripheral equipment 5 years 5 years   Office machinery, such as: Typewriters Calculators Copiers 5 years 6 years   Automobiles 5 years 5 years   Light trucks 5 years 5 years   Appliances, such as: Stoves Refrigerators 5 years 9 years   Carpets 5 years 9 years   Furniture used in rental property 5 years 9 years   Office furniture and equipment, such as: Desks Files 7 years 10 years   Any property that does not have a class life and that has not been designated by law as being in any other class 7 years 12 years   Roads 15 years 20 years   Shrubbery 15 years 20 years   Fences 15 years 20 years   Residential rental property (buildings or structures) and structural components such as furnaces, waterpipes, venting, etc. Irs form 1040x 27. Irs form 1040x 5 years 40 years   Additions and improvements, such as a new roof The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement. Irs form 1040x   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. Irs form 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. Irs form 1040x Mid-month convention. Irs form 1040x    A mid-month convention is used for all residential rental property and nonresidential real property. Irs form 1040x Under this convention, you treat all property placed in service, or disposed of, during any month as placed in service, or disposed of, at the midpoint of that month. Irs form 1040x Mid-quarter convention. Irs form 1040x   A mid-quarter convention must be used if the mid-month convention does not apply and the total depreciable basis of MACRS property placed in service in the last 3 months of a tax year (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) is more than 40% of the total basis of all such property you place in service during the year. Irs form 1040x   Under this convention, you treat all property placed in service, or disposed of, during any quarter of a tax year as placed in service, or disposed of, at the midpoint of the quarter. Irs form 1040x Example. Irs form 1040x During the tax year, Tom Martin purchased the following items to use in his rental property. Irs form 1040x He elects not to claim the special depreciation allowance discussed earlier. Irs form 1040x A dishwasher for $400 that he placed in service in January. Irs form 1040x Used furniture for $100 that he placed in service in September. Irs form 1040x A refrigerator for $800 that he placed in service in October. Irs form 1040x Tom uses the calendar year as his tax year. Irs form 1040x The total basis of all property placed in service that year is $1,300. Irs form 1040x The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). Irs form 1040x Tom must use the mid-quarter convention instead of the half-year convention for all three items. Irs form 1040x Half-year convention. Irs form 1040x    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. Irs form 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 that tax year. Irs form 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. Irs form 1040x You deduct a full year of depreciation for any other year during the recovery period. Irs form 1040x Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. Irs form 1040x The deduction is substantially the same both ways. Irs form 1040x You can either: Actually compute the deduction using the depreciation method and convention that apply over the recovery period of the property, or Use the percentage from the MACRS percentage tables. Irs form 1040x In this publication we will use the percentage tables. Irs form 1040x For instructions on how to compute the deduction, see chapter 4 of Publication 946. Irs form 1040x Residential rental property. Irs form 1040x   You must use the straight line method and a mid-month convention for residential rental property. Irs form 1040x In the first year that you claim depreciation for residential rental property, you can claim depreciation only for the number of months the property is in use, and you must use the mid-month convention (explained under Conventions , earlier). Irs form 1040x 5-, 7-, or 15-year property. Irs form 1040x   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. Irs form 1040x However, in limited cases you must use the mid-quarter convention, if it applies. Irs form 1040x For property in the 15-year class, use the 150% declining balance method and a half-year convention. Irs form 1040x   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. Irs form 1040x The choice to use the 150% method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Irs form 1040x You make this election on Form 4562. Irs form 1040x In Part III, column (f), enter “150 DB. Irs form 1040x ” Once you make this election, you cannot change to another method. Irs form 1040x   If you use either the 200% or 150% declining balance method, you figure your deduction using the straight line method in the first tax year that the straight line method gives you an equal or larger deduction. Irs form 1040x   You can also choose to use the straight line method with a half-year or mid-quarter convention for 5-, 7-, or 15-year property. Irs form 1040x The choice to use the straight line method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Irs form 1040x You elect the straight line method on Form 4562. Irs form 1040x In Part III, column (f), enter “S/L. Irs form 1040x ” Once you make this election, you cannot change to another method. Irs form 1040x MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. Irs form 1040x The tables show the percentages for the first few years or until the change to the straight line method is made. Irs form 1040x See Appendix A of Publication 946 for complete tables. Irs form 1040x The percentages in Tables 2-2a, 2-2b, and 2-2c make the change from declining balance to straight line in the year that straight line will give a larger deduction. Irs form 1040x If you elect to use the straight line method for 5-, 7-, or 15-year property, or the 150% declining balance method for 5- or 7-year property, use the tables in Appendix A of Publication 946. Irs form 1040x How to use the percentage tables. Irs form 1040x   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. Irs form 1040x   Once you begin using a percentage table to figure depreciation, you must continue to use it for the entire recovery period unless there is an adjustment to the basis of your property for a reason other than: Depreciation allowed or allowable, or An addition or improvement that is depreciated as a separate item of property. Irs form 1040x   If there is an adjustment for any reason other than (1) or (2), for example, because of a deductible casualty loss, you can no longer use the table. Irs form 1040x For the year of the adjustment and for the remaining recovery period, figure depreciation using the property's adjusted basis at the end of the year and the appropriate depreciation method, as explained earlier under Figuring Your Depreciation Deduction . Irs form 1040x See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. Irs form 1040x Unadjusted basis. Irs form 1040x   This is the same basis you would use to figure gain on a sale (see Basis of Depreciable Property , earlier), but without reducing your original basis by any MACRS depreciation taken in earlier years. Irs form 1040x   However, you do reduce your original basis by other amounts claimed on the property, including: Any amortization, Any section 179 deduction, and Any special depreciation allowance. Irs form 1040x For more information, see chapter 4 of Publication 946. Irs form 1040x Please click here for the text description of the image. Irs form 1040x Table 2-2 Tables 2-2a, 2-2b, and 2-2c. Irs form 1040x   The percentages in these tables take into account the half-year and mid-quarter conventions. Irs form 1040x Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. Irs form 1040x Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). Irs form 1040x If you must use the mid-quarter convention, use the column that corresponds to the calendar year quarter in which you placed the property in service. Irs form 1040x Example 1. Irs form 1040x You purchased a stove and refrigerator and placed them in service in June. Irs form 1040x Your basis in the stove is $600 and your basis in the refrigerator is $1,000. Irs form 1040x Both are 5-year property. Irs form 1040x Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. Irs form 1040x For that year your depreciation deduction is $120 ($600 × . Irs form 1040x 20) for the stove and $200 ($1,000 × . Irs form 1040x 20) for the refrigerator. Irs form 1040x For Year 2, the depreciation percentage is 32%. Irs form 1040x That year's depreciation deduction will be $192 ($600 × . Irs form 1040x 32) for the stove and $320 ($1,000 × . Irs form 1040x 32) for the refrigerator. Irs form 1040x Example 2. Irs form 1040x Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. Irs form 1040x Since the refrigerator was placed in service in the last 3 months of the tax year, and its basis ($1,000) is more than 40% of the total basis of all property placed in service during the year ($1,600 × . Irs form 1040x 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. Irs form 1040x Because you placed the refrigerator in service in October, you use the fourth quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 5%. Irs form 1040x Your depreciation deduction for the refrigerator is $50 ($1,000 x . Irs form 1040x 05). Irs form 1040x Because you placed the stove in service in June, you use the second quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 25%. Irs form 1040x For that year, your depreciation deduction for the stove is $150 ($600 x . Irs form 1040x 25). Irs form 1040x Table 2-2d. Irs form 1040x    Use this table when you are using the GDS 27. Irs form 1040x 5 year option for residential rental property. Irs form 1040x Find the row for the month that you placed the property in service. Irs form 1040x Use the percentages listed for that month to figure your depreciation deduction. Irs form 1040x The mid-month convention is taken into account in the percentages shown in the table. Irs form 1040x Continue to use the same row (month) under the column for the appropriate year. Irs form 1040x Example. Irs form 1040x You purchased a single family rental house for $185,000 and placed it in service on February 8. Irs form 1040x The sales contract showed that the building cost $160,000 and the land cost $25,000. Irs form 1040x Your basis for depreciation is its original cost, $160,000. Irs form 1040x This is the first year of service for your residential rental property and you decide to use GDS which has a recovery period of 27. Irs form 1040x 5 years. Irs form 1040x Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. Irs form 1040x 182%. Irs form 1040x That year's depreciation deduction is $5,091 ($160,000 x . Irs form 1040x 03182). Irs form 1040x Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. Irs form 1040x See Appendix B in Publication 946 for other property. Irs form 1040x If your property is not listed in Appendix B, it is considered to have no class life. Irs form 1040x Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. Irs form 1040x Use the mid-month convention for residential rental property and nonresidential real property. Irs form 1040x For all other property, use the half-year or mid-quarter convention, as appropriate. Irs form 1040x See Publication 946 for ADS depreciation tables. Irs form 1040x Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. Irs form 1040x If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Irs form 1040x For more information, see Depreciation under Decreases to Basis in Publication 551. Irs form 1040x If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Irs form 1040x S. Irs form 1040x Individual Income Tax Return. Irs form 1040x If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Irs form 1040x Filing an amended return. Irs form 1040x   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Irs form 1040x You claimed the incorrect amount because of a mathematical error made in any year. Irs form 1040x You claimed the incorrect amount because of a posting error made in any year. Irs form 1040x You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Irs form 1040x You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Irs form 1040x   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return for the property used in your rental activity. Irs form 1040x This also occurs when you use the same impermissible method of determining depreciation (for example, using the wrong MACRS recovery period) in two or more consecutively filed tax returns. Irs form 1040x   If an amended return is allowed, you must file it by the later of the following dates. Irs form 1040x 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Irs form 1040x A return filed before an unextended due date is considered filed on that due date. Irs form 1040x 2 years from the time you paid your tax for that year. Irs form 1040x Changing your accounting method. Irs form 1040x   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Irs form 1040x In some instances, that consent is automatic. Irs form 1040x For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. 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