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Irs Gov File 2009 Taxes

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Irs Gov File 2009 Taxes

Irs gov file 2009 taxes 4. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes Rent-to-own contract. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Irs gov file 2009 taxes Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes This chapter explains how to determine which MACRS depreciation system applies to your property. Irs gov file 2009 taxes It also discusses other information you need to know before you can figure depreciation under MACRS. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Finally, it explains when and how to recapture MACRS depreciation. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Irs gov file 2009 taxes If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. Irs gov file 2009 taxes Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Required use of ADS. Irs gov file 2009 taxes   You must use ADS for the following property. Irs gov file 2009 taxes Listed property used 50% or less in a qualified business use. Irs gov file 2009 taxes See chapter 5 for information on listed property. Irs gov file 2009 taxes Any tangible property used predominantly outside the United States during the year. Irs gov file 2009 taxes Any tax-exempt use property. Irs gov file 2009 taxes Any tax-exempt bond-financed property. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Electing ADS. Irs gov file 2009 taxes   Although your property may qualify for GDS, you can elect to use ADS. Irs gov file 2009 taxes The election generally must cover all property in the same property class that you placed in service during the year. Irs gov file 2009 taxes However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Irs gov file 2009 taxes Once you make this election, you can never revoke it. Irs gov file 2009 taxes   You make the election by completing line 20 in Part III of Form 4562. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes These property classes are also listed under column (a) in section B, Part III, of Form 4562. Irs gov file 2009 taxes For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. Irs gov file 2009 taxes 3-year property. Irs gov file 2009 taxes Tractor units for over-the-road use. Irs gov file 2009 taxes Any race horse over 2 years old when placed in service. Irs gov file 2009 taxes (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. Irs gov file 2009 taxes ) Any other horse (other than a race horse) over 12 years old when placed in service. Irs gov file 2009 taxes Qualified rent-to-own property (defined later). Irs gov file 2009 taxes 5-year property. Irs gov file 2009 taxes Automobiles, taxis, buses, and trucks. Irs gov file 2009 taxes Computers and peripheral equipment. Irs gov file 2009 taxes Office machinery (such as typewriters, calculators, and copiers). Irs gov file 2009 taxes Any property used in research and experimentation. Irs gov file 2009 taxes Breeding cattle and dairy cattle. Irs gov file 2009 taxes Appliances, carpets, furniture, etc. Irs gov file 2009 taxes , used in a residential rental real estate activity. Irs gov file 2009 taxes Certain geothermal, solar, and wind energy property. Irs gov file 2009 taxes 7-year property. Irs gov file 2009 taxes Office furniture and fixtures (such as desks, files, and safes). Irs gov file 2009 taxes Agricultural machinery and equipment. Irs gov file 2009 taxes Any property that does not have a class life and has not been designated by law as being in any other class. Irs gov file 2009 taxes Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. Irs gov file 2009 taxes Any natural gas gathering line placed in service after April 11, 2005. Irs gov file 2009 taxes See Natural gas gathering line and electric transmission property , later. Irs gov file 2009 taxes 10-year property. Irs gov file 2009 taxes Vessels, barges, tugs, and similar water transportation equipment. Irs gov file 2009 taxes Any single purpose agricultural or horticultural structure. Irs gov file 2009 taxes Any tree or vine bearing fruits or nuts. Irs gov file 2009 taxes Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. Irs gov file 2009 taxes 15-year property. Irs gov file 2009 taxes Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). Irs gov file 2009 taxes Any retail motor fuels outlet (defined later), such as a convenience store. Irs gov file 2009 taxes Any municipal wastewater treatment plant. Irs gov file 2009 taxes Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. Irs gov file 2009 taxes Any qualified restaurant property (defined later) placed in service before January 1, 2014. Irs gov file 2009 taxes Initial clearing and grading land improvements for gas utility property. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes See Natural gas gathering line and electric transmission property , later. Irs gov file 2009 taxes Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. Irs gov file 2009 taxes Any qualified retail improvement property placed in service before January 1, 2014. Irs gov file 2009 taxes 20-year property. Irs gov file 2009 taxes Farm buildings (other than single purpose agricultural or horticultural structures). Irs gov file 2009 taxes Municipal sewers not classified as 25-year property. Irs gov file 2009 taxes Initial clearing and grading land improvements for electric utility transmission and distribution plants. Irs gov file 2009 taxes 25-year property. Irs gov file 2009 taxes This class is water utility property, which is either of the following. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. Irs gov file 2009 taxes Residential rental property. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Nonresidential real property. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 5 years. Irs gov file 2009 taxes Qualified rent-to-own property. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes It is tangible personal property generally used in the home for personal use. Irs gov file 2009 taxes It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. Irs gov file 2009 taxes Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Rent-to-own dealer. Irs gov file 2009 taxes   You are a rent-to-own dealer if you meet all the following requirements. Irs gov file 2009 taxes You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. Irs gov file 2009 taxes A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. Irs gov file 2009 taxes The property is tangible personal property of a type generally used within the home for personal use. Irs gov file 2009 taxes Rent-to-own contract. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes 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). Irs gov file 2009 taxes Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. Irs gov file 2009 taxes If the payments are decreasing, no payment can be less than 40% of the largest payment. Irs gov file 2009 taxes Provides for total payments that generally exceed the normal retail price of the property plus interest. Irs gov file 2009 taxes Provides for total payments that do not exceed $10,000 for each item of property. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Motorsports entertainment complex. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes The events must be open to the public for the price of admission. Irs gov file 2009 taxes Qualified smart electric grid system. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Retail motor fuels outlet. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes It is not larger than 1,400 square feet. Irs gov file 2009 taxes 50% or more of the gross revenues generated from the property are derived from petroleum sales. Irs gov file 2009 taxes 50% or more of the floor space in the property is devoted to petroleum marketing sales. Irs gov file 2009 taxes A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. Irs gov file 2009 taxes Qualified leasehold improvement property. Irs gov file 2009 taxes    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. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Examples include the following. Irs gov file 2009 taxes A complete liquidation of a subsidiary. Irs gov file 2009 taxes A transfer to a corporation controlled by the transferor. Irs gov file 2009 taxes An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Irs gov file 2009 taxes Qualified restaurant property. Irs gov file 2009 taxes   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Qualified smart electric meter. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Natural gas gathering line and electric transmission property. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes The original use of the property must have begun with you after April 11, 2005. Irs gov file 2009 taxes Original use means the first use to which the property is put, whether or not by you. Irs gov file 2009 taxes Therefore, property used by any person before April 12, 2005, is not original use. Irs gov file 2009 taxes Original use includes additional capital expenditures you incurred to recondition or rebuild your property. Irs gov file 2009 taxes However, original use does not include the cost of reconditioned or rebuilt property you acquired. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes The property must not be placed in service under a binding contract in effect before April 12, 2005. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes The placed in service date for your property is the date the property is ready and available for a specific use. Irs gov file 2009 taxes It is therefore not necessarily the date it is first used. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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 . Irs gov file 2009 taxes Reduce that amount by any credits and deductions allocable to the property. Irs gov file 2009 taxes The following are examples of some credits and deductions that reduce basis. Irs gov file 2009 taxes Any deduction for section 179 property. Irs gov file 2009 taxes Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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 . Irs gov file 2009 taxes Any deduction for removal of barriers to the disabled and the elderly. Irs gov file 2009 taxes Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Irs gov file 2009 taxes Any special depreciation allowance. Irs gov file 2009 taxes Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Irs gov file 2009 taxes For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Irs gov file 2009 taxes Enter the basis for depreciation under column (c) in Part III of Form 4562. Irs gov file 2009 taxes 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 . Irs gov file 2009 taxes Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Irs gov file 2009 taxes It is determined based on the depreciation system (GDS or ADS) used. Irs gov file 2009 taxes Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. Irs gov file 2009 taxes 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. Irs gov file 2009 taxes 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. Irs gov file 2009 taxes 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. Irs gov file 2009 taxes 431. Irs gov file 2009 taxes 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). Irs gov file 2009 taxes The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. Irs gov file 2009 taxes Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. Irs gov file 2009 taxes 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). Irs gov file 2009 taxes Office in the home. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes 5 years if you began using it for business before May 13, 1993). Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 5 years. Irs gov file 2009 taxes See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. Irs gov file 2009 taxes Home changed to rental use. Irs gov file 2009 taxes   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. Irs gov file 2009 taxes 5 years. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes The following table shows these shorter recovery periods. Irs gov file 2009 taxes 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 . Irs gov file 2009 taxes Use this chart to find the correct percentage table to use for qualified Indian reservation property. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. Irs gov file 2009 taxes You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes   The following property is not qualified property. Irs gov file 2009 taxes Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. Irs gov file 2009 taxes Property acquired directly or indirectly from a related person. Irs gov file 2009 taxes Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. Irs gov file 2009 taxes These activities are defined in section 4 of the Indian Regulatory Act (25 U. Irs gov file 2009 taxes S. Irs gov file 2009 taxes C. Irs gov file 2009 taxes 2703). Irs gov file 2009 taxes Any property you must depreciate under ADS. Irs gov file 2009 taxes 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). Irs gov file 2009 taxes Qualified infrastructure property. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes Qualified infrastructure property is property that meets all the following rules. Irs gov file 2009 taxes It is qualified property, as defined earlier, except that it is outside the reservation. Irs gov file 2009 taxes It benefits the tribal infrastructure. Irs gov file 2009 taxes It is available to the general public. Irs gov file 2009 taxes It is placed in service in connection with the active conduct of a trade or business within a reservation. Irs gov file 2009 taxes Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. Irs gov file 2009 taxes Related person. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes Indian reservation. Irs gov file 2009 taxes   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. Irs gov file 2009 taxes S. Irs gov file 2009 taxes C. Irs gov file 2009 taxes 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. Irs gov file 2009 taxes S. Irs gov file 2009 taxes C. Irs gov file 2009 taxes 1903(10)). Irs gov file 2009 taxes Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. Irs gov file 2009 taxes For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. Irs gov file 2009 taxes Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. Irs gov file 2009 taxes The following table shows some of the ADS recovery periods. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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 . Irs gov file 2009 taxes Tax-exempt use property subject to a lease. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. Irs gov file 2009 taxes See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes The recovery period begins on the later of the following dates. Irs gov file 2009 taxes The date you place the addition or improvement in service. Irs gov file 2009 taxes The date you place in service the property to which you made the addition or improvement. Irs gov file 2009 taxes 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). Irs gov file 2009 taxes Example. Irs gov file 2009 taxes You own a rental home that you have been renting out since 1981. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Under GDS, the property class for the addition is residential rental property and its recovery period is 27. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Irs gov file 2009 taxes 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 gov file 2009 taxes The mid-month convention. Irs gov file 2009 taxes   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. Irs gov file 2009 taxes   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. Irs gov file 2009 taxes The mid-quarter convention. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. Irs gov file 2009 taxes   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. Irs gov file 2009 taxes    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. Irs gov file 2009 taxes However, it does not reflect any reduction in basis for any special depreciation allowance. Irs gov file 2009 taxes The half-year convention. Irs gov file 2009 taxes   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. Irs gov file 2009 taxes   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. Irs gov file 2009 taxes Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Irs gov file 2009 taxes The 200% declining balance method over a GDS recovery period. Irs gov file 2009 taxes The 150% declining balance method over a GDS recovery period. Irs gov file 2009 taxes The straight line method over a GDS recovery period. Irs gov file 2009 taxes The straight line method over an ADS recovery period. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes If you made this election, continue to use the same method and recovery period for that property. Irs gov file 2009 taxes Table 4–1 lists the types of property you can depreciate under each method. Irs gov file 2009 taxes It also gives a brief explanation of the method, including any benefits that may apply. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes You can depreciate real property using the straight line method under either GDS or ADS. Irs gov file 2009 taxes Fruit or nut trees and vines. Irs gov file 2009 taxes   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. Irs gov file 2009 taxes ADS required for some farmers. Irs gov file 2009 taxes   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. Irs gov file 2009 taxes You must use ADS for all property you place in service in any year the election is in effect. Irs gov file 2009 taxes See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. Irs gov file 2009 taxes Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. Irs gov file 2009 taxes You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Irs gov file 2009 taxes 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). Irs gov file 2009 taxes Attach the election to the amended return and write “Filed pursuant to section 301. Irs gov file 2009 taxes 9100-2” on the election statement. Irs gov file 2009 taxes File the amended return at the same address you filed the original return. Irs gov file 2009 taxes Once you make the election, you cannot change it. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. Irs gov file 2009 taxes 150% election. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes Make the election by entering “150 DB” under column (f) in Part III of Form 4562. Irs gov file 2009 taxes Straight line election. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes Make the election by entering  “S/L” under column (f) in Part III of Form 4562. Irs gov file 2009 taxes Election of ADS. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes ADS uses the straight line method of depreciation over fixed ADS recovery periods. Irs gov file 2009 taxes Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. Irs gov file 2009 taxes   Make the election by completing line 20 in Part III of Form 4562. Irs gov file 2009 taxes Farm property. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes The straight line method over a GDS recovery period. Irs gov file 2009 taxes The straight line method over an ADS recovery period. Irs gov file 2009 taxes Table 4-1. Irs gov file 2009 taxes Depreciation Methods Note. Irs gov file 2009 taxes The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes S. Irs gov file 2009 taxes  • 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Then, you are ready to figure your depreciation deduction. Irs gov file 2009 taxes You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes These percentage tables are in Appendix A near the end of this publication. Irs gov file 2009 taxes Which table to use. Irs gov file 2009 taxes    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. Irs gov file 2009 taxes The percentage tables immediately follow the guide. Irs gov file 2009 taxes Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. Irs gov file 2009 taxes You must apply the rates in the percentage tables to your property's unadjusted basis. Irs gov file 2009 taxes You cannot use the percentage tables for a short tax year. Irs gov file 2009 taxes See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes See Figuring the Deduction Without Using the Tables, later. Irs gov file 2009 taxes Basis adjustment due to casualty loss. Irs gov file 2009 taxes   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes See Figuring the Deduction Without Using the Tables, later. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes It cost $39,000 and she elected a section 179 deduction of $24,000. Irs gov file 2009 taxes She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. Irs gov file 2009 taxes Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). Irs gov file 2009 taxes She figured her MACRS depreciation deduction using the percentage tables. Irs gov file 2009 taxes For 2012, her MACRS depreciation deduction was $268. Irs gov file 2009 taxes In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. Irs gov file 2009 taxes She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. Irs gov file 2009 taxes Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes She must now figure her depreciation for 2013 without using the percentage tables. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes However, you do reduce your original basis by other amounts, including the following. Irs gov file 2009 taxes Any amortization taken on the property. Irs gov file 2009 taxes Any section 179 deduction claimed. Irs gov file 2009 taxes Any special depreciation allowance taken on the property. Irs gov file 2009 taxes For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Irs gov file 2009 taxes Use a separate worksheet for each item of property. Irs gov file 2009 taxes Then, use the information from this worksheet to prepare Form 4562. Irs gov file 2009 taxes Do not use this worksheet for automobiles. Irs gov file 2009 taxes Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. Irs gov file 2009 taxes MACRS Worksheet Part I   1. Irs gov file 2009 taxes MACRS system (GDS or ADS)   2. Irs gov file 2009 taxes Property class   3. Irs gov file 2009 taxes Date placed in service   4. Irs gov file 2009 taxes Recovery period   5. Irs gov file 2009 taxes Method and convention   6. Irs gov file 2009 taxes Depreciation rate (from tables)   Part II   7. Irs gov file 2009 taxes Cost or other basis* $     8. Irs gov file 2009 taxes Business/investment use   %   9. Irs gov file 2009 taxes Multiply line 7 by line 8   $ 10. Irs gov file 2009 taxes Total claimed for section 179 deduction and other items   $ 11. Irs gov file 2009 taxes Subtract line 10 from line 9. Irs gov file 2009 taxes This is your tentative basis for depreciation   $ 12. Irs gov file 2009 taxes Multiply line 11 by . Irs gov file 2009 taxes 50 if the 50% special depreciation allowance applies. Irs gov file 2009 taxes This is your special depreciation allowance. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Subtract line 12 from line 11. Irs gov file 2009 taxes This is your basis for depreciation     14. Irs gov file 2009 taxes Depreciation rate (from line 6)     15. Irs gov file 2009 taxes Multiply line 13 by line 14. Irs gov file 2009 taxes This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. Irs gov file 2009 taxes The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. Irs gov file 2009 taxes You use the furniture only for business. Irs gov file 2009 taxes This is the only property you placed in service this year. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes You use GDS and the half-year convention to figure your depreciation. Irs gov file 2009 taxes You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. Irs gov file 2009 taxes Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. Irs gov file 2009 taxes You figure your depreciation deduction using the MACRS worksheet as follows. Irs gov file 2009 taxes MACRS Worksheet Part I 1. Irs gov file 2009 taxes MACRS system (GDS or ADS) GDS 2. Irs gov file 2009 taxes Property class 7-year 3. Irs gov file 2009 taxes Date placed in service 8/11/13 4. Irs gov file 2009 taxes Recovery period 7-Year 5. Irs gov file 2009 taxes Method and convention 200%DB/Half-Year 6. Irs gov file 2009 taxes Depreciation rate (from tables) . Irs gov file 2009 taxes 1429 Part II 7. Irs gov file 2009 taxes Cost or other basis* $10,000     8. Irs gov file 2009 taxes Business/investment use 100 %   9. Irs gov file 2009 taxes Multiply line 7 by line 8   $10,000 10. Irs gov file 2009 taxes Total claimed for section 179 deduction and other items   -0- 11. Irs gov file 2009 taxes Subtract line 10 from line 9. Irs gov file 2009 taxes This is your tentative basis for depreciation   $10,000 12. Irs gov file 2009 taxes Multiply line 11 by . Irs gov file 2009 taxes 50 if the 50% special depreciation allowance applies. Irs gov file 2009 taxes This is your special depreciation allowance. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Subtract line 12 from line 11. Irs gov file 2009 taxes This is your basis for depreciation   $10,000 14. Irs gov file 2009 taxes Depreciation rate (from line 6)   . Irs gov file 2009 taxes 1429 15. Irs gov file 2009 taxes Multiply line 13 by line 14. Irs gov file 2009 taxes This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Year   Basis Percentage Deduction 2014 $ 10,000 24. Irs gov file 2009 taxes 49%   $2,449   2015   10,000 17. Irs gov file 2009 taxes 49   1,749   2016   10,000 12. Irs gov file 2009 taxes 49   1,249   2017   10,000 8. Irs gov file 2009 taxes 93   893   2018   10,000 8. Irs gov file 2009 taxes 92   892   2019   10,000 8. Irs gov file 2009 taxes 93   893   2020   10,000 4. Irs gov file 2009 taxes 46   446   Examples The following examples are provided to show you how to use the percentage tables. Irs gov file 2009 taxes In both examples, assume the following. Irs gov file 2009 taxes You use the property only for business. Irs gov file 2009 taxes You use the calendar year as your tax year. Irs gov file 2009 taxes You use GDS for all the properties. Irs gov file 2009 taxes Example 1. Irs gov file 2009 taxes You bought a building and land for $120,000 and placed it in service on March 8. Irs gov file 2009 taxes The sales contract showed that the building cost $100,000 and the land cost $20,000. Irs gov file 2009 taxes It is nonresidential real property. Irs gov file 2009 taxes The building's unadjusted basis is its original cost, $100,000. Irs gov file 2009 taxes You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. Irs gov file 2009 taxes 033%   $2,033   2nd   100,000 2. Irs gov file 2009 taxes 564   2,564   3rd   100,000 2. Irs gov file 2009 taxes 564   2,564   Example 2. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes You placed the machine in service in January, the furniture in September, and the computer in October. Irs gov file 2009 taxes You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes The total bases of all property you placed in service during the year is $10,000. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Therefore, you must use the mid-quarter convention for all three items. Irs gov file 2009 taxes You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. Irs gov file 2009 taxes The machine is 7-year property placed in service in the first quarter, so you use Table A-2. Irs gov file 2009 taxes The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. Irs gov file 2009 taxes Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. Irs gov file 2009 taxes Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. Irs gov file 2009 taxes Year Property Basis Percentage Deduction 1st Machine $4,000 25. Irs gov file 2009 taxes 00 $1,000   2nd Machine 4,000 21. Irs gov file 2009 taxes 43 857   1st Furniture 1,000 10. Irs gov file 2009 taxes 71 107   2nd Furniture 1,000 25. Irs gov file 2009 taxes 51 255   1st Computer 5,000 5. Irs gov file 2009 taxes 00 250   2nd Computer 5,000 38. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. Irs gov file 2009 taxes Half-year convention used. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes Mid-quarter convention used. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes Quarter Percentage First 12. Irs gov file 2009 taxes 5% Second 37. Irs gov file 2009 taxes 5 Third 62. Irs gov file 2009 taxes 5 Fourth 87. Irs gov file 2009 taxes 5 Example. Irs gov file 2009 taxes On December 2, 2010, you placed in service an item of 5-year property costing $10,000. Irs gov file 2009 taxes You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Irs gov file 2009 taxes Your unadjusted basis for the property was $10,000. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. Irs gov file 2009 taxes Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. Irs gov file 2009 taxes 80% of $10,000). Irs gov file 2009 taxes You disposed of the property on April 6, 2013. Irs gov file 2009 taxes To determine your depreciation deduction for 2013, first figure the deduction for the full year. Irs gov file 2009 taxes This is $1,368 (13. Irs gov file 2009 taxes 68% of $10,000). Irs gov file 2009 taxes April is in the second quarter of the year, so you multiply $1,368 by 37. Irs gov file 2009 taxes 5% to get your depreciation deduction of $513 for 2013. Irs gov file 2009 taxes Mid-month convention used. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. Irs gov file 2009 taxes The denominator is 12. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes On July 2, 2011, you purchased and placed in service residential rental property. Irs gov file 2009 taxes The property cost $100,000, not including the cost of land. Irs gov file 2009 taxes You used Table A-6 to figure your MACRS depreciation for this property. Irs gov file 2009 taxes You sold the property on March 2, 2013. Irs gov file 2009 taxes You file your tax return based on the calendar year. Irs gov file 2009 taxes A full year of depreciation for 2013 is $3,636. Irs gov file 2009 taxes This is $100,000 multiplied by . Irs gov file 2009 taxes 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . Irs gov file 2009 taxes You then apply the mid-month convention for the 2½ months of use in 2013. Irs gov file 2009 taxes Treat the month of disposition as one-half month of use. Irs gov file 2009 taxes Multiply $3,636 by the fraction, 2. Irs gov file 2009 taxes 5 over 12, to get your 2013 depreciation deduction of $757. Irs gov file 2009 taxes 50. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. Irs gov file 2009 taxes Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. Irs gov file 2009 taxes Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes The straight line method is explained later. Irs gov file 2009 taxes You figure depreciation for the year you place property in service as follows. Irs gov file 2009 taxes Multiply your adjusted basis in the property by the declining balance rate. Irs gov file 2009 taxes Apply the applicable convention. Irs gov file 2009 taxes You figure depreciation for all other years (before the year you switch to the straight line method) as follows. Irs gov file 2009 taxes Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. Irs gov file 2009 taxes Multiply this new adjusted basis by the same declining balance rate used in earlier years. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. Irs gov file 2009 taxes Declining balance rate. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes For example, for 3-year property depreciated using the 200% declining balance method, divide 2. Irs gov file 2009 taxes 00 (200%) by 3 to get 0. Irs gov file 2009 taxes 6667, or a 66. Irs gov file 2009 taxes 67% declining balance rate. Irs gov file 2009 taxes For 15-year property depreciated using the 150% declining balance method, divide 1. Irs gov file 2009 taxes 50 (150%) by 15 to get 0. Irs gov file 2009 taxes 10, or a 10% declining balance rate. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes Property Class Method Declining Balance Rate Year 3-year 200% DB 66. Irs gov file 2009 taxes 667% 3rd 5-year 200% DB 40. Irs gov file 2009 taxes 0 4th 7-year 200% DB 28. Irs gov file 2009 taxes 571 5th 10-year 200% DB 20. Irs gov file 2009 taxes 0 7th 15-year 150% DB 10. Irs gov file 2009 taxes 0 7th 20-year 150% DB 7. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes You must use the applicable convention in the year you place the property in service and the year you dispose of the property. Irs gov file 2009 taxes You figure depreciation for the year you place property in service as follows. Irs gov file 2009 taxes Multiply your adjusted basis in the property by the straight line rate. Irs gov file 2009 taxes Apply the applicable convention. Irs gov file 2009 taxes You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. Irs gov file 2009 taxes Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). Irs gov file 2009 taxes Determine the depreciation rate for the year. Irs gov file 2009 taxes Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Straight line rate. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. Irs gov file 2009 taxes If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. Irs gov file 2009 taxes 0 (100%). Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes See Straight line rate in the previous discussion. Irs gov file 2009 taxes Use the applicable convention as explained in the following discussions. Irs gov file 2009 taxes Half-year convention. Irs gov file 2009 taxes   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 gov file 2009 taxes You deduct a full year of depreciation for any other year during the recovery period. Irs gov file 2009 taxes   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Mid-quarter convention. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes   A quarter of a full 12-month tax year is a period of 3 months. Irs gov file 2009 taxes The first quarter in a year begins on the first day of the tax year. Irs gov file 2009 taxes The second quarter begins on the first day of the fourth month of the tax year. Irs gov file 2009 taxes The third quarter begins on the first day of the seventh month of the tax year. Irs gov file 2009 taxes The fourth quarter begins on the first day of the tenth month of the tax year. Irs gov file 2009 taxes A calendar year is divided into the following quarters. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Quarter Percentage First 87. Irs gov file 2009 taxes 5% Second 62. Irs gov file 2009 taxes 5 Third 37. Irs gov file 2009 taxes 5 Fourth 12. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Quarter Percentage First 12. Irs gov file 2009 taxes 5% Second 37. Irs gov file 2009 taxes 5 Third 62. Irs gov file 2009 taxes 5 Fourth 87. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Mid-month convention. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. Irs gov file 2009 taxes The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. Irs gov file 2009 taxes 5). Irs gov file 2009 taxes The denominator is 12. Irs gov file 2009 taxes   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. Irs gov file 2009 taxes 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. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes You use the calendar year and place nonresidential real property in service in August. Irs gov file 2009 taxes The property is in service 4 full months (September, October, November, and December). Irs gov file 2009 taxes Your numerator is 4. Irs gov file 2009 taxes 5 (4 full months plus 0. Irs gov file 2009 taxes 5). Irs gov file 2009 taxes You multiply the depreciation for a full year by 4. Irs gov file 2009 taxes 5/12, or 0. Irs gov file 2009 taxes 375. Irs gov file 2009 taxes Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. Irs gov file 2009 taxes Figures are rounded for purposes of the examples. Irs gov file 2009 taxes Assume for all the examples that you use a calendar year as your tax year. Irs gov file 2009 taxes Example 1—200% DB method and half-year convention. Irs gov file 2009 taxes In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. Irs gov file 2009 taxes You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. Irs gov file 2009 taxes You use GDS and the 200% declining balance (DB) method to figure your depreciation. Irs gov file 2009 taxes When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. Irs gov file 2009 taxes You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. Irs gov file 2009 taxes First year. Irs gov file 2009 taxes You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). Irs gov file 2009 taxes The result is 40%. Irs gov file 2009 taxes You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. Irs gov file 2009 taxes You apply the half-year convention by dividing the result ($400) by 2. Irs gov file 2009 taxes Depreciation for the first year under the 200% DB method is $200. Irs gov file 2009 taxes You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. Irs gov file 2009 taxes The result is 20%. Irs gov file 2009 taxes You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. Irs gov file 2009 taxes You apply the half-year convention by dividing the result ($200) by 2. Irs gov file 2009 taxes Depreciation for the first year under the SL method is $100. Irs gov file 2009 taxes The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. Irs gov file 2009 taxes Second year. Irs gov file 2009 taxes You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). Irs gov file 2009 taxes You multiply the result ($800) by the DB rate (40%). Irs gov file 2009 taxes Depreciation for the second year under the 200% DB method is $320. Irs gov file 2009 taxes You figure the SL depreciation rate by dividing 1 by 4. Irs gov file 2009 taxes 5, the number of years remaining in the recovery period. Irs gov file 2009 taxes (Based on the half-year convention, you used only half a year of the recovery period in the first year. Irs gov file 2009 taxes ) You multiply the reduced adjusted basis ($800) by the result (22. Irs gov file 2009 taxes 22%). Irs gov file 2009 taxes Depreciation under the SL method for the second year is $178. Irs gov file 2009 taxes The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. Irs gov file 2009 taxes Third year. Irs gov file 2009 taxes You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). Irs gov file 2009 taxes You multiply the result ($480) by the DB rate (40%). Irs gov file 2009 taxes Depreciation for the third year under the 200% DB method is $192. Irs gov file 2009 taxes You figure the SL depreciation rate by dividing 1 by 3. Irs gov file 2009 taxes 5. Irs gov file 2009 taxes You multiply the reduced adjusted basis ($480) by the result (28. Irs gov file 2009 taxes 57%). Irs gov file 2009 taxes Depreciation under the SL method for the third year is $137. Irs gov file 2009 taxes The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. Irs gov file 2009 taxes Fourth year. Irs gov file 2009 taxes You reduce the adjusted basis ($480) by the de
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The Irs Gov File 2009 Taxes

Irs gov file 2009 taxes 6. Irs gov file 2009 taxes   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. Irs gov file 2009 taxes Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. Irs gov file 2009 taxes Also use basis to figure depreciation, amortization, depletion, and casualty losses. Irs gov file 2009 taxes If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Irs gov file 2009 taxes Only the basis allocated to the business or investment use of the property can be depreciated. Irs gov file 2009 taxes Your original basis in property is adjusted (increased or decreased) by certain events. Irs gov file 2009 taxes For example, if you make improvements to the property, increase your basis. Irs gov file 2009 taxes If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. Irs gov file 2009 taxes Keep accurate records of all items that affect the basis of your assets. Irs gov file 2009 taxes For information on keeping records, see chapter 1. Irs gov file 2009 taxes Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. Irs gov file 2009 taxes Cost Basis The basis of property you buy is usually its cost. Irs gov file 2009 taxes Cost is the amount you pay in cash, debt obligations, other property, or services. Irs gov file 2009 taxes Your cost includes amounts you pay for sales tax, freight, installation, and testing. Irs gov file 2009 taxes The basis of real estate and business assets will include other items, discussed later. Irs gov file 2009 taxes Basis generally does not include interest payments. Irs gov file 2009 taxes However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. Irs gov file 2009 taxes You also may have to capitalize (add to basis) certain other costs related to buying or producing property. Irs gov file 2009 taxes Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. Irs gov file 2009 taxes Loans with low or no interest. Irs gov file 2009 taxes   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus the amount considered to be unstated interest. Irs gov file 2009 taxes You generally have unstated interest if your interest rate is less than the applicable federal rate. Irs gov file 2009 taxes See the discussion of unstated interest in Publication 537, Installment Sales. Irs gov file 2009 taxes Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Irs gov file 2009 taxes If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Irs gov file 2009 taxes Some of these expenses are discussed next. Irs gov file 2009 taxes Lump sum purchase. Irs gov file 2009 taxes   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. Irs gov file 2009 taxes Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. Irs gov file 2009 taxes Figure the basis of each asset by multiplying the lump sum by a fraction. Irs gov file 2009 taxes The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Irs gov file 2009 taxes Fair market value (FMV). Irs gov file 2009 taxes   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Irs gov file 2009 taxes Sales of similar property on or about the same date may help in figuring the FMV of the property. Irs gov file 2009 taxes If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. Irs gov file 2009 taxes Real estate taxes. Irs gov file 2009 taxes   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Irs gov file 2009 taxes   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. Irs gov file 2009 taxes Whether or not you reimburse the seller, do not include that amount in the basis of your property. Irs gov file 2009 taxes Settlement costs. Irs gov file 2009 taxes   Your basis includes the settlement fees and closing costs for buying the property. Irs gov file 2009 taxes See Publication 551 for a detailed list of items you can and cannot include in basis. Irs gov file 2009 taxes   Do not include fees and costs for getting a loan on the property. Irs gov file 2009 taxes Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Irs gov file 2009 taxes Points. Irs gov file 2009 taxes   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. Irs gov file 2009 taxes You may be able to deduct the points currently or over the term of the loan. Irs gov file 2009 taxes For more information about deducting points, see Points in chapter 4 of Publication 535. Irs gov file 2009 taxes Assumption of a mortgage. Irs gov file 2009 taxes   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. Irs gov file 2009 taxes Constructing assets. Irs gov file 2009 taxes   If you build property or have assets built for you, your expenses for this construction are part of your basis. Irs gov file 2009 taxes Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Irs gov file 2009 taxes   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. Irs gov file 2009 taxes You must capitalize them (include them in the asset's basis). Irs gov file 2009 taxes Employee wages paid for the construction work, reduced by any employment credits allowed. Irs gov file 2009 taxes Depreciation on equipment you own while it is used in the construction. Irs gov file 2009 taxes Operating and maintenance costs for equipment used in the construction. Irs gov file 2009 taxes The cost of business supplies and materials used in the construction. Irs gov file 2009 taxes    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. Irs gov file 2009 taxes Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. Irs gov file 2009 taxes To determine the basis of these assets or separate items, there must be an allocation of basis. Irs gov file 2009 taxes Group of assets acquired. Irs gov file 2009 taxes   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. Irs gov file 2009 taxes Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Irs gov file 2009 taxes You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. Irs gov file 2009 taxes If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. Irs gov file 2009 taxes Farming business acquired. Irs gov file 2009 taxes   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. Irs gov file 2009 taxes Generally, reduce the purchase price by any cash received. Irs gov file 2009 taxes Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. Irs gov file 2009 taxes See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. Irs gov file 2009 taxes Transplanted embryo. Irs gov file 2009 taxes   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. Irs gov file 2009 taxes Allocate the rest of the purchase price to the basis of the calf. Irs gov file 2009 taxes Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. Irs gov file 2009 taxes Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. Irs gov file 2009 taxes You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Irs gov file 2009 taxes Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. Irs gov file 2009 taxes However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. Irs gov file 2009 taxes You produce property if you construct, build, install, manufacture, develop, improve, or create the property. Irs gov file 2009 taxes You are not subject to the uniform capitalization rules if the property is produced for personal use. Irs gov file 2009 taxes In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. Irs gov file 2009 taxes Plants. Irs gov file 2009 taxes   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. Irs gov file 2009 taxes Animals. Irs gov file 2009 taxes   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. Irs gov file 2009 taxes The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. Irs gov file 2009 taxes Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. Irs gov file 2009 taxes For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. Irs gov file 2009 taxes For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. Irs gov file 2009 taxes Exceptions. Irs gov file 2009 taxes   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. Irs gov file 2009 taxes   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. Irs gov file 2009 taxes See Accrual Method Required under Accounting Methods in chapter 2. Irs gov file 2009 taxes   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. Irs gov file 2009 taxes If you make this election, special rules apply. Irs gov file 2009 taxes This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. Irs gov file 2009 taxes This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. Irs gov file 2009 taxes    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. Irs gov file 2009 taxes See chapter 7, for additional information on depreciation. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes You grow trees that have a preproductive period of more than 2 years. Irs gov file 2009 taxes The trees produce an annual crop. Irs gov file 2009 taxes You are an individual and the uniform capitalization rules apply to your farming business. Irs gov file 2009 taxes You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. Irs gov file 2009 taxes You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. Irs gov file 2009 taxes Preproductive period of more than 2 years. Irs gov file 2009 taxes   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. Irs gov file 2009 taxes Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. Irs gov file 2009 taxes Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. Irs gov file 2009 taxes More information. Irs gov file 2009 taxes   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. Irs gov file 2009 taxes 263A-4. Irs gov file 2009 taxes Table 6-1. Irs gov file 2009 taxes Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. Irs gov file 2009 taxes Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. Irs gov file 2009 taxes The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. Irs gov file 2009 taxes Increases to Basis Increase the basis of any property by all items properly added to a capital account. Irs gov file 2009 taxes These include the cost of any improvements having a useful life of more than 1 year. Irs gov file 2009 taxes The following costs increase the basis of property. Irs gov file 2009 taxes The cost of extending utility service lines to property. Irs gov file 2009 taxes Legal fees, such as the cost of defending and perfecting title. Irs gov file 2009 taxes Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. Irs gov file 2009 taxes Assessments for items such as paving roads and building ditches that increase the value of the property assessed. Irs gov file 2009 taxes Do not deduct these expenses as taxes. Irs gov file 2009 taxes However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. Irs gov file 2009 taxes If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules 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. Irs gov file 2009 taxes See chapter 7. Irs gov file 2009 taxes Deducting vs. Irs gov file 2009 taxes capitalizing costs. Irs gov file 2009 taxes   Do not add to your basis costs you can deduct as current expenses. Irs gov file 2009 taxes For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. Irs gov file 2009 taxes However, you can elect either to deduct or to capitalize certain other costs. Irs gov file 2009 taxes See chapter 7 in Publication 535. Irs gov file 2009 taxes Decreases to Basis The following are some items that reduce the basis of property. Irs gov file 2009 taxes Section 179 deduction. Irs gov file 2009 taxes Deductions previously allowed or allowable for amortization, depreciation, and depletion. Irs gov file 2009 taxes Alternative motor vehicle credit. Irs gov file 2009 taxes See Form 8910. Irs gov file 2009 taxes Alternative fuel vehicle refueling property credit. Irs gov file 2009 taxes See Form 8911. Irs gov file 2009 taxes Residential energy efficient property credits. Irs gov file 2009 taxes See Form 5695. Irs gov file 2009 taxes Investment credit (part or all) taken. Irs gov file 2009 taxes Casualty and theft losses and insurance reimbursements. Irs gov file 2009 taxes Payments you receive for granting an easement. Irs gov file 2009 taxes Exclusion from income of subsidies for energy conservation measures. Irs gov file 2009 taxes Certain canceled debt excluded from income. Irs gov file 2009 taxes Rebates from a manufacturer or seller. Irs gov file 2009 taxes Patronage dividends received from a cooperative association as a result of a purchase of property. Irs gov file 2009 taxes See Patronage Dividends in chapter 3. Irs gov file 2009 taxes Gas-guzzler tax. Irs gov file 2009 taxes See Form 6197. Irs gov file 2009 taxes Some of these items are discussed next. Irs gov file 2009 taxes For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. Irs gov file 2009 taxes Depreciation and section 179 deduction. Irs gov file 2009 taxes   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. Irs gov file 2009 taxes For more information on these deductions, see chapter 7. Irs gov file 2009 taxes Section 179 deduction. Irs gov file 2009 taxes   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Irs gov file 2009 taxes Depreciation. Irs gov file 2009 taxes   Decrease the basis of property by the depreciation you deducted or could have deducted on your tax returns under the method of depreciation you chose. Irs gov file 2009 taxes If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. Irs gov file 2009 taxes If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Irs gov file 2009 taxes   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. Irs gov file 2009 taxes   See chapter 7 for information on figuring the depreciation you should have claimed. Irs gov file 2009 taxes   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. Irs gov file 2009 taxes Casualty and theft losses. Irs gov file 2009 taxes   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. Irs gov file 2009 taxes Also, decrease it by any deductible loss not covered by insurance. Irs gov file 2009 taxes See chapter 11 for information about figuring your casualty or theft loss. Irs gov file 2009 taxes   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. Irs gov file 2009 taxes To make this determination, compare the repaired property to the property before the casualty. Irs gov file 2009 taxes Easements. Irs gov file 2009 taxes   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. Irs gov file 2009 taxes It reduces the basis of the affected part of the property. Irs gov file 2009 taxes If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Irs gov file 2009 taxes See Easements and rights-of-way in chapter 3. Irs gov file 2009 taxes Exclusion from income of subsidies for energy conservation measures. Irs gov file 2009 taxes   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Irs gov file 2009 taxes Reduce the basis of the property by the excluded amount. Irs gov file 2009 taxes Canceled debt excluded from income. Irs gov file 2009 taxes   If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. Irs gov file 2009 taxes A debt includes any indebtedness for which you are liable or which attaches to property you hold. Irs gov file 2009 taxes   You can exclude your canceled debt from income if the debt is any of the following. Irs gov file 2009 taxes Debt canceled in a bankruptcy case or when you are insolvent. Irs gov file 2009 taxes Qualified farm debt. Irs gov file 2009 taxes Qualified real property business debt (provided you are not a C corporation). Irs gov file 2009 taxes Qualified principal residence indebtedness. Irs gov file 2009 taxes Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. Irs gov file 2009 taxes If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Irs gov file 2009 taxes If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. Irs gov file 2009 taxes   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. Irs gov file 2009 taxes For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. Irs gov file 2009 taxes For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. Irs gov file 2009 taxes For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Irs gov file 2009 taxes Basis Other Than Cost There are times when you cannot use cost as basis. Irs gov file 2009 taxes In these situations, the fair market value or the adjusted basis of property may be used. Irs gov file 2009 taxes Examples are discussed next. Irs gov file 2009 taxes Property changed from personal to business or rental use. Irs gov file 2009 taxes   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. Irs gov file 2009 taxes An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. Irs gov file 2009 taxes   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Irs gov file 2009 taxes   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. Irs gov file 2009 taxes The basis for figuring a gain is your adjusted basis in the property when you sell the property. Irs gov file 2009 taxes Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Irs gov file 2009 taxes Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Irs gov file 2009 taxes Property received for services. Irs gov file 2009 taxes   If you receive property for services, include the property's FMV in income. Irs gov file 2009 taxes The amount you include in income becomes your basis. Irs gov file 2009 taxes If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes George Smith is an accountant and also operates a farming business. Irs gov file 2009 taxes George agreed to do some accounting work for his neighbor in exchange for a dairy cow. Irs gov file 2009 taxes The accounting work and the cow are each worth $1,500. Irs gov file 2009 taxes George must include $1,500 in income for his accounting services. Irs gov file 2009 taxes George's basis in the cow is $1,500. Irs gov file 2009 taxes Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. Irs gov file 2009 taxes A taxable gain or deductible loss also is known as a recognized gain or loss. Irs gov file 2009 taxes A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. Irs gov file 2009 taxes If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. Irs gov file 2009 taxes You must report a taxable gain of $4,000 for the land. Irs gov file 2009 taxes The tractor has a basis of $6,000. Irs gov file 2009 taxes Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. Irs gov file 2009 taxes Similar or related property. Irs gov file 2009 taxes   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. Irs gov file 2009 taxes However, make the following adjustments. Irs gov file 2009 taxes Decrease the basis by the following amounts. Irs gov file 2009 taxes Any loss you recognize on the involuntary conversion. Irs gov file 2009 taxes Any money you receive that you do not spend on similar property. Irs gov file 2009 taxes Increase the basis by the following amounts. Irs gov file 2009 taxes Any gain you recognize on the involuntary conversion. Irs gov file 2009 taxes Any cost of acquiring the replacement property. Irs gov file 2009 taxes Money or property not similar or related. Irs gov file 2009 taxes   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. Irs gov file 2009 taxes Allocating the basis. Irs gov file 2009 taxes   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Irs gov file 2009 taxes Basis for depreciation. Irs gov file 2009 taxes   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Irs gov file 2009 taxes For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Irs gov file 2009 taxes For more information about involuntary conversions, see chapter 11. Irs gov file 2009 taxes Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Irs gov file 2009 taxes A nontaxable gain or loss also is known as an unrecognized gain or loss. Irs gov file 2009 taxes If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Irs gov file 2009 taxes Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Irs gov file 2009 taxes For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. Irs gov file 2009 taxes There must also be an exchange of like-kind property. Irs gov file 2009 taxes For more information, see Like-Kind Exchanges in  chapter 8. Irs gov file 2009 taxes The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. Irs gov file 2009 taxes Example 1. Irs gov file 2009 taxes You traded a truck you used in your farming business for a new smaller truck to use in farming. Irs gov file 2009 taxes The adjusted basis of the old truck was $10,000. Irs gov file 2009 taxes The FMV of the new truck is $30,000. Irs gov file 2009 taxes Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. Irs gov file 2009 taxes Example 2. Irs gov file 2009 taxes You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). Irs gov file 2009 taxes You use both the field cultivator and the planter in your farming business. Irs gov file 2009 taxes The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. Irs gov file 2009 taxes   Exchange expenses generally are the closing costs that you pay. Irs gov file 2009 taxes They include such items as brokerage commissions, attorney fees, and deed preparation fees. Irs gov file 2009 taxes Add them to the basis of the like-kind property you receive. Irs gov file 2009 taxes Property plus cash. Irs gov file 2009 taxes   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. Irs gov file 2009 taxes Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). Irs gov file 2009 taxes Special rules for related persons. Irs gov file 2009 taxes   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. Irs gov file 2009 taxes Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. Irs gov file 2009 taxes Each person reports it on the tax return filed for the year in which the later disposition occurred. Irs gov file 2009 taxes If this rule applies, the basis of the property received in the original exchange will be its FMV. Irs gov file 2009 taxes For more information, see chapter 8. Irs gov file 2009 taxes Exchange of business property. Irs gov file 2009 taxes   Exchanging the property of one business for the property of another business generally is a multiple property exchange. Irs gov file 2009 taxes For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Irs gov file 2009 taxes Basis for depreciation. Irs gov file 2009 taxes   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. Irs gov file 2009 taxes For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Irs gov file 2009 taxes Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Irs gov file 2009 taxes The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. Irs gov file 2009 taxes Decrease the basis by the following amounts. Irs gov file 2009 taxes Any money you receive. Irs gov file 2009 taxes Any loss you recognize on the exchange. Irs gov file 2009 taxes Increase the basis by the following amounts. Irs gov file 2009 taxes Any additional costs you incur. Irs gov file 2009 taxes Any gain you recognize on the exchange. Irs gov file 2009 taxes If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Irs gov file 2009 taxes Example 1. Irs gov file 2009 taxes You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. Irs gov file 2009 taxes You realize a gain of $40,000. Irs gov file 2009 taxes This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). Irs gov file 2009 taxes Include your gain in income (recognize gain) only to the extent of the cash received. Irs gov file 2009 taxes Your basis in the land you received is figured as follows. Irs gov file 2009 taxes Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. Irs gov file 2009 taxes You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. Irs gov file 2009 taxes You realize a gain of $7,250. Irs gov file 2009 taxes This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). Irs gov file 2009 taxes You include all the gain in your income (recognize gain) because the gain is less than the cash you received. Irs gov file 2009 taxes Your basis in the truck you received is figured as follows. Irs gov file 2009 taxes Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. Irs gov file 2009 taxes   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Irs gov file 2009 taxes The rest is the basis of the like-kind property. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. Irs gov file 2009 taxes You also received $1,000 cash and a truck that had an FMV of $3,000. Irs gov file 2009 taxes The truck is unlike property. Irs gov file 2009 taxes You realized a gain of $1,500. Irs gov file 2009 taxes This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). Irs gov file 2009 taxes You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. Irs gov file 2009 taxes Your basis in the properties you received is figured as follows. Irs gov file 2009 taxes Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). Irs gov file 2009 taxes This is the truck's FMV. Irs gov file 2009 taxes The rest ($12,500) is the basis of the tractor. Irs gov file 2009 taxes Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes You used a tractor on your farm for 3 years. Irs gov file 2009 taxes Its adjusted basis is $22,000 and its FMV is $40,000. Irs gov file 2009 taxes You are interested in a new tractor, which sells for $60,000. Irs gov file 2009 taxes Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. Irs gov file 2009 taxes Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). Irs gov file 2009 taxes However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. Irs gov file 2009 taxes Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). Irs gov file 2009 taxes Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. Irs gov file 2009 taxes Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you. Irs gov file 2009 taxes You also must know its FMV at the time it was given to you and any gift tax paid on it. Irs gov file 2009 taxes FMV equal to or greater than donor's adjusted basis. Irs gov file 2009 taxes   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. Irs gov file 2009 taxes Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Irs gov file 2009 taxes   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Irs gov file 2009 taxes See Adjusted Basis , earlier. Irs gov file 2009 taxes   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Irs gov file 2009 taxes Figure the increase by multiplying the gift tax paid by the following fraction. Irs gov file 2009 taxes Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Irs gov file 2009 taxes The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes In 2013, you received a gift of property from your mother that had an FMV of $50,000. Irs gov file 2009 taxes Her adjusted basis was $20,000. Irs gov file 2009 taxes The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Irs gov file 2009 taxes She paid a gift tax of $7,320. Irs gov file 2009 taxes Your basis, $26,076, is figured as follows. Irs gov file 2009 taxes Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Irs gov file 2009 taxes 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Irs gov file 2009 taxes If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Irs gov file 2009 taxes However, your basis cannot exceed the FMV of the gift when it was given to you. Irs gov file 2009 taxes FMV less than donor's adjusted basis. Irs gov file 2009 taxes   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Irs gov file 2009 taxes Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Irs gov file 2009 taxes Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Irs gov file 2009 taxes (See Adjusted Basis , earlier. Irs gov file 2009 taxes )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. Irs gov file 2009 taxes Example. Irs gov file 2009 taxes You received farmland as a gift from your parents when they retired from farming. Irs gov file 2009 taxes At the time of the gift, the land had an FMV of $80,000. Irs gov file 2009 taxes Your parents' adjusted basis was $100,000. Irs gov file 2009 taxes After you received the land, no events occurred that would increase or decrease your basis. Irs gov file 2009 taxes If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. Irs gov file 2009 taxes If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. Irs gov file 2009 taxes If the sales price is between $80,000 and $100,000, you have neither gain nor loss. Irs gov file 2009 taxes For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. Irs gov file 2009 taxes If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. Irs gov file 2009 taxes Business property. Irs gov file 2009 taxes   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Irs gov file 2009 taxes Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Irs gov file 2009 taxes The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. Irs gov file 2009 taxes However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. Irs gov file 2009 taxes The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Irs gov file 2009 taxes For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. Irs gov file 2009 taxes Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Irs gov file 2009 taxes If a federal estate return is filed, you can use its appraised value. Irs gov file 2009 taxes The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. Irs gov file 2009 taxes For information on the alternate valuation, see the Instructions for Form 706. Irs gov file 2009 taxes The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. Irs gov file 2009 taxes If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Irs gov file 2009 taxes Special-use valuation method. Irs gov file 2009 taxes   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. Irs gov file 2009 taxes If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. Irs gov file 2009 taxes If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. Irs gov file 2009 taxes The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Irs gov file 2009 taxes   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Irs gov file 2009 taxes Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. Irs gov file 2009 taxes Figure all FMVs without regard to the special-use valuation. Irs gov file 2009 taxes   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. Irs gov file 2009 taxes This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. Irs gov file 2009 taxes The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. Irs gov file 2009 taxes   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Irs gov file 2009 taxes To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. Irs gov file 2009 taxes If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. Irs gov file 2009 taxes The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. Irs gov file 2009 taxes   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. Irs gov file 2009 taxes   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. Irs gov file 2009 taxes Property inherited from a decedent who died in 2010. Irs gov file 2009 taxes   If you inherited property from a decedent who died in 2010, different rules may apply. Irs gov file 2009 taxes See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. Irs gov file 2009 taxes Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. Irs gov file 2009 taxes Partner's basis. Irs gov file 2009 taxes   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. Irs gov file 2009 taxes However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. Irs gov file 2009 taxes For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. Irs gov file 2009 taxes Shareholder's basis. Irs gov file 2009 taxes   The basis of property distributed by a corporation to a shareholder is its fair market value. Irs gov file 2009 taxes For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. Irs gov file 2009 taxes Prev  Up  Next   Home   More Online Publications