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Mypay dfas mil 3. Mypay dfas mil   Ordinary or Capital Gain or Loss for Business Property Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. Mypay dfas mil Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sales Gifts Transfers at Death Like-Kind Exchanges and Involuntary Conversions Multiple Properties Introduction When you dispose of business property, your taxable gain or loss is usually a section 1231 gain or loss. Mypay dfas mil Its treatment as ordinary or capital is determined under rules for section 1231 transactions. Mypay dfas mil When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. Mypay dfas mil Any remaining gain is a section 1231 gain. Mypay dfas mil Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 537 Installment Sales 547 Casualties, Disasters and Thefts 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) 4797 Sales of Business Property See chapter 5 for information about getting publications and forms. Mypay dfas mil Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (discussed below). Mypay dfas mil Their treatment as ordinary or capital depends on whether you have a net gain or a net loss from all your section 1231 transactions. Mypay dfas mil If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). Mypay dfas mil Do not take that gain into account as section 1231 gain. Mypay dfas mil Section 1231 transactions. Mypay dfas mil   The following transactions result in gain or loss subject to section 1231 treatment. Mypay dfas mil Sales or exchanges of real property or depreciable personal property. Mypay dfas mil This property must be used in a trade or business and held longer than 1 year. Mypay dfas mil Generally, property held for the production of rents or royalties is considered to be used in a trade or business. Mypay dfas mil Depreciable personal property includes amortizable section 197 intangibles (described in chapter 2 under Other Dispositions). Mypay dfas mil Sales or exchanges of leaseholds. Mypay dfas mil The leasehold must be used in a trade or business and held longer than 1 year. Mypay dfas mil Sales or exchanges of cattle and horses. Mypay dfas mil The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 2 years or longer. Mypay dfas mil Sales or exchanges of other livestock. Mypay dfas mil This livestock does not include poultry. Mypay dfas mil It must be held for draft, breeding, dairy, or sporting purposes and held for 1 year or longer. Mypay dfas mil Sales or exchanges of unharvested crops. Mypay dfas mil The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person and the land must be held longer than 1 year. Mypay dfas mil You cannot keep any right or option to directly or indirectly reacquire the land (other than a right customarily incident to a mortgage or other security transaction). Mypay dfas mil Growing crops sold with a lease on the land, though sold to the same person in the same transaction, are not included. Mypay dfas mil Cutting of timber or disposal of timber, coal, or iron ore. Mypay dfas mil The cutting or disposal must be treated as a sale, as described in chapter 2 under Timber and Coal and Iron Ore. Mypay dfas mil Condemnations. Mypay dfas mil The condemned property must have been held longer than 1 year. Mypay dfas mil It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. Mypay dfas mil It cannot be property held for personal use. Mypay dfas mil Casualties and thefts. Mypay dfas mil The casualty or theft must have affected business property, property held for the production of rents and royalties, or investment property (such as notes and bonds). Mypay dfas mil You must have held the property longer than 1 year. Mypay dfas mil However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. Mypay dfas mil For more information on casualties and thefts, see Publication 547. Mypay dfas mil Property for sale to customers. Mypay dfas mil   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. Mypay dfas mil If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. Mypay dfas mil Example. Mypay dfas mil You manufacture and sell steel cable, which you deliver on returnable reels that are depreciable property. Mypay dfas mil Customers make deposits on the reels, which you refund if the reels are returned within a year. Mypay dfas mil If they are not returned, you keep each deposit as the agreed-upon sales price. Mypay dfas mil Most reels are returned within the 1-year period. Mypay dfas mil You keep adequate records showing depreciation and other charges to the capitalized cost of the reels. Mypay dfas mil Under these conditions, the reels are not property held for sale to customers in the ordinary course of your business. Mypay dfas mil Any gain or loss resulting from their not being returned may be capital or ordinary, depending on your section 1231 transactions. Mypay dfas mil Copyrights. Mypay dfas mil    The sale of a copyright, a literary, musical, or artistic composition, or similar property is not a section 1231 transaction if your personal efforts created the property, or if you acquired the property in a way that entitled you to the basis of the previous owner whose personal efforts created it (for example, if you receive the property as a gift). Mypay dfas mil The sale of such property results in ordinary income and generally is reported in Part II of Form 4797. Mypay dfas mil Treatment as ordinary or capital. Mypay dfas mil   To determine the treatment of section 1231 gains and losses, combine all your section 1231 gains and losses for the year. Mypay dfas mil If you have a net section 1231 loss, it is ordinary loss. Mypay dfas mil If you have a net section 1231 gain, it is ordinary income up to the amount of your nonrecaptured section 1231 losses from previous years. Mypay dfas mil The rest, if any, is long-term capital gain. Mypay dfas mil Nonrecaptured section 1231 losses. Mypay dfas mil   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain. Mypay dfas mil Therefore, if in any of your five preceding tax years you had section 1231 losses, a net gain for the current year from the sale of section 1231 assets is ordinary gain to the extent of your prior losses. Mypay dfas mil These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Mypay dfas mil Example. Mypay dfas mil In 2013, Ben has a $2,000 net section 1231 gain. Mypay dfas mil To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. Mypay dfas mil From 2008 through 2012 he had the following section 1231 gains and losses. Mypay dfas mil Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800 Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. Mypay dfas mil 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if otherwise nontaxable) as ordinary income. Mypay dfas mil To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. Mypay dfas mil This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis. Mypay dfas mil On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information. Mypay dfas mil Whether the adjusted basis was figured using depreciation or amortization you claimed on other property. Mypay dfas mil Whether the adjusted basis was figured using depreciation or amortization another person claimed. Mypay dfas mil Corporate distributions. Mypay dfas mil   For information on property distributed by corporations, see Distributions to Shareholders in Publication 542, Corporations. Mypay dfas mil General asset accounts. Mypay dfas mil   Different rules apply to dispositions of property you depreciated using a general asset account. Mypay dfas mil For information on these rules, see Publication 946. Mypay dfas mil Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable on the property. Mypay dfas mil See Gain Treated as Ordinary Income, later. Mypay dfas mil Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain. Mypay dfas mil See Treatment as ordinary or capital under Section 1231 Gains and Losses, earlier. Mypay dfas mil Section 1245 property defined. Mypay dfas mil   Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. Mypay dfas mil Personal property (either tangible or intangible). Mypay dfas mil Other tangible property (except buildings and their structural components) used as any of the following. Mypay dfas mil See Buildings and structural components below. Mypay dfas mil An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services. Mypay dfas mil A research facility in any of the activities in (a). Mypay dfas mil A facility in any of the activities in (a) for the bulk storage of fungible commodities (discussed on the next page). Mypay dfas mil That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. Mypay dfas mil Amortization of certified pollution control facilities. Mypay dfas mil The section 179 expense deduction. Mypay dfas mil Deduction for clean-fuel vehicles and certain refueling property. Mypay dfas mil Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations. Mypay dfas mil Deduction for certain qualified refinery property. Mypay dfas mil Deduction for qualified energy efficient commercial building property. Mypay dfas mil Amortization of railroad grading and tunnel bores, if in effect before the repeal by the Revenue Reconciliation Act of 1990. Mypay dfas mil (Repealed by Public Law 99-514, Tax Reform Act of 1986, section 242(a). Mypay dfas mil ) Certain expenditures for child care facilities if in effect before repeal by Public Law 101-58, Omnibus Budget Reconciliation Act of 1990, section 11801(a)(13) (except with regards to deductions made prior to November 5, 1990). Mypay dfas mil Expenditures to remove architectural and transportation barriers to the handicapped and elderly. Mypay dfas mil Deduction for qualified tertiary injectant expenses. Mypay dfas mil Certain reforestation expenditures. Mypay dfas mil Deduction for election to expense qualified advanced mine safety equipment property. Mypay dfas mil Single purpose agricultural (livestock) or horticultural structures. Mypay dfas mil Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. Mypay dfas mil Any railroad grading or tunnel bore. Mypay dfas mil Buildings and structural components. Mypay dfas mil   Section 1245 property does not include buildings and structural components. Mypay dfas mil The term building includes a house, barn, warehouse, or garage. Mypay dfas mil The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. Mypay dfas mil   Do not treat a structure that is essentially machinery or equipment as a building or structural component. Mypay dfas mil Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. Mypay dfas mil   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. Mypay dfas mil Structures such as oil and gas storage tanks, grain storage bins, silos, fractionating towers, blast furnaces, basic oxygen furnaces, coke ovens, brick kilns, and coal tipples are not treated as buildings, but as section 1245 property. Mypay dfas mil Facility for bulk storage of fungible commodities. Mypay dfas mil   This term includes oil or gas storage tanks and grain storage bins. Mypay dfas mil Bulk storage means the storage of a commodity in a large mass before it is used. Mypay dfas mil For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. Mypay dfas mil To be fungible, a commodity must be such that one part may be used in place of another. Mypay dfas mil   Stored materials that vary in composition, size, and weight are not fungible. Mypay dfas mil Materials are not fungible if one part cannot be used in place of another part and the materials cannot be estimated and replaced by simple reference to weight, measure, and number. Mypay dfas mil For example, the storage of different grades and forms of aluminum scrap is not storage of fungible commodities. Mypay dfas mil Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. Mypay dfas mil The depreciation and amortization allowed or allowable on the property. Mypay dfas mil The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). Mypay dfas mil A limit on this amount for gain on like-kind exchanges and involuntary conversions is explained later. Mypay dfas mil For any other disposition of section 1245 property, ordinary income is the lesser of (1) earlier or the amount by which its fair market value is more than its adjusted basis. Mypay dfas mil See Gifts and Transfers at Death, later. Mypay dfas mil Use Part III of Form 4797 to figure the ordinary income part of the gain. Mypay dfas mil Depreciation taken on other property or taken by other taxpayers. Mypay dfas mil   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. Mypay dfas mil Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. Mypay dfas mil Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift). Mypay dfas mil Depreciation and amortization. Mypay dfas mil   Depreciation and amortization that must be recaptured as ordinary income include (but are not limited to) the following items. Mypay dfas mil Ordinary depreciation deductions. Mypay dfas mil Any special depreciation allowance you claimed. Mypay dfas mil Amortization deductions for all the following costs. Mypay dfas mil Acquiring a lease. Mypay dfas mil Lessee improvements. Mypay dfas mil Certified pollution control facilities. Mypay dfas mil Certain reforestation expenses. Mypay dfas mil Section 197 intangibles. Mypay dfas mil Childcare facility expenses made before 1982, if in effect before the repeal of IRC 188. Mypay dfas mil Franchises, trademarks, and trade names acquired before August 11, 1993. Mypay dfas mil The section 179 deduction. Mypay dfas mil Deductions for all the following costs. Mypay dfas mil Removing barriers to the disabled and the elderly. Mypay dfas mil Tertiary injectant expenses. Mypay dfas mil Depreciable clean-fuel vehicles and refueling property (minus the amount of any recaptured deduction). Mypay dfas mil Environmental cleanup costs. Mypay dfas mil Certain reforestation expenses. Mypay dfas mil Qualified disaster expenses. Mypay dfas mil Any basis reduction for the investment credit (minus any basis increase for credit recapture). Mypay dfas mil Any basis reduction for the qualified electric vehicle credit (minus any basis increase for credit recapture). Mypay dfas mil Example. Mypay dfas mil You file your returns on a calendar year basis. Mypay dfas mil In February 2011, you bought and placed in service for 100% use in your business a light-duty truck (5-year property) that cost $10,000. Mypay dfas mil You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2011 and $3,200 in 2012. Mypay dfas mil You did not take the section 179 deduction. Mypay dfas mil You sold the truck in May 2013 for $7,000. Mypay dfas mil The MACRS deduction in 2013, the year of sale, is $960 (½ of $1,920). Mypay dfas mil Figure the gain treated as ordinary income as follows. Mypay dfas mil 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $2,000 + $3,200 + $960) 6,160   4) Adjusted basis (subtract line 3 from line 2) $3,840 5) Gain realized (subtract line 4 from line 1) $3,160 6) Gain treated as ordinary income (lesser of line 3 or line 5) $3,160 Depreciation on other tangible property. Mypay dfas mil   You must take into account depreciation during periods when the property was not used as an integral part of an activity or did not constitute a research or storage facility, as described earlier under Section 1245 property. Mypay dfas mil   For example, if depreciation deductions taken on certain storage facilities amounted to $10,000, of which $6,000 is from the periods before their use in a prescribed business activity, you must use the entire $10,000 in determining ordinary income from depreciation. Mypay dfas mil Depreciation allowed or allowable. Mypay dfas mil   The greater of the depreciation allowed or allowable is generally the amount to use in figuring the part of gain to report as ordinary income. Mypay dfas mil However, if in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. Mypay dfas mil If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. Mypay dfas mil   This treatment applies only when figuring what part of gain is treated as ordinary income under the rules for section 1245 depreciation recapture. Mypay dfas mil Multiple asset accounts. Mypay dfas mil   In figuring ordinary income from depreciation, you can treat any number of units of section 1245 property in a single depreciation account as one item if the total ordinary income from depreciation figured by using this method is not less than it would be if depreciation on each unit were figured separately. Mypay dfas mil Example. Mypay dfas mil In one transaction you sold 50 machines, 25 trucks, and certain other property that is not section 1245 property. Mypay dfas mil All of the depreciation was recorded in a single depreciation account. Mypay dfas mil After dividing the total received among the various assets sold, you figured that each unit of section 1245 property was sold at a gain. Mypay dfas mil You can figure the ordinary income from depreciation as if the 50 machines and 25 trucks were one item. Mypay dfas mil However, if five of the trucks had been sold at a loss, only the 50 machines and 20 of the trucks could be treated as one item in determining the ordinary income from depreciation. Mypay dfas mil Normal retirement. Mypay dfas mil   The normal retirement of section 1245 property in multiple asset accounts does not require recognition of gain as ordinary income from depreciation if your method of accounting for asset retirements does not require recognition of that gain. Mypay dfas mil Section 1250 Property Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable on the property. Mypay dfas mil To determine the additional depreciation on section 1250 property, see Additional Depreciation, below. Mypay dfas mil Section 1250 property defined. Mypay dfas mil   This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. Mypay dfas mil It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. Mypay dfas mil A fee simple interest in land is not included because it is not depreciable. Mypay dfas mil   If your section 1250 property becomes section 1245 property because you change its use, you can never again treat it as section 1250 property. Mypay dfas mil Additional Depreciation If you hold section 1250 property longer than 1 year, the additional depreciation is the actual depreciation adjustments that are more than the depreciation figured using the straight line method. Mypay dfas mil For a list of items treated as depreciation adjustments, see Depreciation and amortization under Gain Treated as Ordinary Income, earlier. Mypay dfas mil For the treatment of unrecaptured section 1250 gain, see Capital Gains Tax Rate, later. Mypay dfas mil If you hold section 1250 property for 1 year or less, all the depreciation is additional depreciation. Mypay dfas mil You will not have additional depreciation if any of the following conditions apply to the property disposed of. Mypay dfas mil You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method; you held the property longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Mypay dfas mil In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction for property placed in service before January 1, 2010. Mypay dfas mil The property was residential low-income rental property you held for 162/3 years or longer. Mypay dfas mil For low-income rental housing on which the special 60-month depreciation for rehabilitation expenses was allowed, the 162/3 years start when the rehabilitated property is placed in service. Mypay dfas mil You chose the alternate ACRS method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. Mypay dfas mil The property was residential rental property or nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made); you held it longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Mypay dfas mil These properties are depreciated using the straight line method. Mypay dfas mil In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction. Mypay dfas mil Depreciation taken by other taxpayers or on other property. Mypay dfas mil   Additional depreciation includes all depreciation adjustments to the basis of section 1250 property whether allowed to you or another person (as carryover basis property). Mypay dfas mil Example. Mypay dfas mil Larry Johnson gives his son section 1250 property on which he took $2,000 in depreciation deductions, of which $500 is additional depreciation. Mypay dfas mil Immediately after the gift, the son's adjusted basis in the property is the same as his father's and reflects the $500 additional depreciation. Mypay dfas mil On January 1 of the next year, after taking depreciation deductions of $1,000 on the property, of which $200 is additional depreciation, the son sells the property. Mypay dfas mil At the time of sale, the additional depreciation is $700 ($500 allowed the father plus $200 allowed the son). Mypay dfas mil Depreciation allowed or allowable. Mypay dfas mil   The greater of depreciation allowed or allowable (to any person who held the property if the depreciation was used in figuring its adjusted basis in your hands) generally is the amount to use in figuring the part of the gain to be reported as ordinary income. Mypay dfas mil If you can show that the deduction allowed for any tax year was less than the amount allowable, the lesser figure will be the depreciation adjustment for figuring additional depreciation. Mypay dfas mil Retired or demolished property. Mypay dfas mil   The adjustments reflected in adjusted basis generally do not include deductions for depreciation on retired or demolished parts of section 1250 property unless these deductions are reflected in the basis of replacement property that is section 1250 property. Mypay dfas mil Example. Mypay dfas mil A wing of your building is totally destroyed by fire. Mypay dfas mil The depreciation adjustments figured in the adjusted basis of the building after the wing is destroyed do not include any deductions for depreciation on the destroyed wing unless it is replaced and the adjustments for depreciation on it are reflected in the basis of the replacement property. Mypay dfas mil Figuring straight line depreciation. Mypay dfas mil   The useful life and salvage value you would have used to figure straight line depreciation are the same as those used under the depreciation method you actually used. Mypay dfas mil If you did not use a useful life under the depreciation method actually used (such as with the units-of-production method) or if you did not take salvage value into account (such as with the declining balance method), the useful life or salvage value for figuring what would have been the straight line depreciation is the useful life and salvage value you would have used under the straight line method. Mypay dfas mil   Salvage value and useful life are not used for the ACRS method of depreciation. Mypay dfas mil Figure straight line depreciation for ACRS real property by using its 15-, 18-, or 19-year recovery period as the property's useful life. Mypay dfas mil   The straight line method is applied without any basis reduction for the investment credit. Mypay dfas mil Property held by lessee. Mypay dfas mil   If a lessee makes a leasehold improvement, the lease period for figuring what would have been the straight line depreciation adjustments includes all renewal periods. Mypay dfas mil This inclusion of the renewal periods cannot extend the lease period taken into account to a period that is longer than the remaining useful life of the improvement. Mypay dfas mil The same rule applies to the cost of acquiring a lease. Mypay dfas mil   The term renewal period means any period for which the lease may be renewed, extended, or continued under an option exercisable by the lessee. Mypay dfas mil However, the inclusion of renewal periods cannot extend the lease by more than two-thirds of the period that was the basis on which the actual depreciation adjustments were allowed. Mypay dfas mil Applicable Percentage The applicable percentage used to figure the ordinary income because of additional depreciation depends on whether the real property you disposed of is nonresidential real property, residential rental property, or low-income housing. Mypay dfas mil The percentages for these types of real property are as follows. Mypay dfas mil Nonresidential real property. Mypay dfas mil   For real property that is not residential rental property, the applicable percentage for periods after 1969 is 100%. Mypay dfas mil For periods before 1970, the percentage is zero and no ordinary income because of additional depreciation before 1970 will result from its disposition. Mypay dfas mil Residential rental property. Mypay dfas mil   For residential rental property (80% or more of the gross income is from dwelling units) other than low-income housing, the applicable percentage for periods after 1975 is 100%. Mypay dfas mil The percentage for periods before 1976 is zero. Mypay dfas mil Therefore, no ordinary income because of additional depreciation before 1976 will result from a disposition of residential rental property. Mypay dfas mil Low-income housing. Mypay dfas mil    Low-income housing includes all the following types of residential rental property. Mypay dfas mil Federally assisted housing projects if the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. Mypay dfas mil Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed. Mypay dfas mil Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under provisions of state or local laws that authorize similar subsidies for low-income families. Mypay dfas mil Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Mypay dfas mil   The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. Mypay dfas mil If you have held low-income housing at least 16 years and 8 months, the percentage is zero and no ordinary income will result from its disposition. Mypay dfas mil Foreclosure. Mypay dfas mil   If low-income housing is disposed of because of foreclosure or similar proceedings, the monthly applicable percentage reduction is figured as if you disposed of the property on the starting date of the proceedings. Mypay dfas mil Example. Mypay dfas mil On June 1, 2001, you acquired low-income housing property. Mypay dfas mil On April 3, 2012 (130 months after the property was acquired), foreclosure proceedings were started on the property and on December 3, 2013 (150 months after the property was acquired), the property was disposed of as a result of the foreclosure proceedings. Mypay dfas mil The property qualifies for a reduced applicable percentage because it was held more than 100 full months. Mypay dfas mil The applicable percentage reduction is 30% (130 months minus 100 months) rather than 50% (150 months minus 100 months) because it does not apply after April 3, 2012, the starting date of the foreclosure proceedings. Mypay dfas mil Therefore, 70% of the additional depreciation is treated as ordinary income. Mypay dfas mil Holding period. Mypay dfas mil   The holding period used to figure the applicable percentage for low-income housing generally starts on the day after you acquired it. Mypay dfas mil For example, if you bought low-income housing on January 1, 1997, the holding period starts on January 2, 1997. Mypay dfas mil If you sold it on January 2, 2013, the holding period is exactly 192 full months. Mypay dfas mil The applicable percentage for additional depreciation is 8%, or 100% minus 1% for each full month the property was held over 100 full months. Mypay dfas mil Holding period for constructed, reconstructed, or erected property. Mypay dfas mil   The holding period used to figure the applicable percentage for low-income housing you constructed, reconstructed, or erected starts on the first day of the month it is placed in service in a trade or business, in an activity for the production of income, or in a personal activity. Mypay dfas mil Property acquired by gift or received in a tax-free transfer. Mypay dfas mil   For low-income housing you acquired by gift or in a tax-free transfer the basis of which is figured by reference to the basis in the hands of the transferor, the holding period for the applicable percentage includes the holding period of the transferor. Mypay dfas mil   If the adjusted basis of the property in your hands just after acquiring it is more than its adjusted basis to the transferor just before transferring it, the holding period of the difference is figured as if it were a separate improvement. Mypay dfas mil See Low-Income Housing With Two or More Elements, next. Mypay dfas mil Low-Income Housing With Two or More Elements If you dispose of low-income housing property that has two or more separate elements, the applicable percentage used to figure ordinary income because of additional depreciation may be different for each element. Mypay dfas mil The gain to be reported as ordinary income is the sum of the ordinary income figured for each element. Mypay dfas mil The following are the types of separate elements. Mypay dfas mil A separate improvement (defined below). Mypay dfas mil The basic section 1250 property plus improvements not qualifying as separate improvements. Mypay dfas mil The units placed in service at different times before all the section 1250 property is finished. Mypay dfas mil For example, this happens when a taxpayer builds an apartment building of 100 units and places 30 units in service (available for renting) on January 4, 2011, 50 on July 18, 2011, and the remaining 20 on January 18, 2012. Mypay dfas mil As a result, the apartment house consists of three separate elements. Mypay dfas mil The 36-month test for separate improvements. Mypay dfas mil   A separate improvement is any improvement (qualifying under The 1-year test, below) added to the capital account of the property, but only if the total of the improvements during the 36-month period ending on the last day of any tax year is more than the greatest of the following amounts. Mypay dfas mil Twenty-five percent of the adjusted basis of the property at the start of the first day of the 36-month period, or the first day of the holding period of the property, whichever is later. Mypay dfas mil Ten percent of the unadjusted basis (adjusted basis plus depreciation and amortization adjustments) of the property at the start of the period determined in (1). Mypay dfas mil $5,000. Mypay dfas mil The 1-year test. Mypay dfas mil   An addition to the capital account for any tax year (including a short tax year) is treated as an improvement only if the sum of all additions for the year is more than the greater of $2,000 or 1% of the unadjusted basis of the property. Mypay dfas mil The unadjusted basis is figured as of the start of that tax year or the holding period of the property, whichever is later. Mypay dfas mil In applying the 36-month test, improvements in any one of the 3 years are omitted entirely if the total improvements in that year do not qualify under the 1-year test. Mypay dfas mil Example. Mypay dfas mil The unadjusted basis of a calendar year taxpayer's property was $300,000 on January 1 of this year. Mypay dfas mil During the year, the taxpayer made improvements A, B, and C, which cost $1,000, $600, and $700, respectively. Mypay dfas mil The sum of the improvements, $2,300, is less than 1% of the unadjusted basis ($3,000), so the improvements do not satisfy the 1-year test and are not treated as improvements for the 36-month test. Mypay dfas mil However, if improvement C had cost $1,500, the sum of these improvements would have been $3,100. Mypay dfas mil Then, it would be necessary to apply the 36-month test to figure if the improvements must be treated as separate improvements. Mypay dfas mil Addition to the capital account. Mypay dfas mil   Any addition to the capital account made after the initial acquisition or completion of the property by you or any person who held the property during a period included in your holding period is to be considered when figuring the total amount of separate improvements. Mypay dfas mil   The addition to the capital account of depreciable real property is the gross addition not reduced by amounts attributable to replaced property. Mypay dfas mil For example, if a roof with an adjusted basis of $20,000 is replaced by a new roof costing $50,000, the improvement is the gross addition to the account, $50,000, and not the net addition of $30,000. Mypay dfas mil The $20,000 adjusted basis of the old roof is no longer reflected in the basis of the property. Mypay dfas mil The status of an addition to the capital account is not affected by whether it is treated as a separate property for determining depreciation deductions. Mypay dfas mil   Whether an expense is treated as an addition to the capital account may depend on the final disposition of the entire property. Mypay dfas mil If the expense item property and the basic property are sold in two separate transactions, the entire section 1250 property is treated as consisting of two distinct properties. Mypay dfas mil Unadjusted basis. Mypay dfas mil   In figuring the unadjusted basis as of a certain date, include the actual cost of all previous additions to the capital account plus those that did not qualify as separate improvements. Mypay dfas mil However, the cost of components retired before that date is not included in the unadjusted basis. Mypay dfas mil Holding period. Mypay dfas mil   Use the following guidelines for figuring the applicable percentage for property with two or more elements. Mypay dfas mil The holding period of a separate element placed in service before the entire section 1250 property is finished starts on the first day of the month that the separate element is placed in service. Mypay dfas mil The holding period for each separate improvement qualifying as a separate element starts on the day after the improvement is acquired or, for improvements constructed, reconstructed, or erected, the first day of the month that the improvement is placed in service. Mypay dfas mil The holding period for each improvement not qualifying as a separate element takes the holding period of the basic property. Mypay dfas mil   If an improvement by itself does not meet the 1-year test (greater of $2,000 or 1% of the unadjusted basis), but it does qualify as a separate improvement that is a separate element (when grouped with other improvements made during the tax year), determine the start of its holding period as follows. Mypay dfas mil Use the first day of a calendar month that is closest to the middle of the tax year. Mypay dfas mil If there are two first days of a month that are equally close to the middle of the year, use the earlier date. Mypay dfas mil Figuring ordinary income attributable to each separate element. Mypay dfas mil   Figure ordinary income attributable to each separate element as follows. Mypay dfas mil   Step 1. Mypay dfas mil Divide the element's additional depreciation after 1975 by the sum of all the elements' additional depreciation after 1975 to determine the percentage used in Step 2. Mypay dfas mil   Step 2. Mypay dfas mil Multiply the percentage figured in Step 1 by the lesser of the additional depreciation after 1975 for the entire property or the gain from disposition of the entire property (the difference between the fair market value or amount realized and the adjusted basis). Mypay dfas mil   Step 3. Mypay dfas mil Multiply the result in Step 2 by the applicable percentage for the element. Mypay dfas mil Example. Mypay dfas mil You sold at a gain of $25,000 low-income housing property subject to the ordinary income rules of section 1250. Mypay dfas mil The property consisted of four elements (W, X, Y, and Z). Mypay dfas mil Step 1. Mypay dfas mil The additional depreciation for each element is: W-$12,000; X-None; Y-$6,000; and Z-$6,000. Mypay dfas mil The sum of the additional depreciation for all the elements is $24,000. Mypay dfas mil Step 2. Mypay dfas mil The depreciation deducted on element X was $4,000 less than it would have been under the straight line method. Mypay dfas mil Additional depreciation on the property as a whole is $20,000 ($24,000 − $4,000). Mypay dfas mil $20,000 is lower than the $25,000 gain on the sale, so $20,000 is used in Step 2. Mypay dfas mil Step 3. Mypay dfas mil The applicable percentages to be used in Step 3 for the elements are: W-68%; X-85%; Y-92%; and Z-100%. Mypay dfas mil From these facts, the sum of the ordinary income for each element is figured as follows. Mypay dfas mil   Step 1 Step 2 Step 3 Ordinary Income W . Mypay dfas mil 50 $10,000 68% $ 6,800 X -0- -0- 85% -0- Y . Mypay dfas mil 25 5,000 92% 4,600 Z . Mypay dfas mil 25 5,000 100% 5,000 Sum of ordinary income of separate elements $16,400 Gain Treated as Ordinary Income To find what part of the gain from the disposition of section 1250 property is treated as ordinary income, follow these steps. Mypay dfas mil In a sale, exchange, or involuntary conversion of the property, figure the amount realized that is more than the adjusted basis of the property. Mypay dfas mil In any other disposition of the property, figure the fair market value that is more than the adjusted basis. Mypay dfas mil Figure the additional depreciation for the periods after 1975. Mypay dfas mil Multiply the lesser of (1) or (2) by the applicable percentage, discussed earlier under Applicable Percentage. Mypay dfas mil Stop here if this is residential rental property or if (2) is equal to or more than (1). Mypay dfas mil This is the gain treated as ordinary income because of additional depreciation. Mypay dfas mil Subtract (2) from (1). Mypay dfas mil Figure the additional depreciation for periods after 1969 but before 1976. Mypay dfas mil Add the lesser of (4) or (5) to the result in (3). Mypay dfas mil This is the gain treated as ordinary income because of additional depreciation. Mypay dfas mil A limit on the amount treated as ordinary income for gain on like-kind exchanges and involuntary conversions is explained later. Mypay dfas mil Use Form 4797, Part III, to figure the ordinary income part of the gain. Mypay dfas mil Corporations. Mypay dfas mil   Corporations, other than S corporations, must recognize an additional amount as ordinary income on the sale or other disposition of section 1250 property. Mypay dfas mil The additional amount treated as ordinary income is 20% of the excess of the amount that would have been ordinary income if the property were section 1245 property over the amount treated as ordinary income under section 1250. Mypay dfas mil Report this additional ordinary income on Form 4797, Part III, line 26 (f). Mypay dfas mil Installment Sales If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. Mypay dfas mil This applies even if no payments are received in that year. Mypay dfas mil If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. Mypay dfas mil For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. Mypay dfas mil If you dispose of more than one asset in a single transaction, you must figure the gain on each asset separately so that it may be properly reported. Mypay dfas mil To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Mypay dfas mil Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. Mypay dfas mil For a detailed discussion of installment sales, see Publication 537. Mypay dfas mil Gifts If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. Mypay dfas mil However, if the person who receives it (donee) sells or otherwise disposes of the property in a disposition subject to recapture, the donee must take into account the depreciation you deducted in figuring the gain to be reported as ordinary income. Mypay dfas mil For low-income housing, the donee must take into account the donor's holding period to figure the applicable percentage. Mypay dfas mil See Applicable Percentage and its discussion Holding period under Section 1250 Property, earlier. Mypay dfas mil Part gift and part sale or exchange. Mypay dfas mil   If you transfer depreciable personal property or real property for less than its fair market value in a transaction considered to be partly a gift and partly a sale or exchange and you have a gain because the amount realized is more than your adjusted basis, you must report ordinary income (up to the amount of gain) to recapture depreciation. Mypay dfas mil If the depreciation (additional depreciation, if section 1250 property) is more than the gain, the balance is carried over to the transferee to be taken into account on any later disposition of the property. Mypay dfas mil However, see Bargain sale to charity, later. Mypay dfas mil Example. Mypay dfas mil You transferred depreciable personal property to your son for $20,000. Mypay dfas mil When transferred, the property had an adjusted basis to you of $10,000 and a fair market value of $40,000. Mypay dfas mil You took depreciation of $30,000. Mypay dfas mil You are considered to have made a gift of $20,000, the difference between the $40,000 fair market value and the $20,000 sale price to your son. Mypay dfas mil You have a taxable gain on the transfer of $10,000 ($20,000 sale price minus $10,000 adjusted basis) that must be reported as ordinary income from depreciation. Mypay dfas mil You report $10,000 of your $30,000 depreciation as ordinary income on the transfer of the property, so the remaining $20,000 depreciation is carried over to your son for him to take into account on any later disposition of the property. Mypay dfas mil Gift to charitable organization. Mypay dfas mil   If you give property to a charitable organization, you figure your deduction for your charitable contribution by reducing the fair market value of the property by the ordinary income and short-term capital gain that would have resulted had you sold the property at its fair market value at the time of the contribution. Mypay dfas mil Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation. Mypay dfas mil   You also may have to reduce the fair market value of the contributed property by the long-term capital gain (including any section 1231 gain) that would have resulted had the property been sold. Mypay dfas mil For more information, see Giving Property That Has Increased in Value in Publication 526. Mypay dfas mil Bargain sale to charity. Mypay dfas mil   If you transfer section 1245 or section 1250 property to a charitable organization for less than its fair market value and a deduction for the contribution part of the transfer is allowable, your ordinary income from depreciation is figured under different rules. Mypay dfas mil First, figure the ordinary income as if you had sold the property at its fair market value. Mypay dfas mil Then, allocate that amount between the sale and the contribution parts of the transfer in the same proportion that you allocated your adjusted basis in the property to figure your gain. Mypay dfas mil See Bargain Sale under Gain or Loss From Sales and Exchanges in chapter 1. Mypay dfas mil Report as ordinary income the lesser of the ordinary income allocated to the sale or your gain from the sale. Mypay dfas mil Example. Mypay dfas mil You sold section 1245 property in a bargain sale to a charitable organization and are allowed a deduction for your contribution. Mypay dfas mil Your gain on the sale was $1,200, figured by allocating 20% of your adjusted basis in the property to the part sold. Mypay dfas mil If you had sold the property at its fair market value, your ordinary income would have been $5,000. Mypay dfas mil Your ordinary income is $1,000 ($5,000 × 20%) and your section 1231 gain is $200 ($1,200 – $1,000). Mypay dfas mil Transfers at Death When a taxpayer dies, no gain is reported on depreciable personal property or real property transferred to his or her estate or beneficiary. Mypay dfas mil For information on the tax liability of a decedent, see Publication 559, Survivors, Executors, and Administrators. Mypay dfas mil However, if the decedent disposed of the property while alive and, because of his or her method of accounting or for any other reason, the gain from the disposition is reportable by the estate or beneficiary, it must be reported in the same way the decedent would have had to report it if he or she were still alive. Mypay dfas mil Ordinary income due to depreciation must be reported on a transfer from an executor, administrator, or trustee to an heir, beneficiary, or other individual if the transfer is a sale or exchange on which gain is realized. Mypay dfas mil Example 1. Mypay dfas mil Janet Smith owned depreciable property that, upon her death, was inherited by her son. Mypay dfas mil No ordinary income from depreciation is reportable on the transfer, even though the value used for estate tax purposes is more than the adjusted basis of the property to Janet when she died. Mypay dfas mil However, if she sold the property before her death and realized a gain and if, because of her method of accounting, the proceeds from the sale are income in respect of a decedent reportable by her son, he must report ordinary income from depreciation. Mypay dfas mil Example 2. Mypay dfas mil The trustee of a trust created by a will transfers depreciable property to a beneficiary in satisfaction of a specific bequest of $10,000. Mypay dfas mil If the property had a value of $9,000 at the date used for estate tax valuation purposes, the $1,000 increase in value to the date of distribution is a gain realized by the trust. Mypay dfas mil Ordinary income from depreciation must be reported by the trust on the transfer. Mypay dfas mil Like-Kind Exchanges and Involuntary Conversions A like-kind exchange of your depreciable property or an involuntary conversion of the property into similar or related property will not result in your having to report ordinary income from depreciation unless money or property other than like-kind, similar, or related property is also received in the transaction. Mypay dfas mil For information on like-kind exchanges and involuntary conversions, see chapter 1. Mypay dfas mil Depreciable personal property. Mypay dfas mil   If you have a gain from either a like-kind exchange or an involuntary conversion of your depreciable personal property, the amount to be reported as ordinary income from depreciation is the amount figured under the rules explained earlier (see Section 1245 Property), limited to the sum of the following amounts. Mypay dfas mil The gain that must be included in income under the rules for like-kind exchanges or involuntary conversions. Mypay dfas mil The fair market value of the like-kind, similar, or related property other than depreciable personal property acquired in the transaction. Mypay dfas mil Example 1. Mypay dfas mil You bought a new machine for $4,300 cash plus your old machine for which you were allowed a $1,360 trade-in. Mypay dfas mil The old machine cost you $5,000 two years ago. Mypay dfas mil You took depreciation deductions of $3,950. Mypay dfas mil Even though you deducted depreciation of $3,950, the $310 gain ($1,360 trade-in allowance minus $1,050 adjusted basis) is not reported because it is postponed under the rules for like-kind exchanges and you received only depreciable personal property in the exchange. Mypay dfas mil Example 2. Mypay dfas mil You bought office machinery for $1,500 two years ago and deducted $780 depreciation. Mypay dfas mil This year a fire destroyed the machinery and you received $1,200 from your fire insurance, realizing a gain of $480 ($1,200 − $720 adjusted basis). Mypay dfas mil You choose to postpone reporting gain, but replacement machinery cost you only $1,000. Mypay dfas mil Your taxable gain under the rules for involuntary conversions is limited to the remaining $200 insurance payment. Mypay dfas mil All your replacement property is depreciable personal property, so your ordinary income from depreciation is limited to $200. Mypay dfas mil Example 3. Mypay dfas mil A fire destroyed office machinery you bought for $116,000. Mypay dfas mil The depreciation deductions were $91,640 and the machinery had an adjusted basis of $24,360. Mypay dfas mil You received a $117,000 insurance payment, realizing a gain of $92,640. Mypay dfas mil You immediately spent $105,000 of the insurance payment for replacement machinery and $9,000 for stock that qualifies as replacement property and you choose to postpone reporting the gain. Mypay dfas mil $114,000 of the $117,000 insurance payment was used to buy replacement property, so the gain that must be included in income under the rules for involuntary conversions is the part not spent, or $3,000. Mypay dfas mil The part of the insurance payment ($9,000) used to buy the nondepreciable property (the stock) also must be included in figuring the gain from depreciation. Mypay dfas mil The amount you must report as ordinary income on the transaction is $12,000, figured as follows. Mypay dfas mil 1) Gain realized on the transaction ($92,640) limited to depreciation ($91,640) $91,640 2) Gain includible in income (amount not spent) 3,000     Plus: fair market value of property other than depreciable personal property (the stock) 9,000 12,000 Amount reportable as ordinary income (lesser of (1) or (2)) $12,000   If, instead of buying $9,000 in stock, you bought $9,000 worth of depreciable personal property similar or related in use to the destroyed property, you would only report $3,000 as ordinary income. Mypay dfas mil Depreciable real property. Mypay dfas mil   If you have a gain from either a like-kind exchange or involuntary conversion of your depreciable real property, ordinary income from additional depreciation is figured under the rules explained earlier (see Section 1250 Property), limited to the greater of the following amounts. Mypay dfas mil The gain that must be reported under the rules for like-kind exchanges or involuntary conversions plus the fair market value of stock bought as replacement property in acquiring control of a corporation. Mypay dfas mil The gain you would have had to report as ordinary income from additional depreciation had the transaction been a cash sale minus the cost (or fair market value in an exchange) of the depreciable real property acquired. Mypay dfas mil   The ordinary income not reported for the year of the disposition is carried over to the depreciable real property acquired in the like-kind exchange or involuntary conversion as additional depreciation from the property disposed of. Mypay dfas mil Further, to figure the applicable percentage of additional depreciation to be treated as ordinary income, the holding period starts over for the new property. Mypay dfas mil Example. Mypay dfas mil The state paid you $116,000 when it condemned your depreciable real property for public use. Mypay dfas mil You bought other real property similar in use to the property condemned for $110,000 ($15,000 for depreciable real property and $95,000 for land). Mypay dfas mil You also bought stock for $5,000 to get control of a corporation owning property similar in use to the property condemned. Mypay dfas mil You choose to postpone reporting the gain. Mypay dfas mil If the transaction had been a sale for cash only, under the rules described earlier, $20,000 would have been reportable as ordinary income because of additional depreciation. Mypay dfas mil The ordinary income to be reported is $6,000, which is the greater of the following amounts. Mypay dfas mil The gain that must be reported under the rules for involuntary conversions, $1,000 ($116,000 − $115,000) plus the fair market value of stock bought as qualified replacement property, $5,000, for a total of $6,000. Mypay dfas mil The gain you would have had to report as ordinary income from additional depreciation ($20,000) had this transaction been a cash sale minus the cost of the depreciable real property bought ($15,000), or $5,000. Mypay dfas mil   The ordinary income not reported, $14,000 ($20,000 − $6,000), is carried over to the depreciable real property you bought as additional depreciation. Mypay dfas mil Basis of property acquired. Mypay dfas mil   If the ordinary income you have to report because of additional depreciation is limited, the total basis of the property you acquired is its fair market value (its cost, if bought to replace property involuntarily converted into money) minus the gain postponed. Mypay dfas mil   If you acquired more than one item of property, allocate the total basis among the properties in proportion to their fair market value (their cost, in an involuntary conversion into money). Mypay dfas mil However, if you acquired both depreciable real property and other property, allocate the total basis as follows. Mypay dfas mil Subtract the ordinary income because of additional depreciation that you do not have to report from the fair market value (or cost) of the depreciable real property acquired. Mypay dfas mil Add the fair market value (or cost) of the other property acquired to the result in (1). Mypay dfas mil Divide the result in (1) by the result in (2). Mypay dfas mil Multiply the total basis by the result in (3). Mypay dfas mil This is the basis of the depreciable real property acquired. Mypay dfas mil If you acquired more than one item of depreciable real property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Mypay dfas mil Subtract the result in (4) from the total basis. Mypay dfas mil This is the basis of the other property acquired. Mypay dfas mil If you acquired more than one item of other property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Mypay dfas mil Example 1. Mypay dfas mil In 1988, low-income housing property that you acquired and placed in service in 1983 was destroyed by fire and you received a $90,000 insurance payment. Mypay dfas mil The property's adjusted basis was $38,400, with additional depreciation of $14,932. Mypay dfas mil On December 1, 1988, you used the insurance payment to acquire and place in service replacement low-income housing property. Mypay dfas mil Your realized gain from the involuntary conversion was $51,600 ($90,000 − $38,400). Mypay dfas mil You chose to postpone reporting the gain under the involuntary conversion rules. Mypay dfas mil Under the rules for depreciation recapture on real property, the ordinary gain was $14,932, but you did not have to report any of it because of the limit for involuntary conversions. Mypay dfas mil The basis of the replacement low-income housing property was its $90,000 cost minus the $51,600 gain you postponed, or $38,400. Mypay dfas mil The $14,932 ordinary gain you did not report is treated as additional depreciation on the replacement property. Mypay dfas mil If you sold the property in 2013, your holding period for figuring the applicable percentage of additional depreciation to report as ordinary income will have begun December 2, 1988, the day after you acquired the property. Mypay dfas mil Example 2. Mypay dfas mil John Adams received a $90,000 fire insurance payment for depreciable real property (office building) with an adjusted basis of $30,000. Mypay dfas mil He uses the whole payment to buy property similar in use, spending $42,000 for depreciable real property and $48,000 for land. Mypay dfas mil He chooses to postpone reporting the $60,000 gain realized on the involuntary conversion. Mypay dfas mil Of this gain, $10,000 is ordinary income from additional depreciation but is not reported because of the limit for involuntary conversions of depreciable real property. Mypay dfas mil The basis of the property bought is $30,000 ($90,000 − $60,000), allocated as follows. Mypay dfas mil The $42,000 cost of depreciable real property minus $10,000 ordinary income not reported is $32,000. Mypay dfas mil The $48,000 cost of other property (land) plus the $32,000 figured in (1) is $80,000. Mypay dfas mil The $32,000 figured in (1) divided by the $80,000 figured in (2) is 0. Mypay dfas mil 4. Mypay dfas mil The basis of the depreciable real property is $12,000. Mypay dfas mil This is the $30,000 total basis multiplied by the 0. Mypay dfas mil 4 figured in (3). Mypay dfas mil The basis of the other property (land) is $18,000. Mypay dfas mil This is the $30,000 total basis minus the $12,000 figured in (4). Mypay dfas mil The ordinary income that is not reported ($10,000) is carried over as additional depreciation to the depreciable real property that was bought and may be taxed as ordinary income on a later disposition. Mypay dfas mil Multiple Properties If you dispose of depreciable property and other property in one transaction and realize a gain, you must allocate the amount realized between the two types of property in proportion to their respective fair market values to figure the part of your gain to be reported as ordinary income from depreciation. Mypay dfas mil Different rules may apply to the allocation of the amount realized on the sale of a business that includes a group of assets. Mypay dfas mil See chapter 2. Mypay dfas mil In general, if a buyer and seller have adverse interests as to the allocation of the amount realized between the depreciable property and other property, any arm's length agreement between them will establish the allocation. Mypay dfas mil In the absence of an agreement, the allocation should be made by taking into account the appropriate facts and circumstances. Mypay dfas mil These include, but are not limited to, a comparison between the depreciable property and all the other property being disposed of in the transaction. Mypay dfas mil The comparison should take into account all the following facts and circumstances. Mypay dfas mil The original cost and reproduction cost of construction, erection, or production. Mypay dfas mil The remaining economic useful life. Mypay dfas mil The state of obsolescence. Mypay dfas mil The anticipated expenditures required to maintain, renovate, or modernize the properties. Mypay dfas mil Like-kind exchanges and involuntary conversions. Mypay dfas mil   If you dispose of and acquire depreciable personal property and other property (other than depreciable real property) in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Mypay dfas mil The amount allocated to the depreciable personal property disposed of is treated as consisting of, first, the fair market value of the depreciable personal property acquired and, second (to the extent of any remaining balance), the fair market value of the other property acquired. Mypay dfas mil The amount allocated to the other property disposed of is treated as consisting of the fair market value of all property acquired that has not already been taken into account. Mypay dfas mil   If you dispose of and acquire depreciable real property and other property in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Mypay dfas mil The amount allocated to each of the three types of property (depreciable real property, depreciable personal property, or other property) disposed of is treated as consisting of, first, the fair market value of that type of property acquired and, second (to the extent of any remaining balance), any excess fair market value of the other types of property acquired. Mypay dfas mil If the excess fair market value is more than the remaining balance of the amount realized and is from both of the other two types of property, you can apply the unallocated amount in any manner you choose. Mypay dfas mil Example. Mypay dfas mil A fire destroyed your property with a total fair market value of $50,000. Mypay dfas mil It consisted of machinery worth $30,000 and nondepreciable property worth $20,000. Mypay dfas mil You received an insurance payment of $40,000 and immediately used it with $10,000 of your own funds (for a total of $50,000) to buy machinery with a fair market value of $15,000 and nondepreciable property with a fair market value of $35,000. Mypay dfas mil The adjusted basis of the destroyed machinery was $5,000 and your depreciation on it was $35,000. Mypay dfas mil You choose to postpone reporting your gain from the involuntary conversion. Mypay dfas mil You must report $9,000 as ordinary income from depreciation arising from this transaction, figured as follows. Mypay dfas mil The $40,000 insurance payment must be allocated between the machinery and the other property destroyed in proportion to the fair market value of each. Mypay dfas mil The amount allocated to the machinery is 30,000/50,000 × $40,000, or $24,000. Mypay dfas mil The amount allocated to the other property is 20,000/50,000 × $40,000, or $16,000. Mypay dfas mil Your gain on the involuntary conversion of the machinery is $24,000 minus $5,000 adjusted basis, or $19,000. Mypay dfas mil The $24,000 allocated to the machinery disposed of is treated as consisting of the $15,000 fair market value of the replacement machinery bought and $9,000 of the fair market value of other property bought in the transaction. Mypay dfas mil All $16,000 allocated to the other property disposed of is treated as consisting of the fair market value of the other property that was bought. Mypay dfas mil Your potential ordinary income from depreciation is $19,000, the gain on the machinery, because it is less than the $35,000 depreciation. Mypay dfas mil However, the amount you must report as ordinary income is limited to the $9,000 included in the amount realized for the machinery that represents the fair market value of property other than the depreciable property you bought. Mypay dfas mil Prev  Up  Next   Home   More Online Publications
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Occupational Safety and Health Review Commission

The Occupational Safety and Health Review Commission hears trials and appeals, deciding contests of citations or penalties that result from inspections performed by the Occupational Safety and Health Administration.

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Mypay dfas mil 13. Mypay dfas mil   How To Get Tax Help Table of Contents Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Mypay dfas mil Free help with your tax return. Mypay dfas mil   You can get free help preparing your return nationwide from IRS-certified volunteers. Mypay dfas mil The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Mypay dfas mil The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Mypay dfas mil Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Mypay dfas mil In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Mypay dfas mil To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Mypay dfas mil gov, download the IRS2Go app, or call 1-800-906-9887. Mypay dfas mil   As part of the TCE program, AARP offers the Tax-Aide counseling program. Mypay dfas mil To find the nearest AARP Tax-Aide site, visit AARP's website at www. Mypay dfas mil aarp. Mypay dfas mil org/money/taxaide or call 1-888-227-7669. Mypay dfas mil For more information on these programs, go to IRS. Mypay dfas mil gov and enter “VITA” in the search box. Mypay dfas mil Internet. Mypay dfas mil    IRS. Mypay dfas mil gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Mypay dfas mil Download the free IRS2Go app from the iTunes app store or from Google Play. Mypay dfas mil Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Mypay dfas mil Check the status of your 2013 refund with the Where's My Refund? application on IRS. Mypay dfas mil gov or download the IRS2Go app and select the Refund Status option. Mypay dfas mil The IRS issues more than 9 out of 10 refunds in less than 21 days. Mypay dfas mil Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Mypay dfas mil You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Mypay dfas mil The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Mypay dfas mil Use the Interactive Tax Assistant (ITA) to research your tax questions. Mypay dfas mil No need to wait on the phone or stand in line. Mypay dfas mil The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Mypay dfas mil When you reach the response screen, you can print the entire interview and the final response for your records. Mypay dfas mil New subject areas are added on a regular basis. Mypay dfas mil  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Mypay dfas mil gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Mypay dfas mil You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Mypay dfas mil The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Mypay dfas mil When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Mypay dfas mil Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Mypay dfas mil You can also ask the IRS to mail a return or an account transcript to you. Mypay dfas mil Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Mypay dfas mil gov or by calling 1-800-908-9946. Mypay dfas mil Tax return and tax account transcripts are generally available for the current year and the past three years. Mypay dfas mil Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Mypay dfas mil Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Mypay dfas mil If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Mypay dfas mil Check the status of your amended return using Where's My Amended Return? Go to IRS. Mypay dfas mil gov and enter Where's My Amended Return? in the search box. Mypay dfas mil You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Mypay dfas mil It can take up to 3 weeks from the date you mailed it to show up in our system. Mypay dfas mil Make a payment using one of several safe and convenient electronic payment options available on IRS. Mypay dfas mil gov. Mypay dfas mil Select the Payment tab on the front page of IRS. Mypay dfas mil gov for more information. Mypay dfas mil Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Mypay dfas mil Figure your income tax withholding with the IRS Withholding Calculator on IRS. Mypay dfas mil gov. Mypay dfas mil Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Mypay dfas mil Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Mypay dfas mil gov. Mypay dfas mil Request an Electronic Filing PIN by going to IRS. Mypay dfas mil gov and entering Electronic Filing PIN in the search box. Mypay dfas mil Download forms, instructions and publications, including accessible versions for people with disabilities. Mypay dfas mil Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Mypay dfas mil gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Mypay dfas mil An employee can answer questions about your tax account or help you set up a payment plan. Mypay dfas mil Before you visit, check the Office Locator on IRS. Mypay dfas mil gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Mypay dfas mil If you have a special need, such as a disability, you can request an appointment. Mypay dfas mil Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Mypay dfas mil Apply for an Employer Identification Number (EIN). Mypay dfas mil Go to IRS. Mypay dfas mil gov and enter Apply for an EIN in the search box. Mypay dfas mil Read the Internal Revenue Code, regulations, or other official guidance. Mypay dfas mil Read Internal Revenue Bulletins. Mypay dfas mil Sign up to receive local and national tax news and more by email. Mypay dfas mil Just click on “subscriptions” above the search box on IRS. Mypay dfas mil gov and choose from a variety of options. Mypay dfas mil    Phone. Mypay dfas mil You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Mypay dfas mil Download the free IRS2Go app from the iTunes app store or from Google Play. Mypay dfas mil Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Mypay dfas mil gov, or download the IRS2Go app. Mypay dfas mil Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Mypay dfas mil The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Mypay dfas mil Most VITA and TCE sites offer free electronic filing. Mypay dfas mil Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Mypay dfas mil Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Mypay dfas mil Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Mypay dfas mil If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Mypay dfas mil The IRS issues more than 9 out of 10 refunds in less than 21 days. Mypay dfas mil Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Mypay dfas mil Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Mypay dfas mil The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Mypay dfas mil Note, the above information is for our automated hotline. Mypay dfas mil Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Mypay dfas mil Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Mypay dfas mil You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Mypay dfas mil It can take up to 3 weeks from the date you mailed it to show up in our system. Mypay dfas mil Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Mypay dfas mil You should receive your order within 10 business days. Mypay dfas mil Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Mypay dfas mil If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Mypay dfas mil Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Mypay dfas mil The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Mypay dfas mil These individuals can also contact the IRS through relay services such as the Federal Relay Service. Mypay dfas mil    Walk-in. Mypay dfas mil You can find a selection of forms, publications and services — in-person. Mypay dfas mil Products. Mypay dfas mil You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Mypay dfas mil Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Mypay dfas mil Services. Mypay dfas mil You can walk in to your local TAC for face-to-face tax help. Mypay dfas mil An employee can answer questions about your tax account or help you set up a payment plan. Mypay dfas mil Before visiting, use the Office Locator tool on IRS. Mypay dfas mil gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Mypay dfas mil    Mail. Mypay dfas mil You can send your order for forms, instructions, and publications to the address below. Mypay dfas mil You should receive a response within 10 business days after your request is received. Mypay dfas mil Internal Revenue Service 1201 N. Mypay dfas mil Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. Mypay dfas mil The Taxpayer Advocate Service (TAS) is your voice at the IRS. Mypay dfas mil Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Mypay dfas mil   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Mypay dfas mil We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Mypay dfas mil You face (or your business is facing) an immediate threat of adverse action. Mypay dfas mil You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Mypay dfas mil   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Mypay dfas mil Here's why we can help: TAS is an independent organization within the IRS. Mypay dfas mil Our advocates know how to work with the IRS. Mypay dfas mil Our services are free and tailored to meet your needs. Mypay dfas mil We have offices in every state, the District of Columbia, and Puerto Rico. Mypay dfas mil   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. Mypay dfas mil   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Mypay dfas mil If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. Mypay dfas mil Low Income Taxpayer Clinics. Mypay dfas mil   Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Mypay dfas mil Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Mypay dfas mil Visit Taxpayer Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. Mypay dfas mil Prev  Up  Next   Home   More Online Publications