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Print 2011 Tax Forms

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Print 2011 Tax Forms

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

Print 2011 tax forms Publication 584 - Additional Material Table of Contents This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Entrance Hall This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Living Room This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Dining Room This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Kitchen This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Den This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Bedrooms This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Bathrooms This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Recreation Room This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Laundry and Basement This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Garage This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Sporting Equipment This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Men's Clothing This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Women's Clothing This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Children's Clothing This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Jewelry This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Electrical Appliances This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Linens This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Miscellaneous This image is too large to be displayed in the current screen. Print 2011 tax forms Please click the link to view the image. Print 2011 tax forms Motor Vehicles Schedule 20. Print 2011 tax forms Home (Excluding Contents) Note. Print 2011 tax forms If you used the entire property as your home, fill out only column (a). Print 2011 tax forms If you used part of the property as your home and part of it for business or to produce rental income, you must allocate the entries on lines 2-9 between the personal part (column (a)) and the business/rental part (column (b)). Print 2011 tax forms 1. Print 2011 tax forms Description of property (Show location and date acquired. Print 2011 tax forms )     (a)  Personal Part (b)  Business/Rental Part 2. Print 2011 tax forms Cost or other (adjusted) basis of property (from Worksheet A)     3. Print 2011 tax forms Insurance or other reimbursement Note. Print 2011 tax forms If line 2 is more than line 3, skip line 4. Print 2011 tax forms If line 3 is more than line 2, you exclude gain, and the gain is more than you can exclude, see the instructions for line 3 in the Instructions for Form 4684 for the amount to enter. Print 2011 tax forms     4. Print 2011 tax forms Gain from casualty. Print 2011 tax forms If line 3 is more than line 2, enter the difference here and skip lines 5 through 9. Print 2011 tax forms But see Next below line 9. Print 2011 tax forms     5. Print 2011 tax forms Fair market value before casualty     6. Print 2011 tax forms Fair market value after casualty     7. Print 2011 tax forms Decrease in fair market value. Print 2011 tax forms Subtract line 6 from line 5. Print 2011 tax forms     8. Print 2011 tax forms Enter the smaller of line 2 or line 7 Note for business/rental part. Print 2011 tax forms If the property was totally destroyed by casualty, enter on line 8, column (b) the amount from line 2, column (b). Print 2011 tax forms     9. Print 2011 tax forms Subtract line 3 from line 8. Print 2011 tax forms If zero or less, enter -0-. Print 2011 tax forms     Next: Transfer the entries from line 1 and lines 2-9, column (a), above to the corresponding lines on Form 4684, Section A. Print 2011 tax forms Transfer the entries from line 1 and lines 2-9, column (b), to the corresponding lines on Form 4684, Section B. Print 2011 tax forms Worksheet A. Print 2011 tax forms Cost or Other (Adjusted) Basis Caution. Print 2011 tax forms See the Worksheet A Instructions before you use this worksheet. Print 2011 tax forms         (a) Personal Part (b) Business/Rental Part 1. Print 2011 tax forms   Enter the purchase price of the home damaged or destroyed. Print 2011 tax forms (If you filed Form 2119 when you originally acquired that home to postpone gain on the sale of a previous home before May 7, 1997, enter the adjusted basis of the new home from that Form 2119. Print 2011 tax forms ) 1. Print 2011 tax forms     2. Print 2011 tax forms   Seller paid points for home bought after 1990. Print 2011 tax forms Do not include any seller-paid points you already subtracted to arrive at the amount entered on line 1 2. Print 2011 tax forms     3. Print 2011 tax forms   Subtract line 2 from line 1 3. Print 2011 tax forms     4. Print 2011 tax forms   Settlement fees or closing costs. Print 2011 tax forms (See Settlement costs in Publication 551. Print 2011 tax forms ) If line 1 includes the adjusted basis of the new home from Form 2119, skip lines 4a-4g and 5; go to line 6. Print 2011 tax forms         a. Print 2011 tax forms Abstract and recording fees 4a. Print 2011 tax forms       b. Print 2011 tax forms Legal fees (including fees for title search and preparing documents) 4b. Print 2011 tax forms       c. Print 2011 tax forms Survey fees 4c. Print 2011 tax forms       d. Print 2011 tax forms Title insurance 4d. Print 2011 tax forms       e. Print 2011 tax forms Transfer or stamp taxes 4e. Print 2011 tax forms       f. Print 2011 tax forms Amounts that the seller owed that you agreed to pay (back taxes or interest, recording or mortgage fees, and sales commissions) 4f. Print 2011 tax forms       g. Print 2011 tax forms Other 4g. Print 2011 tax forms     5. Print 2011 tax forms   Add lines 4a through 4g 5. Print 2011 tax forms     6. Print 2011 tax forms   Cost of additions and improvements. Print 2011 tax forms (See Increases to Basis in Publication 551. Print 2011 tax forms ) Do not include any additions and improvements included on line 1 6. Print 2011 tax forms     7. Print 2011 tax forms   Special tax assessments paid for local improvements, such as streets and sidewalks 7. Print 2011 tax forms     8. Print 2011 tax forms   Other increases to basis 8. Print 2011 tax forms     9. Print 2011 tax forms   Add lines 3, 5, 6, 7, and 8 9. Print 2011 tax forms     10. Print 2011 tax forms   Depreciation allowed or allowable, related to the business use or rental of the home 10. Print 2011 tax forms 0   11. Print 2011 tax forms   Other decreases to basis (See Decreases to Basis in Publication 551. Print 2011 tax forms ) 11. Print 2011 tax forms     12. Print 2011 tax forms   Add lines 10 and 11 12. Print 2011 tax forms     13. Print 2011 tax forms   Cost or other (adjusted) basis of home damaged or destroyed. Print 2011 tax forms Subtract line 12 from line 9. Print 2011 tax forms Enter here and on Schedule 20, line 2 13. Print 2011 tax forms     Worksheet A Instructions. Print 2011 tax forms If you use Worksheet A to figure the cost or other (adjusted) basis of your home, follow these instructions. Print 2011 tax forms DO NOT use this worksheet to determine your basis if you acquired an interest in your home from a decedent who died in 2010 and whose executor filed Form 8939. Print 2011 tax forms IF. Print 2011 tax forms . Print 2011 tax forms . Print 2011 tax forms   THEN. Print 2011 tax forms . Print 2011 tax forms . Print 2011 tax forms you inherited your home from a decedent who died either before or after 2010 or from a decedent who died in 2010 and whose executor did not file Form 8939. Print 2011 tax forms 1 skip lines 1–4 of the worksheet. Print 2011 tax forms 2 find your basis using the rules under Inherited Property in Publication 551. Print 2011 tax forms Enter this amount on line 5 of the worksheet. Print 2011 tax forms 3 fill out lines 6–13 of the worksheet. Print 2011 tax forms you received your home as a gift 1 read Property Received as a Gift in Publication 551 and enter on lines 1 and 3 of the worksheet either the donor's adjusted basis or the home's fair market value at the time of the gift, whichever is appropriate. Print 2011 tax forms 2 if you can add any federal gift tax to your basis, enter that amount on line 5 of the worksheet. Print 2011 tax forms 3 fill out the rest of the worksheet. Print 2011 tax forms you received your home as a trade for other property 1 enter on line 1 of the worksheet the fair market value of the other property at the time of the trade. Print 2011 tax forms (But if you received your home as a trade for your previous home before May 7, 1997, and had a gain on the trade that you postponed using Form 2119, enter on line 1 of the worksheet the adjusted basis of the new home from that Form 2119. Print 2011 tax forms ) 2 fill out the rest of the worksheet. Print 2011 tax forms you built your home 1 add the purchase price of the land and the cost of building the home. Print 2011 tax forms Enter that total on line 1 of the worksheet. Print 2011 tax forms (However, if you filed a Form 2119 to postpone gain on the sale of a previous home before May 7, 1997, enter on line 1 of the worksheet the adjusted basis of the new home from that Form 2119. Print 2011 tax forms ) 2 fill out the rest of the worksheet. Print 2011 tax forms you received your home from your spouse after July 18, 1984 1 skip lines 1–4 of the worksheet. Print 2011 tax forms 2 enter on line 5 of the worksheet your spouse's cost or other (adjusted) basis in the home just before you received it. Print 2011 tax forms 3 fill out lines 6–13 of the worksheet, making adjustments to basis only for events after the transfer. Print 2011 tax forms you owned a home jointly with your spouse, who transferred his or her interest in the home to you after July 18, 1984     fill out one worksheet, making adjustments to basis for events both before and after the transfer. Print 2011 tax forms   you received your home from your spouse before July 19, 1984 1 skip lines 1–4 of the worksheet. Print 2011 tax forms 2 enter on line 5 of the worksheet the home's fair market value at the time you received it. Print 2011 tax forms 3 fill out lines 6–13 of the worksheet, making adjustments to basis only for events after the transfer. Print 2011 tax forms you owned a home jointly with your spouse, and your spouse transferred his or her interest in the home to you before July 19, 1984 1 fill out a worksheet, lines 1–13, making adjustments to basis only for events before the transfer. Print 2011 tax forms 2 multiply the amount on line 13 of that worksheet by 50% (0. Print 2011 tax forms 50) to get the adjusted basis of your half-interest at the time of the transfer. Print 2011 tax forms 3 multiply the fair market value of the home at the time of the transfer by 50% (0. Print 2011 tax forms 50). Print 2011 tax forms Generally, this is the basis of the half-interest that your spouse owned. Print 2011 tax forms 4 add the amounts from steps 2 and 3 and enter the total on line 5 of a second worksheet. Print 2011 tax forms 5 complete lines 6–13 of the second worksheet, making adjustments to basis only for events after the transfer. Print 2011 tax forms you owned your home jointly with a nonspouse 1 fill out lines 1–13 of the worksheet. Print 2011 tax forms 2 multiply the amount on line 13 by your percentage of ownership to get the adjusted basis of your part-interest. Print 2011 tax forms Worksheet A Instructions. Print 2011 tax forms (Continued) IF. Print 2011 tax forms . Print 2011 tax forms . Print 2011 tax forms   THEN. Print 2011 tax forms . Print 2011 tax forms . Print 2011 tax forms you owned your home jointly with your spouse who died before 2010 and before the casualty 1 fill out a worksheet, lines 1–13, including adjustments to basis only for events before your spouse's death. Print 2011 tax forms 2 multiply the amount on line 13 of that worksheet by 50% (0. Print 2011 tax forms 50) to get the adjusted basis of your half-interest on the date of death. Print 2011 tax forms 3 figure the basis for the half-interest owned by your spouse. Print 2011 tax forms This is one-half of the fair market value on the date of death (or later alternate valuation used for estate or inheritance tax). Print 2011 tax forms (The basis in your half will remain one-half of the adjusted basis determined in step 2. Print 2011 tax forms ) 4 add the amounts from steps 2 and 3 and enter the total on line 5 of a second worksheet. Print 2011 tax forms 5 complete lines 6–13 of the second worksheet, making adjustments to basis only for events after your spouse's death. Print 2011 tax forms you owned your home jointly with your spouse who died before 2010 and before the casualty, and your permanent legal home is in a community property state 1 skip lines 1–4 of the worksheet. Print 2011 tax forms 2 enter the amount of your basis on line 5 of the worksheet. Print 2011 tax forms Generally, this is the fair market value of the home at the time of death. Print 2011 tax forms (But see Community Property in Publication 551 for special rules. Print 2011 tax forms ) 3 fill out lines 6–13 of the worksheet, making adjustments to basis only for events after your spouse's death. Print 2011 tax forms you owned your home jointly with a nonspouse who died before 2010 and before the casualty 1 fill out lines 1–13 of the worksheet, including adjustments to basis only for events before the co-owner's death. Print 2011 tax forms 2 multiply the amount on line 13 by your percentage of ownership to get the adjusted basis of your part-interest on the date of death. Print 2011 tax forms 3 multiply the fair market value on the date of death (or later alternate valuation used for estate or inheritance tax) by the co-owner's percentage of ownership. Print 2011 tax forms This is the basis for the co-owner's part-interest. Print 2011 tax forms 4 add the amounts from steps 2 and 3 and enter the total on line 5 of a second worksheet. Print 2011 tax forms 5 complete lines 6–13 of the second worksheet, including adjustments to basis only for events after the co-owner's death. Print 2011 tax forms your home was ever damaged as a result of a prior casualty 1 on line 8 of the worksheet, enter any amounts you spent to restore the home to its condition before the prior casualty. Print 2011 tax forms 2 on line 11 enter: any insurance reimbursements you received (or expect to receive) for the prior loss,  and any deductible casualty losses from prior years not covered by insurance. Print 2011 tax forms the person who sold you your home paid points on your loan and you bought your home after 1990 but before April 4, 1994. Print 2011 tax forms   on line 2 enter the seller-paid points only if you deducted them as home mortgage interest in the year paid (unless you used the seller-paid points to reduce the amount on line 1). Print 2011 tax forms the person who sold you your home paid points on your loan and you bought your home after April 3, 1994   on line 2 enter the seller-paid points even if you did not deduct them (unless you used the seller-paid points to reduce the amount on line 1). Print 2011 tax forms you used part of the property as your home and part of it for business or to produce rental income   you must allocate the entries on Worksheet A between the personal part (column (a)) and the business/rental part (column (b)). Print 2011 tax forms none of these items apply   fill out the entire worksheet. Print 2011 tax forms Prev  Up  Next   Home   More Online Publications