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1040 Ez Tax

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1040 Ez Tax

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

1040 ez tax Index Symbols 529 program (see Qualified tuition program (QTP)) A Academic period American opportunity credit, Academic period. 1040 ez tax Lifetime learning credit, Academic period. 1040 ez tax Student loan interest deduction, Academic period. 1040 ez tax Tuition and fees deduction, Academic period. 1040 ez tax Accountable plans, Accountable Plans, Allocating your reimbursements for meals. 1040 ez tax Additional tax Coverdell ESA On excess contributions, Additional Tax on Excess Contributions, Figuring and reporting the additional tax. 1040 ez tax On taxable distributions, Additional Tax on Taxable Distributions IRA distributions, education exception, Education Exception to Additional Tax on Early IRA Distributions Qualified tuition program (QTP), on taxable distributions, Additional Tax on Taxable Distributions Adjusted qualified education expenses (see Qualified education expenses) American opportunity credit Adjustments to qualified education expenses, Adjustments to Qualified Education Expenses Claiming dependent's expenses, Who Can Claim a Dependent's Expenses, Tuition reduction. 1040 ez tax Tuition reduction, Tuition reduction. 1040 ez tax Claiming the credit, Can You Claim the Credit, Who Cannot Claim the Credit, Claiming the Credit Qualifying to claim (Figure 2-1), Coordination with Coverdell ESA distributions, Figuring the Taxable Portion of a Distribution Coordination with qualified tuition program (QTP) distributions, Coordination With American Opportunity and Lifetime Learning Credits Eligible educational institution, Eligible educational institution. 1040 ez tax Eligible student, Who Is an Eligible Student Requirements (Figure 2-2), Expenses qualifying for, What Expenses Qualify, Adjustments to Qualified Education Expenses Figuring the credit, Figuring the Credit Income level, effect on amount of credit, Effect of the Amount of Your Income on the Amount of Your Credit, Phaseout. 1040 ez tax Income limits, Effect of the Amount of Your Income on the Amount of Your Credit, Phaseout. 1040 ez tax Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). 1040 ez tax Worksheet 2-1, Claiming the Credit Overview of American opportunity credit (Table 2-1), Introduction Phaseout, Phaseout. 1040 ez tax Qualified education expenses, Qualified Education Expenses Tax benefit of, What is the tax benefit of the American opportunity credit. 1040 ez tax Armed Forces Health Professions Scholarship and Financial Assistance Program, Exceptions. 1040 ez tax Assistance (see Tax help) Athletic scholarships, Athletic Scholarships B Bar review course, Bar or CPA Review Course Bonds, education savings (see Education savings bond program) Business deduction for work-related education, Business Deduction for Work-Related Education, Illustrated Example Accountable plans, Accountable Plans, Allocating your reimbursements for meals. 1040 ez tax Adjustments to qualifying work-related education expenses, Adjustments to Qualifying Work-Related Education Expenses Allocating meal reimbursements, Allocating your reimbursements for meals. 1040 ez tax Deductible education expenses, What Expenses Can Be Deducted, Adjustments to Qualifying Work-Related Education Expenses Deducting business expenses, Deducting Business Expenses, Impairment-Related Work Expenses Double benefit not allowed, No Double Benefit Allowed Education required by employer or by law, Education Required by Employer or by Law Education to maintain or improve skills, Education To Maintain or Improve Skills Education to meet minimum requirements, Education To Meet Minimum Requirements, Certification in a new state. 1040 ez tax Education to qualify for new trade or business, Education That Qualifies You for a New Trade or Business, Teaching and Related Duties Excess expenses, accountable plan, Excess expenses. 1040 ez tax , Allocating your reimbursements for meals. 1040 ez tax Indefinite absence, Education during indefinite absence. 1040 ez tax Maintaining skills vs. 1040 ez tax qualifying for new job, Maintaining skills vs. 1040 ez tax qualifying for new job. 1040 ez tax Nonaccountable plans, Nonaccountable Plans Nondeductible expenses, Nondeductible expenses. 1040 ez tax Qualified education expenses, What Expenses Can Be Deducted, Adjustments to Qualifying Work-Related Education Expenses Recordkeeping requirements, Recordkeeping, Examples of records to keep. 1040 ez tax Reimbursements, treatment of, How To Treat Reimbursements, Reimbursements for nondeductible expenses. 1040 ez tax Tax benefit of, What is the tax benefit of taking a business deduction for work-related education. 1040 ez tax Tax-free educational assistance, Tax-free educational assistance. 1040 ez tax Teachers, Requirements for Teachers, Teaching and Related Duties Temporary absence to acquire education, Education during temporary absence. 1040 ez tax Transportation expenses, Transportation Expenses, Using your car. 1040 ez tax Travel expenses, Travel Expenses C Cancellation of student loan (see Student loan cancellation) Candidate for a degree Scholarships and fellowships, Candidate for a degree. 1040 ez tax Change of designated beneficiary Coverdell ESA, Changing the Designated Beneficiary Qualified tuition program, Changing the Designated Beneficiary Collapsed loans, Interest on refinanced student loans. 1040 ez tax Comprehensive or bundled fees American opportunity credit, Comprehensive or bundled fees. 1040 ez tax Lifetime learning credit, Comprehensive or bundled fees. 1040 ez tax Tuition and fees deduction, Comprehensive or bundled fees. 1040 ez tax Consolidated loans used to refinance student loans, Interest on refinanced student loans. 1040 ez tax Conventions outside U. 1040 ez tax S. 1040 ez tax , Cruises and conventions. 1040 ez tax Coverdell education savings account (ESA), Coverdell Education Savings Account (ESA), Figuring the Taxable Portion of a Distribution, Coordination With American Opportunity and Lifetime Learning Credits, Worksheet 7-3. 1040 ez tax Coverdell ESA—Taxable Distributions and Basis Additional tax On excess contributions, Additional Tax on Excess Contributions, Figuring and reporting the additional tax. 1040 ez tax On taxable distributions, Additional Tax on Taxable Distributions Assets to be distributed at age 30 or death of beneficiary, When Assets Must Be Distributed Contribution limits, Contribution Limits, Figuring the limit. 1040 ez tax Figuring the limit (Worksheet 6-2), Figuring the limit. 1040 ez tax Contributions to, Contributions, Figuring and reporting the additional tax. 1040 ez tax Table 7-2, Contributions Coordination with American opportunity and lifetime learning credits, Coordination With American Opportunity and Lifetime Learning Credits Coordination with qualified tuition program (QTP), Coordination With Qualified Tuition Program (QTP) Distributions Defined, What Is a Coverdell ESA Distributions, Distributions, How To Figure the Taxable Earnings Overview (Table 7-3), Distributions Divorce, transfer due to, Transfer Because of Divorce Eligible educational institution, Eligible Educational Institution Figuring taxable portion of distribution, Figuring the Taxable Portion of a Distribution Worksheet 7-3, Worksheet 7-3. 1040 ez tax Coverdell ESA—Taxable Distributions and Basis Figuring the taxable earnings in required distribution, How To Figure the Taxable Earnings Losses, Losses on Coverdell ESA Investments Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). 1040 ez tax , MAGI when using Form 1040NR-EZ. 1040 ez tax Worksheet 6-1, Worksheet 7-1. 1040 ez tax MAGI for a Coverdell ESA Overview (Table 6-1), Coverdell Education Savings Account (ESA) Qualified education expenses, Qualified Education Expenses, Qualified Elementary and Secondary Education Expenses Rollovers, Rollovers Tax benefit of, What is the tax benefit of the Coverdell ESA. 1040 ez tax Tax-free distributions, Tax-Free Distributions Taxable distributions, Taxable Distributions, Figuring the additional tax. 1040 ez tax Worksheet 7-3 to figure, Worksheet 7-3. 1040 ez tax Coverdell ESA—Taxable Distributions and Basis Transfers, Rollovers CPA review course, Bar or CPA Review Course Credits American opportunity (see American opportunity credit) Lifetime learning (see Lifetime learning credit) Cruises, educational, Cruises and conventions. 1040 ez tax D Deductions (see Business deduction for work-related education) Designated beneficiary Coverdell ESA, What Is a Coverdell ESA, Changing the Designated Beneficiary Qualified tuition program (QTP), Designated beneficiary. 1040 ez tax , Changing the Designated Beneficiary Disabilities, persons with Impairment-related work expenses, Impairment-Related Work Expenses Distributions (see specific benefit ) Divorce Coverdell ESA transfer due to, Transfer Because of Divorce Expenses paid under decree American opportunity credit, Expenses paid by dependent. 1040 ez tax Lifetime learning credit, Expenses paid by dependent. 1040 ez tax Tuition and fees deduction, Expenses paid under divorce decree. 1040 ez tax Double benefit not allowed American opportunity credit, No Double Benefit Allowed Lifetime learning credit, No Double Benefit Allowed Student loan interest deduction, No Double Benefit Allowed Tuition and fees deduction, No Double Benefit Allowed Work-related education, No Double Benefit Allowed E Early distributions from IRAs, Education Exception to Additional Tax on Early IRA Distributions, Reporting Early Distributions Eligible educational institution, Eligible educational institution. 1040 ez tax Figuring amount not subject to 10% tax, Figuring the Amount Not Subject to the 10% Tax Qualified education expenses, Qualified education expenses. 1040 ez tax Reporting, Reporting Early Distributions Education IRA (see Coverdell education savings account (ESA)) Education loans (see Student loan interest deduction) Education savings account (see Coverdell education savings account (ESA)) Education savings bond program Cashing in bonds tax free, Who Can Cash In Bonds Tax Free, MAGI when using Form 1040. 1040 ez tax Claiming dependent's exemption, Dependent for whom you claim an exemption. 1040 ez tax Claiming exclusion, Claiming the Exclusion Eligible educational institution, Eligible educational institution. 1040 ez tax Figuring tax-free amount, Figuring the Tax-Free Amount Income level, effect on amount of exclusion, Effect of the Amount of Your Income on the Amount of Your Exclusion Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). 1040 ez tax , MAGI when using Form 1040. 1040 ez tax Phaseout, Effect of the Amount of Your Income on the Amount of Your Exclusion Qualified education expenses, Qualified education expenses. 1040 ez tax Educational assistance, employer-provided (see Employer-provided educational assistance) Eligible educational institution American opportunity credit, Eligible educational institution. 1040 ez tax Cancellation of student loan, Eligible educational institution. 1040 ez tax Coverdell ESA, Eligible Educational Institution Early distributions from IRAs, Eligible educational institution. 1040 ez tax Education savings bond program, Eligible educational institution. 1040 ez tax Lifetime learning credit, Eligible educational institution. 1040 ez tax Qualified tuition program (QTP), Eligible educational institution. 1040 ez tax Qualified tuition reduction, Qualified Tuition Reduction Scholarships and fellowships, Eligible educational institution. 1040 ez tax , Eligible educational institution. 1040 ez tax Student loan cancellation, Eligible educational institution. 1040 ez tax Student loan interest deduction, Eligible educational institution. 1040 ez tax Tuition and fees deduction, Eligible educational institution. 1040 ez tax Eligible elementary or secondary school Coverdell ESA, Eligible elementary or secondary school. 1040 ez tax Eligible student American opportunity credit, Who Is an Eligible Student Lifetime learning credit, Who Is an Eligible Student Student loan interest deduction, Eligible student. 1040 ez tax Tuition and fees deduction, Who Is an Eligible Student Employees Deducting work-related education expenses, Employees Employer-provided educational assistance, Employer-Provided Educational Assistance, Working condition fringe benefit. 1040 ez tax ESAs (see Coverdell education savings account (ESA)) Estimated tax, Reminders Excess contributions Coverdell ESA, Additional Tax on Excess Contributions, Figuring and reporting the additional tax. 1040 ez tax Excess expenses, accountable plan, Excess expenses. 1040 ez tax , Allocating your reimbursements for meals. 1040 ez tax Expenses (see specific benefit ) F Family members, beneficiary Coverdell ESA, Members of the beneficiary's family. 1040 ez tax Qualified tuition program (QTP), Members of the beneficiary's family. 1040 ez tax Fee-basis officials, work-related education deduction, Performing Artists and Fee-Basis Officials Fellowships (see Scholarships and fellowships) Figures (see Tables and figures) Financial aid (see Scholarships and fellowships) Form 1098-E Student loan interest deduction, Loan origination fee. 1040 ez tax , Form 1098-E. 1040 ez tax Form 1098-T, Reminders American opportunity credit, Form 1098-T. 1040 ez tax Lifetime learning credit, Form 1098-T. 1040 ez tax Tuition and fees deduction, Form 1098-T. 1040 ez tax Form 1099-Q Coverdell ESA, Exceptions. 1040 ez tax , Earnings and basis. 1040 ez tax Qualified tuition program (QTP), Earnings and return of investment. 1040 ez tax Form 1099-R Early distributions from IRAs, Reporting Early Distributions Form 2106, 50% limit on meals. 1040 ez tax , Form 2106 or 2106-EZ. 1040 ez tax Form 2106-EZ, 50% limit on meals. 1040 ez tax , Form 2106 or 2106-EZ. 1040 ez tax , Using Form 2106-EZ. 1040 ez tax Filled-in example, Form 5329 Coverdell ESA, Figuring the additional tax. 1040 ez tax Early distributions from IRAs, Reporting Early Distributions Qualified tuition program (QTP), Figuring the additional tax. 1040 ez tax Form 8815, MAGI when using Form 1040. 1040 ez tax , Claiming the Exclusion Form 8863 Filled-in examples, Form 8917 Filled-in examples, Form W-9S, Form 1098-T. 1040 ez tax , Form 1098-T. 1040 ez tax , Form 1098-E. 1040 ez tax , Form 1098-T. 1040 ez tax Free tax services, Free help with your tax return. 1040 ez tax Fulbright grants, Fulbright Grants G Glossary, Glossary. 1040 ez tax , Glossary, Transfer: Graduate education tuition reduction, Graduate Education Grants Fulbright, Fulbright Grants Pell, Pell Grants and Other Title IV Need-Based Education Grants Title IV need-based education, Pell Grants and Other Title IV Need-Based Education Grants H Half-time student American opportunity credit, Enrolled at least half-time. 1040 ez tax Coverdell ESA, Half-time student. 1040 ez tax Early distributions from IRAs, Half-time student. 1040 ez tax Student loan interest deduction, Enrolled at least half-time. 1040 ez tax Help (see Tax help) I Illustrated example of education credits (Appendix A), Appendix A. 1040 ez tax Illustrated Example of Education Credits, Impairment-related work expenses Work-related education deduction, Impairment-Related Work Expenses Individual retirement arrangements (IRAs), Coverdell Education Savings Account (ESA) Early distributions (see Early distributions from IRAs) L Lifetime learning credit, Differences between the American opportunity and lifetime learning credits. 1040 ez tax Academic period, Academic period. 1040 ez tax Adjustments to qualified education expenses, Adjustments to Qualified Education Expenses Claiming dependent's expenses, Who Can Claim a Dependent's Expenses Tuition reduction, Tuition reduction. 1040 ez tax Claiming the credit, Can You Claim the Credit, Who Cannot Claim the Credit, Claiming the Credit Qualifying to claim (Figure 3-1), Coordination with Coverdell ESA distributions, Figuring the Taxable Portion of a Distribution, Coordination With American Opportunity and Lifetime Learning Credits Coordination with qualified tuition program (QTP) distributions, Coordination With American Opportunity and Lifetime Learning Credits Eligible educational institution, Eligible educational institution. 1040 ez tax Eligible student, Who Is an Eligible Student Expenses qualifying for, What Expenses Qualify, Amounts that do not reduce qualified education expenses. 1040 ez tax Figuring the credit, Figuring the Credit, Claiming the Credit Income level, effect on amount of credit, Effect of the Amount of Your Income on the Amount of Your Credit Income limits, Effect of the Amount of Your Income on the Amount of Your Credit Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). 1040 ez tax Worksheet 3-1, MAGI when using Form 1040. 1040 ez tax Overview (Table 3-1), Table 3-1. 1040 ez tax Overview of the Lifetime Learning Credit Phaseout, Phaseout. 1040 ez tax Qualified education expenses, Qualified Education Expenses, Amounts that do not reduce qualified education expenses. 1040 ez tax Qualifying to claim (Figure 3-1), Tax benefit of, What is the tax benefit of the lifetime learning credit. 1040 ez tax Loans Cancellation (see Student loan cancellation) Capitalized interest on student loan, Capitalized interest. 1040 ez tax Origination fees on student loan, Loan origination fee. 1040 ez tax Qualified education expenses paid with American opportunity credit, Academic period. 1040 ez tax Lifetime learning credit, Paid with borrowed funds. 1040 ez tax Student loan repayment assistance, Student Loan Repayment Assistance Losses, deducting Coverdell ESA, Losses on Coverdell ESA Investments Qualified tuition program (QTP), Losses on QTP Investments Luxury water transportation, Cruises and conventions. 1040 ez tax M Mileage deduction for work-related education, What's New, Using your car. 1040 ez tax Military academy cadets, Payment to Service Academy Cadets Missing children, photographs of, Reminders Modified adjusted gross income (MAGI) American opportunity credit Worksheet 2-1, Claiming the Credit Coverdell ESA, Modified adjusted gross income (MAGI). 1040 ez tax , MAGI when using Form 1040NR-EZ. 1040 ez tax Worksheet 6-1, Worksheet 7-1. 1040 ez tax MAGI for a Coverdell ESA Education savings bond program, Modified adjusted gross income (MAGI). 1040 ez tax , MAGI when using Form 1040. 1040 ez tax Lifetime learning credit, Modified adjusted gross income (MAGI). 1040 ez tax Worksheet 3-1, MAGI when using Form 1040. 1040 ez tax Student loan interest deduction, Modified adjusted gross income (MAGI). 1040 ez tax Table 4-2, Table 4-2. 1040 ez tax Effect of MAGI on Student Loan Interest Deduction Tuition and fees deduction, Modified adjusted gross income (MAGI). 1040 ez tax Table 6-2, Table 6-2. 1040 ez tax Effect of MAGI on Maximum Tuition and Fees Deduction Worksheet 6-1, Worksheet 6-1. 1040 ez tax MAGI for the Tuition and Fees Deduction N National Health Service Corps Scholarship Program, Exceptions. 1040 ez tax , Exceptions. 1040 ez tax Nonaccountable plans Work-related education, Nonaccountable Plans P Pell grants, Pell Grants and Other Title IV Need-Based Education Grants, Coordination with Pell grants and other scholarships. 1040 ez tax , Coordination with Pell grants and other scholarships. 1040 ez tax Performing artists, work-related education deduction, Performing Artists and Fee-Basis Officials Phaseout American opportunity credit, Phaseout. 1040 ez tax Education savings bond program, Effect of the Amount of Your Income on the Amount of Your Exclusion Lifetime learning credit, Phaseout. 1040 ez tax Student loan interest deduction, Phaseout. 1040 ez tax , Effect of the Amount of Your Income on the Amount of Your Deduction Publications (see Tax help) Q Qualified education expenses Adjustments to American opportunity credit, Adjustments to Qualified Education Expenses Coverdell ESA, Adjusted qualified education expenses. 1040 ez tax Education savings bond program, Adjusted qualified education expenses. 1040 ez tax Lifetime learning credit, Adjustments to Qualified Education Expenses Qualified tuition program (QTP), Adjusted qualified education expenses. 1040 ez tax Student loan interest deduction, Adjustments to Qualified Education Expenses Tuition and fees deduction, Adjustments to Qualified Education Expenses Work-related education, Adjustments to Qualifying Work-Related Education Expenses American opportunity credit, Qualified Education Expenses, Adjustments to Qualified Education Expenses Coverdell ESA, Qualified Education Expenses, Qualified Elementary and Secondary Education Expenses Early distributions from IRAs, Qualified education expenses. 1040 ez tax Education savings bond program, Qualified education expenses. 1040 ez tax Expenses not qualified American opportunity credit, Expenses That Do Not Qualify, Comprehensive or bundled fees. 1040 ez tax Lifetime learning credit, Expenses That Do Not Qualify Tuition and fees deduction, Expenses That Do Not Qualify Lifetime learning credit, Qualified Education Expenses, Amounts that do not reduce qualified education expenses. 1040 ez tax Qualified tuition program (QTP), Qualified education expenses. 1040 ez tax Scholarships and fellowships, Qualified education expenses. 1040 ez tax Student loan interest deduction, Qualified Education Expenses Tuition and fees deduction, What Expenses Qualify, Adjustments to Qualified Education Expenses Work-related education, What Expenses Can Be Deducted, Adjustments to Qualifying Work-Related Education Expenses Qualified elementary and secondary education expenses Coverdell ESAs, Qualified Elementary and Secondary Education Expenses Qualified employer plans Student loan interest deduction not allowed, Qualified employer plan. 1040 ez tax Qualified student loans, Qualified Student Loan, Qualified employer plan. 1040 ez tax Qualified tuition program (QTP), Qualified Tuition Program (QTP), Changing the Designated Beneficiary Additional tax on taxable distributions, Additional Tax on Taxable Distributions Change of designated beneficiary, Changing the Designated Beneficiary Contributions to, How Much Can You Contribute Coordination with American opportunity and lifetime learning credits, Coordination With American Opportunity and Lifetime Learning Credits Coordination with Coverdell ESA distributions, Coordination With Coverdell ESA Distributions Defined, What Is a Qualified Tuition Program Eligible educational institution, Eligible educational institution. 1040 ez tax Figuring taxable portion of distribution, Figuring the Taxable Portion of a Distribution, Losses on QTP Investments Losses, Losses on QTP Investments Qualified education expenses, Qualified education expenses. 1040 ez tax Rollovers, Rollovers and Other Transfers, Changing the Designated Beneficiary Tax benefit of, What is the tax benefit of a QTP. 1040 ez tax Taxability of distributions, Are Distributions Taxable, Figuring the additional tax. 1040 ez tax Taxable earnings, Taxable earnings. 1040 ez tax Transfers, Rollovers and Other Transfers, Changing the Designated Beneficiary Qualified tuition reduction, Qualified Tuition Reduction, How To Report Qualified U. 1040 ez tax S. 1040 ez tax savings bonds, Qualified U. 1040 ez tax S. 1040 ez tax savings bonds. 1040 ez tax Qualifying work-related education, Qualifying Work-Related Education, Teaching and Related Duties Determining if qualified (Figure 11-1), R Recapture American opportunity credit, Credit recapture. 1040 ez tax Lifetime learning credit, Credit recapture. 1040 ez tax Tuition and fees deduction, Credit recapture. 1040 ez tax Recordkeeping requirements Work-related education, Recordkeeping, Examples of records to keep. 1040 ez tax Refinanced student loans, Interest on refinanced student loans. 1040 ez tax , Refinanced Loan Reimbursements Nondeductible expenses, Reimbursements for nondeductible expenses. 1040 ez tax Work-related education, How To Treat Reimbursements, Reimbursements for nondeductible expenses. 1040 ez tax Related persons Coverdell ESA, Members of the beneficiary's family. 1040 ez tax Qualified tuition program (QTP), Members of the beneficiary's family. 1040 ez tax Student loan interest deduction, Related person. 1040 ez tax Repayment programs (see Student loan repayment assistance) Reporting American opportunity credit, Claiming the Credit Coverdell ESA, Exceptions. 1040 ez tax , Figuring and reporting the additional tax. 1040 ez tax , Figuring the Taxable Portion of a Distribution, Figuring the additional tax. 1040 ez tax Early distributions from IRAs, Reporting Early Distributions Education savings bond program, Claiming the Exclusion Lifetime learning credit, Claiming the Credit Qualified tuition program (QTP), Taxable earnings. 1040 ez tax , Losses on QTP Investments, Rollovers Scholarships and fellowships, taxable, Reporting Scholarships and Fellowships Student loan interest deduction, Claiming the Deduction Tuition and fees deduction, Claiming the Deduction Tuition reduction, taxable, How To Report Work-related education expenses, Deducting Business Expenses, Impairment-Related Work Expenses Revolving lines of credit, interest on, Interest on revolving lines of credit. 1040 ez tax Rollovers Coverdell ESA, Rollovers Qualified tuition program (QTP), Rollovers and Other Transfers, Changing the Designated Beneficiary S Scholarships and fellowships, Scholarships and Fellowships, Form 1040NR-EZ. 1040 ez tax , Coordination with Pell grants and other scholarships. 1040 ez tax , Coordination with Pell grants and other scholarships. 1040 ez tax Athletic scholarships, Athletic Scholarships Eligible educational institution, Eligible educational institution. 1040 ez tax , Eligible educational institution. 1040 ez tax Figuring tax-free and taxable parts (Worksheet 1-1), Worksheet 1-1. 1040 ez tax Qualified education expenses, Qualified education expenses. 1040 ez tax Reporting, Reporting Scholarships and Fellowships Scholarship, defined, Scholarships and Fellowships Tax treatment of (Table 1-1), Tax-Free Scholarships and Fellowships Tax-free, Tax-Free Scholarships and Fellowships, Athletic Scholarships Taxable, Taxable Scholarships and Fellowships Section 501(c)(3) organizations (see Student loan cancellation) Section 529 program (see Qualified tuition program (QTP)) Self-employed persons Deducting work-related education expenses, Self-Employed Persons Service academy cadets, Payment to Service Academy Cadets Sports, games, hobbies, and noncredit courses American opportunity credit, Sports, games, hobbies, and noncredit courses. 1040 ez tax Education savings bond program, Qualified education expenses. 1040 ez tax Lifetime learning credit, Sports, games, hobbies, and noncredit courses. 1040 ez tax Tuition and fees deduction, Sports, games, hobbies, and noncredit courses. 1040 ez tax Standard mileage rate Work-related education, What's New, Using your car. 1040 ez tax State prepaid education accounts (see Qualified tuition program (QTP)) Student loan cancellation, Student Loan Cancellation Eligible educational institution, Eligible educational institution. 1040 ez tax Section 501(c)(3) organizations, Section 501(c)(3) organization. 1040 ez tax Student loan interest deduction Academic period, Academic period. 1040 ez tax Adjustments to qualified education expenses, Adjustments to Qualified Education Expenses Allocation between interest and principal, Allocating Payments Between Interest and Principal Claiming the deduction, Claiming the Deduction Eligible educational institution, Eligible educational institution. 1040 ez tax Eligible student, Eligible student. 1040 ez tax Figuring the deduction, Figuring the Deduction, Which Worksheet To Use Include as interest, Include As Interest Income level, effect on amount of deduction, Effect of the Amount of Your Income on the Amount of Your Deduction Loan repayment assistance, Do Not Include As Interest Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). 1040 ez tax , Which Worksheet To Use Table 4-2, Table 4-2. 1040 ez tax Effect of MAGI on Student Loan Interest Deduction Not included as interest, Do Not Include As Interest Phaseout, Phaseout. 1040 ez tax , Effect of the Amount of Your Income on the Amount of Your Deduction Qualified education expenses, Qualified Education Expenses Qualified employer plans, Qualified employer plan. 1040 ez tax Qualified student loans, Qualified Student Loan, Qualified employer plan. 1040 ez tax Reasonable period of time, Reasonable period of time. 1040 ez tax Related persons, Related person. 1040 ez tax Student loan interest, defined, Student Loan Interest Defined, When Must Interest Be Paid Third party interest payments, Interest paid by others. 1040 ez tax When interest must be paid, When Must Interest Be Paid Worksheet 4-1, Worksheet 4-1. 1040 ez tax Student Loan Interest Deduction Worksheet Student loan repayment assistance, Student Loan Repayment Assistance Surviving spouse Coverdell ESA transfer to, Exception for Transfer to Surviving Spouse or Family Member T Tables and figures American opportunity credit Eligible student requirements (Figure 2-2), Overview (Table 2-1), Introduction Qualifying to claim (Figure 2-1), Comparison of education tax benefits (Appendix B), Coverdell ESAs Contributions to (Table 7-2), Contribution Limits Distributions (Table 7-3), Distributions Overview (Table 6-1), Coverdell Education Savings Account (ESA) Education credits Overview of American opportunity credit (Table 2-1), Introduction Overview of lifetime learning credit (Table 3-1), Table 3-1. 1040 ez tax Overview of the Lifetime Learning Credit Lifetime learning credit Overview (Table 3-1), Table 3-1. 1040 ez tax Overview of the Lifetime Learning Credit Qualifying to claim (Figure 3-1), Scholarships and fellowships, taxability of (Table 1-1), Tax-Free Scholarships and Fellowships Student loan interest deduction MAGI, effect of (Table 4-2), Table 4-2. 1040 ez tax Effect of MAGI on Student Loan Interest Deduction Overview (Table 4-1), Table 4-1. 1040 ez tax Student Loan Interest Deduction at a Glance Summary chart of differences between education tax benefits (Appendix B), Tuition and fees deduction MAGI, effect of (Table 6-2), Table 6-2. 1040 ez tax Effect of MAGI on Maximum Tuition and Fees Deduction Overview (Table 6-1), Table 6-1. 1040 ez tax Tuition and Fees Deduction at a Glance Work-related education, qualifying (Figure 112-1), Tax help, How To Get Tax Help Tax-free educational assistance American opportunity credit, Tax-free educational assistance. 1040 ez tax Coverdell ESA, Adjusted qualified education expenses. 1040 ez tax Early distributions from IRAs, Figuring the Amount Not Subject to the 10% Tax Education savings bond program, Adjusted qualified education expenses. 1040 ez tax Lifetime learning credit, Tax-free educational assistance. 1040 ez tax Qualified tuition program (QTP), Adjusted qualified education expenses. 1040 ez tax Tuition and fees deduction, Tax-free educational assistance. 1040 ez tax Work-related education, Tax-free educational assistance. 1040 ez tax Taxable scholarships and fellowships, Taxable Scholarships and Fellowships Teachers, Requirements for Teachers, Teaching and Related Duties Temporary-basis student, transportation expenses of, Temporary basis. 1040 ez tax Title IV need-based education grants, Pell Grants and Other Title IV Need-Based Education Grants Transfers Coverdell ESA, Rollovers Qualified tuition program (QTP), Rollovers and Other Transfers, Changing the Designated Beneficiary Transportation expenses Work-related education, Transportation Expenses, Using your car. 1040 ez tax Travel expenses 50% limit on meals, 50% limit on meals. 1040 ez tax Not deductible as form of education, Travel as Education Work-related education, Travel Expenses TTY/TDD information, How To Get Tax Help Tuition and fees deduction, Tuition and Fees Deduction, Illustrated Example Academic period, Academic period. 1040 ez tax Adjustments to qualified education expenses, Adjustments to Qualified Education Expenses Can you claim the deduction, Can You Claim the Deduction Claiming dependent's expenses, Who Can Claim a Dependent's Expenses Claiming the deduction, Claiming the Deduction Double benefit not allowed, No Double Benefit Allowed Eligible educational institution, Eligible educational institution. 1040 ez tax Eligible student, Who Is an Eligible Student Expenses not qualifying for, Expenses That Do Not Qualify Expenses qualifying for, What Expenses Qualify, Adjustments to Qualified Education Expenses Figuring the deduction, Figuring the Deduction, MAGI when using Form 1040. 1040 ez tax Income level, effect on amount of deduction, Effect of the Amount of Your Income on the Amount of Your Deduction Loan used to pay tuition and fees, Paid with borrowed funds. 1040 ez tax Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). 1040 ez tax Table 6-2, Table 6-2. 1040 ez tax Effect of MAGI on Maximum Tuition and Fees Deduction Worksheet 6-1, Worksheet 6-1. 1040 ez tax MAGI for the Tuition and Fees Deduction Overview (Table 4-1), Table 4-1. 1040 ez tax Student Loan Interest Deduction at a Glance Overview (Table 6-1), Table 6-1. 1040 ez tax Tuition and Fees Deduction at a Glance Qualified education expenses, What Expenses Qualify, Adjustments to Qualified Education Expenses Qualifying for deduction, Can You Claim the Deduction Tax benefit of, What is the tax benefit of the tuition and fees deduction. 1040 ez tax Tax-free educational assistance, Tax-free educational assistance. 1040 ez tax Tuition reduction American opportunity credit, Tuition reduction. 1040 ez tax Lifetime learning credit, Tuition reduction. 1040 ez tax Qualified, Qualified Tuition Reduction, How To Report Tuition and fees deduction, Tuition reduction. 1040 ez tax U U. 1040 ez tax S. 1040 ez tax savings bonds, Qualified U. 1040 ez tax S. 1040 ez tax savings bonds. 1040 ez tax Unclaimed reimbursement Work-related education, Unclaimed reimbursement. 1040 ez tax V Veterans' benefits, Veterans' Benefits Voluntary interest payments, Voluntary interest payments. 1040 ez tax W Withholding, Analyzing your tax withholding. 1040 ez tax Work-related education (see Business deduction for work-related education) Working condition fringe benefit, Working condition fringe benefit. 1040 ez tax Worksheets Coverdell ESA Contribution limit (Worksheet 6-2), Figuring the limit. 1040 ez tax MAGI, calculation of (Worksheet 6-1), Worksheet 7-1. 1040 ez tax MAGI for a Coverdell ESA Taxable distributions and basis (Worksheet 6-3), Worksheet 7-3. 1040 ez tax Coverdell ESA—Taxable Distributions and Basis Taxable distributions and basis (Worksheet 7-3), Worksheet 7-3. 1040 ez tax Coverdell ESA—Taxable Distributions and Basis Lifetime learning credit MAGI calculation (Worksheet 3-1), MAGI when using Form 1040. 1040 ez tax Scholarships and fellowships, taxable income (Worksheet 1-1), Worksheet 1-1. 1040 ez tax Student loan interest deduction (Worksheet 4-1), Worksheet 4-1. 1040 ez tax Student Loan Interest Deduction Worksheet Tuition and fees deduction, MAGI calculation (Worksheet 6-1), Worksheet 6-1. 1040 ez tax MAGI for the Tuition and Fees Deduction Prev  Up     Home   More Online Publications