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1040 Long Form

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1040 Long Form

1040 long form Publication 3920 - Main Contents Table of Contents Tax ForgivenessYears Eligible for Tax Forgiveness Amount of Tax Forgiven Refund of Taxes Paid How To Claim Tax Forgiveness Payments to SurvivorsSeptember 11th Victim Compensation Fund of 2001 Qualified Disaster Relief Payments Disability Payments Death Benefits Canceled Debt Payments to Survivors of Public Safety Officers Postponed Tax DeadlinesCovered area. 1040 long form Disaster Area Losses Estate Tax Reduction Structured Settlement Factoring Transactions Illustrated Worksheets B and C Additional Worksheets How To Get Tax Help Tax Forgiveness The IRS will forgive the federal income tax liabilities of decedents who died as a result of the Oklahoma City attack, September 11 attacks, and anthrax attacks. 1040 long form Income tax is forgiven for these decedents whether they were killed in an attack or in rescue or recovery operations. 1040 long form Any forgiven tax liability owed to the IRS will not have to be paid. 1040 long form Any forgiven tax liability that has already been paid will be refunded. 1040 long form (See Refund of Taxes Paid, later. 1040 long form ) To determine the amount of tax to be forgiven, read Years Eligible for Tax Forgiveness first. 1040 long form Then read Amount of Tax Forgiven. 1040 long form Decedents whose total forgiven tax liability for all eligible years is less than $10,000 are entitled to $10,000 minimum relief. 1040 long form Even decedents who were not required to file tax returns for the eligible tax years are entitled to $10,000 minimum relief. 1040 long form See Minimum Amount of Relief later under Amount of Tax Forgiven. 1040 long form Years Eligible for Tax Forgiveness The following paragraphs explain which years are eligible for tax forgiveness. 1040 long form Oklahoma City attack. 1040 long form   For those who died from this attack, income tax is forgiven for 1994 and all later years up to and including the year of death. 1040 long form Example 1. 1040 long form A man was killed in the bombing of the federal building in Oklahoma City on April 19, 1995. 1040 long form His income tax is forgiven for 1994 and 1995. 1040 long form Example 2. 1040 long form A woman was wounded while walking outside the federal building in Oklahoma City on April 19, 1995. 1040 long form She subsequently died of her wounds in 1996. 1040 long form Her income tax is forgiven for 1994, 1995, and 1996. 1040 long form September 11 attacks and anthrax attacks. 1040 long form   For those who die from these attacks, income tax is forgiven for 2000 and all later years up to and including the year of death. 1040 long form Example 1. 1040 long form A Pentagon employee died in the September 11 attack. 1040 long form Her income tax is forgiven for 2000 and 2001. 1040 long form Example 2. 1040 long form A visitor to the World Trade Center died in 2002 of wounds he sustained in the September 11 attack. 1040 long form His income tax liability is forgiven for 2000, 2001, and 2002. 1040 long form Amount of Tax Forgiven The IRS will forgive the decedent's income tax liability for all years eligible for tax forgiveness. 1040 long form On a joint return, only the decedent's part of the joint income tax liability is eligible for forgiveness. 1040 long form To figure the tax to be forgiven, use the following worksheets. 1040 long form Use Worksheet A for any eligible year the decedent filed a return as single, married filing separately, head of household, or qualifying widow(er). 1040 long form Use Worksheet B for any eligible year the decedent filed a joint return. 1040 long form See the illustrated Worksheet B near the end of this publication. 1040 long form Do not complete Worksheet A or B if the decedent was not required to file tax returns for the eligible tax years. 1040 long form Instead, complete Worksheet C and file a return for the decedent's last tax year. 1040 long form See Minimum Amount of Relief, later. 1040 long form If you need assistance, call the IRS at 1–866–562–5227 Monday through Friday during the following times. 1040 long form In English–7 a. 1040 long form m. 1040 long form to 10 p. 1040 long form m. 1040 long form local time. 1040 long form In Spanish–8 a. 1040 long form m. 1040 long form to 9:30 p. 1040 long form m. 1040 long form local time. 1040 long form Both spouses died. 1040 long form   If both spouses died as a result of a terrorist attack and they filed a joint return for an eligible tax year, fill out Worksheet B for each spouse for that year. 1040 long form Do this to determine if each spouse qualifies for the minimum relief of $10,000 (discussed later under Minimum Amount of Relief). 1040 long form If you are certain that neither spouse's total forgiven tax liability for all eligible years is less than $10,000, skip Worksheet B. 1040 long form However, attach a computation of the forgiven tax liability to the final income tax return or amended tax return for each eligible year. 1040 long form The forgiven tax liability is the total tax shown on the joint return minus the taxes listed in the instructions for line 4 of Worksheet B. 1040 long form Residents of community property states. 1040 long form   If the decedent was domiciled in a community property state and the spouse reported half the community income on a separate return, the surviving spouse can get a refund of taxes paid on his or her share of the decedent's income for the eligible years. 1040 long form Also, all of the decedent's income taxes paid for the eligible years will be refunded to either the executor or administrator of the estate, or to the surviving spouse if there is no legal representative. 1040 long form Worksheet B. 1040 long form Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040 long form 1       2 Enter the decedent's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions. 1040 long form 2       3 Enter the decedent's total tax. 1040 long form See the instructions. 1040 long form 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040 long form See the instructions. 1040 long form 4       5 Subtract line 4 from line 3. 1040 long form 5       6 Enter the surviving spouse's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions. 1040 long form 6       7 Enter the surviving spouse's total tax. 1040 long form See the instructions. 1040 long form 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040 long form 8       9 Subtract line 8 from line 7. 1040 long form 9       10 Add lines 5 and 9. 1040 long form 10       11 Enter the total tax from the joint return. 1040 long form See Table 1 on page 5 for the line number for years before 2002. 1040 long form 11       12 Add lines 4 and 8. 1040 long form 12       13 Subtract line 12 from line 11. 1040 long form 13       14 Divide line 5 by line 10. 1040 long form Enter the result as a decimal. 1040 long form 14       15 Tax to be forgiven. 1040 long form Multiply line 13 by line 14 and enter the result. 1040 long form 15       Note. 1040 long form If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040 long form Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040 long form If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040 long form The IRS will determine the amount to be refunded. 1040 long form Worksheet B. 1040 long form Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040 long form 1       2 Enter the decedent's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions. 1040 long form 2       3 Enter the decedent's total tax. 1040 long form See the instructions. 1040 long form 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040 long form See the instructions. 1040 long form 4       5 Subtract line 4 from line 3. 1040 long form 5       6 Enter the surviving spouse's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions. 1040 long form 6       7 Enter the surviving spouse's total tax. 1040 long form See the instructions. 1040 long form 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040 long form 8       9 Subtract line 8 from line 7. 1040 long form 9       10 Add lines 5 and 9. 1040 long form 10       11 Enter the total tax from the joint return. 1040 long form See Table 1 on page 5 for the line number for years before 2002. 1040 long form 11       12 Add lines 4 and 8. 1040 long form 12       13 Subtract line 12 from line 11. 1040 long form 13       14 Divide line 5 by line 10. 1040 long form Enter the result as a decimal. 1040 long form 14       15 Tax to be forgiven. 1040 long form Multiply line 13 by line 14 and enter the result. 1040 long form 15       Note. 1040 long form If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040 long form Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040 long form If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040 long form The IRS will determine the amount to be refunded. 1040 long form Instructions for Worksheet B Table 1. 1040 long form Total Tax Line on Decedent's Return Note: Use this table to find the total tax line on the decedent's income tax return. 1040 long form * Form 1994 1995 1996 2000 2001 1040 Line 53 Line 54 Line 51 Line 57 Line 58 1040A Line 27 Line 28 Line 28 Line 35 File Form 1040 1040EZ Line 9 Line 10 Line 10 Line 10 TeleFile Tax Record ** Line E Line J Line K 1040NR Line 51 Line 52 Line 49 Line 54 Line 54 1040NR–EZ N/A Line 17 Line 17 Line 18 File Form 1040NR * Line numbers for the 2002 forms were not available when this publication went to print. 1040 long form ** File Form 4506 to get a transcript of the decedent's account. 1040 long form Table 1. 1040 long form Total Tax Line on Decedent's Return Note: Use this table to find the total tax line on the decedent's income tax return. 1040 long form * Form 1994 1995 1996 2000 2001 1040 Line 53 Line 54 Line 51 Line 57 Line 58 1040A Line 27 Line 28 Line 28 Line 35 File Form 1040 1040EZ Line 9 Line 10 Line 10 Line 10 TeleFile Tax Record ** Line E Line J Line K 1040NR Line 51 Line 52 Line 49 Line 54 Line 54 1040NR–EZ N/A Line 17 Line 17 Line 18 File Form 1040NR * Line numbers for the 2002 forms were not available when this publication went to print. 1040 long form ** File Form 4506 to get a transcript of the decedent's account. 1040 long form Lines 2 and 6. 1040 long form   Allocate income and deductions in the same manner they would have been allocated if the spouses had filed separate returns. 1040 long form   Allocate wages and salaries to the spouse who performed the services and received the Form W-2. 1040 long form Business and investment income (including capital gains) are generally allocated to the spouse who owned the business or investment that produced the income. 1040 long form Income from a jointly owned business or investment should be allocated equally between the spouses unless there is evidence that shows a different allocation is appropriate. 1040 long form   Allocate business deductions to the owner of the business. 1040 long form Allocate personal deductions (such as itemized deductions for mortgage interest and taxes) equally between the spouses unless there is evidence that shows a different allocation is appropriate. 1040 long form Lines 3 and 7. 1040 long form   Figure the total tax as if a separate return had been filed. 1040 long form The total tax is the tax that would have been entered on the tax return line shown in Table 1 if a separate return had been filed. 1040 long form When figuring the tax using the Tax Table or Tax Rate Schedule, use the “Married filing separately” column in the Tax Table or Tax Rate Schedule Y-2. 1040 long form   When figuring the total tax, allocate credits and other taxes, if any, in the same manner as they would have been allocated if the spouses had filed separate returns. 1040 long form If a credit would not have been allowed on a separate return, allocate the credit shown on the joint return between the spouses. 1040 long form Examples of credits generally not allowed on a separate return are the child and dependent care credit, credit for the elderly, adoption credit, education credits, and earned income credit. 1040 long form Line 4. 1040 long form   Enter the total, if any, of the following taxes. 1040 long form Self-employment tax. 1040 long form Social security and Medicare tax on tip income not reported to employer. 1040 long form Tax on excess contributions to IRAs, Coverdell education savings accounts (formerly Ed IRAs), or Archer MSAs (formerly medical savings accounts). 1040 long form Tax on excess accumulation in qualified retirement plans. 1040 long form Household employment taxes. 1040 long form Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. 1040 long form Tax on golden parachute payments. 1040 long form Minimum Amount of Relief The minimum amount of relief is $10,000. 1040 long form If the decedent's total forgiven tax liability for all eligible years is less than $10,000, the difference between $10,000 and the total forgiven tax liability for those years will be treated as a tax payment for the decedent's last tax year. 1040 long form The IRS will refund the difference as explained under Refund of Taxes Paid. 1040 long form Use Worksheet C to figure the additional tax payment. 1040 long form But first complete Worksheet A or B, unless the decedent was not required to file tax returns for the eligible tax years. 1040 long form Example 1. 1040 long form An individual who died in the September 11 attacks had an income tax liability of $-0- for 2000 and $6,400 for 2001. 1040 long form The $6,400 is eligible for forgiveness. 1040 long form The IRS will forgive $6,400 and treat the difference between $10,000 and $6,400 ($3,600) as a tax payment for 2001. 1040 long form Example 2. 1040 long form A child who died in the September 11 attacks had no (-0-) income tax liability for 2000 or 2001. 1040 long form The IRS will treat $10,000 as a tax payment for 2001. 1040 long form Income received after date of death. 1040 long form   Generally, income of the decedent received after the date of death must be reported on Form 1041 if the estate has gross income for the tax year of $600 or more. 1040 long form Examples are the final paycheck or dividends on stock owned by the decedent. 1040 long form However, this income is exempt from income tax and is not included on Form 1041 if it is received: After the date of the decedent's death, and Before the end of the decedent's tax year (determined without regard to death). 1040 long form Nonqualifying income. 1040 long form   The following income is not exempt from tax. 1040 long form The tax on it is not eligible for forgiveness. 1040 long form Deferred compensation that would have been payable if the death had occurred because of an event other than these attacks. 1040 long form Amounts that would not have been payable but for an action taken after September 11, 2001. 1040 long form The following are examples of nonqualifying income. 1040 long form Amounts payable from a qualified retirement plan or IRA to the beneficiary or estate of the decedent. 1040 long form Amounts payable only as death or survivor's benefits from pre-existing arrangements that would have been paid if the death had occurred for another reason. 1040 long form Income received as a result of adjustments made by the decedent's employer to a plan or arrangement to accelerate the vesting of restricted property or the payment of nonqualified deferred compensation after the date of the attack. 1040 long form Interest on savings bonds cashed by the beneficiary of the decedent. 1040 long form If you are responsible for the estate of a decedent, see Publication 559. 1040 long form Publication 559 discusses how to complete and file federal income tax returns and explains your responsibility to pay any taxes due. 1040 long form Instructions for lines 2–9 of Worksheet C. 1040 long form   The tax that would have been payable on the exempt income (discussed earlier) must be considered when determining whether a decedent is entitled to the $10,000 minimum relief. 1040 long form To figure the tax that would have been payable, you can use lines 2 through 9 of Worksheet C. 1040 long form Or, if special requirements are met, you can use the alternative computation instead. 1040 long form See Alternative computation, later. 1040 long form   You have to use lines 2–9 (or the alternative computation) to figure the tax that would have been payable even if Form 1041 was not required to be filed. 1040 long form Use Form 1041 to figure what the taxable income would be without including the exempt income. 1040 long form Then enter that taxable income (even if a negative number) on line 2 of Worksheet C (or line 1 of Worksheet D, Alternative Computation of Tax on Exempt Income (Line 9 of Worksheet C)). 1040 long form Alternative computation. 1040 long form   Instead of using lines 2–8 of Worksheet C to figure the tax on exempt income (line 9 of Worksheet C), you may be able to use Worksheet D. 1040 long form You can use Worksheet D to figure the tax on the exempt income payable by the estate and its beneficiaries only if both of the following requirements are met. 1040 long form The estate claimed an income distribution deduction on line 18 (Form 1041). 1040 long form Each beneficiary submits the information necessary to refigure the income tax payable on the exempt income received from the decedent's estate. 1040 long form If requirement (2) is met but requirement (1) is not, you can still use Worksheet D if: Form 1041 was not required because exempt income was received, and The estate would have claimed an income distribution deduction if the exempt income were taxable. 1040 long form If you use this alternative computation, skip lines 2–8 of Worksheet C and enter the amount from line 8 of Worksheet D on line 9 of Worksheet C. 1040 long form Complete the rest of Worksheet C to determine the additional payment allowed. 1040 long form Worksheet C. 1040 long form Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. 1040 long form Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040 long form 1 Minimum relief amount. 1040 long form Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040 long form 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . 1040 long form 3       4 Add lines 2 and 3. 1040 long form 4       5 Enter exempt income received after death minus expenses allocable to exempt income. 1040 long form (See Income received after date of death on page 5. 1040 long form ) 5       6 Add lines 4 and 5. 1040 long form 6       7 Figure the tax on line 6 using Schedule G (Form 1041). 1040 long form 7       8 Figure the tax on line 4 using Schedule G (Form 1041). 1040 long form 8       9 Tax on exempt income. 1040 long form Subtract line 8 from line 7. 1040 long form 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040 long form If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040 long form 10       11 Add lines 9 and 10. 1040 long form 11   12 Additional payment allowed. 1040 long form If line 11 is $10,000 or more, enter -0- and stop here. 1040 long form No additional amount is allowed as a tax payment. 1040 long form Otherwise, subtract line 11 from line 1 and enter the result. 1040 long form 12   Note. 1040 long form The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040 long form Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040 long form If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040 long form Write "Sec. 1040 long form 692(d)(2) Payment" and the amount to the right of the entry space. 1040 long form Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040 long form If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040 long form Write “Sec. 1040 long form 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040 long form Worksheet C. 1040 long form Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. 1040 long form Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040 long form 1 Minimum relief amount. 1040 long form Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040 long form 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . 1040 long form 3       4 Add lines 2 and 3. 1040 long form 4       5 Enter exempt income received after death minus expenses allocable to exempt income. 1040 long form (See Income received after date of death on page 5. 1040 long form ) 5       6 Add lines 4 and 5. 1040 long form 6       7 Figure the tax on line 6 using Schedule G (Form 1041). 1040 long form 7       8 Figure the tax on line 4 using Schedule G (Form 1041). 1040 long form 8       9 Tax on exempt income. 1040 long form Subtract line 8 from line 7. 1040 long form 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040 long form If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040 long form 10       11 Add lines 9 and 10. 1040 long form 11   12 Additional payment allowed. 1040 long form If line 11 is $10,000 or more, enter -0- and stop here. 1040 long form No additional amount is allowed as a tax payment. 1040 long form Otherwise, subtract line 11 from line 1 and enter the result. 1040 long form 12   Note. 1040 long form The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040 long form Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040 long form If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040 long form Write "Sec. 1040 long form 692(d)(2) Payment" and the amount to the right of the entry space. 1040 long form Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040 long form If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040 long form Write “Sec. 1040 long form 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040 long form Worksheet D. 1040 long form Alternative Computation of Tax on Exempt Income (Line 9 of Worksheet C) 1 Enter the taxable income from line 22 (Form 1041) 1   2 Enter exempt income received after death minus expenses allocable to exempt income. 1040 long form (See Income received after date of death on page 5. 1040 long form ) 2   3 Add lines 1 and 2 3   4 Figure the tax on line 3 using Schedule G (Form 1041). 1040 long form 4   5 Figure the tax on line 1 using Schedule G (Form 1041). 1040 long form 5   6 Estate's tax on exempt income. 1040 long form Subtract line 5 from line 4 6   7 Beneficiaries' tax on exempt income. 1040 long form Figure the total tax that would have been payable by all beneficiaries. 1040 long form Do this by including in each beneficiary's gross income the exempt income received from the decedent's estate and refiguring the income tax. 1040 long form Add the amounts by which each beneficiary's income tax is increased. 1040 long form 7   8 Add lines 6 and 7. 1040 long form Enter this amount on line 9 of Worksheet C. 1040 long form 8   Worksheet D. 1040 long form Alternative Computation of Tax on Exempt Income (Line 9 of Worksheet C) 1 Enter the taxable income from line 22 (Form 1041) 1   2 Enter exempt income received after death minus expenses allocable to exempt income. 1040 long form (See Income received after date of death on page 5. 1040 long form ) 2   3 Add lines 1 and 2 3   4 Figure the tax on line 3 using Schedule G (Form 1041). 1040 long form 4   5 Figure the tax on line 1 using Schedule G (Form 1041). 1040 long form 5   6 Estate's tax on exempt income. 1040 long form Subtract line 5 from line 4 6   7 Beneficiaries' tax on exempt income. 1040 long form Figure the total tax that would have been payable by all beneficiaries. 1040 long form Do this by including in each beneficiary's gross income the exempt income received from the decedent's estate and refiguring the income tax. 1040 long form Add the amounts by which each beneficiary's income tax is increased. 1040 long form 7   8 Add lines 6 and 7. 1040 long form Enter this amount on line 9 of Worksheet C. 1040 long form 8   Refund of Taxes Paid The IRS will refund the following forgiven income tax liabilities. 1040 long form Income tax liabilities that have been paid. 1040 long form Income tax liabilities treated as paid because the total tax liability for all years eligible for tax forgiveness is less than $10,000. 1040 long form See Minimum Amount of Relief, earlier. 1040 long form Example 1. 1040 long form A man who died in the September 11 attacks had an income tax liability of $7,500 for 2000 and $6,500 for 2001. 1040 long form The total, $14,000, is eligible for tax forgiveness. 1040 long form However, he paid only $13,000 of that amount. 1040 long form The IRS will refund the $13,000 paid. 1040 long form Example 2. 1040 long form A child who died in the September 11 attacks had no income tax liability for 2000 or 2001. 1040 long form The child qualifies for the minimum relief of $10,000. 1040 long form The $10,000 is treated as a tax payment for 2001 and will be refunded. 1040 long form Period for filing a claim for credit or refund. 1040 long form   To obtain a tax refund on a previously filed income tax return, file an amended return (Form 1040X or an amended Form 1041) within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later. 1040 long form For example, you have until April 15, 2004, to file an amended return on a 2000 Form 1040, 1040A, or 1040EZ that was filed by April 16, 2001, and for which the tax was paid when due. 1040 long form To obtain a refund on a return that has not been filed, file the return within 3 years of the original due date of the return. 1040 long form Extension of time for victims of Oklahoma City attack. 1040 long form   The period described above has been extended for victims of the Oklahoma City attack. 1040 long form Survivors and personal representatives of these victims have until January 22, 2003, to file an original or amended return. 1040 long form How To Claim Tax Forgiveness Use the following procedures to claim income tax forgiveness. 1040 long form Which Form To Use The form you use depends on whether an income tax return for the eligible year was already filed for the decedent. 1040 long form Return required but not yet filed. 1040 long form   File Form 1040 if the decedent was a U. 1040 long form S. 1040 long form citizen or resident. 1040 long form File Form 1040NR if the decedent was a nonresident alien. 1040 long form A nonresident alien is someone who is not a U. 1040 long form S. 1040 long form citizen or resident. 1040 long form Return required and already filed. 1040 long form   File a separate Form 1040X for each year you are claiming tax relief. 1040 long form Return not required and not filed. 1040 long form   File Form 1040 only for the year of death if the decedent was a U. 1040 long form S. 1040 long form citizen or resident. 1040 long form File Form 1040NR if the decedent was a nonresident alien. 1040 long form Return not required but already filed. 1040 long form   File Form 1040X only for the year of death. 1040 long form How to complete the returns. 1040 long form   Fill out Form 1040 or 1040NR according to its instructions but do not reduce the decedent's tax liability by any taxes that will be forgiven. 1040 long form Attach to each return a computation of the income tax to be forgiven or a copy of Worksheet A or B. 1040 long form If filing Form 1040 or Form 1040NR, also attach any Forms W–2. 1040 long form If the total forgiven tax liability for all eligible years is less than $10,000, attach to the decedent's final return a computation of the additional tax payment allowed or a copy of Worksheet C. 1040 long form Also, please write one of the following across the top of page 1 of each return. 1040 long form KITA—Oklahoma City KITA—9/11 KITA—Anthrax “KITA” means “killed in terrorist attack. 1040 long form ” Need a copy of a previously filed return?   You will find it easier to prepare Form 1040X if you have a copy of the decedent's previously filed tax return. 1040 long form If you need a copy, use Form 4506. 1040 long form The IRS will provide a free copy of the tax return if you write “DISASTER” in the top margin of Form 4506. 1040 long form Attach Letters Testamentary or other evidence to establish that you are authorized to act for the decedent's estate. 1040 long form Send Form 4506 to the address shown in the form instructions. 1040 long form Taxpayer identification number. 1040 long form   A taxpayer identification number must be furnished on the decedent's returns. 1040 long form This is usually the decedent's social security number (SSN). 1040 long form However, a nonresident alien who is not eligible to get an SSN should have an individual taxpayer identification number (ITIN). 1040 long form If the decedent was a nonresident alien, had neither an SSN nor an ITIN, and was not required to file a U. 1040 long form S. 1040 long form income tax return for any tax year, do not apply for an ITIN. 1040 long form You may claim a refund by filing Form 1040NR without an SSN or ITIN. 1040 long form Necessary Documents Please attach the following documents to the return or amended return. 1040 long form Proof of death. 1040 long form   Attach a copy of the death certificate. 1040 long form If the Department of Defense issued DD Form 1300, Report of Casualty, you can attach that form instead of the death certificate. 1040 long form Form 1310. 1040 long form   You must send Form 1310 with all returns and claims for refund, unless either of the following applies. 1040 long form You are a surviving spouse filing an original or amended joint return with the decedent. 1040 long form You are a personal representative filing an original Form 1040 or Form 1040NR for the decedent and a court certificate showing your appointment is attached to the return. 1040 long form A personal representative is an executor or administrator of a decedent's estate, as certified or appointed by the court. 1040 long form A copy of the decedent's will cannot be accepted as evidence that you are the personal representative. 1040 long form      If you have proof of death but do not have enough tax information to file a timely claim for a refund, file Form 1040X with Form 1310. 1040 long form Include a statement saying an amended return will be filed as soon as the necessary tax information is available. 1040 long form Where To File The IRS has set up a special office for processing returns and claims for tax forgiveness. 1040 long form Use one of the addresses shown below. 1040 long form Where you file the returns or claims depends on whether you use the U. 1040 long form S. 1040 long form Postal Service or a private delivery service. 1040 long form Please do not send these returns or claims to any of the addresses shown in the tax form instructions. 1040 long form U. 1040 long form S. 1040 long form Postal Service. 1040 long form   If you use the U. 1040 long form S. 1040 long form Postal Service, file these returns and claims at the following address. 1040 long form Internal Revenue Service P. 1040 long form O. 1040 long form Box 4053 Woburn, MA 01888 Private delivery service. 1040 long form   Private delivery services cannot deliver items to P. 1040 long form O. 1040 long form boxes. 1040 long form If you use a private delivery service, file these returns and claims at the following address. 1040 long form Internal Revenue Service Stop 661 310 Lowell St. 1040 long form Andover, MA 01810 Designated private delivery services. 1040 long form   You can use the following private delivery services to file these returns and claims. 1040 long form Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, and Second Day Service. 1040 long form DHL Worldwide Express (DHL): DHL “Same Day” Service, and DHL USA Overnight. 1040 long form Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, and FedEx 2Day. 1040 long form United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. 1040 long form M. 1040 long form , UPS Worldwide Express Plus, and UPS Worldwide Express. 1040 long form The private delivery service can tell you how to get written proof of the mailing date. 1040 long form Payments to Survivors The following section discusses the tax treatment of certain amounts received by survivors. 1040 long form September 11th Victim Compensation Fund of 2001 Payments from the September 11th Victim Compensation Fund of 2001 are not included in income. 1040 long form Qualified Disaster Relief Payments Qualified disaster relief payments are not included in income. 1040 long form These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). 1040 long form No withholding applies to these payments. 1040 long form Qualified disaster relief payments include payments you receive (regardless of the source) after September 10, 2001, for the following expenses. 1040 long form Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a terrorist attack. 1040 long form Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a terrorist attack. 1040 long form (A personal residence can be a rented residence or one you own. 1040 long form ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a terrorist attack. 1040 long form Qualified disaster relief payments also include the following. 1040 long form Payments made by common carriers (for example, American Airlines and United Airlines regarding the September 11 attacks) because of death or physical injury incurred as a result of a terrorist attack. 1040 long form Amounts paid by a federal, state, or local government in connection with a terrorist attack to those affected by the attack. 1040 long form Qualified disaster relief payments do not include: Insurance or other reimbursements for expenses, or Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. 1040 long form Disability Payments For tax years ending after September 10, 2001, disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies), whether outside or within the United States, are not included in income. 1040 long form Death Benefits Payments received by an individual or the estate of a decedent from the employer of an employee who died as a result of the Oklahoma City or September 11 terrorist attacks, or as a result of the anthrax attacks, are not included in income. 1040 long form Only the amount that exceeds the benefits that would have been payable if the death had occurred for a reason other than a terrorist or anthrax attack is excludable. 1040 long form However, the exclusion does apply to incidental death benefits paid under a qualified retirement plan even if these amounts would have been payable if the death had occurred for a reason other than a terrorist or anthrax attack. 1040 long form If you included death benefits in income on a previously filed return and they are now excludable under the above rule, file Form 1040X to amend that return. 1040 long form For information on the period for filing Form 1040X, see Period for filing claim for credit or refund earlier under Refund of Taxes Paid. 1040 long form If that period has expired, you are granted an extension. 1040 long form You have until January 22, 2003, to file Form 1040X to exclude the death benefits. 1040 long form On top of page 1 of Form 1040X, write “Extension of Limitations Under PL 107–134, sec. 1040 long form 102(b)(2). 1040 long form ” Canceled Debt Canceled debt is not included in your income (or the income of the estate) if: You (or the estate) were liable, or became liable, for the debt of a decedent, and The debt was canceled after September 10, 2001, and before January 1, 2002, because the decedent died as a result of the September 11 attacks or anthrax attacks. 1040 long form The lender is not required to report the canceled debt on Form 1099–C, Cancellation of Debt. 1040 long form Payments to Survivors of Public Safety Officers If you are a survivor of a public safety officer who died in the line of duty, certain amounts you receive are not included in income. 1040 long form Bureau of Justice Assistance payments. 1040 long form   If you are a surviving dependent of a public safety officer (law enforcement officer or firefighter) who died in the line of duty, do not include in your income the death benefit paid to you by the Bureau of Justice Assistance. 1040 long form Government plan annuity. 1040 long form   If you receive a survivor annuity as the child or spouse (or former spouse) of a public safety officer who was killed in the line of duty, you generally do not have to include it in income. 1040 long form This exclusion applies to the amount of the annuity based on the officer's service as a public safety officer. 1040 long form For this purpose, the term public safety officer includes police and law enforcement officers, firefighters, and rescue squad and ambulance crews. 1040 long form More information. 1040 long form   For more information, see Publication 559. 1040 long form Postponed Tax Deadlines The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a terrorist attack. 1040 long form The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. 1040 long form If any tax deadline is postponed, the IRS will publicize the postponement in the affected area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). 1040 long form Affected taxpayers. 1040 long form   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. 1040 long form Any individual whose main home is located in a covered area (defined later). 1040 long form Any business entity or sole proprietor whose principal place of business is located in a covered area. 1040 long form Any individual, business entity, or sole proprietor whose records needed to meet a postponed deadline are maintained in a covered area. 1040 long form The main home or principal place of business does not have to be located in the covered area. 1040 long form Any estate or trust whose tax records necessary to meet a postponed tax deadline are maintained in a covered area. 1040 long form Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered area. 1040 long form The spouse on a joint return with a taxpayer who is eligible for postponements. 1040 long form Any other person determined by the IRS to be affected by a terrorist attack. 1040 long form Covered area. 1040 long form   This is an area in which a terrorist attack took place and in which the IRS has decided to postpone tax deadlines for up to 1 year. 1040 long form Abatement of interest. 1040 long form   The IRS may abate (forgive) the interest on any underpaid income tax for the length of any postponement. 1040 long form Disaster Area Losses If your property was damaged or destroyed as a result of the September 11 attacks, you can choose to deduct your disaster loss on your 2000 return (or amended return) rather than on your 2001 return. 1040 long form You must make this choice to deduct your loss on your 2000 return by the later of the following dates. 1040 long form The due date (without extensions) for filing your 2001 income tax return (April 15, 2002, if you are a calendar year taxpayer). 1040 long form The due date (with extensions) for the 2000 return. 1040 long form For more information about disaster area losses, see Publication 547. 1040 long form Estate Tax Reduction The federal estate tax is reduced for taxable estates of individuals who died as a result of the Oklahoma City attack, the September 11 attacks, and the anthrax attacks. 1040 long form The estate tax is computed using a new rate schedule on page 25 of the November 2001 revision of the instructions for Form 706. 1040 long form The estate tax is reduced by credits against the estate tax, including the unified credit and the state death tax credit. 1040 long form These credits may reduce or eliminate the estate tax due. 1040 long form A special rule extends until January 22, 2003, the period of time allowed to file a claim for a refund of estate taxes that have been paid. 1040 long form Recovery from the September 11th Victim Compensation Fund. 1040 long form   The value of claims for a decedent's pain and suffering is normally included in the gross estate. 1040 long form However, if the estate chooses to seek recovery from this fund, the IRS has determined that, in view of the unique circumstances of this situation and the high likelihood that such claims will be valued at a nominal or zero amount, the claims will be valued at zero for estate tax purposes. 1040 long form Thus, there are no federal estate tax consequences if an estate or beneficiary receives a recovery from this fund. 1040 long form Which estates must file a return. 1040 long form   For decedents dying in 2001, Form 706 must be filed by the executor for the estate of every U. 1040 long form S. 1040 long form citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $675,000. 1040 long form Form 706 must be filed within 9 months after the date of decedent's death unless you receive an extension of time to file. 1040 long form Use Form 4768, Application for Extension of Time To File a Return and/or Pay U. 1040 long form S. 1040 long form Estate (and Generation-Skipping Transfer) Taxes, to apply for an extension. 1040 long form Where to file. 1040 long form   Returns on which the new rate schedule is used should be sent to the following address, which was not available when Form 706 went to print. 1040 long form Internal Revenue Service E & G Department/Stop 824T 201 W. 1040 long form Rivercenter Blvd. 1040 long form Covington, KY 41011 More information. 1040 long form   For more information on the federal estate tax, see the instructions for Form 706. 1040 long form Structured Settlement Factoring Transactions A person who acquires payment rights in a structured settlement arrangement after February 21, 2002, may be subject to a 40% excise tax unless the transfer of the payment rights was approved in advance in a qualified order. 1040 long form The excise tax is figured on the excess of the undiscounted amount of the payments being acquired over the total amount actually paid to acquire them. 1040 long form However, this tax will not apply to transactions entered into from February 22, 2002, to July 1, 2002, if certain requirements are met. 1040 long form For information about these requirements, see Internal Revenue Code section 5891. 1040 long form Worksheet B Illustrated. 1040 long form Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040 long form 1 2000 2001   2 Enter the decedent's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions. 1040 long form 2 $17,259 $14,295   3 Enter the decedent's total tax. 1040 long form See the instructions. 1040 long form 3 6,123 5,250   4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040 long form See the instructions. 1040 long form 4 3,532 3,109   5 Subtract line 4 from line 3. 1040 long form 5 2,591 2,141   6 Enter the surviving spouse's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions for line 2. 1040 long form 6 29,025 29,850   7 Enter the surviving spouse's total tax. 1040 long form See the instructions. 1040 long form 7 5,277 5,391   8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040 long form 8 0 0   9 Subtract line 8 from line 7. 1040 long form 9 5,277 5,391   10 Add lines 5 and 9. 1040 long form 10 7,868 7,532   11 Enter the total tax from the joint return. 1040 long form See Table 1 on page 5 for the line number for years before 2002. 1040 long form 11 10,789 9,728   12 Add lines 4 and 8. 1040 long form 12 3,532 3,109   13 Subtract line 12 from line 11. 1040 long form 13 7,257 6,619   14 Divide line 5 by line 10. 1040 long form Enter the result as a decimal. 1040 long form 14 . 1040 long form 329 . 1040 long form 284   15 Tax to be forgiven. 1040 long form Multiply line 13 by line 14 and enter the result. 1040 long form 15 $2,388 $1,880   Note. 1040 long form If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040 long form Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040 long form If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040 long form The IRS will determine the amount to be refunded. 1040 long form Worksheet B Illustrated. 1040 long form Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040 long form 1 2000 2001   2 Enter the decedent's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions. 1040 long form 2 $17,259 $14,295   3 Enter the decedent's total tax. 1040 long form See the instructions. 1040 long form 3 6,123 5,250   4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040 long form See the instructions. 1040 long form 4 3,532 3,109   5 Subtract line 4 from line 3. 1040 long form 5 2,591 2,141   6 Enter the surviving spouse's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions for line 2. 1040 long form 6 29,025 29,850   7 Enter the surviving spouse's total tax. 1040 long form See the instructions. 1040 long form 7 5,277 5,391   8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040 long form 8 0 0   9 Subtract line 8 from line 7. 1040 long form 9 5,277 5,391   10 Add lines 5 and 9. 1040 long form 10 7,868 7,532   11 Enter the total tax from the joint return. 1040 long form See Table 1 on page 5 for the line number for years before 2002. 1040 long form 11 10,789 9,728   12 Add lines 4 and 8. 1040 long form 12 3,532 3,109   13 Subtract line 12 from line 11. 1040 long form 13 7,257 6,619   14 Divide line 5 by line 10. 1040 long form Enter the result as a decimal. 1040 long form 14 . 1040 long form 329 . 1040 long form 284   15 Tax to be forgiven. 1040 long form Multiply line 13 by line 14 and enter the result. 1040 long form 15 $2,388 $1,880   Note. 1040 long form If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040 long form Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040 long form If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040 long form The IRS will determine the amount to be refunded. 1040 long form Illustrated Worksheets B and C A wife lost her husband in the September 11 attack on the World Trade Center. 1040 long form They filed a joint return for 2000 and the wife chose to file a joint return as a surviving spouse for 2001. 1040 long form The returns for 2000 and 2001 showed the following income, deductions, and tax liabilities. 1040 long form After the husband died, his estate received income of $4,000. 1040 long form Of that amount, $1,000 is net profit from Schedule C received before the end of 2001. 1040 long form This net profit is exempt from income tax as explained earlier under Income received after date of death. 1040 long form The wife files Form 1041 because the gross income of the estate for the tax year ($3,000) is $600 or more. 1040 long form To determine how much of the husband's tax liability for 2000 and 2001 is to be forgiven, the wife completes Worksheet B. 1040 long form She also completes Worksheet C because the forgiven tax liabilities for 2000 and 2001 (line 15 of Worksheet B) total less than $10,000. 1040 long form To claim tax relief for 2000, the wife files Form 1040X and attaches a copy of Worksheet B. 1040 long form To claim tax relief for 2001, she files Form 1040 and attaches copies of Worksheets B and C. 1040 long form   2000 2001 Wages (wife) $35,000 $36,000 Net profit from Schedule C, Profit or Loss From Business (husband) 25,000 22,000 Interest income (joint account) 1,000 1,100 Deduction for ½ of self-employment tax (husband) (1,766) (1,555) Standard deduction (7,350) (7,600) Personal exemptions (2) (5,600) (5,800) Taxable income $46,284 $44,145 Joint income tax liability $7,257 $6,619 Plus: Self-employment tax (husband) 3,532 3,109 Total tax liability $10,789 $9,728   2000 2001 Wages (wife) $35,000 $36,000 Net profit from Schedule C, Profit or Loss From Business (husband) 25,000 22,000 Interest income (joint account) 1,000 1,100 Deduction for ½ of self-employment tax (husband) (1,766) (1,555) Standard deduction (7,350) (7,600) Personal exemptions (2) (5,600) (5,800) Taxable income $46,284 $44,145 Joint income tax liability $7,257 $6,619 Plus: Self-employment tax (husband) 3,532 3,109 Total tax liability $10,789 $9,728 Worksheet C Illustrated. 1040 long form Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. 1040 long form Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040 long form 1 Minimum relief amount. 1040 long form Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040 long form 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2 2,400     3 Enter the distribution deduction from line 18 (Form 1041) . 1040 long form 3 0     4 Add lines 2 and 3. 1040 long form 4 2,400     5 Enter exempt income received after death minus expenses allocable to exempt income. 1040 long form (See Income received after date of death on page 5. 1040 long form ) 5 1,000     6 Add lines 4 and 5. 1040 long form 6 3,400     7 Figure the tax on line 6 using Schedule G (Form 1041). 1040 long form 7 710     8 Figure the tax on line 4 using Schedule G (Form 1041). 1040 long form 8 435     9 Tax on exempt income. 1040 long form Subtract line 8 from line 7. 1040 long form 9 275     10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040 long form If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040 long form 10 4,268     11 Add lines 9 and 10. 1040 long form 11 $4,543 12 Additional payment allowed. 1040 long form If line 11 is $10,000 or more, enter -0- and stop here. 1040 long form No additional amount is allowed as a tax payment. 1040 long form Otherwise, subtract line 11 from line 1 and enter the result. 1040 long form 12 $5,457 Note. 1040 long form The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040 long form Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040 long form If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040 long form Write "Sec. 1040 long form 692(d)(2) Payment" and the amount to the right of the entry space. 1040 long form Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040 long form If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040 long form Write “Sec. 1040 long form 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040 long form Worksheet C Illustrated. 1040 long form Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. 1040 long form Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040 long form 1 Minimum relief amount. 1040 long form Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040 long form 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2 2,400     3 Enter the distribution deduction from line 18 (Form 1041) . 1040 long form 3 0     4 Add lines 2 and 3. 1040 long form 4 2,400     5 Enter exempt income received after death minus expenses allocable to exempt income. 1040 long form (See Income received after date of death on page 5. 1040 long form ) 5 1,000     6 Add lines 4 and 5. 1040 long form 6 3,400     7 Figure the tax on line 6 using Schedule G (Form 1041). 1040 long form 7 710     8 Figure the tax on line 4 using Schedule G (Form 1041). 1040 long form 8 435     9 Tax on exempt income. 1040 long form Subtract line 8 from line 7. 1040 long form 9 275     10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040 long form If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040 long form 10 4,268     11 Add lines 9 and 10. 1040 long form 11 $4,543 12 Additional payment allowed. 1040 long form If line 11 is $10,000 or more, enter -0- and stop here. 1040 long form No additional amount is allowed as a tax payment. 1040 long form Otherwise, subtract line 11 from line 1 and enter the result. 1040 long form 12 $5,457 Note. 1040 long form The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040 long form Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040 long form If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040 long form Write "Sec. 1040 long form 692(d)(2) Payment" and the amount to the right of the entry space. 1040 long form Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040 long form If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040 long form Write “Sec. 1040 long form 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040 long form Additional Worksheets The following additional worksheets are provided for your convenience. 1040 long form Worksheet A. 1040 long form Figuring the Tax To Be Forgiven (For Decedents Who Filed a Return as Single, Married Filing Separately, Head of Household, or Qualifying Widow(er))         (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for tax forgiveness. 1040 long form 1       2 Enter the total tax from the decedent's income tax return. 1040 long form See Table 1 on page 5 for the line number for years before 2002. 1040 long form 2       3 Enter the following taxes, if any, shown on the decedent's income tax return. 1040 long form (These taxes are not eligible for forgiveness. 1040 long form )           a Self-employment tax. 1040 long form 3a         b Social security and Medicare tax on tip income not reported to employer. 1040 long form 3b         c Tax on excess contributions to IRAs, Coverdell education savings accounts (formerly Ed IRAs), or Archer MSAs (formerly medical savings accounts). 1040 long form 3c         d Tax on excess accumulation in qualified retirement plans. 1040 long form 3d         e Household employment taxes. 1040 long form 3e         f Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. 1040 long form 3f         g Tax on golden parachute payments. 1040 long form 3g       4 Add lines 3a through 3g. 1040 long form 4       5 Tax to be forgiven. 1040 long form Subtract line 4 from line 2. 1040 long form 5       Note. 1040 long form If the total of columns (A), (B), and (C) of line 5 (including any amounts shown on line 15 of Worksheet B) is less than $10,000, also complete Worksheet C. 1040 long form Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040 long form If filing Form 1040X for an eligible year, enter the amount from line 5 above on Form 1040X in column B of line 10 as a decrease in tax. 1040 long form The IRS will determine the amount to be refunded. 1040 long form Worksheet A. 1040 long form Figuring the Tax To Be Forgiven (For Decedents Who Filed a Return as Single, Married Filing Separately, Head of Household, or Qualifying Widow(er))         (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for tax forgiveness. 1040 long form 1       2 Enter the total tax from the decedent's income tax return. 1040 long form See Table 1 on page 5 for the line number for years before 2002. 1040 long form 2       3 Enter the following taxes, if any, shown on the decedent's income tax return. 1040 long form (These taxes are not eligible for forgiveness. 1040 long form )           a Self-employment tax. 1040 long form 3a         b Social security and Medicare tax on tip income not reported to employer. 1040 long form 3b         c Tax on excess contributions to IRAs, Coverdell education savings accounts (formerly Ed IRAs), or Archer MSAs (formerly medical savings accounts). 1040 long form 3c         d Tax on excess accumulation in qualified retirement plans. 1040 long form 3d         e Household employment taxes. 1040 long form 3e         f Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. 1040 long form 3f         g Tax on golden parachute payments. 1040 long form 3g       4 Add lines 3a through 3g. 1040 long form 4       5 Tax to be forgiven. 1040 long form Subtract line 4 from line 2. 1040 long form 5       Note. 1040 long form If the total of columns (A), (B), and (C) of line 5 (including any amounts shown on line 15 of Worksheet B) is less than $10,000, also complete Worksheet C. 1040 long form Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040 long form If filing Form 1040X for an eligible year, enter the amount from line 5 above on Form 1040X in column B of line 10 as a decrease in tax. 1040 long form The IRS will determine the amount to be refunded. 1040 long form Worksheet B. 1040 long form Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040 long form 1       2 Enter the decedent's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions. 1040 long form 2       3 Enter the decedent's total tax. 1040 long form See the instructions. 1040 long form 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040 long form See the instructions. 1040 long form 4       5 Subtract line 4 from line 3. 1040 long form 5       6 Enter the surviving spouse's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions. 1040 long form 6       7 Enter the surviving spouse's total tax. 1040 long form See the instructions. 1040 long form 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040 long form 8       9 Subtract line 8 from line 7. 1040 long form 9       10 Add lines 5 and 9. 1040 long form 10       11 Enter the total tax from the joint return. 1040 long form See Table 1 on page 5 for the line number for years before 2002. 1040 long form 11       12 Add lines 4 and 8. 1040 long form 12       13 Subtract line 12 from line 11. 1040 long form 13       14 Divide line 5 by line 10. 1040 long form Enter the result as a decimal. 1040 long form 14       15 Tax to be forgiven. 1040 long form Multiply line 13 by line 14 and enter the result. 1040 long form 15       Note. 1040 long form If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040 long form Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040 long form If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040 long form The IRS will determine the amount to be refunded. 1040 long form Worksheet B. 1040 long form Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040 long form 1       2 Enter the decedent's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions. 1040 long form 2       3 Enter the decedent's total tax. 1040 long form See the instructions. 1040 long form 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040 long form See the instructions. 1040 long form 4       5 Subtract line 4 from line 3. 1040 long form 5       6 Enter the surviving spouse's taxable income. 1040 long form Figure taxable income as if a separate return had been filed. 1040 long form See the instructions. 1040 long form 6       7 Enter the surviving spouse's total tax. 1040 long form See the instructions. 1040 long form 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040 long form 8       9 Subtract line 8 from line 7. 1040 long form 9       10 Add lines 5 and 9. 1040 long form 10       11 Enter the total tax from the joint return. 1040 long form See Table 1 on page 5 for the line number for years before 2002. 1040 long form 11       12 Add lines 4 and 8. 1040 long form 12       13 Subtract line 12 from line 11. 1040 long form 13       14 Divide line 5 by line 10. 1040 long form Enter the result as a decimal. 1040 long form 14       15 Tax to be forgiven. 1040 long form Multiply line 13 by line 14 and enter the result. 1040 long form 15       Note. 1040 long form If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040 long form Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040 long form If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040 long form The IRS will determine the amount to be refunded. 1040 long form Worksheet C. 1040 long form Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum tax forgiveness of $10,000. 1040 long form Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040 long form 1 Minimum tax forgiveness. 1040 long form Note. 1040 long form Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040 long form 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . 1040 long form 3       4 Add lines 2 and 3. 1040 long form 4       5 Enter exempt income received after death minus expenses allocable to exempt income. 1040 long form (See Income received after date of death on page 5. 1040 long form ) 5       6 Add lines 4 and 5. 1040 long form 6       7 Figure the tax on line 6 using Schedule G (Form 1041). 1040 long form 7       8 Figure the tax on line 4 using Schedule G (Form 1041). 1040 long form 8       9 Tax on exempt income. 1040 long form Subtract line 8 from line 7. 1040 long form 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040 long form If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040 long form 10       11 Add lines 9 and 10. 1040 long form 11   12 Additional payment allowed. 1040 long form If line 11 is $10,000 or more, enter -0- and stop here. 1040 long form No additional amount is allowed as a tax payment. 1040 long form Otherwise, subtract line 11 from line 1 and enter the result. 1040 long form 12   Note. 1040 long form The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040 long form Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040 long form If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040 long form Write "Sec. 1040 long form 692(d)(2) Payment" and the amount to the right of the entry space. 1040 long form Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040 long form If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040 long form Write “Sec. 1040 long form 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040 long form Worksheet C. 1040 long form Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum tax forgiveness of $10,000. 1040 long form Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040 long form 1 Minimum tax forgiveness. 1040 long form Note. 1040 long form Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040 long form 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . 1040 long form 3       4 Add lines 2 and 3. 1040 long form 4       5 Enter exempt income received after death minus expenses allocable to exempt income. 1040 long form (See Income received after date of death on page 5. 1040 long form ) 5       6 Add lines 4 and 5. 1040 long form 6       7 Figure the tax on line 6 using Schedule G (Form 1041). 1040 long form 7       8 Figure the tax on line 4 using Schedule G (Form 1041). 1040 long form 8       9 Tax on exempt income. 1040 long form Subtract line 8 from line 7. 1040 long form 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040 long form If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040 long form 10       11 Add lines 9 and 10. 1040 long form 11   12 Additional payment allowed. 1040 long form If line 11 is $10,000 or more, enter -0- and stop here. 1040 long form No additional amount is allowed as a tax payment. 1040 long form Otherwise, subtract line 11 from line 1 and enter the result. 1040 long form 12   Note. 1040 long form The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040 long form Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040 long form If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040 long form Write "Sec. 1040 long form 692(d)(2) Payment" and the amount to the right of the entry space. 1040 long form Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040 long form If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040 long form Write “Sec. 1040 long form 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040 long form How To Get Tax Help Special IRS assistance. 1040 long form   The IRS is providing special help for those affected by the terrorist attacks, as well as survivors and personal representatives of the victims. 1040 long form We have set up a special toll-free number for people who may have trouble filing or paying their taxes because they were affected by the terrorist attacks, or who have other tax issues related to the attacks. 1040 long form Call 1–866–562–5227 Monday through Friday In English–7 a. 1040 long form m. 1040 long form to 10 p. 1040 long form m. 1040 long form local time In Spanish–8 a. 1040 long form m. 1040 long form to 9:30 p. 1040 long form m. 1040 long form local time   The IRS web site at www. 1040 long form irs. 1040 long form gov has notices and other tax relief information. 1040 long form Check it periodically for any new guidance or to see if Congress has enacted new legislation. 1040 long form   Business taxpayers affected by the attacks can e-mail their questions to corp. 1040 long form disaster. 1040 long form relief@irs. 1040 long form gov. 1040 long form   For current information on Presidentially declared disaster areas, check the Federal Emergency Management Agency Web site at www. 1040 long form fema. 1040 long form gov. 1040 long form Other help from the IRS. 1040 long form   You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. 1040 long form By selecting the method that is best for you, you will have quick and easy access to tax help. 1040 long form Contacting your Taxpayer Advocate. 1040 long form   If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate. 1040 long form   The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. 1040 long form While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review. 1040 long form   To contact your Taxpayer Advocate: Call the Taxpayer Advocate at 1–877–777–4778. 1040 long form Call the IRS at 1–800–829–1040. 1040 long form Call, write, or fax the Taxpayer Advocate office in your area. 1040 long form Call 1–800–829–4059 if you are a TTY/TDD user. 1040 long form   For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS. 1040 long form Free tax services. 1040 long form   To find out what services are available, get Publication 910, Guide to Free Tax Services. 1040 long form It contains a list of free tax publications and an index of tax topics. 1040 long form It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. 1040 long form Personal computer. 1040 long form With your personal computer and modem, you can access the IRS on the Internet at www. 1040 long form irs. 1040 long form gov. 1040 long form While visiting our web site, you can: Find answers to questions you may have. 1040 long form Download forms and publications or search for forms and pub
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The 1040 Long Form

1040 long form 2. 1040 long form   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 long form You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. 1040 long form 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 long form You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. 1040 long form You can deduct depreciation only on the part of your property used for rental purposes. 1040 long form Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. 1040 long form You may have to use Form 4562 to figure and report your depreciation. 1040 long form See Which Forms To Use in chapter 3. 1040 long form Also see Publication 946. 1040 long form Section 179 deduction. 1040 long form   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 long form This deduction is not allowed for property used in connection with residential rental property. 1040 long form See chapter 2 of Publication 946. 1040 long form Alternative minimum tax (AMT). 1040 long form   If you use accelerated depreciation, you may be subject to the AMT. 1040 long form 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 long form   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. 1040 long form However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). 1040 long form   To find out if you are subject to the AMT, see the Instructions for Form 6251. 1040 long form 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 long form What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. 1040 long form You own the property. 1040 long form You use the property in your business or income-producing activity (such as rental property). 1040 long form The property has a determinable useful life. 1040 long form The property is expected to last more than one year. 1040 long form Property you own. 1040 long form   To claim depreciation, you usually must be the owner of the property. 1040 long form You are considered as owning property even if it is subject to a debt. 1040 long form Rented property. 1040 long form   Generally, if you pay rent for property, you cannot depreciate that property. 1040 long form Usually, only the owner can depreciate it. 1040 long form However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. 1040 long form See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. 1040 long form Cooperative apartments. 1040 long form   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 long form See chapter 4, Special Situations. 1040 long form Property having a determinable useful life. 1040 long form   To be depreciable, your property must have a determinable useful life. 1040 long form This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 1040 long form What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. 1040 long form This includes land and certain excepted property. 1040 long form Land. 1040 long form   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. 1040 long form But if it does, the loss is accounted for upon disposition. 1040 long form The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. 1040 long form   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. 1040 long form 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 long form Example. 1040 long form You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. 1040 long form 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 long form If you replace the house, you would have to destroy the bushes and trees right next to it. 1040 long form These bushes and trees are closely associated with the house, so they have a determinable useful life. 1040 long form Therefore, you can depreciate them. 1040 long form Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. 1040 long form Excepted property. 1040 long form   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. 1040 long form Property placed in service and disposed of (or taken out of business use) in the same year. 1040 long form Equipment used to build capital improvements. 1040 long form You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. 1040 long form For more information, see chapter 1 of Publication 946. 1040 long form 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 long form 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 long form 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 long form Even if you are not using the property, it is in service when it is ready and available for its specific use. 1040 long form Example 1. 1040 long form On November 22 of last year, you purchased a dishwasher for your rental property. 1040 long form The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. 1040 long form Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. 1040 long form 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 long form Example 2. 1040 long form On April 6, you purchased a house to use as residential rental property. 1040 long form You made extensive repairs to the house and had it ready for rent on July 5. 1040 long form You began to advertise the house for rent in July and actually rented it beginning September 1. 1040 long form The house is considered placed in service in July when it was ready and available for rent. 1040 long form You can begin to depreciate the house in July. 1040 long form Example 3. 1040 long form You moved from your home in July. 1040 long form During August and September you made several repairs to the house. 1040 long form On October 1, you listed the property for rent with a real estate company, which rented it on December 1. 1040 long form The property is considered placed in service on October 1, the date when it was available for rent. 1040 long form Conversion to business use. 1040 long form   If you place property in service in a personal activity, you cannot claim depreciation. 1040 long form 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 long form You place the property in service for business or income-producing use on the date of the change. 1040 long form Example. 1040 long form You bought a house and used it as your personal home several years before you converted it to rental property. 1040 long form 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 long form 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 long form 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 long form 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 long form 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 long form For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. 1040 long form See Basis of Depreciable Property , later. 1040 long form 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 long form 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 long form You sell or exchange the property. 1040 long form You convert the property to personal use. 1040 long form You abandon the property. 1040 long form The property is destroyed. 1040 long form Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. 1040 long form If you placed rental property in service before 1987, you are using one of the following methods. 1040 long form ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. 1040 long form Straight line or declining balance method over the useful life of property placed in service before 1981. 1040 long form See MACRS Depreciation , later, for more information. 1040 long form Rental property placed in service before 2013. 1040 long form   Continue to use the same method of figuring depreciation that you used in the past. 1040 long form Use of real property changed. 1040 long form   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 long form This includes your residence that you changed to rental use. 1040 long form See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. 1040 long form Improvements made after 1986. 1040 long form   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. 1040 long form 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 long form For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. 1040 long form This publication discusses MACRS depreciation only. 1040 long form If you need information about depreciating property placed in service before 1987, see Publication 534. 1040 long form 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 long form 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 long form 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 long form Basis and adjusted basis are explained in the following discussions. 1040 long form 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 long form See Basis of Property Changed to Rental Use in chapter 4. 1040 long form Cost Basis The basis of property you buy is usually its cost. 1040 long form The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. 1040 long form 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 long form Exception. 1040 long form   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 long form Such taxes were deductible before 1987 and after 2003. 1040 long form Loans with low or no interest. 1040 long form   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 long form See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. 1040 long form Real property. 1040 long form   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 long form Real estate taxes. 1040 long form   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 long form You cannot deduct them as taxes paid. 1040 long form   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. 1040 long form Do not include that amount in your basis in the property. 1040 long form Settlement fees and other costs. 1040 long form   The following settlement fees and closing costs for buying the property are part of your basis in the property. 1040 long form Abstract fees. 1040 long form Charges for installing utility services. 1040 long form Legal fees. 1040 long form Recording fees. 1040 long form Surveys. 1040 long form Transfer taxes. 1040 long form Title insurance. 1040 long form 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 long form   The following are settlement fees and closing costs you cannot include in your basis in the property. 1040 long form Fire insurance premiums. 1040 long form Rent or other charges relating to occupancy of the property before closing. 1040 long form 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 long form   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 1040 long form Assumption of a mortgage. 1040 long form   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 long form Example. 1040 long form You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. 1040 long form Your basis is $300,000. 1040 long form Separating cost of land and buildings. 1040 long form   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 long form 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 long form   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 long form Example. 1040 long form You buy a house and land for $200,000. 1040 long form The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. 1040 long form 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 long form 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 long form 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 long form 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 long form If you received property in one of these ways, see Publication 551 for information on how to figure your basis. 1040 long form 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 long form The result of these adjustments to the basis is the adjusted basis. 1040 long form Increases to basis. 1040 long form   You must increase the basis of any property by the cost of all items properly added to a capital account. 1040 long form These include the following. 1040 long form 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 long form Amounts spent after a casualty to restore the damaged property. 1040 long form The cost of extending utility service lines to the property. 1040 long form Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. 1040 long form Additions or improvements. 1040 long form   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 long form This includes all direct costs, such as material and labor, but does not include your own labor. 1040 long form It also includes all expenses related to the addition or improvement. 1040 long form   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 long form 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 long form   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. 1040 long form For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. 1040 long form    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. 1040 long form However, see What Rental Property Cannot Be Depreciated, earlier. 1040 long form Assessments for local improvements. 1040 long form   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 long form 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 long form Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. 1040 long form You cannot deduct these items as taxes or depreciate them. 1040 long form    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. 1040 long form Do not add them to your basis in the property. 1040 long form Deducting vs. 1040 long form capitalizing costs. 1040 long form   Do not add to your basis costs you can deduct as current expenses. 1040 long form However, there are certain costs you can choose either to deduct or to capitalize. 1040 long form If you capitalize these costs, include them in your basis. 1040 long form If you deduct them, do not include them in your basis. 1040 long form   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 long form   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. 1040 long form Decreases to basis. 1040 long form   You must decrease the basis of your property by any items that represent a return of your cost. 1040 long form These include the following. 1040 long form Insurance or other payment you receive as the result of a casualty or theft loss. 1040 long form Casualty loss not covered by insurance for which you took a deduction. 1040 long form Amount(s) you receive for granting an easement. 1040 long form 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 long form Exclusion from income of subsidies for energy conservation measures. 1040 long form Special depreciation allowance claimed on qualified property. 1040 long form Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. 1040 long form If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. 1040 long form   If your rental property was previously used as your main home, you must also decrease the basis by the following. 1040 long form 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 long form 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 long form Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. 1040 long form Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. 1040 long form This allowance is figured before you figure your regular depreciation deduction. 1040 long form See Publication 946, chapter 3, for details. 1040 long form Also see the Instructions for Form 4562, Line 14. 1040 long form If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. 1040 long form The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. 1040 long form MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. 1040 long form This section explains how to determine which MACRS depreciation system applies to your property. 1040 long form It also discusses other information you need to know before you can figure depreciation under MACRS. 1040 long form This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. 1040 long form 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 long form You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. 1040 long form 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 long form 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 long form 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 long form For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. 1040 long form Electing ADS If you choose, you can use the ADS method for most property. 1040 long form Under ADS, you use the straight line method of depreciation. 1040 long form 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 long form However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. 1040 long form 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 long form Once you make this election, you can never revoke it. 1040 long form 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 long form 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 long form The property class generally determines the depreciation method, recovery period, and convention. 1040 long form 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 long form Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. 1040 long form 5-year property. 1040 long form This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. 1040 long form ), automobiles, and light trucks. 1040 long form This class also includes appliances, carpeting, furniture, etc. 1040 long form , used in a residential rental real estate activity. 1040 long form 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 long form See chapter 5 of Publication 946. 1040 long form 7-year property. 1040 long form This class includes office furniture and equipment (desks, file cabinets, etc. 1040 long form ). 1040 long form 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 long form 15-year property. 1040 long form This class includes roads, fences, and shrubbery (if depreciable). 1040 long form Residential rental property. 1040 long form 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 long form 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 long form 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 long form The other property classes do not generally apply to property used in rental activities. 1040 long form These classes are not discussed in this publication. 1040 long form See Publication 946 for more information. 1040 long form Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. 1040 long form The recovery periods are generally longer under ADS than GDS. 1040 long form The recovery period of property depends on its property class. 1040 long form Under GDS, the recovery period of an asset is generally the same as its property class. 1040 long form Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. 1040 long form See Table 2-1 for recovery periods of property commonly used in residential rental activities. 1040 long form Qualified Indian reservation property. 1040 long form   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. 1040 long form For more information, see chapter 4 of Publication 946. 1040 long form Additions or improvements to property. 1040 long form   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. 1040 long form   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 long form   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 long form Example. 1040 long form You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. 1040 long form You built an addition onto the house and placed it in service in 2013. 1040 long form You must use MACRS for the addition. 1040 long form Under GDS, the addition is depreciated as residential rental property over 27. 1040 long form 5 years. 1040 long form Table 2-1. 1040 long form 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 long form 27. 1040 long form 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 long form   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. 1040 long form 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 long form Mid-month convention. 1040 long form    A mid-month convention is used for all residential rental property and nonresidential real property. 1040 long form 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 long form Mid-quarter convention. 1040 long form   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 long form   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 long form Example. 1040 long form During the tax year, Tom Martin purchased the following items to use in his rental property. 1040 long form He elects not to claim the special depreciation allowance discussed earlier. 1040 long form A dishwasher for $400 that he placed in service in January. 1040 long form Used furniture for $100 that he placed in service in September. 1040 long form A refrigerator for $800 that he placed in service in October. 1040 long form Tom uses the calendar year as his tax year. 1040 long form The total basis of all property placed in service that year is $1,300. 1040 long form The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). 1040 long form Tom must use the mid-quarter convention instead of the half-year convention for all three items. 1040 long form Half-year convention. 1040 long form    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. 1040 long form 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 long form   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 long form You deduct a full year of depreciation for any other year during the recovery period. 1040 long form Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. 1040 long form The deduction is substantially the same both ways. 1040 long form 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 long form In this publication we will use the percentage tables. 1040 long form For instructions on how to compute the deduction, see chapter 4 of Publication 946. 1040 long form Residential rental property. 1040 long form   You must use the straight line method and a mid-month convention for residential rental property. 1040 long form 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 long form 5-, 7-, or 15-year property. 1040 long form   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. 1040 long form However, in limited cases you must use the mid-quarter convention, if it applies. 1040 long form For property in the 15-year class, use the 150% declining balance method and a half-year convention. 1040 long form   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. 1040 long form 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 long form You make this election on Form 4562. 1040 long form In Part III, column (f), enter “150 DB. 1040 long form ” Once you make this election, you cannot change to another method. 1040 long form   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 long form   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 long form 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 long form You elect the straight line method on Form 4562. 1040 long form In Part III, column (f), enter “S/L. 1040 long form ” Once you make this election, you cannot change to another method. 1040 long form MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. 1040 long form The tables show the percentages for the first few years or until the change to the straight line method is made. 1040 long form See Appendix A of Publication 946 for complete tables. 1040 long form 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 long form 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 long form How to use the percentage tables. 1040 long form   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. 1040 long form   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 long form   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 long form 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 long form See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. 1040 long form Unadjusted basis. 1040 long form   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 long form   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 long form For more information, see chapter 4 of Publication 946. 1040 long form Please click here for the text description of the image. 1040 long form Table 2-2 Tables 2-2a, 2-2b, and 2-2c. 1040 long form   The percentages in these tables take into account the half-year and mid-quarter conventions. 1040 long form Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. 1040 long form Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). 1040 long form 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 long form Example 1. 1040 long form You purchased a stove and refrigerator and placed them in service in June. 1040 long form Your basis in the stove is $600 and your basis in the refrigerator is $1,000. 1040 long form Both are 5-year property. 1040 long form Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. 1040 long form For that year your depreciation deduction is $120 ($600 × . 1040 long form 20) for the stove and $200 ($1,000 × . 1040 long form 20) for the refrigerator. 1040 long form For Year 2, the depreciation percentage is 32%. 1040 long form That year's depreciation deduction will be $192 ($600 × . 1040 long form 32) for the stove and $320 ($1,000 × . 1040 long form 32) for the refrigerator. 1040 long form Example 2. 1040 long form Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. 1040 long form 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 long form 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. 1040 long form 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 long form Your depreciation deduction for the refrigerator is $50 ($1,000 x . 1040 long form 05). 1040 long form 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 long form For that year, your depreciation deduction for the stove is $150 ($600 x . 1040 long form 25). 1040 long form Table 2-2d. 1040 long form    Use this table when you are using the GDS 27. 1040 long form 5 year option for residential rental property. 1040 long form Find the row for the month that you placed the property in service. 1040 long form Use the percentages listed for that month to figure your depreciation deduction. 1040 long form The mid-month convention is taken into account in the percentages shown in the table. 1040 long form Continue to use the same row (month) under the column for the appropriate year. 1040 long form Example. 1040 long form You purchased a single family rental house for $185,000 and placed it in service on February 8. 1040 long form The sales contract showed that the building cost $160,000 and the land cost $25,000. 1040 long form Your basis for depreciation is its original cost, $160,000. 1040 long form 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 long form 5 years. 1040 long form Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. 1040 long form 182%. 1040 long form That year's depreciation deduction is $5,091 ($160,000 x . 1040 long form 03182). 1040 long form Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. 1040 long form See Appendix B in Publication 946 for other property. 1040 long form If your property is not listed in Appendix B, it is considered to have no class life. 1040 long form Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. 1040 long form Use the mid-month convention for residential rental property and nonresidential real property. 1040 long form For all other property, use the half-year or mid-quarter convention, as appropriate. 1040 long form See Publication 946 for ADS depreciation tables. 1040 long form Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. 1040 long form 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 long form For more information, see Depreciation under Decreases to Basis in Publication 551. 1040 long form 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 long form S. 1040 long form Individual Income Tax Return. 1040 long form 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 long form Filing an amended return. 1040 long form   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. 1040 long form You claimed the incorrect amount because of a mathematical error made in any year. 1040 long form You claimed the incorrect amount because of a posting error made in any year. 1040 long form You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. 1040 long form You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. 1040 long form   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 long form 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 long form   If an amended return is allowed, you must file it by the later of the following dates. 1040 long form 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. 1040 long form A return filed before an unextended due date is considered filed on that due date. 1040 long form 2 years from the time you paid your tax for that year. 1040 long form Changing your accounting method. 1040 long form   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 long form In some instances, that consent is automatic. 1040 long form For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. 1040 long form Prev  Up  Next   Home   More Online Publications