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2008 Tax Return

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2008 Tax Return

2008 tax return 2. 2008 tax return   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. 2008 tax return You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. 2008 tax return 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. 2008 tax return You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. 2008 tax return You can deduct depreciation only on the part of your property used for rental purposes. 2008 tax return Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. 2008 tax return You may have to use Form 4562 to figure and report your depreciation. 2008 tax return See Which Forms To Use in chapter 3. 2008 tax return Also see Publication 946. 2008 tax return Section 179 deduction. 2008 tax return   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. 2008 tax return This deduction is not allowed for property used in connection with residential rental property. 2008 tax return See chapter 2 of Publication 946. 2008 tax return Alternative minimum tax (AMT). 2008 tax return   If you use accelerated depreciation, you may be subject to the AMT. 2008 tax return 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). 2008 tax return   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. 2008 tax return However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). 2008 tax return   To find out if you are subject to the AMT, see the Instructions for Form 6251. 2008 tax return 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. 2008 tax return What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. 2008 tax return You own the property. 2008 tax return You use the property in your business or income-producing activity (such as rental property). 2008 tax return The property has a determinable useful life. 2008 tax return The property is expected to last more than one year. 2008 tax return Property you own. 2008 tax return   To claim depreciation, you usually must be the owner of the property. 2008 tax return You are considered as owning property even if it is subject to a debt. 2008 tax return Rented property. 2008 tax return   Generally, if you pay rent for property, you cannot depreciate that property. 2008 tax return Usually, only the owner can depreciate it. 2008 tax return However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. 2008 tax return See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. 2008 tax return Cooperative apartments. 2008 tax return   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. 2008 tax return See chapter 4, Special Situations. 2008 tax return Property having a determinable useful life. 2008 tax return   To be depreciable, your property must have a determinable useful life. 2008 tax return This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 2008 tax return What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. 2008 tax return This includes land and certain excepted property. 2008 tax return Land. 2008 tax return   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. 2008 tax return But if it does, the loss is accounted for upon disposition. 2008 tax return The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. 2008 tax return   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. 2008 tax return 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. 2008 tax return Example. 2008 tax return You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. 2008 tax return Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. 2008 tax return If you replace the house, you would have to destroy the bushes and trees right next to it. 2008 tax return These bushes and trees are closely associated with the house, so they have a determinable useful life. 2008 tax return Therefore, you can depreciate them. 2008 tax return Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. 2008 tax return Excepted property. 2008 tax return   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. 2008 tax return Property placed in service and disposed of (or taken out of business use) in the same year. 2008 tax return Equipment used to build capital improvements. 2008 tax return You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. 2008 tax return For more information, see chapter 1 of Publication 946. 2008 tax return When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. 2008 tax return 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. 2008 tax return 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. 2008 tax return Even if you are not using the property, it is in service when it is ready and available for its specific use. 2008 tax return Example 1. 2008 tax return On November 22 of last year, you purchased a dishwasher for your rental property. 2008 tax return The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. 2008 tax return Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. 2008 tax return 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. 2008 tax return Example 2. 2008 tax return On April 6, you purchased a house to use as residential rental property. 2008 tax return You made extensive repairs to the house and had it ready for rent on July 5. 2008 tax return You began to advertise the house for rent in July and actually rented it beginning September 1. 2008 tax return The house is considered placed in service in July when it was ready and available for rent. 2008 tax return You can begin to depreciate the house in July. 2008 tax return Example 3. 2008 tax return You moved from your home in July. 2008 tax return During August and September you made several repairs to the house. 2008 tax return On October 1, you listed the property for rent with a real estate company, which rented it on December 1. 2008 tax return The property is considered placed in service on October 1, the date when it was available for rent. 2008 tax return Conversion to business use. 2008 tax return   If you place property in service in a personal activity, you cannot claim depreciation. 2008 tax return 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. 2008 tax return You place the property in service for business or income-producing use on the date of the change. 2008 tax return Example. 2008 tax return You bought a house and used it as your personal home several years before you converted it to rental property. 2008 tax return 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. 2008 tax return 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. 2008 tax return 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). 2008 tax return 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. 2008 tax return 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. 2008 tax return For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. 2008 tax return See Basis of Depreciable Property , later. 2008 tax return 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. 2008 tax return 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. 2008 tax return You sell or exchange the property. 2008 tax return You convert the property to personal use. 2008 tax return You abandon the property. 2008 tax return The property is destroyed. 2008 tax return Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. 2008 tax return If you placed rental property in service before 1987, you are using one of the following methods. 2008 tax return ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. 2008 tax return Straight line or declining balance method over the useful life of property placed in service before 1981. 2008 tax return See MACRS Depreciation , later, for more information. 2008 tax return Rental property placed in service before 2013. 2008 tax return   Continue to use the same method of figuring depreciation that you used in the past. 2008 tax return Use of real property changed. 2008 tax return   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. 2008 tax return This includes your residence that you changed to rental use. 2008 tax return See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. 2008 tax return Improvements made after 1986. 2008 tax return   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. 2008 tax return 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. 2008 tax return For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. 2008 tax return This publication discusses MACRS depreciation only. 2008 tax return If you need information about depreciating property placed in service before 1987, see Publication 534. 2008 tax return 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. 2008 tax return 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. 2008 tax return 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. 2008 tax return Basis and adjusted basis are explained in the following discussions. 2008 tax return 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. 2008 tax return See Basis of Property Changed to Rental Use in chapter 4. 2008 tax return Cost Basis The basis of property you buy is usually its cost. 2008 tax return The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. 2008 tax return 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. 2008 tax return Exception. 2008 tax return   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. 2008 tax return Such taxes were deductible before 1987 and after 2003. 2008 tax return Loans with low or no interest. 2008 tax return   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. 2008 tax return See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. 2008 tax return Real property. 2008 tax return   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. 2008 tax return Real estate taxes. 2008 tax return   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. 2008 tax return You cannot deduct them as taxes paid. 2008 tax return   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. 2008 tax return Do not include that amount in your basis in the property. 2008 tax return Settlement fees and other costs. 2008 tax return   The following settlement fees and closing costs for buying the property are part of your basis in the property. 2008 tax return Abstract fees. 2008 tax return Charges for installing utility services. 2008 tax return Legal fees. 2008 tax return Recording fees. 2008 tax return Surveys. 2008 tax return Transfer taxes. 2008 tax return Title insurance. 2008 tax return 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. 2008 tax return   The following are settlement fees and closing costs you cannot include in your basis in the property. 2008 tax return Fire insurance premiums. 2008 tax return Rent or other charges relating to occupancy of the property before closing. 2008 tax return 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. 2008 tax return   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 2008 tax return Assumption of a mortgage. 2008 tax return   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. 2008 tax return Example. 2008 tax return You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. 2008 tax return Your basis is $300,000. 2008 tax return Separating cost of land and buildings. 2008 tax return   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. 2008 tax return 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. 2008 tax return   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. 2008 tax return Example. 2008 tax return You buy a house and land for $200,000. 2008 tax return The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. 2008 tax return 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. 2008 tax return 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. 2008 tax return 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). 2008 tax return 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. 2008 tax return If you received property in one of these ways, see Publication 551 for information on how to figure your basis. 2008 tax return 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. 2008 tax return The result of these adjustments to the basis is the adjusted basis. 2008 tax return Increases to basis. 2008 tax return   You must increase the basis of any property by the cost of all items properly added to a capital account. 2008 tax return These include the following. 2008 tax return 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. 2008 tax return Amounts spent after a casualty to restore the damaged property. 2008 tax return The cost of extending utility service lines to the property. 2008 tax return Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. 2008 tax return Additions or improvements. 2008 tax return   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. 2008 tax return This includes all direct costs, such as material and labor, but does not include your own labor. 2008 tax return It also includes all expenses related to the addition or improvement. 2008 tax return   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. 2008 tax return 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. 2008 tax return   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. 2008 tax return For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. 2008 tax return    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. 2008 tax return However, see What Rental Property Cannot Be Depreciated, earlier. 2008 tax return Assessments for local improvements. 2008 tax return   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. 2008 tax return 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. 2008 tax return Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. 2008 tax return You cannot deduct these items as taxes or depreciate them. 2008 tax return    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. 2008 tax return Do not add them to your basis in the property. 2008 tax return Deducting vs. 2008 tax return capitalizing costs. 2008 tax return   Do not add to your basis costs you can deduct as current expenses. 2008 tax return However, there are certain costs you can choose either to deduct or to capitalize. 2008 tax return If you capitalize these costs, include them in your basis. 2008 tax return If you deduct them, do not include them in your basis. 2008 tax return   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. 2008 tax return   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. 2008 tax return Decreases to basis. 2008 tax return   You must decrease the basis of your property by any items that represent a return of your cost. 2008 tax return These include the following. 2008 tax return Insurance or other payment you receive as the result of a casualty or theft loss. 2008 tax return Casualty loss not covered by insurance for which you took a deduction. 2008 tax return Amount(s) you receive for granting an easement. 2008 tax return 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. 2008 tax return Exclusion from income of subsidies for energy conservation measures. 2008 tax return Special depreciation allowance claimed on qualified property. 2008 tax return Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. 2008 tax return If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. 2008 tax return   If your rental property was previously used as your main home, you must also decrease the basis by the following. 2008 tax return Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. 2008 tax return District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. 2008 tax return Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. 2008 tax return Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. 2008 tax return This allowance is figured before you figure your regular depreciation deduction. 2008 tax return See Publication 946, chapter 3, for details. 2008 tax return Also see the Instructions for Form 4562, Line 14. 2008 tax return If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. 2008 tax return The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. 2008 tax return MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. 2008 tax return This section explains how to determine which MACRS depreciation system applies to your property. 2008 tax return It also discusses other information you need to know before you can figure depreciation under MACRS. 2008 tax return This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. 2008 tax return 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). 2008 tax return You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. 2008 tax return 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. 2008 tax return 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. 2008 tax return 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. 2008 tax return For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. 2008 tax return Electing ADS If you choose, you can use the ADS method for most property. 2008 tax return Under ADS, you use the straight line method of depreciation. 2008 tax return 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. 2008 tax return However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. 2008 tax return 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. 2008 tax return Once you make this election, you can never revoke it. 2008 tax return 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. 2008 tax return 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. 2008 tax return The property class generally determines the depreciation method, recovery period, and convention. 2008 tax return 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. 2008 tax return Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. 2008 tax return 5-year property. 2008 tax return This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. 2008 tax return ), automobiles, and light trucks. 2008 tax return This class also includes appliances, carpeting, furniture, etc. 2008 tax return , used in a residential rental real estate activity. 2008 tax return 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. 2008 tax return See chapter 5 of Publication 946. 2008 tax return 7-year property. 2008 tax return This class includes office furniture and equipment (desks, file cabinets, etc. 2008 tax return ). 2008 tax return 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. 2008 tax return 15-year property. 2008 tax return This class includes roads, fences, and shrubbery (if depreciable). 2008 tax return Residential rental property. 2008 tax return 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. 2008 tax return 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. 2008 tax return 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. 2008 tax return The other property classes do not generally apply to property used in rental activities. 2008 tax return These classes are not discussed in this publication. 2008 tax return See Publication 946 for more information. 2008 tax return Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. 2008 tax return The recovery periods are generally longer under ADS than GDS. 2008 tax return The recovery period of property depends on its property class. 2008 tax return Under GDS, the recovery period of an asset is generally the same as its property class. 2008 tax return Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. 2008 tax return See Table 2-1 for recovery periods of property commonly used in residential rental activities. 2008 tax return Qualified Indian reservation property. 2008 tax return   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. 2008 tax return For more information, see chapter 4 of Publication 946. 2008 tax return Additions or improvements to property. 2008 tax return   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. 2008 tax return   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. 2008 tax return   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. 2008 tax return Example. 2008 tax return You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. 2008 tax return You built an addition onto the house and placed it in service in 2013. 2008 tax return You must use MACRS for the addition. 2008 tax return Under GDS, the addition is depreciated as residential rental property over 27. 2008 tax return 5 years. 2008 tax return Table 2-1. 2008 tax return 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. 2008 tax return 27. 2008 tax return 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. 2008 tax return   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. 2008 tax return 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. 2008 tax return Mid-month convention. 2008 tax return    A mid-month convention is used for all residential rental property and nonresidential real property. 2008 tax return 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. 2008 tax return Mid-quarter convention. 2008 tax return   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. 2008 tax return   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. 2008 tax return Example. 2008 tax return During the tax year, Tom Martin purchased the following items to use in his rental property. 2008 tax return He elects not to claim the special depreciation allowance discussed earlier. 2008 tax return A dishwasher for $400 that he placed in service in January. 2008 tax return Used furniture for $100 that he placed in service in September. 2008 tax return A refrigerator for $800 that he placed in service in October. 2008 tax return Tom uses the calendar year as his tax year. 2008 tax return The total basis of all property placed in service that year is $1,300. 2008 tax return The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). 2008 tax return Tom must use the mid-quarter convention instead of the half-year convention for all three items. 2008 tax return Half-year convention. 2008 tax return    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. 2008 tax return 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. 2008 tax return   If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. 2008 tax return You deduct a full year of depreciation for any other year during the recovery period. 2008 tax return Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. 2008 tax return The deduction is substantially the same both ways. 2008 tax return 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. 2008 tax return In this publication we will use the percentage tables. 2008 tax return For instructions on how to compute the deduction, see chapter 4 of Publication 946. 2008 tax return Residential rental property. 2008 tax return   You must use the straight line method and a mid-month convention for residential rental property. 2008 tax return 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). 2008 tax return 5-, 7-, or 15-year property. 2008 tax return   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. 2008 tax return However, in limited cases you must use the mid-quarter convention, if it applies. 2008 tax return For property in the 15-year class, use the 150% declining balance method and a half-year convention. 2008 tax return   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. 2008 tax return 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. 2008 tax return You make this election on Form 4562. 2008 tax return In Part III, column (f), enter “150 DB. 2008 tax return ” Once you make this election, you cannot change to another method. 2008 tax return   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. 2008 tax return   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. 2008 tax return 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. 2008 tax return You elect the straight line method on Form 4562. 2008 tax return In Part III, column (f), enter “S/L. 2008 tax return ” Once you make this election, you cannot change to another method. 2008 tax return MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. 2008 tax return The tables show the percentages for the first few years or until the change to the straight line method is made. 2008 tax return See Appendix A of Publication 946 for complete tables. 2008 tax return 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. 2008 tax return 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. 2008 tax return How to use the percentage tables. 2008 tax return   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. 2008 tax return   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. 2008 tax return   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. 2008 tax return 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 . 2008 tax return See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. 2008 tax return Unadjusted basis. 2008 tax return   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. 2008 tax return   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. 2008 tax return For more information, see chapter 4 of Publication 946. 2008 tax return Please click here for the text description of the image. 2008 tax return Table 2-2 Tables 2-2a, 2-2b, and 2-2c. 2008 tax return   The percentages in these tables take into account the half-year and mid-quarter conventions. 2008 tax return Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. 2008 tax return Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). 2008 tax return 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. 2008 tax return Example 1. 2008 tax return You purchased a stove and refrigerator and placed them in service in June. 2008 tax return Your basis in the stove is $600 and your basis in the refrigerator is $1,000. 2008 tax return Both are 5-year property. 2008 tax return Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. 2008 tax return For that year your depreciation deduction is $120 ($600 × . 2008 tax return 20) for the stove and $200 ($1,000 × . 2008 tax return 20) for the refrigerator. 2008 tax return For Year 2, the depreciation percentage is 32%. 2008 tax return That year's depreciation deduction will be $192 ($600 × . 2008 tax return 32) for the stove and $320 ($1,000 × . 2008 tax return 32) for the refrigerator. 2008 tax return Example 2. 2008 tax return Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. 2008 tax return 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 × . 2008 tax return 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. 2008 tax return 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%. 2008 tax return Your depreciation deduction for the refrigerator is $50 ($1,000 x . 2008 tax return 05). 2008 tax return 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%. 2008 tax return For that year, your depreciation deduction for the stove is $150 ($600 x . 2008 tax return 25). 2008 tax return Table 2-2d. 2008 tax return    Use this table when you are using the GDS 27. 2008 tax return 5 year option for residential rental property. 2008 tax return Find the row for the month that you placed the property in service. 2008 tax return Use the percentages listed for that month to figure your depreciation deduction. 2008 tax return The mid-month convention is taken into account in the percentages shown in the table. 2008 tax return Continue to use the same row (month) under the column for the appropriate year. 2008 tax return Example. 2008 tax return You purchased a single family rental house for $185,000 and placed it in service on February 8. 2008 tax return The sales contract showed that the building cost $160,000 and the land cost $25,000. 2008 tax return Your basis for depreciation is its original cost, $160,000. 2008 tax return 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. 2008 tax return 5 years. 2008 tax return Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. 2008 tax return 182%. 2008 tax return That year's depreciation deduction is $5,091 ($160,000 x . 2008 tax return 03182). 2008 tax return Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. 2008 tax return See Appendix B in Publication 946 for other property. 2008 tax return If your property is not listed in Appendix B, it is considered to have no class life. 2008 tax return Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. 2008 tax return Use the mid-month convention for residential rental property and nonresidential real property. 2008 tax return For all other property, use the half-year or mid-quarter convention, as appropriate. 2008 tax return See Publication 946 for ADS depreciation tables. 2008 tax return Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. 2008 tax return 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. 2008 tax return For more information, see Depreciation under Decreases to Basis in Publication 551. 2008 tax return 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. 2008 tax return S. 2008 tax return Individual Income Tax Return. 2008 tax return 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. 2008 tax return Filing an amended return. 2008 tax return   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. 2008 tax return You claimed the incorrect amount because of a mathematical error made in any year. 2008 tax return You claimed the incorrect amount because of a posting error made in any year. 2008 tax return You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. 2008 tax return You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. 2008 tax return   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. 2008 tax return 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. 2008 tax return   If an amended return is allowed, you must file it by the later of the following dates. 2008 tax return 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. 2008 tax return A return filed before an unextended due date is considered filed on that due date. 2008 tax return 2 years from the time you paid your tax for that year. 2008 tax return Changing your accounting method. 2008 tax return   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. 2008 tax return In some instances, that consent is automatic. 2008 tax return For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. 2008 tax return Prev  Up  Next   Home   More Online Publications
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Page Last Reviewed or Updated: 04-Feb-2014

The 2008 Tax Return

2008 tax return 16. 2008 tax return   Reporting Gains and Losses Table of Contents What's New Introduction Useful Items - You may want to see: Reporting Capital Gains and Losses Exception 1. 2008 tax return Exception 2. 2008 tax return File Form 1099-B or Form 1099-S with the IRS. 2008 tax return Capital Losses Capital Gain Tax Rates What's New Maximum capital gain rates. 2008 tax return . 2008 tax return  For 2013, the maximum capital gain rates are 0%, 15%, 20%, 25%, and 28%. 2008 tax return Introduction This chapter discusses how to report capital gains and losses from sales, exchanges, and other dispositions of investment property on Form 8949 and Schedule D (Form 1040). 2008 tax return The discussion includes the following topics. 2008 tax return How to report short-term gains and losses. 2008 tax return How to report long-term gains and losses. 2008 tax return How to figure capital loss carryovers. 2008 tax return How to figure your tax on a net capital gain. 2008 tax return If you sell or otherwise dispose of property used in a trade or business or for the production of income, see Publication 544, Sales and Other Dispositions of Assets, before completing Schedule D (Form 1040). 2008 tax return Useful Items - You may want to see: Publication 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses Form (and Instructions) 4797 Sales of Business Property 6252 Installment Sale Income 8582 Passive Activity Loss Limitations 8949 Sales and Other Dispositions of Capital Assets Schedule D (Form 1040) Capital Gains and Losses Reporting Capital Gains and Losses Generally, report capital gains and losses on Form 8949. 2008 tax return Complete Form 8949 before you complete line 1b, 2, 3, 8b, 9, or 10 of Schedule D (Form 1040). 2008 tax return Use Form 8949 to report: The sale or exchange of a capital asset not reported on another form or schedule; Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit; and Nonbusiness bad debts. 2008 tax return Use Schedule D (Form 1040): To figure the overall gain or loss from transactions reported on Form 8949; To report a gain from Form 6252 or Part I of Form 4797; To report a gain or loss from Form 4684, 6781, or 8824; To report capital gain distributions not reported directly on Form 1040 or Form 1040A; To report a capital loss carryover from the previous tax year to the current tax year; To report your share of a gain or (loss) from a partnership, S corporation, estate, or trust; To report transactions reported to you on a Form 1099-B (or substitute statement) showing basis was reported to the IRS and to which none of the Form 8949 adjustments or codes apply; and To report undistributed long-term capital gains from Form 2439. 2008 tax return On Form 8949, enter all sales and exchanges of capital assets, including stocks, bonds, etc. 2008 tax return , and real estate (if not reported on Form 4684, 4797, 6252, 6781, 8824, or line 1a or 8a of Schedule D). 2008 tax return Include these transactions even if you did not receive a Form 1099-B or 1099-S (or substitute statement) for the transaction. 2008 tax return Report short-term gains or losses in Part I. 2008 tax return Report long-term gains or losses in Part II. 2008 tax return Use as many Forms 8949 as you need. 2008 tax return Exceptions to filing Form 8949 and Schedule D (Form 1040). 2008 tax return   There are certain situations where you may not have to file Form 8949 and/or Schedule D (Form 1040). 2008 tax return Exception 1. 2008 tax return   You do not have to file Form 8949 or Schedule D (Form 1040) if you have no capital losses and your only capital gains are capital gain distributions from Form(s) 1099-DIV, box 2a (or substitute statements). 2008 tax return (If any Form(s) 1099-DIV (or substitute statements) you receive have an amount in box 2b (unrecaptured section 1250 gain), box 2c (section 1202 gain), or box 2d (collectibles (28%) gain), you do not qualify for this exception. 2008 tax return ) If you qualify for this exception, report your capital gain distributions directly on line 13 of Form 1040 (and check the box on line 13). 2008 tax return Also use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions to figure your tax. 2008 tax return You can report your capital gain distributions on line 10 of Form 1040A, instead of on Form 1040, if none of the Forms 1099-DIV (or substitute statements) you received have an amount in box 2b, 2c, or 2d, and you do not have to file Form 1040. 2008 tax return Exception 2. 2008 tax return   You must file Schedule D (Form 1040), but generally do not have to file Form 8949, if Exception 1 does not apply and your only capital gains and losses are: Capital gain distributions; A capital loss carryover; A gain from Form 2439 or 6252 or Part I of Form 4797; A gain or loss from Form 4684, 6781, or 8824; A gain or loss from a partnership, S corporation, estate, or trust; or Gains and losses from transactions for which you received a Form 1099-B (or substitute statement) that shows the basis was reported to the IRS and for which you do not need to make any adjustments in column (g) of Form 8949 or enter any codes in column (f) of Form 8949. 2008 tax return Installment sales. 2008 tax return   You cannot use the installment method to report a gain from the sale of stock or securities traded on an established securities market. 2008 tax return You must report the entire gain in the year of sale (the year in which the trade date occurs). 2008 tax return Passive activity gains and losses. 2008 tax return    If you have gains or losses from a passive activity, you may also have to report them on Form 8582. 2008 tax return In some cases, the loss may be limited under the passive activity rules. 2008 tax return Refer to Form 8582 and its instructions for more information about reporting capital gains and losses from a passive activity. 2008 tax return Form 1099-B transactions. 2008 tax return   If you sold property, such as stocks, bonds, or certain commodities, through a broker, you should receive Form 1099-B or substitute statement from the broker. 2008 tax return Use the Form 1099-B or the substitute statement to complete Form 8949. 2008 tax return If you sold a covered security in 2013, your broker should send you a Form 1099-B (or substitute statement) that shows your basis. 2008 tax return This will help you complete Form 8949. 2008 tax return Generally, a covered security is a security you acquired after 2010. 2008 tax return   Report the gross proceeds shown in box 2a of Form 1099-B as the sales price in column (d) of either Part I or Part II of Form 8949, whichever applies. 2008 tax return However, if the broker advises you, in box 2a of Form 1099-B, that gross proceeds (sales price) less commissions and option premiums were reported to the IRS, enter that net sales price in column (d) of either Part I or Part II of Form 8949, whichever applies. 2008 tax return    Include in column (g) any expense of sale, such as broker's fees, commissions, state and local transfer taxes, and option premiums, unless you reported the net sales price in column (d). 2008 tax return If you include an expense of sale in column (g), enter “E” in column (f). 2008 tax return Form 1099-CAP transactions. 2008 tax return   If a corporation in which you own stock has had a change in control or a substantial change in capital structure, you should receive Form 1099-CAP or a substitute statement from the corporation. 2008 tax return Use the Form 1099-CAP or substitute statement to fill in Form 8949. 2008 tax return If your computations show that you would have a loss because of the change, do not enter any amounts on Form 8949 or Schedule D (Form 1040). 2008 tax return You cannot claim a loss on Schedule D (Form 1040) as a result of this transaction. 2008 tax return   Report the aggregate amount received shown in box 2 of Form 1099-CAP as the sales price in column (d) of either Part I or Part II of Form 8949, whichever applies. 2008 tax return Form 1099-S transactions. 2008 tax return   If you sold or traded reportable real estate, you generally should receive from the real estate reporting person a Form 1099-S showing the gross proceeds. 2008 tax return    “Reportable real estate” is defined as any present or future ownership interest in any of the following: Improved or unimproved land, including air space; Inherently permanent structures, including any residential, commercial, or industrial building; A condominium unit and its accessory fixtures and common elements, including land; and Stock in a cooperative housing corporation (as defined in section 216 of the Internal Revenue Code). 2008 tax return   A “real estate reporting person” could include the buyer's attorney, your attorney, the title or escrow company, a mortgage lender, your broker, the buyer's broker, or the person acquiring the biggest interest in the property. 2008 tax return   Your Form 1099-S will show the gross proceeds from the sale or exchange in box 2. 2008 tax return See the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040) for how to report these transactions and include them in Part I or Part II of Form 8949 as appropriate. 2008 tax return However, report like-kind exchanges on Form 8824 instead. 2008 tax return   It is unlawful for any real estate reporting person to separately charge you for complying with the requirement to file Form 1099-S. 2008 tax return Nominees. 2008 tax return   If you receive gross proceeds as a nominee (that is, the gross proceeds are in your name but actually belong to someone else), see the Instructions for Form 8949 for how to report these amounts on Form 8949. 2008 tax return File Form 1099-B or Form 1099-S with the IRS. 2008 tax return   If you received gross proceeds as a nominee in 2013, you must file a Form 1099-B or Form 1099-S for those proceeds with the IRS. 2008 tax return Send the Form 1099-B or Form 1099-S with a Form 1096, Annual Summary and Transmittal of U. 2008 tax return S. 2008 tax return Information Returns, to your Internal Revenue Service Center by February 28, 2014 (March 31, 2014, if you file Form 1099-B or Form 1099-S electronically). 2008 tax return Give the actual owner of the proceeds Copy B of the Form 1099-B or Form 1099-S by February 18, 2014. 2008 tax return On Form 1099-B, you should be listed as the “Payer. 2008 tax return ” The other owner should be listed as the “Recipient. 2008 tax return ” On Form 1099-S, you should be listed as the “Filer. 2008 tax return ” The other owner should be listed as the “Transferor. 2008 tax return ” You do not have to file a Form 1099-B or Form 1099-S to show proceeds for your spouse. 2008 tax return For more information about the reporting requirements and the penalties for failure to file (or furnish) certain information returns, see the General Instructions for Certain Information Returns. 2008 tax return If you are filing electronically see Publication 1220. 2008 tax return Sale of property bought at various times. 2008 tax return   If you sell a block of stock or other property that you bought at various times, report the short-term gain or loss from the sale on one row in Part I of Form 8949, and the long-term gain or loss on one row in Part II of Form 8949. 2008 tax return Write “Various” in column (b) for the “Date acquired. 2008 tax return ” Sale expenses. 2008 tax return    On Form 8949, include in column (g) any expense of sale, such as broker's fees, commissions, state and local transfer taxes, and option premiums, unless you reported the net sales price in column (d). 2008 tax return If you include an expense of sale in column (g), enter “E” in column (f). 2008 tax return   For more information about adjustments to basis, see chapter 13. 2008 tax return Short-term gains and losses. 2008 tax return   Capital gain or loss on the sale or trade of investment property held 1 year or less is a short-term capital gain or loss. 2008 tax return You report it in Part I of Form 8949. 2008 tax return   You combine your share of short-term capital gain or loss from partnerships, S corporations, estates, and trusts, and any short-term capital loss carryover, with your other short-term capital gains and losses to figure your net short-term capital gain or loss on line 7 of Schedule D (Form 1040). 2008 tax return Long-term gains and losses. 2008 tax return    A capital gain or loss on the sale or trade of investment property held more than 1 year is a long-term capital gain or loss. 2008 tax return You report it in Part II of Form 8949. 2008 tax return   You report the following in Part II of Schedule D (Form 1040): Undistributed long-term capital gains from a mutual fund (or other regulated investment company) or real estate investment trust (REIT); Your share of long-term capital gains or losses from partnerships, S corporations, estates, and trusts; All capital gain distributions from mutual funds and REITs not reported directly on line 10 of Form 1040A or line 13 of Form 1040; and Long-term capital loss carryovers. 2008 tax return    The result after combining these items with your other long-term capital gains and losses is your net long-term capital gain or loss (Schedule D (Form 1040), line 15). 2008 tax return Total net gain or loss. 2008 tax return   To figure your total net gain or loss, combine your net short-term capital gain or loss (Schedule D (Form 1040), line 7) with your net long-term capital gain or loss (Schedule D (Form 1040), line 15). 2008 tax return Enter the result on Schedule D (Form 1040), Part III, line 16. 2008 tax return If your losses are more than your gains, see Capital Losses , next. 2008 tax return If both lines 15 and 16 of your Schedule D (Form 1040) are gains and your taxable income on your Form 1040 is more than zero, see Capital Gain Tax Rates , later. 2008 tax return Capital Losses If your capital losses are more than your capital gains, you can claim a capital loss deduction. 2008 tax return Report the amount of the deduction on line 13 of Form 1040, in parentheses. 2008 tax return Limit on deduction. 2008 tax return   Your allowable capital loss deduction, figured on Schedule D (Form 1040), is the lesser of: $3,000 ($1,500 if you are married and file a separate return); or Your total net loss as shown on line 16 of Schedule D (Form 1040). 2008 tax return   You can use your total net loss to reduce your income dollar for dollar, up to the $3,000 limit. 2008 tax return Capital loss carryover. 2008 tax return   If you have a total net loss on line 16 of Schedule D (Form 1040) that is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you had incurred it in that next year. 2008 tax return If part of the loss is still unused, you can carry it over to later years until it is completely used up. 2008 tax return   When you figure the amount of any capital loss carryover to the next year, you must take the current year's allowable deduction into account, whether or not you claimed it and whether or not you filed a return for the current year. 2008 tax return   When you carry over a loss, it remains long term or short term. 2008 tax return A long-term capital loss you carry over to the next tax year will reduce that year's long-term capital gains before it reduces that year's short-term capital gains. 2008 tax return Figuring your carryover. 2008 tax return   The amount of your capital loss carryover is the amount of your total net loss that is more than the lesser of: Your allowable capital loss deduction for the year; or Your taxable income increased by your allowable capital loss deduction for the year and your deduction for personal exemptions. 2008 tax return   If your deductions are more than your gross income for the tax year, use your negative taxable income in computing the amount in item (2). 2008 tax return    Complete the Capital Loss Carryover Worksheet in the Instructions for Schedule D or Publication 550 to determine the part of your capital loss that you can carry over. 2008 tax return Example. 2008 tax return Bob and Gloria sold securities in 2013. 2008 tax return The sales resulted in a capital loss of $7,000. 2008 tax return They had no other capital transactions. 2008 tax return Their taxable income was $26,000. 2008 tax return On their joint 2013 return, they can deduct $3,000. 2008 tax return The unused part of the loss, $4,000 ($7,000 − $3,000), can be carried over to 2014. 2008 tax return If their capital loss had been $2,000, their capital loss deduction would have been $2,000. 2008 tax return They would have no carryover. 2008 tax return Use short-term losses first. 2008 tax return   When you figure your capital loss carryover, use your short-term capital losses first, even if you incurred them after a long-term capital loss. 2008 tax return If you have not reached the limit on the capital loss deduction after using the short-term capital losses, use the long-term capital losses until you reach the limit. 2008 tax return Decedent's capital loss. 2008 tax return    A capital loss sustained by a decedent during his or her last tax year (or carried over to that year from an earlier year) can be deducted only on the final income tax return filed for the decedent. 2008 tax return The capital loss limits discussed earlier still apply in this situation. 2008 tax return The decedent's estate cannot deduct any of the loss or carry it over to following years. 2008 tax return Joint and separate returns. 2008 tax return   If you and your spouse once filed separate returns and are now filing a joint return, combine your separate capital loss carryovers. 2008 tax return However, if you and your spouse once filed a joint return and are now filing separate returns, any capital loss carryover from the joint return can be deducted only on the return of the spouse who actually had the loss. 2008 tax return Capital Gain Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. 2008 tax return These lower rates are called the maximum capital gain rates. 2008 tax return The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. 2008 tax return For 2013, the maximum capital gain rates are 0%, 15%, 20%, 25%, and 28%. 2008 tax return See Table 16-1 for details. 2008 tax return If you figure your tax using the maximum capital gain rate and the regular tax computation results in a lower tax, the regular tax computation applies. 2008 tax return Example. 2008 tax return All of your net capital gain is from selling collectibles, so the capital gain rate would be 28%. 2008 tax return If you are otherwise subject to a rate lower than 28%, the 28% rate does not apply. 2008 tax return Investment interest deducted. 2008 tax return   If you claim a deduction for investment interest, you may have to reduce the amount of your net capital gain that is eligible for the capital gain tax rates. 2008 tax return Reduce it by the amount of the net capital gain you choose to include in investment income when figuring the limit on your investment interest deduction. 2008 tax return This is done on the Schedule D Tax Worksheet or the Qualified Dividends and Capital Gain Tax Worksheet. 2008 tax return For more information about the limit on investment interest, see Interest Expenses in chapter 3 of Publication 550. 2008 tax return Table 16-1. 2008 tax return What Is Your Maximum Capital Gain Rate? IF your net capital gain is from . 2008 tax return . 2008 tax return . 2008 tax return THEN your  maximum capital gain rate is . 2008 tax return . 2008 tax return . 2008 tax return a collectibles gain 28% an eligible gain on qualified small business stock minus the section 1202 exclusion 28% an unrecaptured section 1250 gain 25% other gain1 and the regular tax rate that would apply is 39. 2008 tax return 6% 20% other gain1 and the regular tax rate that would apply is 25%, 28%, 33%, or 35% 15% other gain1 and the regular tax rate that would apply is 10% or 15% 0% 1 Other gain means any gain that is not collectibles gain, gain on qualified small business stock, or unrecaptured section 1250 gain. 2008 tax return     Collectibles gain or loss. 2008 tax return   This is gain or loss from the sale or trade of a work of art, rug, antique, metal (such as gold, silver, and platinum bullion), gem, stamp, coin, or alcoholic beverage held more than 1 year. 2008 tax return   Collectibles gain includes gain from sale of an interest in a partnership, S corporation, or trust due to unrealized appreciation of collectibles. 2008 tax return Gain on qualified small business stock. 2008 tax return    If you realized a gain from qualified small business stock that you held more than 5 years, you generally can exclude some or all of your gain under section 1202. 2008 tax return The eligible gain minus your section 1202 exclusion is a 28% rate gain. 2008 tax return See Gains on Qualified Small Business Stock in chapter 4 of Publication 550. 2008 tax return Unrecaptured section 1250 gain. 2008 tax return    Generally, this is any part of your capital gain from selling section 1250 property (real property) that is due to depreciation (but not more than your net section 1231 gain), reduced by any net loss in the 28% group. 2008 tax return Use the Unrecaptured Section 1250 Gain Worksheet in the Schedule D (Form 1040) instructions to figure your unrecaptured section 1250 gain. 2008 tax return For more information about section 1250 property and section 1231 gain, see chapter 3 of Publication 544. 2008 tax return Tax computation using maximum capital gain rates. 2008 tax return   Use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet (whichever applies) to figure your tax if you have qualified dividends or net capital gain. 2008 tax return You have net capital gain if Schedule D (Form 1040), lines 15 and 16, are both gains. 2008 tax return Schedule D Tax Worksheet. 2008 tax return   Use the Schedule D Tax Worksheet in the Schedule D (Form 1040) instructions to figure your tax if: You have to file Schedule D (Form 1040); and Schedule D (Form 1040), line 18 (28% rate gain) or line 19 (unrecaptured section 1250 gain), is more than zero. 2008 tax return Qualified Dividends and Capital Gain Tax Worksheet. 2008 tax return   If you do not have to use the Schedule D Tax Worksheet (as explained above) and any of the following apply, use the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040 or Form 1040A (whichever you file) to figure your tax. 2008 tax return You received qualified dividends. 2008 tax return (See Qualified Dividends in chapter 8. 2008 tax return ) You do not have to file Schedule D (Form 1040) and you received capital gain distributions. 2008 tax return (See Exceptions to filing Form 8949 and Schedule D (Form 1040) , earlier. 2008 tax return ) Schedule D (Form 1040), lines 15 and 16, are both more than zero. 2008 tax return Alternative minimum tax. 2008 tax return   These capital gain rates are also used in figuring alternative minimum tax. 2008 tax return Prev  Up  Next   Home   More Online Publications