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File Taxes 2014

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File Taxes 2014

File taxes 2014 Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. File taxes 2014 Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. File taxes 2014 Method 2. File taxes 2014 How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. File taxes 2014 In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. File taxes 2014 You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. File taxes 2014 Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. File taxes 2014 If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. File taxes 2014 These wages must be included on line 7 of Form 1040. File taxes 2014 See Form 8919 for more information. File taxes 2014 Childcare providers. File taxes 2014   If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. File taxes 2014 If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. File taxes 2014 You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. File taxes 2014 Babysitting. File taxes 2014   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. File taxes 2014 Bankruptcy. File taxes 2014   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. File taxes 2014 Your W-2 will show your total wages and withheld income tax for the year. File taxes 2014 On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. File taxes 2014 Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. File taxes 2014 If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. File taxes 2014   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. File taxes 2014 For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. File taxes 2014   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. File taxes 2014 The statement must show the allocation and describe the method used to make the allocation. File taxes 2014 For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. File taxes 2014 R. File taxes 2014 B. File taxes 2014 596, available at www. File taxes 2014 irs. File taxes 2014 gov/irb/2006-40_IRB/ar12. File taxes 2014 html. File taxes 2014 Miscellaneous Compensation This section discusses many types of employee compensation. File taxes 2014 The subjects are arranged in alphabetical order. File taxes 2014 Advance commissions and other earnings. File taxes 2014   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. File taxes 2014    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. File taxes 2014 If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. File taxes 2014 See Repayments , later. File taxes 2014 Allowances and reimbursements. File taxes 2014    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. File taxes 2014 If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. File taxes 2014 Back pay awards. File taxes 2014   Include in income amounts you are awarded in a settlement or judgment for back pay. File taxes 2014 These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. File taxes 2014 They should be reported to you by your employer on Form W-2. File taxes 2014 Bonuses and awards. File taxes 2014    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. File taxes 2014 These include prizes such as vacation trips for meeting sales goals. File taxes 2014 If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. File taxes 2014 However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. File taxes 2014 Employee achievement award. File taxes 2014   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. File taxes 2014 However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. File taxes 2014 Your employer can tell you whether your award is a qualified plan award. File taxes 2014 Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. File taxes 2014   However, the exclusion does not apply to the following awards. File taxes 2014 A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. File taxes 2014 A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. File taxes 2014 Example. File taxes 2014 Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. File taxes 2014 Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. File taxes 2014 However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 − $1,600) in his income. File taxes 2014 Differential wage payments. File taxes 2014   This is any payment made by an employer to an individual for any period during which the individual is, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages the individual would have received from the employer for that period. File taxes 2014 These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. File taxes 2014 The payments are reported as wages on Form W-2. File taxes 2014 Government cost-of-living allowances. File taxes 2014   Most payments received by U. File taxes 2014 S. File taxes 2014 Government civilian employees for working abroad are taxable. File taxes 2014 However, certain cost-of-living allowances are tax free. File taxes 2014 Publication 516, U. File taxes 2014 S. File taxes 2014 Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. File taxes 2014 Nonqualified deferred compensation plans. File taxes 2014   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. File taxes 2014 This amount is shown on Form W-2, box 12, using code Y. File taxes 2014 This amount is not included in your income. File taxes 2014   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. File taxes 2014 This amount is included in your wages shown on Form W-2, box 1. File taxes 2014 It is also shown on Form W-2, box 12, using code Z. File taxes 2014 Nonqualified deferred compensation plans of nonqualified entities. File taxes 2014   In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. File taxes 2014 For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. File taxes 2014 A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. File taxes 2014 Note received for services. File taxes 2014   If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. File taxes 2014 When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. File taxes 2014 Do not include that part again in your income. File taxes 2014 Include the rest of the payment in your income in the year of payment. File taxes 2014   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. File taxes 2014 Severance pay. File taxes 2014   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. File taxes 2014 Accrued leave payment. File taxes 2014   If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. File taxes 2014   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. File taxes 2014 You can reduce gross wages by the amount you repaid in the same tax year in which you received it. File taxes 2014 Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2. File taxes 2014 Outplacement services. File taxes 2014   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. File taxes 2014    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). File taxes 2014 Sick pay. File taxes 2014   Pay you receive from your employer while you are sick or injured is part of your salary or wages. File taxes 2014 In addition, you must include in your income sick pay benefits received from any of the following payers. File taxes 2014 A welfare fund. File taxes 2014 A state sickness or disability fund. File taxes 2014 An association of employers or employees. File taxes 2014 An insurance company, if your employer paid for the plan. File taxes 2014 However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. File taxes 2014 For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. File taxes 2014 Social security and Medicare taxes paid by employer. File taxes 2014   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. File taxes 2014 The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. File taxes 2014 However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. File taxes 2014 Stock appreciation rights. File taxes 2014   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. File taxes 2014 When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. File taxes 2014 You include the cash payment in income in the year you use the right. File taxes 2014 Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. File taxes 2014 Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. File taxes 2014 See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. File taxes 2014 Recipient of fringe benefit. File taxes 2014   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. File taxes 2014 You are considered to be the recipient even if it is given to another person, such as a member of your family. File taxes 2014 An example is a car your employer gives to your spouse for services you perform. File taxes 2014 The car is considered to have been provided to you and not to your spouse. File taxes 2014   You do not have to be an employee of the provider to be a recipient of a fringe benefit. File taxes 2014 If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. File taxes 2014 Provider of benefit. File taxes 2014   Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. File taxes 2014 The provider can be a client or customer of an independent contractor. File taxes 2014 Accounting period. File taxes 2014   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. File taxes 2014 Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. File taxes 2014 The general rule: benefits are reported for a full calendar year (January 1–December 31). File taxes 2014 The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. File taxes 2014 For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. File taxes 2014 Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. File taxes 2014   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). File taxes 2014 Form W-2. File taxes 2014   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. File taxes 2014 Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). File taxes 2014 However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). File taxes 2014 Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. File taxes 2014 Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . File taxes 2014 For information on the items covered in this section, other than Long-term care coverage , see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. File taxes 2014 Long-term care coverage. File taxes 2014   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. File taxes 2014 However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. File taxes 2014 This amount will be reported as wages in box 1 of your Form W-2. File taxes 2014 Archer MSA contributions. File taxes 2014    Contributions by your employer to your Archer MSA generally are not included in your income. File taxes 2014 Their total will be reported in box 12 of Form W-2, with code R. File taxes 2014 You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. File taxes 2014 File the form with your return. File taxes 2014 Health flexible spending arrangement (health FSA). File taxes 2014   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. File taxes 2014   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. File taxes 2014 The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. File taxes 2014 For more information, see Notice 2012-40, 2012-26 I. File taxes 2014 R. File taxes 2014 B. File taxes 2014 1046, available at www. File taxes 2014 irs. File taxes 2014 gov/irb/2012-26 IRB/ar09. File taxes 2014 html. File taxes 2014 Health reimbursement arrangement (HRA). File taxes 2014   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. File taxes 2014 Health savings accounts (HSA). File taxes 2014   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. File taxes 2014 Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. File taxes 2014 Contributions made by your employer are not included in your income. File taxes 2014 Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. File taxes 2014 Distributions not used for qualified medical expenses are included in your income. File taxes 2014 See Publication 969 for the requirements of an HSA. File taxes 2014   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. File taxes 2014 The contributions are treated as a distribution of money and are not included in the partner's gross income. File taxes 2014 Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. File taxes 2014 In both situations, the partner can deduct the contribution made to the partner's HSA. File taxes 2014   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. File taxes 2014 The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. File taxes 2014 Qualified HSA funding distribution. File taxes 2014   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. File taxes 2014 See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. File taxes 2014 Failure to maintain eligibility. File taxes 2014   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. File taxes 2014 If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. File taxes 2014 This income is also subject to an additional 10% tax. File taxes 2014 Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. File taxes 2014 See Instructions for Form 8839, Qualified Adoption Expenses, for more information. File taxes 2014 Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. File taxes 2014 They also are included as social security and Medicare wages in boxes 3 and 5. File taxes 2014 However, they are not included as wages in box 1. File taxes 2014 To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. File taxes 2014 File the form with your return. File taxes 2014 Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. File taxes 2014 The gym must be used primarily by employees, their spouses, and their dependent children. File taxes 2014 If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. File taxes 2014 De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. File taxes 2014 In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. File taxes 2014 Also see Employee Discounts , later. File taxes 2014 Holiday gifts. File taxes 2014   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. File taxes 2014 However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. File taxes 2014 Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. File taxes 2014 Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. File taxes 2014 The amount you can exclude is limited to the lesser of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). File taxes 2014 Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. File taxes 2014 Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. File taxes 2014 To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. File taxes 2014 See the Instructions for Form 2441 for more information. File taxes 2014 Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. File taxes 2014 For more information, see Publication 970. File taxes 2014 Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. File taxes 2014 The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. File taxes 2014 However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). File taxes 2014 The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. File taxes 2014 For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. File taxes 2014 (Ask your employer for this percentage. File taxes 2014 ) For a discount on services, 20%. File taxes 2014 Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. File taxes 2014 If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). File taxes 2014 Qualified retirement planning services paid for you by your employer may be excluded from your income. File taxes 2014 For more information, see Retirement Planning Services , later. File taxes 2014 Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. File taxes 2014 However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. File taxes 2014 For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. File taxes 2014 If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. File taxes 2014 Also, it is shown separately in box 12 with code C. File taxes 2014 Group-term life insurance. File taxes 2014   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. File taxes 2014 Permanent benefits. File taxes 2014   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. File taxes 2014 Your employer should be able to tell you the amount to include in your income. File taxes 2014 Accidental death benefits. File taxes 2014   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. File taxes 2014 Former employer. File taxes 2014   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. File taxes 2014 Also, it is shown separately in box 12 with code C. File taxes 2014 Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. File taxes 2014 You must pay these taxes with your income tax return. File taxes 2014 Include them on line 60, Form 1040, and follow the instructions forline 60. File taxes 2014 For more information, see the Instructions for Form 1040. File taxes 2014 Two or more employers. File taxes 2014   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. File taxes 2014 If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. File taxes 2014 You must figure how much to include in your income. File taxes 2014 Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. File taxes 2014 Figuring the taxable cost. File taxes 2014    Use the following worksheet to figure the amount to include in your income. File taxes 2014   If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. File taxes 2014 However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . File taxes 2014 Worksheet 1. File taxes 2014 Figuring the Cost of Group-Term Life Insurance To Include in Income 1. File taxes 2014 Enter the total amount of your insurance coverage from your employer(s) 1. File taxes 2014   2. File taxes 2014 Limit on exclusion for employer-provided group-term life insurance coverage 2. File taxes 2014 50,000 3. File taxes 2014 Subtract line 2 from line 1 3. File taxes 2014   4. File taxes 2014 Divide line 3 by $1,000. File taxes 2014 Figure to the nearest tenth 4. File taxes 2014   5. File taxes 2014 Go to Table 1. File taxes 2014 Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. File taxes 2014   6. File taxes 2014 Multiply line 4 by line 5 6. File taxes 2014     7. File taxes 2014 Enter the number of full months of coverage at this cost 7. File taxes 2014   8. File taxes 2014 Multiply line 6 by line 7 8. File taxes 2014   9. File taxes 2014 Enter the premiums you paid per month 9. File taxes 2014       10. File taxes 2014 Enter the number of months you paid the  premiums 10. File taxes 2014       11. File taxes 2014 Multiply line 9 by line 10. File taxes 2014 11. File taxes 2014   12. File taxes 2014 Subtract line 11 from line 8. File taxes 2014 Include this amount in your income as wages 12. File taxes 2014   Table 1. File taxes 2014 Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . File taxes 2014 05     25 through 29 . File taxes 2014 06     30 through 34 . File taxes 2014 08     35 through 39 . File taxes 2014 09     40 through 44 . File taxes 2014 10     45 through 49 . File taxes 2014 15     50 through 54 . File taxes 2014 23     55 through 59 . File taxes 2014 43     60 through 64 . File taxes 2014 66     65 through 69 1. File taxes 2014 27     70 and older 2. File taxes 2014 06   Example. File taxes 2014 You are 51 years old and work for employers A and B. File taxes 2014 Both employers provide group-term life insurance coverage for you for the entire year. File taxes 2014 Your coverage is $35,000 with employer A and $45,000 with employer B. File taxes 2014 You pay premiums of $4. File taxes 2014 15 a month under the employer B group plan. File taxes 2014 You figure the amount to include in your income as follows. File taxes 2014   Worksheet 1. File taxes 2014 Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. File taxes 2014 Enter the total amount of your insurance coverage from your employer(s) 1. File taxes 2014 80,000 2. File taxes 2014 Limit on exclusion for employer-provided group-term life insurance coverage 2. File taxes 2014 50,000 3. File taxes 2014 Subtract line 2 from line 1 3. File taxes 2014 30,000 4. File taxes 2014 Divide line 3 by $1,000. File taxes 2014 Figure to the nearest tenth 4. File taxes 2014 30. File taxes 2014 0 5. File taxes 2014 Go to Table 1. File taxes 2014 Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. File taxes 2014 . File taxes 2014 23 6. File taxes 2014 Multiply line 4 by line 5 6. File taxes 2014 6. File taxes 2014 90 7. File taxes 2014 Enter the number of full months of coverage at this cost. File taxes 2014 7. File taxes 2014 12 8. File taxes 2014 Multiply line 6 by line 7 8. File taxes 2014 82. File taxes 2014 80 9. File taxes 2014 Enter the premiums you paid per month 9. File taxes 2014 4. File taxes 2014 15     10. File taxes 2014 Enter the number of months you paid the premiums 10. File taxes 2014 12     11. File taxes 2014 Multiply line 9 by line 10. File taxes 2014 11. File taxes 2014 49. File taxes 2014 80 12. File taxes 2014 Subtract line 11 from line 8. File taxes 2014 Include this amount in your income as wages 12. File taxes 2014 33. File taxes 2014 00 The total amount to include in income for the cost of excess group-term life insurance is $33. File taxes 2014 Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. File taxes 2014 You must add it to the wages shown on your Forms W-2 and include the total on your return. File taxes 2014 Entire cost excluded. File taxes 2014   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. File taxes 2014 You are permanently and totally disabled and have ended your employment. File taxes 2014 Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. File taxes 2014 A charitable organization to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. File taxes 2014 (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. File taxes 2014 ) The plan existed on January 1, 1984, and: You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. File taxes 2014 Entire cost taxed. File taxes 2014   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. File taxes 2014 The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. File taxes 2014 You are a key employee and your employer's plan discriminates in favor of key employees. File taxes 2014 Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. File taxes 2014 The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. File taxes 2014 The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. File taxes 2014 (You must accept it in order to be able to properly perform your duties. File taxes 2014 ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. File taxes 2014 See De Minimis (Minimal) Benefits , earlier. File taxes 2014 Faculty lodging. File taxes 2014   If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. File taxes 2014 However, the lodging must be qualified campus lodging, and you must pay an adequate rent. File taxes 2014 Academic health center. File taxes 2014   This is an organization that meets the following conditions. File taxes 2014 Its principal purpose or function is to provide medical or hospital care or medical education or research. File taxes 2014 It receives payments for graduate medical education under the Social Security Act. File taxes 2014 One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. File taxes 2014 Qualified campus lodging. File taxes 2014   Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. File taxes 2014 The lodging must be located on or near a campus of the educational institution or academic health center. File taxes 2014 Adequate rent. File taxes 2014   The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. File taxes 2014 If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. File taxes 2014   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. File taxes 2014 Example. File taxes 2014 Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. File taxes 2014 The house is appraised at $200,000. File taxes 2014 The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. File taxes 2014 Carl pays an annual rent of $11,000. File taxes 2014 Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). File taxes 2014 If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). File taxes 2014 Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. File taxes 2014 See Publication 521 for more information. File taxes 2014 No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). File taxes 2014 In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. File taxes 2014 Example. File taxes 2014 You are employed as a flight attendant for a company that owns both an airline and a hotel chain. File taxes 2014 Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. File taxes 2014 The value of the personal flight is not included in your income. File taxes 2014 However, the value of the hotel room is included in your income because you do not work in the hotel business. File taxes 2014 Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. File taxes 2014 Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. File taxes 2014 You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. File taxes 2014 Also, see Financial Counseling Fees , earlier. File taxes 2014 Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. File taxes 2014 A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. File taxes 2014 Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. File taxes 2014 However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. File taxes 2014 Exclusion limit. File taxes 2014   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. File taxes 2014   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. File taxes 2014   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. File taxes 2014   If the benefits have a value that is more than these limits, the excess must be included in your income. File taxes 2014 You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. File taxes 2014 Commuter highway vehicle. File taxes 2014   This is a highway vehicle that seats at least six adults (not including the driver). File taxes 2014 At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). File taxes 2014 Transit pass. File taxes 2014   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. File taxes 2014 Qualified parking. File taxes 2014   This is parking provided to an employee at or near the employer's place of business. File taxes 2014 It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. File taxes 2014 It does not include parking at or near the employee's home. File taxes 2014 Qualified bicycle commuting. File taxes 2014   This is reimbursement based on the number of qualified bicycle commuting months for the year. File taxes 2014 A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. File taxes 2014 The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. File taxes 2014 Tuition Reduction You can exclude a qualified tuition reduction from your income. File taxes 2014 This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. File taxes 2014 For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. File taxes 2014 Representing payment for teaching, research, or other services if you receive the amount under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance program. File taxes 2014 For more information, see Publication 970. File taxes 2014 Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. File taxes 2014 Example. File taxes 2014 You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. File taxes 2014 The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. File taxes 2014 Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. File taxes 2014 For an exception, see Group-Term Life Insurance , earlier. File taxes 2014 General valuation rule. File taxes 2014   You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. File taxes 2014 If you pay fair market value for a fringe benefit, no amount is included in your income. File taxes 2014 Fair market value. File taxes 2014   The fair market value of a fringe benefit is determined by all the facts and circumstances. File taxes 2014 It is the amount you would have to pay a third party to buy or lease the benefit. File taxes 2014 This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. File taxes 2014 Employer-provided vehicles. File taxes 2014   If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. File taxes 2014   Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. File taxes 2014 An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. File taxes 2014 The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. File taxes 2014 Flights on employer-provided aircraft. File taxes 2014   Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. File taxes 2014   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. File taxes 2014 The division must be based on all the facts, including which employee or employees control the use of the aircraft. File taxes 2014 Special valuation rules. File taxes 2014   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. File taxes 2014 If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. File taxes 2014 You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. File taxes 2014   If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. File taxes 2014 The special valuation rules are the following. File taxes 2014 The automobile lease rule. File taxes 2014 The vehicle cents-per-mile rule. File taxes 2014 The commuting rule. File taxes 2014 The unsafe conditions commuting rule. File taxes 2014 The employer-operated eating-facility rule. File taxes 2014   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. File taxes 2014    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. File taxes 2014 61-21(g) and 1. File taxes 2014 61-21(h) of the regulations. File taxes 2014 Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. File taxes 2014 (Your employer can tell you whether your retirement plan is qualified. File taxes 2014 ) However, the cost of life insurance coverage included in the plan may have to be included. File taxes 2014 See Group-Term Life Insurance , earlier, under Fringe Benefits. File taxes 2014 If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. File taxes 2014 However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. File taxes 2014 For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. File taxes 2014 S. File taxes 2014 Civil Service Retirement Benefits, if you are a federal employee or retiree). File taxes 2014 Elective Deferrals If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. File taxes 2014 The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. File taxes 2014 An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. File taxes 2014 However, it is included in wages subject to social security and Medicare taxes. File taxes 2014 Elective deferrals include elective contributions to the following retirement plans. File taxes 2014 Cash or deferred arrangements (section 401(k) plans). File taxes 2014 The Thrift Savings Plan for federal employees. File taxes 2014 Salary reduction simplified employee pension plans (SARSEP). File taxes 2014 Savings incentive match plans for employees (SIMPLE plans). File taxes 2014 Tax-sheltered annuity plans (403(b) plans). File taxes 2014 Section 501(c)(18)(D) plans. File taxes 2014 (But see Reporting by employer , later. File taxes 2014 ) Section 457 plans. File taxes 2014 Qualified automatic contribution arrangements. File taxes 2014   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. File taxes 2014 You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. File taxes 2014 The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. File taxes 2014   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. File taxes 2014 Overall limit on deferrals. File taxes 2014   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3), earlier. File taxes 2014 The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. File taxes 2014 Amounts deferred under specific plan limits are part of the overall limit on deferrals. File taxes 2014   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. File taxes 2014 However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. File taxes 2014 Catch-up contributions. File taxes 2014   You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. File taxes 2014 For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. File taxes 2014   For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. File taxes 2014 SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. File taxes 2014 Section 457 plans, see Limit for deferrals under section 457 plans , later. File taxes 2014 Limit for deferrals under SIMPLE plans. File taxes 2014   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. File taxes 2014 Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. File taxes 2014 Limit for tax-sheltered annuities. File taxes 2014   If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. File taxes 2014 However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. File taxes 2014 $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. File taxes 2014   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. File taxes 2014   For more information, see Publication 571. File taxes 2014 Limit for deferral under section 501(c)(18) plans. File taxes 2014   If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. File taxes 2014 Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. File taxes 2014 Limit for deferrals under section 457 plans. File taxes 2014   If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. File taxes 2014 However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. File taxes 2014 See Increased limit , later. File taxes 2014 Includible compensation. File taxes 2014   This is the pay you received for the year from the employer who maintained the section 457 plan. File taxes 2014 In most cases, it includes all the following payments. File taxes 2014 Wages and salaries. File taxes 2014 Fees for professional services. File taxes 2014 The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. File taxes 2014 Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. File taxes 2014 Commissions and tips. File taxes 2014 Fringe benefits. File taxes 2014 Bonuses. File taxes 2014 Employer contributions (elective deferrals) to: The section 457 plan. File taxes 2014 Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. File taxes 2014 A salary reduction simplified employee pension (SARSEP). File taxes 2014 A tax-sheltered annuity (section 403(b) plan). File taxes 2014 A savings incentive match plan for employees (SIMPLE plan). File taxes 2014 A section 125 cafeteria plan. File taxes 2014   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. File taxes 2014 Your wages as defined for income tax withholding purposes. File taxes 2014 Your wages as reported in box 1 of Form W-2. File taxes 2014 Your wages that are subject to social security withholding (including elective deferrals). File taxes 2014 Increased limit. File taxes 2014   During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). File taxes 2014 Catch-up contributions. File taxes 2014   You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. File taxes 2014 If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. File taxes 2014 However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. File taxes 2014 Designated Roth contributions. File taxes 2014   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. File taxes 2014 Designated Roth contributions are treated as elective deferrals, except that they are included in income. File taxes 2014 Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. File taxes 2014   Qualified distributions from a Roth plan are not included in income. File taxes 2014 In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. File taxes 2014 Reporting by employer. File taxes 2014   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. File taxes 2014 Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. File taxes 2014 Section 501(c)(18)(D) contributions. File taxes 2014   Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. File taxes 2014 The amount you contributed should be identified with code “H” in box 12. File taxes 2014 You may deduct the amount deferred subject to the limits that apply. File taxes 2014 Include your deduction in the total on Form 1040, line 36. File taxes 2014 Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. File taxes 2014 Designated Roth contributions. File taxes 2014    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. File taxes 2014 Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. File taxes 2014 Excess deferrals. File taxes 2014   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. File taxes 2014 If the plan permits, the excess amount will be distributed to you. File taxes 2014 If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. File taxes 2014 You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. File taxes 2014 The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. File taxes 2014   You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. File taxes 2014 File Form 1040 to add the excess deferral amount to your wages on line 7. File taxes 2014 Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. File taxes 2014 Excess not distributed. File taxes 2014   If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. File taxes 2014 Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. File taxes 2014 Excess distributed to you. File taxes 2014   If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. File taxes 2014 If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. File taxes 2014 Any income on the excess deferral taken out is taxable in the tax year in which you take it out. File taxes 2014 If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. File taxes 2014    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. File taxes 2014 Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. File taxes 2014 If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. File taxes 2014 Add the excess deferral amount to your wages on your 2013 tax return. File taxes 2014 If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. File taxes 2014 Do not add this amount to your wages on your 2013 return. File taxes 2014 If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. File taxes 2014 If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. File taxes 2014 S. File taxes 2014 Individual Income Tax Return. File taxes 2014 If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. File taxes 2014 If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. File taxes 2014 Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. File taxes 2014 Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. File taxes 2014 Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. File taxes 2014 ”    Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. File taxes 2014 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. File taxes 2014 Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. File taxes 2014 If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. File taxes 2014 You must include the excess contributions in your income as wages on Form 1040, line 7. File taxes 2014 You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. File taxes 2014 If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. File taxes 2014 The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. File taxes 2014 You should receive a Form 1099-R for the year the excess contributions are distributed to you. File taxes 2014 Add the distribution to your wages for that year. File taxes 2014 Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. File taxes 2014 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. File taxes 2014 Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. File taxes 2014 Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. File taxes 2014 A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. File taxes 2014 A corrective payment consisting of your after-tax contributions is not taxable. File taxes 2014 If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. File taxes 2014 Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. File taxes 2014 Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. File taxes 2014 Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. File taxes 2014 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. File taxes 2014 Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option or property acquired through exercise of the option. File taxes 2014 The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. File taxes 2014 Your employer can tell you which kind of option you hold. File taxes 2014 Nonstatutory Stock Options Grant of option. File taxes 2014   If you are granted a nonstatutory stock option, you may have income when you receive the option. File taxes 2014 The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. File taxes 2014 The fair market value of an option can be readily determined if it is actively traded on an established market. File taxes 2014    The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. File taxes 2014 You can transfer the option. File taxes 2014 You can exercise the option immediately in full. File taxes 2014 The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. File taxes 2014 The fair market value of the option privilege can be readily determined. File taxes 2014 The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. File taxes 2014 For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. File taxes 2014 The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. File taxes 2014 If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. File taxes 2014 For more information on the excise tax, see Internal Revenue Code section 4985. File taxes 2014 Option with readily determinable value. File taxes 2014   If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. File taxes 2014 See Restricted Property , later, for rules on how much income to include and when to include it. File taxes 2014 However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. File taxes 2014 Option without readily determinable value. File taxes 2014   If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. File taxes 2014    Exercise or transfer of option. File taxes 2014   When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. File taxes 2014 Option with readily determinable value. File taxes 2014   When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. File taxes 2014 Option without readily determinable value. File taxes 2014   When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope
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The File Taxes 2014

File taxes 2014 4. File taxes 2014   Figuring Depreciation Under MACRS Table of Contents Introduction Useful Items - You may want to see: Which Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS?Rent-to-own dealer. File taxes 2014 Rent-to-own contract. File taxes 2014 What Is the Placed in Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies?Recovery Periods Under GDS Recovery Periods Under ADS Additions and Improvements Which Convention Applies? Which Depreciation Method Applies?Depreciation Methods for Farm Property Electing a Different Method How Is the Depreciation Deduction Figured?Using the MACRS Percentage Tables Figuring the Deduction Without Using the Tables Figuring the Deduction for Property Acquired in a Nontaxable Exchange Figuring the Deduction for a Short Tax Year How Do You Use General Asset Accounts?Grouping Property Figuring Depreciation for a GAA Disposing of GAA Property Terminating GAA Treatment Electing To Use a GAA When Do You Recapture MACRS Depreciation? Introduction The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. File taxes 2014 MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). File taxes 2014 Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. File taxes 2014 To be sure you can use MACRS to figure depreciation for your property, see What Method Can You Use To Depreciate Your Property in chapter 1. File taxes 2014 This chapter explains how to determine which MACRS depreciation system applies to your property. File taxes 2014 It also discusses other information you need to know before you can figure depreciation under MACRS. File taxes 2014 This information includes the property's recovery class, placed in service date, and basis, as well as the applicable recovery period, convention, and depreciation method. File taxes 2014 It explains how to use this information to figure your depreciation deduction and how to use a general asset account to depreciate a group of properties. File taxes 2014 Finally, it explains when and how to recapture MACRS depreciation. File taxes 2014 Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 463 Travel, Entertainment, Gift, and Car  Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. File taxes 2014 Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. File taxes 2014 You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. File taxes 2014 If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. File taxes 2014 Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. File taxes 2014 If you placed your property in service before 2013 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III. File taxes 2014 Required use of ADS. File taxes 2014   You must use ADS for the following property. File taxes 2014 Listed property used 50% or less in a qualified business use. File taxes 2014 See chapter 5 for information on listed property. File taxes 2014 Any tangible property used predominantly outside the United States during the year. File taxes 2014 Any tax-exempt use property. File taxes 2014 Any tax-exempt bond-financed property. File taxes 2014 All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. File taxes 2014 Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. File taxes 2014 If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3) for the property. File taxes 2014 Electing ADS. File taxes 2014   Although your property may qualify for GDS, you can elect to use ADS. File taxes 2014 The election generally must cover all property in the same property class that you placed in service during the year. File taxes 2014 However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. File taxes 2014 Once you make this election, you can never revoke it. File taxes 2014   You make the election by completing line 20 in Part III of Form 4562. File taxes 2014 Which Property Class Applies Under GDS? The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. File taxes 2014 These property classes are also listed under column (a) in section B, Part III, of Form 4562. File taxes 2014 For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. File taxes 2014 3-year property. File taxes 2014 Tractor units for over-the-road use. File taxes 2014 Any race horse over 2 years old when placed in service. File taxes 2014 (All race horses placed in service after December 31, 2008, and before January 1, 2014, are deemed to be 3-year property, regardless of age. File taxes 2014 ) Any other horse (other than a race horse) over 12 years old when placed in service. File taxes 2014 Qualified rent-to-own property (defined later). File taxes 2014 5-year property. File taxes 2014 Automobiles, taxis, buses, and trucks. File taxes 2014 Computers and peripheral equipment. File taxes 2014 Office machinery (such as typewriters, calculators, and copiers). File taxes 2014 Any property used in research and experimentation. File taxes 2014 Breeding cattle and dairy cattle. File taxes 2014 Appliances, carpets, furniture, etc. File taxes 2014 , used in a residential rental real estate activity. File taxes 2014 Certain geothermal, solar, and wind energy property. File taxes 2014 7-year property. File taxes 2014 Office furniture and fixtures (such as desks, files, and safes). File taxes 2014 Agricultural machinery and equipment. File taxes 2014 Any property that does not have a class life and has not been designated by law as being in any other class. File taxes 2014 Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. File taxes 2014 Any natural gas gathering line placed in service after April 11, 2005. File taxes 2014 See Natural gas gathering line and electric transmission property , later. File taxes 2014 10-year property. File taxes 2014 Vessels, barges, tugs, and similar water transportation equipment. File taxes 2014 Any single purpose agricultural or horticultural structure. File taxes 2014 Any tree or vine bearing fruits or nuts. File taxes 2014 Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. File taxes 2014 15-year property. File taxes 2014 Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). File taxes 2014 Any retail motor fuels outlet (defined later), such as a convenience store. File taxes 2014 Any municipal wastewater treatment plant. File taxes 2014 Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. File taxes 2014 Any qualified restaurant property (defined later) placed in service before January 1, 2014. File taxes 2014 Initial clearing and grading land improvements for gas utility property. File taxes 2014 Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005. File taxes 2014 See Natural gas gathering line and electric transmission property , later. File taxes 2014 Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. File taxes 2014 Any qualified retail improvement property placed in service before January 1, 2014. File taxes 2014 20-year property. File taxes 2014 Farm buildings (other than single purpose agricultural or horticultural structures). File taxes 2014 Municipal sewers not classified as 25-year property. File taxes 2014 Initial clearing and grading land improvements for electric utility transmission and distribution plants. File taxes 2014 25-year property. File taxes 2014 This class is water utility property, which is either of the following. File taxes 2014 Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property. File taxes 2014 Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. File taxes 2014 Residential rental property. File taxes 2014 This is any building or structure, such as a rental home (including a mobile home), if 80% or more of its gross rental income for the tax year is from dwelling units. File taxes 2014 A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. File taxes 2014 It does not include a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis. File taxes 2014 If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy. File taxes 2014 Nonresidential real property. File taxes 2014 This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27. File taxes 2014 5 years. File taxes 2014 Qualified rent-to-own property. File taxes 2014   Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. File taxes 2014 It is tangible personal property generally used in the home for personal use. File taxes 2014 It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. File taxes 2014 Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. File taxes 2014   If some of the property you rent to others under a rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you still can treat this property as qualified property as long as it does not represent a significant portion of your leasing property. File taxes 2014 However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property. File taxes 2014 Rent-to-own dealer. File taxes 2014   You are a rent-to-own dealer if you meet all the following requirements. File taxes 2014 You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. File taxes 2014 A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. File taxes 2014 The property is tangible personal property of a type generally used within the home for personal use. File taxes 2014 Rent-to-own contract. File taxes 2014   This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which— Is titled “Rent-to-Own Agreement,” “Lease Agreement with Ownership Option,” or other similar language. File taxes 2014 Provides a beginning date and a maximum period of time, not to exceed 156 weeks or 36 months from the beginning date, for which the contract can be in effect (including renewals or options to extend). File taxes 2014 Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. File taxes 2014 If the payments are decreasing, no payment can be less than 40% of the largest payment. File taxes 2014 Provides for total payments that generally exceed the normal retail price of the property plus interest. File taxes 2014 Provides for total payments that do not exceed $10,000 for each item of property. File taxes 2014 Provides that the customer has no legal obligation to make all payments outlined in the contract and that, at the end of each weekly or monthly payment period, the customer can either continue to use the property by making the next payment or return the property in good working order with no further obligations and no entitlement to a return of any prior payments. File taxes 2014 Provides that legal title to the property remains with the rent-to-own dealer until the customer makes either all the required payments or the early purchase payments required under the contract to acquire legal title. File taxes 2014 Provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, or otherwise dispose of the property until all contract payments have been made. File taxes 2014 Motorsports entertainment complex. File taxes 2014   This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. File taxes 2014 The events must be open to the public for the price of admission. File taxes 2014 Qualified smart electric grid system. File taxes 2014   A qualified smart electric grid system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. File taxes 2014 Smart grid property includes electronics and related equipment that is capable of: Sensing, collecting, and monitoring data of or from all portions of a utility's electric distribution grid, Providing real-time, two-way communications to monitor or to manage the grid, and Providing real-time analysis of an event prediction based on collected data that can be used to provide electric distribution system reliability, quality, and performance. File taxes 2014 Retail motor fuels outlet. File taxes 2014   Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests. File taxes 2014 It is not larger than 1,400 square feet. File taxes 2014 50% or more of the gross revenues generated from the property are derived from petroleum sales. File taxes 2014 50% or more of the floor space in the property is devoted to petroleum marketing sales. File taxes 2014 A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. File taxes 2014 Qualified leasehold improvement property. File taxes 2014    Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. File taxes 2014   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions. File taxes 2014 A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or reacquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. File taxes 2014 Examples include the following. File taxes 2014 A complete liquidation of a subsidiary. File taxes 2014 A transfer to a corporation controlled by the transferor. File taxes 2014 An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. File taxes 2014 Qualified restaurant property. File taxes 2014   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. File taxes 2014 Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premises consumption of prepared meals. File taxes 2014 Qualified smart electric meter. File taxes 2014   A qualified smart electric meter is any time-based meter and related communication equipment which is placed in service by a supplier of electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that: Measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day; Provides for the exchange of information between the supplier or provider and the customer's smart electric meter in support of time-based rates or other forms of demand response; Provides data to the supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and Provides all commercial and residential customers of such supplier or provider with net metering. File taxes 2014 Net metering means allowing a customer a credit, if any, as complies with applicable federal and state laws and regulations for providing electricity to the supplier or provider. File taxes 2014 Natural gas gathering line and electric transmission property. File taxes 2014   Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met. File taxes 2014 The original use of the property must have begun with you after April 11, 2005. File taxes 2014 Original use means the first use to which the property is put, whether or not by you. File taxes 2014 Therefore, property used by any person before April 12, 2005, is not original use. File taxes 2014 Original use includes additional capital expenditures you incurred to recondition or rebuild your property. File taxes 2014 However, original use does not include the cost of reconditioned or rebuilt property you acquired. File taxes 2014 Property containing used parts will not be treated as reconditioned or rebuilt if the cost of the used parts is not more than 20% of the total cost of the property. File taxes 2014 The property must not be placed in service under a binding contract in effect before April 12, 2005. File taxes 2014 The property must not be self-constructed property (property you manufacture, construct, or produce for your own use), if you began the manufacture, construction, or production of the property before April 12, 2005. File taxes 2014 Property that is manufactured, constructed, or produced for your use by another person under a written binding contract entered into by you or a related party before the manufacture, construction, or production of the property is considered to be manufactured, constructed, or produced by you. File taxes 2014 What Is the Placed in Service Date? You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. File taxes 2014 The placed in service date for your property is the date the property is ready and available for a specific use. File taxes 2014 It is therefore not necessarily the date it is first used. File taxes 2014 If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. File taxes 2014 See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. File taxes 2014 What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. File taxes 2014 For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . File taxes 2014 Reduce that amount by any credits and deductions allocable to the property. File taxes 2014 The following are examples of some credits and deductions that reduce basis. File taxes 2014 Any deduction for section 179 property. File taxes 2014 Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. File taxes 2014 Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005, and before January 1, 2014. File taxes 2014 Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005, and before January 1, 2014. File taxes 2014 Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006, and before January 1, 2014 . File taxes 2014 Any deduction for removal of barriers to the disabled and the elderly. File taxes 2014 Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. File taxes 2014 Any special depreciation allowance. File taxes 2014 Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. File taxes 2014 For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. File taxes 2014 Enter the basis for depreciation under column (c) in Part III of Form 4562. File taxes 2014 For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . File taxes 2014 Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. File taxes 2014 It is determined based on the depreciation system (GDS or ADS) used. File taxes 2014 Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. File taxes 2014 Property Class Recovery Period 3-year property   3 years 1   5-year property   5 years     7-year property   7 years     10-year property   10 years     15-year property   15 years 2   20-year property   20 years     25-year property   25 years 3   Residential rental property   27. File taxes 2014 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. File taxes 2014 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. File taxes 2014 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. File taxes 2014 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. File taxes 2014 431. File taxes 2014 5 years for property placed in service before May 13, 1993 (or before January 1, 1994, if the purchase or construction of the property is under a binding contract in effect before May 13, 1993, or if construction began before May 13, 1993). File taxes 2014 The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. File taxes 2014 Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. File taxes 2014 Enter the appropriate recovery period on Form 4562 under column (d) in section B of Part III, unless already shown (for 25-year property, residential rental property, and nonresidential real property). File taxes 2014 Office in the home. File taxes 2014   If your home is a personal-use single family residence and you begin to use part of your home as an office, depreciate that part of your home as nonresidential real property over 39 years (31. File taxes 2014 5 years if you began using it for business before May 13, 1993). File taxes 2014 However, if your home is an apartment in an apartment building that you own and the building is residential rental property as defined earlier under Which Depreciation System (GDS or ADS) Applies , depreciate the part used as an office as residential rental property over 27. File taxes 2014 5 years. File taxes 2014 See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. File taxes 2014 Home changed to rental use. File taxes 2014   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. File taxes 2014 5 years. File taxes 2014 Indian Reservation Property The recovery periods for qualified property you placed in service on an Indian reservation after 1993 and before 2014 are shorter than those listed earlier. File taxes 2014 The following table shows these shorter recovery periods. File taxes 2014 Property Class Recovery  Period 3-year property 2 years 5-year property 3 years 7-year property 4 years 10-year property 6 years 15-year property 9 years 20-year property 12 years Nonresidential real property 22 years Nonresidential real property is defined earlier under Which Property Class Applies Under GDS . File taxes 2014 Use this chart to find the correct percentage table to use for qualified Indian reservation property. File taxes 2014 IF your recovery period is: THEN use the following table in Appendix A: 2 years A-21 3 years A-1, A-2, A-3, A-4, or A-5 4 years A-22 6 years A-23 9 years A-14, A-15, A-16, A-17, or A-18 12 years A-14, A-15, A-16, A-17, or A-18 22 years A-24 Qualified property. File taxes 2014   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. File taxes 2014 You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. File taxes 2014 The rental of real property that is located on an Indian reservation is treated as the active conduct of a trade or business within an Indian reservation. File taxes 2014   The following property is not qualified property. File taxes 2014 Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. File taxes 2014 Property acquired directly or indirectly from a related person. File taxes 2014 Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. File taxes 2014 These activities are defined in section 4 of the Indian Regulatory Act (25 U. File taxes 2014 S. File taxes 2014 C. File taxes 2014 2703). File taxes 2014 Any property you must depreciate under ADS. File taxes 2014 Determine whether property is qualified without regard to the election to use ADS and after applying the special rules for listed property not used predominantly for qualified business use (discussed in chapter 5). File taxes 2014 Qualified infrastructure property. File taxes 2014   Item (1) above does not apply to qualified infrastructure property located outside the reservation that is used to connect with qualified infrastructure property within the reservation. File taxes 2014 Qualified infrastructure property is property that meets all the following rules. File taxes 2014 It is qualified property, as defined earlier, except that it is outside the reservation. File taxes 2014 It benefits the tribal infrastructure. File taxes 2014 It is available to the general public. File taxes 2014 It is placed in service in connection with the active conduct of a trade or business within a reservation. File taxes 2014 Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. File taxes 2014 Related person. File taxes 2014   For purposes of item (2) above, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 for a description of related persons. File taxes 2014 Indian reservation. File taxes 2014   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. File taxes 2014 S. File taxes 2014 C. File taxes 2014 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. File taxes 2014 S. File taxes 2014 C. File taxes 2014 1903(10)). File taxes 2014 Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. File taxes 2014 For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. File taxes 2014 Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. File taxes 2014 The following table shows some of the ADS recovery periods. File taxes 2014 Property Recovery  Period Rent-to-own property 4 years Automobiles and light duty trucks 5 years Computers and peripheral equipment 5 years High technology telephone station equipment installed on customer premises 5 years High technology medical equipment 5 years Personal property with no class life 12 years Natural gas gathering lines 14 years Single purpose agricultural and horticultural structures 15 years Any tree or vine bearing fruit or nuts 20 years Initial clearing and grading land  improvements for gas utility property 20 years Initial clearing and grading land  improvements for electric utility  transmission and distribution plants 25 years Electric transmission property used in the transmission at 69 or more kilovolts of electricity 30 years Natural gas distribution lines 35 years Any qualified leasehold improvement property 39 years Any qualified restaurant property 39 years Nonresidential real property 40 years Residential rental property 40 years Section 1245 real property not listed in Appendix B 40 years Railroad grading and tunnel bore 50 years The ADS recovery periods for property not listed above can be found in the tables in Appendix B. File taxes 2014 Rent-to-own property, qualified leasehold improvement property, qualified restaurant property, residential rental property, and nonresidential real property are defined earlier under Which Property Class Applies Under GDS . File taxes 2014 Tax-exempt use property subject to a lease. File taxes 2014   The ADS recovery period for any property leased under a lease agreement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership) cannot be less than 125% of the lease term. File taxes 2014 Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. File taxes 2014 See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. File taxes 2014 Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. File taxes 2014 The recovery period begins on the later of the following dates. File taxes 2014 The date you place the addition or improvement in service. File taxes 2014 The date you place in service the property to which you made the addition or improvement. File taxes 2014 If the improvement you make is qualified leasehold improvement property, qualified restaurant property, or qualified retail improvement property, the GDS recovery period is 15 years (39 years under ADS). File taxes 2014 Example. File taxes 2014 You own a rental home that you have been renting out since 1981. File taxes 2014 If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. File taxes 2014 Under GDS, the property class for the addition is residential rental property and its recovery period is 27. File taxes 2014 5 years because the home to which the addition is made would be residential rental property if you had placed it in service this year. File taxes 2014 Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. File taxes 2014 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. File taxes 2014 The mid-month convention. File taxes 2014   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. File taxes 2014   Under this convention, you treat all property placed in service or disposed of during a month as placed in service or disposed of at the midpoint of the month. File taxes 2014 This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. File taxes 2014   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. File taxes 2014 The mid-quarter convention. File taxes 2014   Use this convention if the mid-month convention does not apply and the total depreciable bases of MACRS property you placed in service during the last 3 months of the tax year (excluding nonresidential real property, residential rental property, any railroad grading or tunnel bore, property placed in service and disposed of in the same year, and property that is being depreciated under a method other than MACRS) are more than 40% of the total depreciable bases of all MACRS property you placed in service during the entire year. File taxes 2014   Under this convention, you treat all property placed in service or disposed of during any quarter of the tax year as placed in service or disposed of at the midpoint of that quarter. File taxes 2014 This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. File taxes 2014   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. File taxes 2014    For purposes of determining whether the mid-quarter convention applies, the depreciable basis of property you placed in service during the tax year reflects the reduction in basis for amounts expensed under section 179 and the part of the basis of property attributable to personal use. File taxes 2014 However, it does not reflect any reduction in basis for any special depreciation allowance. File taxes 2014 The half-year convention. File taxes 2014   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. File taxes 2014   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 the year. File taxes 2014 This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. File taxes 2014   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. File taxes 2014 Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. File taxes 2014 The 200% declining balance method over a GDS recovery period. File taxes 2014 The 150% declining balance method over a GDS recovery period. File taxes 2014 The straight line method over a GDS recovery period. File taxes 2014 The straight line method over an ADS recovery period. File taxes 2014 For property placed in service before 1999, you could have elected the 150% declining balance method using the ADS recovery periods for certain property classes. File taxes 2014 If you made this election, continue to use the same method and recovery period for that property. File taxes 2014 Table 4–1 lists the types of property you can depreciate under each method. File taxes 2014 It also gives a brief explanation of the method, including any benefits that may apply. File taxes 2014 Depreciation Methods for Farm Property If you place personal property in service in a farming business after 1988, you generally must depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under GDS or ADS using the straight line method. File taxes 2014 You can depreciate real property using the straight line method under either GDS or ADS. File taxes 2014 Fruit or nut trees and vines. File taxes 2014   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. File taxes 2014 ADS required for some farmers. File taxes 2014   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. File taxes 2014 You must use ADS for all property you place in service in any year the election is in effect. File taxes 2014 See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. File taxes 2014 Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. File taxes 2014 You must make the election by the due date of the return (including extensions) for the year you placed the property in service. File taxes 2014 However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). File taxes 2014 Attach the election to the amended return and write “Filed pursuant to section 301. File taxes 2014 9100-2” on the election statement. File taxes 2014 File the amended return at the same address you filed the original return. File taxes 2014 Once you make the election, you cannot change it. File taxes 2014 If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. File taxes 2014 However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. File taxes 2014 150% election. File taxes 2014   Instead of using the 200% declining balance method over the GDS recovery period for nonfarm property in the 3-, 5-, 7-, and 10-year property classes, you can elect to use the 150% declining balance method. File taxes 2014 Make the election by entering “150 DB” under column (f) in Part III of Form 4562. File taxes 2014 Straight line election. File taxes 2014   Instead of using either the 200% or 150% declining balance methods over the GDS recovery period, you can elect to use the straight line method over the GDS recovery period. File taxes 2014 Make the election by entering  “S/L” under column (f) in Part III of Form 4562. File taxes 2014 Election of ADS. File taxes 2014   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. File taxes 2014 ADS uses the straight line method of depreciation over fixed ADS recovery periods. File taxes 2014 Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. File taxes 2014   Make the election by completing line 20 in Part III of Form 4562. File taxes 2014 Farm property. File taxes 2014   Instead of using the 150% declining balance method over a GDS recovery period for property you use in a farming business (other than real property), you can elect to depreciate it using either of the following methods. File taxes 2014 The straight line method over a GDS recovery period. File taxes 2014 The straight line method over an ADS recovery period. File taxes 2014 Table 4-1. File taxes 2014 Depreciation Methods Note. File taxes 2014 The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. File taxes 2014 Method Type of Property Benefit GDS using 200% DB • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction GDS using 150% DB • All farm property (except real property) • All 15- and 20-year property (except qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service before January 1, 2014) • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction1 GDS using SL • Nonresidential real property • Qualified leasehold improvement property placed in service before January 1, 2014 • Qualified restaurant property placed in service before January 1, 2014 • Qualified retail improvement property placed in service before January 1, 2014 • Residential rental property • Trees or vines bearing fruit or nuts • Water utility property • All 3-, 5-, 7-, 10-, 15-, and 20-year property2 • Property for which you elected section 168(k)(4) • Provides for equal yearly deductions (except for the first and last years) ADS using SL • Listed property used 50% or less for business • Property used predominantly outside the U. File taxes 2014 S. File taxes 2014  • Tax-exempt property • Tax-exempt bond-financed property • Farm property used when an election not to apply the uniform capitalization rules is in effect • Imported property3 • Any property for which you elect to use this method4 • Provides for equal yearly deductions (except for the first and last years) 1The MACRS percentage tables in Appendix A have the switch to the straight line method built into their rates 2See section 168(b)(5) of the Internal Revenue Code. File taxes 2014 3See section 168(g)(6) of the Internal Revenue Code 4See section 168(g)(7) of the Internal Revenue Code How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that applies to your property. File taxes 2014 Then, you are ready to figure your depreciation deduction. File taxes 2014 You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. File taxes 2014 Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. File taxes 2014 These percentage tables are in Appendix A near the end of this publication. File taxes 2014 Which table to use. File taxes 2014    Appendix A contains the MACRS Percentage Table Guide, which is designed to help you locate the correct percentage table to use for depreciating your property. File taxes 2014 The percentage tables immediately follow the guide. File taxes 2014 Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. File taxes 2014 You must apply the rates in the percentage tables to your property's unadjusted basis. File taxes 2014 You cannot use the percentage tables for a short tax year. File taxes 2014 See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. File taxes 2014 Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the property. File taxes 2014 You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to that property that is depreciated as a separate item of property. File taxes 2014 Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss. File taxes 2014 Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. File taxes 2014   If you increase the basis of your property because of the recapture of part or all of a deduction for clean-fuel vehicles or the credit for clean-fuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. File taxes 2014 For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. File taxes 2014 See Figuring the Deduction Without Using the Tables, later. File taxes 2014 Basis adjustment due to casualty loss. File taxes 2014   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. File taxes 2014 For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. File taxes 2014 See Figuring the Deduction Without Using the Tables, later. File taxes 2014 Example. File taxes 2014 On October 26, 2012, Sandra Elm, a calendar year taxpayer, bought and placed in service in her business a new item of 7-year property. File taxes 2014 It cost $39,000 and she elected a section 179 deduction of $24,000. File taxes 2014 She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. File taxes 2014 Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). File taxes 2014 She figured her MACRS depreciation deduction using the percentage tables. File taxes 2014 For 2012, her MACRS depreciation deduction was $268. File taxes 2014 In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. File taxes 2014 She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. File taxes 2014 Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. File taxes 2014 She figures that amount by subtracting the 2012 MACRS depreciation of $268 and the casualty loss of $3,000 from the unadjusted basis of $7,500. File taxes 2014 She must now figure her depreciation for 2013 without using the percentage tables. File taxes 2014 Figuring the Unadjusted Basis of Your Property You must apply the table rates to your property's unadjusted basis each year of the recovery period. File taxes 2014 Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. File taxes 2014 However, you do reduce your original basis by other amounts, including the following. File taxes 2014 Any amortization taken on the property. File taxes 2014 Any section 179 deduction claimed. File taxes 2014 Any special depreciation allowance taken on the property. File taxes 2014 For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. File taxes 2014 If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments. File taxes 2014 MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. File taxes 2014 Use a separate worksheet for each item of property. File taxes 2014 Then, use the information from this worksheet to prepare Form 4562. File taxes 2014 Do not use this worksheet for automobiles. File taxes 2014 Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. File taxes 2014 MACRS Worksheet Part I   1. File taxes 2014 MACRS system (GDS or ADS)   2. File taxes 2014 Property class   3. File taxes 2014 Date placed in service   4. File taxes 2014 Recovery period   5. File taxes 2014 Method and convention   6. File taxes 2014 Depreciation rate (from tables)   Part II   7. File taxes 2014 Cost or other basis* $     8. File taxes 2014 Business/investment use   %   9. File taxes 2014 Multiply line 7 by line 8   $ 10. File taxes 2014 Total claimed for section 179 deduction and other items   $ 11. File taxes 2014 Subtract line 10 from line 9. File taxes 2014 This is your tentative basis for depreciation   $ 12. File taxes 2014 Multiply line 11 by . File taxes 2014 50 if the 50% special depreciation allowance applies. File taxes 2014 This is your special depreciation allowance. File taxes 2014 Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   $ 13. File taxes 2014 Subtract line 12 from line 11. File taxes 2014 This is your basis for depreciation     14. File taxes 2014 Depreciation rate (from line 6)     15. File taxes 2014 Multiply line 13 by line 14. File taxes 2014 This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. File taxes 2014 The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. File taxes 2014 Example. File taxes 2014 You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. File taxes 2014 You use the furniture only for business. File taxes 2014 This is the only property you placed in service this year. File taxes 2014 You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance so your property's unadjusted basis is its cost, $10,000. File taxes 2014 You use GDS and the half-year convention to figure your depreciation. File taxes 2014 You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. File taxes 2014 Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. File taxes 2014 You figure your depreciation deduction using the MACRS worksheet as follows. File taxes 2014 MACRS Worksheet Part I 1. File taxes 2014 MACRS system (GDS or ADS) GDS 2. File taxes 2014 Property class 7-year 3. File taxes 2014 Date placed in service 8/11/13 4. File taxes 2014 Recovery period 7-Year 5. File taxes 2014 Method and convention 200%DB/Half-Year 6. File taxes 2014 Depreciation rate (from tables) . File taxes 2014 1429 Part II 7. File taxes 2014 Cost or other basis* $10,000     8. File taxes 2014 Business/investment use 100 %   9. File taxes 2014 Multiply line 7 by line 8   $10,000 10. File taxes 2014 Total claimed for section 179 deduction and other items   -0- 11. File taxes 2014 Subtract line 10 from line 9. File taxes 2014 This is your tentative basis for depreciation   $10,000 12. File taxes 2014 Multiply line 11 by . File taxes 2014 50 if the 50% special depreciation allowance applies. File taxes 2014 This is your special depreciation allowance. File taxes 2014 Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   -0- 13. File taxes 2014 Subtract line 12 from line 11. File taxes 2014 This is your basis for depreciation   $10,000 14. File taxes 2014 Depreciation rate (from line 6)   . File taxes 2014 1429 15. File taxes 2014 Multiply line 13 by line 14. File taxes 2014 This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. File taxes 2014 If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows. File taxes 2014 Year   Basis Percentage Deduction 2014 $ 10,000 24. File taxes 2014 49%   $2,449   2015   10,000 17. File taxes 2014 49   1,749   2016   10,000 12. File taxes 2014 49   1,249   2017   10,000 8. File taxes 2014 93   893   2018   10,000 8. File taxes 2014 92   892   2019   10,000 8. File taxes 2014 93   893   2020   10,000 4. File taxes 2014 46   446   Examples The following examples are provided to show you how to use the percentage tables. File taxes 2014 In both examples, assume the following. File taxes 2014 You use the property only for business. File taxes 2014 You use the calendar year as your tax year. File taxes 2014 You use GDS for all the properties. File taxes 2014 Example 1. File taxes 2014 You bought a building and land for $120,000 and placed it in service on March 8. File taxes 2014 The sales contract showed that the building cost $100,000 and the land cost $20,000. File taxes 2014 It is nonresidential real property. File taxes 2014 The building's unadjusted basis is its original cost, $100,000. File taxes 2014 You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. File taxes 2014 March is the third month of your tax year, so multiply the building's unadjusted basis, $100,000, by the percentages for the third month in Table A-7a. File taxes 2014 Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. File taxes 2014 033%   $2,033   2nd   100,000 2. File taxes 2014 564   2,564   3rd   100,000 2. File taxes 2014 564   2,564   Example 2. File taxes 2014 During the year, you bought a machine (7-year property) for $4,000, office furniture (7-year property) for $1,000, and a computer (5-year property) for $5,000. File taxes 2014 You placed the machine in service in January, the furniture in September, and the computer in October. File taxes 2014 You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. File taxes 2014 You placed property in service during the last 3 months of the year, so you must first determine if you have to use the mid-quarter convention. File taxes 2014 The total bases of all property you placed in service during the year is $10,000. File taxes 2014 The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. File taxes 2014 Therefore, you must use the mid-quarter convention for all three items. File taxes 2014 You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. File taxes 2014 The machine is 7-year property placed in service in the first quarter, so you use Table A-2. File taxes 2014 The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. File taxes 2014 Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. File taxes 2014 Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. File taxes 2014 Year Property Basis Percentage Deduction 1st Machine $4,000 25. File taxes 2014 00 $1,000   2nd Machine 4,000 21. File taxes 2014 43 857   1st Furniture 1,000 10. File taxes 2014 71 107   2nd Furniture 1,000 25. File taxes 2014 51 255   1st Computer 5,000 5. File taxes 2014 00 250   2nd Computer 5,000 38. File taxes 2014 00 1,900   Sale or Other Disposition Before the Recovery Period Ends If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. File taxes 2014 You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. File taxes 2014 After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. File taxes 2014 Half-year convention used. File taxes 2014   For property for which you used a half-year convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year. File taxes 2014 Mid-quarter convention used. File taxes 2014   For property for which you used the mid-quarter convention, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter in which you disposed of the property. File taxes 2014 Quarter Percentage First 12. File taxes 2014 5% Second 37. File taxes 2014 5 Third 62. File taxes 2014 5 Fourth 87. File taxes 2014 5 Example. File taxes 2014 On December 2, 2010, you placed in service an item of 5-year property costing $10,000. File taxes 2014 You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. File taxes 2014 Your unadjusted basis for the property was $10,000. File taxes 2014 You used the mid-quarter convention because this was the only item of business property you placed in service in 2010 and it was placed in service during the last 3 months of your tax year. File taxes 2014 Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. File taxes 2014 Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. File taxes 2014 80% of $10,000). File taxes 2014 You disposed of the property on April 6, 2013. File taxes 2014 To determine your depreciation deduction for 2013, first figure the deduction for the full year. File taxes 2014 This is $1,368 (13. File taxes 2014 68% of $10,000). File taxes 2014 April is in the second quarter of the year, so you multiply $1,368 by 37. File taxes 2014 5% to get your depreciation deduction of $513 for 2013. File taxes 2014 Mid-month convention used. File taxes 2014   If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. File taxes 2014 The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. File taxes 2014 The denominator is 12. File taxes 2014 Example. File taxes 2014 On July 2, 2011, you purchased and placed in service residential rental property. File taxes 2014 The property cost $100,000, not including the cost of land. File taxes 2014 You used Table A-6 to figure your MACRS depreciation for this property. File taxes 2014 You sold the property on March 2, 2013. File taxes 2014 You file your tax return based on the calendar year. File taxes 2014 A full year of depreciation for 2013 is $3,636. File taxes 2014 This is $100,000 multiplied by . File taxes 2014 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . File taxes 2014 You then apply the mid-month convention for the 2½ months of use in 2013. File taxes 2014 Treat the month of disposition as one-half month of use. File taxes 2014 Multiply $3,636 by the fraction, 2. File taxes 2014 5 over 12, to get your 2013 depreciation deduction of $757. File taxes 2014 50. File taxes 2014 Figuring the Deduction Without Using the Tables Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. File taxes 2014 Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. File taxes 2014 Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. File taxes 2014 Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. File taxes 2014 You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. File taxes 2014 The straight line method is explained later. File taxes 2014 You figure depreciation for the year you place property in service as follows. File taxes 2014 Multiply your adjusted basis in the property by the declining balance rate. File taxes 2014 Apply the applicable convention. File taxes 2014 You figure depreciation for all other years (before the year you switch to the straight line method) as follows. File taxes 2014 Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. File taxes 2014 Multiply this new adjusted basis by the same declining balance rate used in earlier years. File taxes 2014 If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it. File taxes 2014 Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. File taxes 2014 Declining balance rate. File taxes 2014   You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. File taxes 2014 For example, for 3-year property depreciated using the 200% declining balance method, divide 2. File taxes 2014 00 (200%) by 3 to get 0. File taxes 2014 6667, or a 66. File taxes 2014 67% declining balance rate. File taxes 2014 For 15-year property depreciated using the 150% declining balance method, divide 1. File taxes 2014 50 (150%) by 15 to get 0. File taxes 2014 10, or a 10% declining balance rate. File taxes 2014   The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction. File taxes 2014 Property Class Method Declining Balance Rate Year 3-year 200% DB 66. File taxes 2014 667% 3rd 5-year 200% DB 40. File taxes 2014 0 4th 7-year 200% DB 28. File taxes 2014 571 5th 10-year 200% DB 20. File taxes 2014 0 7th 15-year 150% DB 10. File taxes 2014 0 7th 20-year 150% DB 7. File taxes 2014 5 9th Straight Line Method When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. File taxes 2014 You must use the applicable convention in the year you place the property in service and the year you dispose of the property. File taxes 2014 You figure depreciation for the year you place property in service as follows. File taxes 2014 Multiply your adjusted basis in the property by the straight line rate. File taxes 2014 Apply the applicable convention. File taxes 2014 You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. File taxes 2014 Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). File taxes 2014 Determine the depreciation rate for the year. File taxes 2014 Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). File taxes 2014 If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it. File taxes 2014 Straight line rate. File taxes 2014   You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. File taxes 2014 When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. File taxes 2014 If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. File taxes 2014 0 (100%). File taxes 2014 Using the Applicable Convention The applicable convention (discussed earlier under Which Convention Applies ) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. File taxes 2014 It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. File taxes 2014 See Straight line rate in the previous discussion. File taxes 2014 Use the applicable convention as explained in the following discussions. File taxes 2014 Half-year convention. File taxes 2014   If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. File taxes 2014 You deduct a full year of depreciation for any other year during the recovery period. File taxes 2014   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. File taxes 2014 If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. File taxes 2014 If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property. File taxes 2014 Mid-quarter convention. File taxes 2014   If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service. File taxes 2014   A quarter of a full 12-month tax year is a period of 3 months. File taxes 2014 The first quarter in a year begins on the first day of the tax year. File taxes 2014 The second quarter begins on the first day of the fourth month of the tax year. File taxes 2014 The third quarter begins on the first day of the seventh month of the tax year. File taxes 2014 The fourth quarter begins on the first day of the tenth month of the tax year. File taxes 2014 A calendar year is divided into the following quarters. File taxes 2014 Quarter Months First January, February, March Second April, May, June Third July, August, September Fourth October, November, December   Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service. File taxes 2014 Quarter Percentage First 87. File taxes 2014 5% Second 62. File taxes 2014 5 Third 37. File taxes 2014 5 Fourth 12. File taxes 2014 5   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property. File taxes 2014 Quarter Percentage First 12. File taxes 2014 5% Second 37. File taxes 2014 5 Third 62. File taxes 2014 5 Fourth 87. File taxes 2014 5   If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property. File taxes 2014 Mid-month convention. File taxes 2014   If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. File taxes 2014 Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. File taxes 2014 The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. File taxes 2014 5). File taxes 2014 The denominator is 12. File taxes 2014   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. File taxes 2014 If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property. File taxes 2014 Example. File taxes 2014 You use the calendar year and place nonresidential real property in service in August. File taxes 2014 The property is in service 4 full months (September, October, November, and December). File taxes 2014 Your numerator is 4. File taxes 2014 5 (4 full months plus 0. File taxes 2014 5). File taxes 2014 You multiply the depreciation for a full year by 4. File taxes 2014 5/12, or 0. File taxes 2014 375. File taxes 2014 Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. File taxes 2014 Figures are rounded for purposes of the examples. File taxes 2014 Assume for all the examples that you use a calendar year as your tax year. File taxes 2014 Example 1—200% DB method and half-year convention. File taxes 2014 In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. File taxes 2014 You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. File taxes 2014 You use GDS and the 200% declining balance (DB) method to figure your depreciation. File taxes 2014 When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. File taxes 2014 You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. File taxes 2014 First year. File taxes 2014 You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). File taxes 2014 The result is 40%. File taxes 2014 You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. File taxes 2014 You apply the half-year convention by dividing the result ($400) by 2. File taxes 2014 Depreciation for the first year under the 200% DB method is $200. File taxes 2014 You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. File taxes 2014 The result is 20%. File taxes 2014 You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. File taxes 2014 You apply the half-year convention by dividing the result ($200) by 2. File taxes 2014 Depreciation for the first year under the SL method is $100. File taxes 2014 The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. File taxes 2014 Second year. File taxes 2014 You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). File taxes 2014 You multiply the result ($800) by the DB rate (40%). File taxes 2014 Depreciation for the second year under the 200% DB method is $320. File taxes 2014 You figure the SL depreciation rate by dividing 1 by 4. File taxes 2014 5, the number of years remaining in the recovery period. File taxes 2014 (Based on the half-year convention, you used only half a year of the recovery period in the first year. File taxes 2014 ) You multiply the reduced adjusted basis ($800) by the result (22. File taxes 2014 22%). File taxes 2014 Depreciation under the SL method for the second year is $178. File taxes 2014 The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. File taxes 2014 Third year. File taxes 2014 You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). File taxes 2014 You multiply the result ($480) by the DB rate (40%). File taxes 2014 Depreciation for the third year under the 200% DB method is $192. File taxes 2014 You figure the SL depreciation rate by dividing 1 by 3. File taxes 2014 5. File taxes 2014 You multiply the reduced adjusted basis ($480) by the result (28. File taxes 2014 57%). File taxes 2014 Depreciation under the SL method for the third year is $137. File taxes 2014 The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. File taxes 2014 Fourth year. File taxes 2014 You reduce the adjusted basis ($480) by the de