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Filing A 1040x

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Filing A 1040x

Filing a 1040x 4. Filing a 1040x   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. Filing a 1040x Rent-to-own contract. Filing a 1040x 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. Filing a 1040x MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Filing a 1040x Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Filing a 1040x 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. Filing a 1040x This chapter explains how to determine which MACRS depreciation system applies to your property. Filing a 1040x It also discusses other information you need to know before you can figure depreciation under MACRS. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x Finally, it explains when and how to recapture MACRS depreciation. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Filing a 1040x If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. Filing a 1040x Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. Filing a 1040x 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. Filing a 1040x Required use of ADS. Filing a 1040x   You must use ADS for the following property. Filing a 1040x Listed property used 50% or less in a qualified business use. Filing a 1040x See chapter 5 for information on listed property. Filing a 1040x Any tangible property used predominantly outside the United States during the year. Filing a 1040x Any tax-exempt use property. Filing a 1040x Any tax-exempt bond-financed property. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x Electing ADS. Filing a 1040x   Although your property may qualify for GDS, you can elect to use ADS. Filing a 1040x The election generally must cover all property in the same property class that you placed in service during the year. Filing a 1040x However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Filing a 1040x Once you make this election, you can never revoke it. Filing a 1040x   You make the election by completing line 20 in Part III of Form 4562. Filing a 1040x 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. Filing a 1040x These property classes are also listed under column (a) in section B, Part III, of Form 4562. Filing a 1040x For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. Filing a 1040x 3-year property. Filing a 1040x Tractor units for over-the-road use. Filing a 1040x Any race horse over 2 years old when placed in service. Filing a 1040x (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. Filing a 1040x ) Any other horse (other than a race horse) over 12 years old when placed in service. Filing a 1040x Qualified rent-to-own property (defined later). Filing a 1040x 5-year property. Filing a 1040x Automobiles, taxis, buses, and trucks. Filing a 1040x Computers and peripheral equipment. Filing a 1040x Office machinery (such as typewriters, calculators, and copiers). Filing a 1040x Any property used in research and experimentation. Filing a 1040x Breeding cattle and dairy cattle. Filing a 1040x Appliances, carpets, furniture, etc. Filing a 1040x , used in a residential rental real estate activity. Filing a 1040x Certain geothermal, solar, and wind energy property. Filing a 1040x 7-year property. Filing a 1040x Office furniture and fixtures (such as desks, files, and safes). Filing a 1040x Agricultural machinery and equipment. Filing a 1040x Any property that does not have a class life and has not been designated by law as being in any other class. Filing a 1040x Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. Filing a 1040x Any natural gas gathering line placed in service after April 11, 2005. Filing a 1040x See Natural gas gathering line and electric transmission property , later. Filing a 1040x 10-year property. Filing a 1040x Vessels, barges, tugs, and similar water transportation equipment. Filing a 1040x Any single purpose agricultural or horticultural structure. Filing a 1040x Any tree or vine bearing fruits or nuts. Filing a 1040x Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. Filing a 1040x 15-year property. Filing a 1040x Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). Filing a 1040x Any retail motor fuels outlet (defined later), such as a convenience store. Filing a 1040x Any municipal wastewater treatment plant. Filing a 1040x Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. Filing a 1040x Any qualified restaurant property (defined later) placed in service before January 1, 2014. Filing a 1040x Initial clearing and grading land improvements for gas utility property. Filing a 1040x 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. Filing a 1040x See Natural gas gathering line and electric transmission property , later. Filing a 1040x Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. Filing a 1040x Any qualified retail improvement property placed in service before January 1, 2014. Filing a 1040x 20-year property. Filing a 1040x Farm buildings (other than single purpose agricultural or horticultural structures). Filing a 1040x Municipal sewers not classified as 25-year property. Filing a 1040x Initial clearing and grading land improvements for electric utility transmission and distribution plants. Filing a 1040x 25-year property. Filing a 1040x This class is water utility property, which is either of the following. Filing a 1040x 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. Filing a 1040x Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. Filing a 1040x Residential rental property. Filing a 1040x 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. Filing a 1040x A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x Nonresidential real property. Filing a 1040x 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. Filing a 1040x 5 years. Filing a 1040x Qualified rent-to-own property. Filing a 1040x   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. Filing a 1040x It is tangible personal property generally used in the home for personal use. Filing a 1040x It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. Filing a 1040x Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. Filing a 1040x   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. Filing a 1040x 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. Filing a 1040x Rent-to-own dealer. Filing a 1040x   You are a rent-to-own dealer if you meet all the following requirements. Filing a 1040x You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. Filing a 1040x A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. Filing a 1040x The property is tangible personal property of a type generally used within the home for personal use. Filing a 1040x Rent-to-own contract. Filing a 1040x   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. Filing a 1040x 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). Filing a 1040x Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. Filing a 1040x If the payments are decreasing, no payment can be less than 40% of the largest payment. Filing a 1040x Provides for total payments that generally exceed the normal retail price of the property plus interest. Filing a 1040x Provides for total payments that do not exceed $10,000 for each item of property. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x Motorsports entertainment complex. Filing a 1040x   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. Filing a 1040x The events must be open to the public for the price of admission. Filing a 1040x Qualified smart electric grid system. Filing a 1040x   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. Filing a 1040x 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. Filing a 1040x Retail motor fuels outlet. Filing a 1040x   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. Filing a 1040x It is not larger than 1,400 square feet. Filing a 1040x 50% or more of the gross revenues generated from the property are derived from petroleum sales. Filing a 1040x 50% or more of the floor space in the property is devoted to petroleum marketing sales. Filing a 1040x A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. Filing a 1040x Qualified leasehold improvement property. Filing a 1040x    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. Filing a 1040x   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. Filing a 1040x 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. Filing a 1040x Examples include the following. Filing a 1040x A complete liquidation of a subsidiary. Filing a 1040x A transfer to a corporation controlled by the transferor. Filing a 1040x An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Filing a 1040x Qualified restaurant property. Filing a 1040x   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. Filing a 1040x 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. Filing a 1040x Qualified smart electric meter. Filing a 1040x   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. Filing a 1040x 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. Filing a 1040x Natural gas gathering line and electric transmission property. Filing a 1040x   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. Filing a 1040x The original use of the property must have begun with you after April 11, 2005. Filing a 1040x Original use means the first use to which the property is put, whether or not by you. Filing a 1040x Therefore, property used by any person before April 12, 2005, is not original use. Filing a 1040x Original use includes additional capital expenditures you incurred to recondition or rebuild your property. Filing a 1040x However, original use does not include the cost of reconditioned or rebuilt property you acquired. Filing a 1040x 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. Filing a 1040x The property must not be placed in service under a binding contract in effect before April 12, 2005. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x The placed in service date for your property is the date the property is ready and available for a specific use. Filing a 1040x It is therefore not necessarily the date it is first used. Filing a 1040x 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. Filing a 1040x See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. Filing a 1040x 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. Filing a 1040x 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 . Filing a 1040x Reduce that amount by any credits and deductions allocable to the property. Filing a 1040x The following are examples of some credits and deductions that reduce basis. Filing a 1040x Any deduction for section 179 property. Filing a 1040x Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x 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 . Filing a 1040x Any deduction for removal of barriers to the disabled and the elderly. Filing a 1040x Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Filing a 1040x Any special depreciation allowance. Filing a 1040x Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Filing a 1040x For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Filing a 1040x Enter the basis for depreciation under column (c) in Part III of Form 4562. Filing a 1040x 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 . Filing a 1040x Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Filing a 1040x It is determined based on the depreciation system (GDS or ADS) used. Filing a 1040x Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. Filing a 1040x 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. Filing a 1040x 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. Filing a 1040x 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. Filing a 1040x 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. Filing a 1040x 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. Filing a 1040x 431. Filing a 1040x 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). Filing a 1040x The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. Filing a 1040x Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. Filing a 1040x 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). Filing a 1040x Office in the home. Filing a 1040x   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. Filing a 1040x 5 years if you began using it for business before May 13, 1993). Filing a 1040x 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. Filing a 1040x 5 years. Filing a 1040x See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. Filing a 1040x Home changed to rental use. Filing a 1040x   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. Filing a 1040x 5 years. Filing a 1040x 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. Filing a 1040x The following table shows these shorter recovery periods. Filing a 1040x 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 . Filing a 1040x Use this chart to find the correct percentage table to use for qualified Indian reservation property. Filing a 1040x 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. Filing a 1040x   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. Filing a 1040x You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. Filing a 1040x 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. Filing a 1040x   The following property is not qualified property. Filing a 1040x Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. Filing a 1040x Property acquired directly or indirectly from a related person. Filing a 1040x Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. Filing a 1040x These activities are defined in section 4 of the Indian Regulatory Act (25 U. Filing a 1040x S. Filing a 1040x C. Filing a 1040x 2703). Filing a 1040x Any property you must depreciate under ADS. Filing a 1040x 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). Filing a 1040x Qualified infrastructure property. Filing a 1040x   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. Filing a 1040x Qualified infrastructure property is property that meets all the following rules. Filing a 1040x It is qualified property, as defined earlier, except that it is outside the reservation. Filing a 1040x It benefits the tribal infrastructure. Filing a 1040x It is available to the general public. Filing a 1040x It is placed in service in connection with the active conduct of a trade or business within a reservation. Filing a 1040x Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. Filing a 1040x Related person. Filing a 1040x   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. Filing a 1040x Indian reservation. Filing a 1040x   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. Filing a 1040x S. Filing a 1040x C. Filing a 1040x 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. Filing a 1040x S. Filing a 1040x C. Filing a 1040x 1903(10)). Filing a 1040x Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. Filing a 1040x For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. Filing a 1040x Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. Filing a 1040x The following table shows some of the ADS recovery periods. Filing a 1040x 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. Filing a 1040x 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 . Filing a 1040x Tax-exempt use property subject to a lease. Filing a 1040x   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. Filing a 1040x Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. Filing a 1040x See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. Filing a 1040x 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. Filing a 1040x The recovery period begins on the later of the following dates. Filing a 1040x The date you place the addition or improvement in service. Filing a 1040x The date you place in service the property to which you made the addition or improvement. Filing a 1040x 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). Filing a 1040x Example. Filing a 1040x You own a rental home that you have been renting out since 1981. Filing a 1040x 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. Filing a 1040x Under GDS, the property class for the addition is residential rental property and its recovery period is 27. Filing a 1040x 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. Filing a 1040x Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Filing a 1040x 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. Filing a 1040x The mid-month convention. Filing a 1040x   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. Filing a 1040x   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. Filing a 1040x This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. Filing a 1040x   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. Filing a 1040x The mid-quarter convention. Filing a 1040x   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. Filing a 1040x   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. Filing a 1040x This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. Filing a 1040x   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. Filing a 1040x    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. Filing a 1040x However, it does not reflect any reduction in basis for any special depreciation allowance. Filing a 1040x The half-year convention. Filing a 1040x   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. Filing a 1040x   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. Filing a 1040x This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. Filing a 1040x   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. Filing a 1040x Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Filing a 1040x The 200% declining balance method over a GDS recovery period. Filing a 1040x The 150% declining balance method over a GDS recovery period. Filing a 1040x The straight line method over a GDS recovery period. Filing a 1040x The straight line method over an ADS recovery period. Filing a 1040x 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. Filing a 1040x If you made this election, continue to use the same method and recovery period for that property. Filing a 1040x Table 4–1 lists the types of property you can depreciate under each method. Filing a 1040x It also gives a brief explanation of the method, including any benefits that may apply. Filing a 1040x 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. Filing a 1040x You can depreciate real property using the straight line method under either GDS or ADS. Filing a 1040x Fruit or nut trees and vines. Filing a 1040x   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. Filing a 1040x ADS required for some farmers. Filing a 1040x   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. Filing a 1040x You must use ADS for all property you place in service in any year the election is in effect. Filing a 1040x See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. Filing a 1040x Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. Filing a 1040x You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Filing a 1040x 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). Filing a 1040x Attach the election to the amended return and write “Filed pursuant to section 301. Filing a 1040x 9100-2” on the election statement. Filing a 1040x File the amended return at the same address you filed the original return. Filing a 1040x Once you make the election, you cannot change it. Filing a 1040x 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. Filing a 1040x However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. Filing a 1040x 150% election. Filing a 1040x   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. Filing a 1040x Make the election by entering “150 DB” under column (f) in Part III of Form 4562. Filing a 1040x Straight line election. Filing a 1040x   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. Filing a 1040x Make the election by entering  “S/L” under column (f) in Part III of Form 4562. Filing a 1040x Election of ADS. Filing a 1040x   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. Filing a 1040x ADS uses the straight line method of depreciation over fixed ADS recovery periods. Filing a 1040x Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. Filing a 1040x   Make the election by completing line 20 in Part III of Form 4562. Filing a 1040x Farm property. Filing a 1040x   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. Filing a 1040x The straight line method over a GDS recovery period. Filing a 1040x The straight line method over an ADS recovery period. Filing a 1040x Table 4-1. Filing a 1040x Depreciation Methods Note. Filing a 1040x The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Filing a 1040x 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. Filing a 1040x S. Filing a 1040x  • 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. Filing a 1040x 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. Filing a 1040x Then, you are ready to figure your depreciation deduction. Filing a 1040x You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. Filing a 1040x 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. Filing a 1040x These percentage tables are in Appendix A near the end of this publication. Filing a 1040x Which table to use. Filing a 1040x    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. Filing a 1040x The percentage tables immediately follow the guide. Filing a 1040x Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. Filing a 1040x You must apply the rates in the percentage tables to your property's unadjusted basis. Filing a 1040x You cannot use the percentage tables for a short tax year. Filing a 1040x See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. Filing a 1040x   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. Filing a 1040x 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. Filing a 1040x See Figuring the Deduction Without Using the Tables, later. Filing a 1040x Basis adjustment due to casualty loss. Filing a 1040x   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Filing a 1040x 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. Filing a 1040x See Figuring the Deduction Without Using the Tables, later. Filing a 1040x Example. Filing a 1040x 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. Filing a 1040x It cost $39,000 and she elected a section 179 deduction of $24,000. Filing a 1040x She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. Filing a 1040x Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). Filing a 1040x She figured her MACRS depreciation deduction using the percentage tables. Filing a 1040x For 2012, her MACRS depreciation deduction was $268. Filing a 1040x In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. Filing a 1040x She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. Filing a 1040x Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. Filing a 1040x 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. Filing a 1040x She must now figure her depreciation for 2013 without using the percentage tables. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x However, you do reduce your original basis by other amounts, including the following. Filing a 1040x Any amortization taken on the property. Filing a 1040x Any section 179 deduction claimed. Filing a 1040x Any special depreciation allowance taken on the property. Filing a 1040x For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. Filing a 1040x 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. Filing a 1040x MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Filing a 1040x Use a separate worksheet for each item of property. Filing a 1040x Then, use the information from this worksheet to prepare Form 4562. Filing a 1040x Do not use this worksheet for automobiles. Filing a 1040x Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. Filing a 1040x MACRS Worksheet Part I   1. Filing a 1040x MACRS system (GDS or ADS)   2. Filing a 1040x Property class   3. Filing a 1040x Date placed in service   4. Filing a 1040x Recovery period   5. Filing a 1040x Method and convention   6. Filing a 1040x Depreciation rate (from tables)   Part II   7. Filing a 1040x Cost or other basis* $     8. Filing a 1040x Business/investment use   %   9. Filing a 1040x Multiply line 7 by line 8   $ 10. Filing a 1040x Total claimed for section 179 deduction and other items   $ 11. Filing a 1040x Subtract line 10 from line 9. Filing a 1040x This is your tentative basis for depreciation   $ 12. Filing a 1040x Multiply line 11 by . Filing a 1040x 50 if the 50% special depreciation allowance applies. Filing a 1040x This is your special depreciation allowance. Filing a 1040x 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. Filing a 1040x Subtract line 12 from line 11. Filing a 1040x This is your basis for depreciation     14. Filing a 1040x Depreciation rate (from line 6)     15. Filing a 1040x Multiply line 13 by line 14. Filing a 1040x This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. Filing a 1040x The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. Filing a 1040x Example. Filing a 1040x You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. Filing a 1040x You use the furniture only for business. Filing a 1040x This is the only property you placed in service this year. Filing a 1040x 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. Filing a 1040x You use GDS and the half-year convention to figure your depreciation. Filing a 1040x You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. Filing a 1040x Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. Filing a 1040x You figure your depreciation deduction using the MACRS worksheet as follows. Filing a 1040x MACRS Worksheet Part I 1. Filing a 1040x MACRS system (GDS or ADS) GDS 2. Filing a 1040x Property class 7-year 3. Filing a 1040x Date placed in service 8/11/13 4. Filing a 1040x Recovery period 7-Year 5. Filing a 1040x Method and convention 200%DB/Half-Year 6. Filing a 1040x Depreciation rate (from tables) . Filing a 1040x 1429 Part II 7. Filing a 1040x Cost or other basis* $10,000     8. Filing a 1040x Business/investment use 100 %   9. Filing a 1040x Multiply line 7 by line 8   $10,000 10. Filing a 1040x Total claimed for section 179 deduction and other items   -0- 11. Filing a 1040x Subtract line 10 from line 9. Filing a 1040x This is your tentative basis for depreciation   $10,000 12. Filing a 1040x Multiply line 11 by . Filing a 1040x 50 if the 50% special depreciation allowance applies. Filing a 1040x This is your special depreciation allowance. Filing a 1040x 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. Filing a 1040x Subtract line 12 from line 11. Filing a 1040x This is your basis for depreciation   $10,000 14. Filing a 1040x Depreciation rate (from line 6)   . Filing a 1040x 1429 15. Filing a 1040x Multiply line 13 by line 14. Filing a 1040x This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. Filing a 1040x 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. Filing a 1040x Year   Basis Percentage Deduction 2014 $ 10,000 24. Filing a 1040x 49%   $2,449   2015   10,000 17. Filing a 1040x 49   1,749   2016   10,000 12. Filing a 1040x 49   1,249   2017   10,000 8. Filing a 1040x 93   893   2018   10,000 8. Filing a 1040x 92   892   2019   10,000 8. Filing a 1040x 93   893   2020   10,000 4. Filing a 1040x 46   446   Examples The following examples are provided to show you how to use the percentage tables. Filing a 1040x In both examples, assume the following. Filing a 1040x You use the property only for business. Filing a 1040x You use the calendar year as your tax year. Filing a 1040x You use GDS for all the properties. Filing a 1040x Example 1. Filing a 1040x You bought a building and land for $120,000 and placed it in service on March 8. Filing a 1040x The sales contract showed that the building cost $100,000 and the land cost $20,000. Filing a 1040x It is nonresidential real property. Filing a 1040x The building's unadjusted basis is its original cost, $100,000. Filing a 1040x You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. Filing a 1040x 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. Filing a 1040x Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. Filing a 1040x 033%   $2,033   2nd   100,000 2. Filing a 1040x 564   2,564   3rd   100,000 2. Filing a 1040x 564   2,564   Example 2. Filing a 1040x 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. Filing a 1040x You placed the machine in service in January, the furniture in September, and the computer in October. Filing a 1040x You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. Filing a 1040x 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. Filing a 1040x The total bases of all property you placed in service during the year is $10,000. Filing a 1040x 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. Filing a 1040x Therefore, you must use the mid-quarter convention for all three items. Filing a 1040x You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. Filing a 1040x The machine is 7-year property placed in service in the first quarter, so you use Table A-2. Filing a 1040x The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. Filing a 1040x Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. Filing a 1040x Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. Filing a 1040x Year Property Basis Percentage Deduction 1st Machine $4,000 25. Filing a 1040x 00 $1,000   2nd Machine 4,000 21. Filing a 1040x 43 857   1st Furniture 1,000 10. Filing a 1040x 71 107   2nd Furniture 1,000 25. Filing a 1040x 51 255   1st Computer 5,000 5. Filing a 1040x 00 250   2nd Computer 5,000 38. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. Filing a 1040x Half-year convention used. Filing a 1040x   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. Filing a 1040x Mid-quarter convention used. Filing a 1040x   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. Filing a 1040x Quarter Percentage First 12. Filing a 1040x 5% Second 37. Filing a 1040x 5 Third 62. Filing a 1040x 5 Fourth 87. Filing a 1040x 5 Example. Filing a 1040x On December 2, 2010, you placed in service an item of 5-year property costing $10,000. Filing a 1040x You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Filing a 1040x Your unadjusted basis for the property was $10,000. Filing a 1040x 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. Filing a 1040x Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. Filing a 1040x Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. Filing a 1040x 80% of $10,000). Filing a 1040x You disposed of the property on April 6, 2013. Filing a 1040x To determine your depreciation deduction for 2013, first figure the deduction for the full year. Filing a 1040x This is $1,368 (13. Filing a 1040x 68% of $10,000). Filing a 1040x April is in the second quarter of the year, so you multiply $1,368 by 37. Filing a 1040x 5% to get your depreciation deduction of $513 for 2013. Filing a 1040x Mid-month convention used. Filing a 1040x   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. Filing a 1040x The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. Filing a 1040x The denominator is 12. Filing a 1040x Example. Filing a 1040x On July 2, 2011, you purchased and placed in service residential rental property. Filing a 1040x The property cost $100,000, not including the cost of land. Filing a 1040x You used Table A-6 to figure your MACRS depreciation for this property. Filing a 1040x You sold the property on March 2, 2013. Filing a 1040x You file your tax return based on the calendar year. Filing a 1040x A full year of depreciation for 2013 is $3,636. Filing a 1040x This is $100,000 multiplied by . Filing a 1040x 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . Filing a 1040x You then apply the mid-month convention for the 2½ months of use in 2013. Filing a 1040x Treat the month of disposition as one-half month of use. Filing a 1040x Multiply $3,636 by the fraction, 2. Filing a 1040x 5 over 12, to get your 2013 depreciation deduction of $757. Filing a 1040x 50. Filing a 1040x 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. Filing a 1040x Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. Filing a 1040x Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. Filing a 1040x Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. Filing a 1040x 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. Filing a 1040x The straight line method is explained later. Filing a 1040x You figure depreciation for the year you place property in service as follows. Filing a 1040x Multiply your adjusted basis in the property by the declining balance rate. Filing a 1040x Apply the applicable convention. Filing a 1040x You figure depreciation for all other years (before the year you switch to the straight line method) as follows. Filing a 1040x Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. Filing a 1040x Multiply this new adjusted basis by the same declining balance rate used in earlier years. Filing a 1040x 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. Filing a 1040x Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. Filing a 1040x Declining balance rate. Filing a 1040x   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. Filing a 1040x For example, for 3-year property depreciated using the 200% declining balance method, divide 2. Filing a 1040x 00 (200%) by 3 to get 0. Filing a 1040x 6667, or a 66. Filing a 1040x 67% declining balance rate. Filing a 1040x For 15-year property depreciated using the 150% declining balance method, divide 1. Filing a 1040x 50 (150%) by 15 to get 0. Filing a 1040x 10, or a 10% declining balance rate. Filing a 1040x   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. Filing a 1040x Property Class Method Declining Balance Rate Year 3-year 200% DB 66. Filing a 1040x 667% 3rd 5-year 200% DB 40. Filing a 1040x 0 4th 7-year 200% DB 28. Filing a 1040x 571 5th 10-year 200% DB 20. Filing a 1040x 0 7th 15-year 150% DB 10. Filing a 1040x 0 7th 20-year 150% DB 7. Filing a 1040x 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. Filing a 1040x You must use the applicable convention in the year you place the property in service and the year you dispose of the property. Filing a 1040x You figure depreciation for the year you place property in service as follows. Filing a 1040x Multiply your adjusted basis in the property by the straight line rate. Filing a 1040x Apply the applicable convention. Filing a 1040x You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. Filing a 1040x Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). Filing a 1040x Determine the depreciation rate for the year. Filing a 1040x Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). Filing a 1040x 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. Filing a 1040x Straight line rate. Filing a 1040x   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. Filing a 1040x When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. Filing a 1040x If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. Filing a 1040x 0 (100%). Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x See Straight line rate in the previous discussion. Filing a 1040x Use the applicable convention as explained in the following discussions. Filing a 1040x Half-year convention. Filing a 1040x   If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. Filing a 1040x You deduct a full year of depreciation for any other year during the recovery period. Filing a 1040x   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. Filing a 1040x 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. Filing a 1040x 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. Filing a 1040x Mid-quarter convention. Filing a 1040x   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. Filing a 1040x   A quarter of a full 12-month tax year is a period of 3 months. Filing a 1040x The first quarter in a year begins on the first day of the tax year. Filing a 1040x The second quarter begins on the first day of the fourth month of the tax year. Filing a 1040x The third quarter begins on the first day of the seventh month of the tax year. Filing a 1040x The fourth quarter begins on the first day of the tenth month of the tax year. Filing a 1040x A calendar year is divided into the following quarters. Filing a 1040x 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. Filing a 1040x Quarter Percentage First 87. Filing a 1040x 5% Second 62. Filing a 1040x 5 Third 37. Filing a 1040x 5 Fourth 12. Filing a 1040x 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. Filing a 1040x Quarter Percentage First 12. Filing a 1040x 5% Second 37. Filing a 1040x 5 Third 62. Filing a 1040x 5 Fourth 87. Filing a 1040x 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. Filing a 1040x Mid-month convention. Filing a 1040x   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. Filing a 1040x Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. Filing a 1040x The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. Filing a 1040x 5). Filing a 1040x The denominator is 12. Filing a 1040x   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. Filing a 1040x 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. Filing a 1040x Example. Filing a 1040x You use the calendar year and place nonresidential real property in service in August. Filing a 1040x The property is in service 4 full months (September, October, November, and December). Filing a 1040x Your numerator is 4. Filing a 1040x 5 (4 full months plus 0. Filing a 1040x 5). Filing a 1040x You multiply the depreciation for a full year by 4. Filing a 1040x 5/12, or 0. Filing a 1040x 375. Filing a 1040x Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. Filing a 1040x Figures are rounded for purposes of the examples. Filing a 1040x Assume for all the examples that you use a calendar year as your tax year. Filing a 1040x Example 1—200% DB method and half-year convention. Filing a 1040x In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. Filing a 1040x You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. Filing a 1040x You use GDS and the 200% declining balance (DB) method to figure your depreciation. Filing a 1040x When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. Filing a 1040x You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. Filing a 1040x First year. Filing a 1040x You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). Filing a 1040x The result is 40%. Filing a 1040x You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. Filing a 1040x You apply the half-year convention by dividing the result ($400) by 2. Filing a 1040x Depreciation for the first year under the 200% DB method is $200. Filing a 1040x You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. Filing a 1040x The result is 20%. Filing a 1040x You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. Filing a 1040x You apply the half-year convention by dividing the result ($200) by 2. Filing a 1040x Depreciation for the first year under the SL method is $100. Filing a 1040x The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. Filing a 1040x Second year. Filing a 1040x You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). Filing a 1040x You multiply the result ($800) by the DB rate (40%). Filing a 1040x Depreciation for the second year under the 200% DB method is $320. Filing a 1040x You figure the SL depreciation rate by dividing 1 by 4. Filing a 1040x 5, the number of years remaining in the recovery period. Filing a 1040x (Based on the half-year convention, you used only half a year of the recovery period in the first year. Filing a 1040x ) You multiply the reduced adjusted basis ($800) by the result (22. Filing a 1040x 22%). Filing a 1040x Depreciation under the SL method for the second year is $178. Filing a 1040x The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. Filing a 1040x Third year. Filing a 1040x You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). Filing a 1040x You multiply the result ($480) by the DB rate (40%). Filing a 1040x Depreciation for the third year under the 200% DB method is $192. Filing a 1040x You figure the SL depreciation rate by dividing 1 by 3. Filing a 1040x 5. Filing a 1040x You multiply the reduced adjusted basis ($480) by the result (28. Filing a 1040x 57%). Filing a 1040x Depreciation under the SL method for the third year is $137. Filing a 1040x The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. Filing a 1040x Fourth year. Filing a 1040x You reduce the adjusted basis ($480) by the de
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The Filing A 1040x

Filing a 1040x Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. Filing a 1040x Adjustment for premium. Filing a 1040x Adjustment for acquisition premium. Filing a 1040x Adjustment for market discount. Filing a 1040x Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. Filing a 1040x “Original issue discount” is defined first. Filing a 1040x The other terms are listed alphabetically. Filing a 1040x Original issue discount (OID). Filing a 1040x   OID is a form of interest. Filing a 1040x It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Filing a 1040x Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. Filing a 1040x Accrual period. Filing a 1040x   An accrual period is an interval of time used to measure OID. Filing a 1040x The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. Filing a 1040x Acquisition premium. Filing a 1040x   Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. Filing a 1040x A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. Filing a 1040x See Premium, later. Filing a 1040x Adjusted issue price. Filing a 1040x   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. Filing a 1040x In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. Filing a 1040x The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest. Filing a 1040x Debt instrument. Filing a 1040x   The term “debt instrument” means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). Filing a 1040x It generally does not include an annuity contract. Filing a 1040x Issue price. Filing a 1040x   For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold. Filing a 1040x Market discount. Filing a 1040x   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. Filing a 1040x An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. Filing a 1040x The market discount is the difference between the issue price plus accrued OID and your adjusted basis. Filing a 1040x Premium. Filing a 1040x   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. Filing a 1040x The premium is the excess of the adjusted basis over the payable amounts. Filing a 1040x See Publication 550 for information on the tax treatment of bond premium. Filing a 1040x Qualified stated interest. Filing a 1040x   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate. Filing a 1040x Stated redemption price at maturity. Filing a 1040x   A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest. Filing a 1040x Yield to maturity (YTM). Filing a 1040x   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. Filing a 1040x The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. Filing a 1040x If you do not have this information, consult your broker, tax advisor, or the issuer. Filing a 1040x Debt Instruments on the OID List The OID list on the IRS website can be used by brokers and other middlemen to prepare information returns. Filing a 1040x If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. Filing a 1040x The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. Filing a 1040x For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later. Filing a 1040x The following discussions explain what information is contained in each section of the list. Filing a 1040x Section I. Filing a 1040x   This section contains publicly offered, long-term debt instruments. Filing a 1040x Section I-A: Corporate Debt Instruments Issued Before 1985. Filing a 1040x Section I-B: Corporate Debt Instruments Issued After 1984. Filing a 1040x Section I-C: Inflation-Indexed Debt Instruments. Filing a 1040x For each publicly offered debt instrument in Section I, the list contains the following information. Filing a 1040x The name of the issuer. Filing a 1040x The Committee on Uniform Security Identification Procedures (CUSIP) number. Filing a 1040x The issue date. Filing a 1040x The maturity date. Filing a 1040x The issue price expressed as a percent of principal or of stated redemption price at maturity. Filing a 1040x The annual stated or coupon interest rate. Filing a 1040x (This rate is shown as 0. Filing a 1040x 00 if no annual interest payments are provided. Filing a 1040x ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. Filing a 1040x The total OID accrued up to January 1 of a calendar year. Filing a 1040x (This information is not available for every instrument. Filing a 1040x ) For long-term debt instruments issued after July 1, 1982, the daily OID for the accrual periods falling in a calendar year and a subsequent year. Filing a 1040x The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. Filing a 1040x Section II. Filing a 1040x   This section contains stripped coupons and principal components of U. Filing a 1040x S. Filing a 1040x Treasury and Government-Sponsored Enterprise debt instruments. Filing a 1040x These stripped components are available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. Filing a 1040x This section also includes debt instruments backed by U. Filing a 1040x S. Filing a 1040x Treasury securities that represent ownership interests in those securities. Filing a 1040x   The obligations listed in Section II are arranged by maturity date. Filing a 1040x The amounts listed are the total OID for a calendar year per $1,000 of redemption price. Filing a 1040x Section III. Filing a 1040x   This section contains short-term discount obligations. Filing a 1040x Section III-A: Short-Term U. Filing a 1040x S. Filing a 1040x Treasury Bills. Filing a 1040x Section III-B: Federal Home Loan Banks. Filing a 1040x Section III-C: Federal National Mortgage Association. Filing a 1040x Section III-D: Federal Farm Credit Banks. Filing a 1040x Section III-E: Federal Home Loan Mortgage Corporation. Filing a 1040x Section III-F: Federal Agricultural Mortgage Corporation. Filing a 1040x    Information that supplements Section III-A is available on the Internet at http://www. Filing a 1040x treasurydirect. Filing a 1040x gov/tdhome. Filing a 1040x htm. Filing a 1040x   The short-term obligations listed in this section are arranged by maturity date. Filing a 1040x For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for a calendar year per $1,000 of redemption price. Filing a 1040x Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. Filing a 1040x Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. Filing a 1040x U. Filing a 1040x S. Filing a 1040x savings bonds. Filing a 1040x Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. Filing a 1040x Obligations issued by tax-exempt organizations. Filing a 1040x OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. Filing a 1040x Mortgage-backed securities and mortgage participation certificates. Filing a 1040x Long-term OID debt instruments issued before May 28, 1969. Filing a 1040x Short-term obligations, other than the obligations listed in Section III. Filing a 1040x Debt instruments issued at a discount by states or their political subdivisions. Filing a 1040x REMIC regular interests and CDOs. Filing a 1040x Commercial paper and banker's acceptances issued at a discount. Filing a 1040x Obligations issued at a discount by individuals. Filing a 1040x Foreign obligations not traded in the United States and obligations not issued in the United States. Filing a 1040x Information for Brokers and Other Middlemen The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. Filing a 1040x In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for a calendar year totals $10 or more. Filing a 1040x You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. Filing a 1040x See Backup Withholding, later. Filing a 1040x If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31 in the year it is due. Filing a 1040x File all your Forms 1099 with the IRS, accompanied by Form 1096, by February 28 in the year it is due (March 31 if you file electronically). Filing a 1040x Electronic payee statements. Filing a 1040x   You can issue Form 1099-OID electronically with the consent of the recipient. Filing a 1040x More information. Filing a 1040x   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. Filing a 1040x Short-Term Obligations Redeemed at Maturity If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT. Filing a 1040x To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records. Filing a 1040x If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. Filing a 1040x Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. Filing a 1040x If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. Filing a 1040x A special rule is used to determine the original issue price for information reporting on U. Filing a 1040x S. Filing a 1040x Treasury bills (T-bills) listed in Section III-A. Filing a 1040x Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. Filing a 1040x This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. Filing a 1040x A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-F. Filing a 1040x Example 1. Filing a 1040x There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. Filing a 1040x The price actually paid by the owner cannot be established by owner or middleman records. Filing a 1040x You treat as the issue price of the T-bill the noncompetitive discount price (expressed as a percent of principal) shown in Section III-A for a 26-week bill maturing on the same date as the T-bill redeemed. Filing a 1040x The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. Filing a 1040x Long-Term Debt Instruments If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. Filing a 1040x For this purpose, you can rely on Section I of the OID list to determine the following information. Filing a 1040x Whether a debt instrument has OID. Filing a 1040x The OID to be reported on the Form 1099-OID. Filing a 1040x In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. Filing a 1040x You also can report OID on other long-term debt instruments. Filing a 1040x Form 1099-OID. Filing a 1040x   On Form 1099-OID for a calendar year show the following information. Filing a 1040x Box 1. Filing a 1040x The OID for the actual dates the owner held the debt instruments during a calendar year. Filing a 1040x To determine this amount, see Figuring OID, next. Filing a 1040x Box 2. Filing a 1040x The qualified stated interest paid or credited during the calendar year. Filing a 1040x Interest reported here is not reported on Form 1099-INT. Filing a 1040x The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. Filing a 1040x Box 3. Filing a 1040x Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Filing a 1040x Do not reduce the amounts in boxes 1 and 2 by the forfeiture. Filing a 1040x Box 4. Filing a 1040x Any backup withholding for this debt instrument. Filing a 1040x Box 7. Filing a 1040x The CUSIP number, if any. Filing a 1040x If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12. Filing a 1040x 50 2006). Filing a 1040x If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. Filing a 1040x Box 8. Filing a 1040x The OID on a U. Filing a 1040x S. Filing a 1040x Treasury obligation for the part of the year the owner held the debt instrument. Filing a 1040x Box 9. Filing a 1040x Investment expenses passed on to holders of a single-class REMIC. Filing a 1040x Boxes 10-12. Filing a 1040x Use to report any state income tax withheld for this debt instrument. Filing a 1040x Figuring OID. Filing a 1040x   You can determine the OID on a long-term debt instrument by using either of the following. Filing a 1040x Section I of the OID list. Filing a 1040x The income tax regulations. Filing a 1040x Using Section I. Filing a 1040x   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. Filing a 1040x Because OID is listed for each $1,000 of stated redemption price at maturity, you must adjust the listed amount to reflect the debt instrument's actual stated redemption price at maturity. Filing a 1040x For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. Filing a 1040x   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. Filing a 1040x Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. Filing a 1040x Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. Filing a 1040x Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. Filing a 1040x Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. Filing a 1040x If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. Filing a 1040x Report the result on Form 1099-OID in box 1. Filing a 1040x Using the income tax regulations. Filing a 1040x   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. Filing a 1040x For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. Filing a 1040x (If you use Section I-B, the OID is figured using 6-month accrual periods. Filing a 1040x )   For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later. Filing a 1040x Certificates of Deposit If you hold a bank certificate of deposit (CD) as a nominee, you must determine whether the CD has OID and any OID includible in the income of the owner. Filing a 1040x You must file an information return showing the reportable interest and OID, if any, on the CD. Filing a 1040x These rules apply whether or not you sold the CD to the owner. Filing a 1040x Report OID on a CD in the same way as OID on other debt instruments. Filing a 1040x See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. Filing a 1040x Bearer Bonds and Coupons If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form 1099-INT. Filing a 1040x However, do not report the interest if either of the following apply. Filing a 1040x You hold the bond as a nominee for the true owner. Filing a 1040x The payee is a foreign person. Filing a 1040x See Payments to foreign person under Backup Withholding, later. Filing a 1040x Because you cannot assume the presenter of the coupon also owns the bond, you should not report OID on the bond on Form 1099-OID. Filing a 1040x The coupon may have been “stripped” (separated) from the bond and separately purchased. Filing a 1040x However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form 1099-OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption. Filing a 1040x Backup Withholding If you report OID on Form 1099-OID or interest on Form 1099-INT for a calendar year, you may be required to apply backup withholding to the reportable payment at a rate of 28%. Filing a 1040x The backup withholding is deducted at the time a cash payment is made. Filing a 1040x See Pub. Filing a 1040x 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. Filing a 1040x Backup withholding generally applies in the following situations. Filing a 1040x The payee does not give you a taxpayer identification number (TIN). Filing a 1040x The IRS notifies you that the payee gave an incorrect TIN. Filing a 1040x The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. Filing a 1040x For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. Filing a 1040x However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. Filing a 1040x S. Filing a 1040x savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. Filing a 1040x Short-term obligations. Filing a 1040x   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. Filing a 1040x However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. Filing a 1040x   If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price. Filing a 1040x However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. Filing a 1040x If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. Filing a 1040x Long-term obligations. Filing a 1040x   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. Filing a 1040x The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. Filing a 1040x The amount to be withheld is limited to the cash paid. Filing a 1040x Registered long-term obligations with cash payments. Filing a 1040x   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. Filing a 1040x The amount subject to backup withholding is the total of the qualified stated interest (defined earlier under Definitions) and OID includible in the owner's gross income for the calendar year when the payment is made. Filing a 1040x If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. Filing a 1040x For any payment, the required withholding is limited to the cash paid. Filing a 1040x Payee not the original owner. Filing a 1040x   If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year (without regard to any amount paid by the new owner at the time of transfer). Filing a 1040x The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. Filing a 1040x Bearer long-term obligations with cash payments. Filing a 1040x   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. Filing a 1040x For payments before maturity, the amount subject to withholding is the qualified stated interest (defined earlier under Definitions) includible in the owner's gross income for the calendar year. Filing a 1040x For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. Filing a 1040x The required withholding at maturity is limited to the cash paid. Filing a 1040x Sales and redemptions. Filing a 1040x   If you report the gross proceeds from a sale, exchange, or redemption of a debt instrument on Form 1099-B for a calendar year, you may be required to withhold 28% of the amount reported. Filing a 1040x Backup withholding applies in the following situations. Filing a 1040x The payee does not give you a TIN. Filing a 1040x The IRS notifies you that the payee gave an incorrect TIN. Filing a 1040x For debt instruments held in an account opened after 1983, the payee does not certify, under penalties of perjury, that the TIN given is correct. Filing a 1040x Payments outside the United States to U. Filing a 1040x S. Filing a 1040x person. Filing a 1040x   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. Filing a 1040x S. Filing a 1040x person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. Filing a 1040x S. Filing a 1040x trade or business. Filing a 1040x Payments to foreign person. Filing a 1040x   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. Filing a 1040x U. Filing a 1040x S. Filing a 1040x -source amount. Filing a 1040x   Backup withholding and information reporting are not required for payments of U. Filing a 1040x S. Filing a 1040x -source OID, interest, or proceeds from a sale or redemption of an OID instrument if the payee has given you proof (generally the appropriate Form W-8 or an acceptable substitute) that the payee is a foreign person. Filing a 1040x A U. Filing a 1040x S. Filing a 1040x resident is not a foreign person. Filing a 1040x For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. Filing a 1040x Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U. Filing a 1040x S. Filing a 1040x person. Filing a 1040x   For information about the 28% withholding tax that may apply to payments of U. Filing a 1040x S. Filing a 1040x -source OID or interest to foreign persons, see Publication 515. Filing a 1040x Foreign-source amount. Filing a 1040x   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. Filing a 1040x However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person. Filing a 1040x More information. Filing a 1040x   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. Filing a 1040x 6049-5. Filing a 1040x Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. Filing a 1040x It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. Filing a 1040x It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation. Filing a 1040x However, the information provided does not cover every situation. Filing a 1040x More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. Filing a 1040x Including OID in income. Filing a 1040x   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. Filing a 1040x Exceptions. Filing a 1040x   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. Filing a 1040x U. Filing a 1040x S. Filing a 1040x savings bonds. Filing a 1040x Tax-exempt obligations. Filing a 1040x (However, see Tax-Exempt Bonds and Coupons, later. Filing a 1040x ) Obligations issued by individuals before March 2, 1984. Filing a 1040x Loans of $10,000 or less between individuals who are not in the business of lending money. Filing a 1040x (The dollar limit includes outstanding prior loans by the lender to the borrower. Filing a 1040x ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. Filing a 1040x   See chapter 1 of Publication 550 for information about the rules for these and other types of discounted debt instruments, such as short-term and market discount obligations. Filing a 1040x Publication 550 also discusses rules for holders of REMIC interests and CDOs. Filing a 1040x De minimis rule. Filing a 1040x   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. Filing a 1040x 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Filing a 1040x Debt instruments with de minimis OID are not listed in this publication. Filing a 1040x There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. Filing a 1040x Also, the de minimis rules generally do not apply to tax-exempt obligations. Filing a 1040x Example 2. Filing a 1040x You bought at issuance a 10-year debt instrument with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Filing a 1040x One-fourth of 1% of $1,000 (the stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Filing a 1040x Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. Filing a 1040x Example 3. Filing a 1040x Assume the same facts as Example 2, except the debt instrument was issued at $950. Filing a 1040x You must report part of the $50 OID each year because it is more than $25. Filing a 1040x Choice to report all interest as OID. Filing a 1040x   Generally, you can choose to treat all interest on a debt instrument acquired after April 3, 1994, as OID and include it in gross income by using the constant yield method. Filing a 1040x See Constant yield method under Debt Instruments Issued After 1984, later, for more information. Filing a 1040x   For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. Filing a 1040x For more information, see Regulations section 1. Filing a 1040x 1272-3. Filing a 1040x Purchase after date of original issue. Filing a 1040x   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. Filing a 1040x If so, the OID reported to you on Form 1099-OID may have to be adjusted. Filing a 1040x For more information, see Showing an OID adjustment under How To Report OID, later. Filing a 1040x The following rules generally do not apply to contingent payment debt instruments. Filing a 1040x Adjustment for premium. Filing a 1040x   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. Filing a 1040x Your adjustment is the total OID shown on your Form 1099-OID. Filing a 1040x Adjustment for acquisition premium. Filing a 1040x   If your debt instrument has acquisition premium, reduce the OID you report. Filing a 1040x Your adjustment is the difference between the OID shown on your Form 1099-OID and the reduced OID amount figured using the rules explained later under Figuring OID on Long-Term Debt Instruments. Filing a 1040x Adjustment for market discount. Filing a 1040x   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. Filing a 1040x Your adjustment is the accrued market discount for the year. Filing a 1040x See Market Discount Bonds in chapter 1 of Publication 550 for information on how to figure accrued market discount and include it in your income currently and for other information about market discount bonds. Filing a 1040x If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. Filing a 1040x The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. Filing a 1040x For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. Filing a 1040x 1275-7. Filing a 1040x Sale, exchange, or redemption. Filing a 1040x   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. Filing a 1040x If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. Filing a 1040x Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). Filing a 1040x   Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Filing a 1040x Your basis, generally, is your cost increased by the OID you have included in income each year you held it. Filing a 1040x In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Filing a 1040x   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. Filing a 1040x Example 4. Filing a 1040x Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. Filing a 1040x 00 on November 1 of Year 1. Filing a 1040x The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. Filing a 1040x The debt instrument provides for semiannual payments of interest at 10%. Filing a 1040x Assume the debt instrument is a capital asset in Larry's hands. Filing a 1040x The debt instrument has $13,765. Filing a 1040x 00 of OID ($100,000 stated redemption price at maturity minus $86,235. Filing a 1040x 00 issue price). Filing a 1040x Larry sold the debt instrument for $90,000 on November 1 of Year 4. Filing a 1040x Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. Filing a 1040x 00 of OID in income and has increased his basis by that amount to $90,791. Filing a 1040x 00. Filing a 1040x Larry has realized a loss of $791. Filing a 1040x 00. Filing a 1040x All of Larry's loss is capital loss. Filing a 1040x Form 1099-OID The issuer of the debt instrument (or your broker, if you purchased or held the debt instrument through a broker) should give you a copy of Form 1099-OID or a similar statement if the accrued OID for the calendar year is $10 or more and the term of the debt instrument is more than 1 year. Filing a 1040x Form 1099-OID shows all OID income in box 1 except OID on a U. Filing a 1040x S. Filing a 1040x Treasury obligation, which is shown in box 8. Filing a 1040x It also shows, in box 2, any qualified stated interest you must include in income. Filing a 1040x (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. Filing a 1040x ) A copy of Form 1099-OID will be sent to the IRS. Filing a 1040x Do not attach your copy to your tax return. Filing a 1040x Keep it for your records. Filing a 1040x If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. Filing a 1040x A 20% accuracy-related penalty may be charged for underpayment of tax due to either negligence or disregard of rules and regulations or substantial understatement of tax. Filing a 1040x Form 1099-OID not received. Filing a 1040x   If you held an OID debt instrument for a calendar year but did not receive a Form 1099-OID, refer to the discussions under Figuring OID on Long-Term Debt Instruments, later, for information on the OID you must report. Filing a 1040x Refiguring OID. Filing a 1040x   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. Filing a 1040x You bought the debt instrument at a premium or at an acquisition premium. Filing a 1040x The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. Filing a 1040x S. Filing a 1040x Treasury securities). Filing a 1040x The debt instrument is a contingent payment or inflation-indexed debt instrument. Filing a 1040x See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. Filing a 1040x Refiguring interest. Filing a 1040x   If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Publication 550 for information about refiguring the interest shown on Form 1099-OID in box 2. Filing a 1040x Nominee. Filing a 1040x   If you are the holder of an OID debt instrument and you receive a Form 1099-OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a “nominee. Filing a 1040x ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. Filing a 1040x Show the owner of the debt instrument as the “recipient” and you as the “payer. Filing a 1040x ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. Filing a 1040x You must also give a copy of the Form 1099-OID to the actual owner. Filing a 1040x However, you are not required to file a nominee return to show amounts belonging to your spouse. Filing a 1040x See the Form 1099 instructions for more information. Filing a 1040x   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. Filing a 1040x How To Report OID Generally, you report your taxable interest and OID income on the interest line of Form 1040EZ, Form 1040A, or Form 1040. Filing a 1040x Form 1040 or Form 1040A required. Filing a 1040x   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. Filing a 1040x You received a Form 1099-OID as a nominee for the actual owner. Filing a 1040x Your total interest and OID income for the year was more than $1,500. Filing a 1040x Form 1040 required. Filing a 1040x   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. Filing a 1040x For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. Filing a 1040x Also, you must use Form 1040 if you were charged an early withdrawal penalty. Filing a 1040x Where to report. Filing a 1040x   List each payer's name (if a brokerage firm gave you a Form 1099, list the brokerage firm as the payer) and the amount received from each payer on Form 1040A, Schedule B, Part I, line 1, or Form 1040, Schedule B, line 1. Filing a 1040x Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. Filing a 1040x Also include any other OID and interest income for which you did not receive a Form 1099. Filing a 1040x Showing an OID adjustment. Filing a 1040x   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. Filing a 1040x   If you use Form 1040A to report the OID shown on a Form 1099-OID you received as a nominee for the actual owner, list the full OID on Schedule B, Part I, line 1 and follow the instructions under 1. Filing a 1040x If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. Filing a 1040x Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Filing a 1040x Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. Filing a 1040x Subtract that OID from the subtotal and enter the result on line 2. Filing a 1040x If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. Filing a 1040x Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Filing a 1040x Below the subtotal, write “OID Adjustment” and show the additional OID. Filing a 1040x Add that OID to the subtotal and enter the result on line 2. Filing a 1040x Figuring OID on Long-Term Debt Instruments How you figure the OID on a long-term debt instrument depends on the date it was issued. Filing a 1040x It also may depend on the type of the debt instrument. Filing a 1040x There are different rules for each of the following debt instruments. Filing a 1040x Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. Filing a 1040x Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. Filing a 1040x Debt instruments issued after July 1, 1982, and before 1985. Filing a 1040x Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). Filing a 1040x Contingent payment debt instruments issued after August 12, 1996. Filing a 1040x Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. Filing a 1040x Zero coupon bonds. Filing a 1040x   The rules for figuring OID on zero coupon bonds backed by U. Filing a 1040x S. Filing a 1040x Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. Filing a 1040x Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. Filing a 1040x The OID, which is taxed as ordinary income, generally equals the following amount. Filing a 1040x   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. Filing a 1040x If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. Filing a 1040x Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. Filing a 1040x For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. Filing a 1040x Your basis in the debt instrument is increased by the OID you include in income. Filing a 1040x Form 1099-OID. Filing a 1040x   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Filing a 1040x However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Filing a 1040x See Reduction for acquisition premium, later. Filing a 1040x If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Filing a 1040x irs. Filing a 1040x gov/pub1212 by clicking the link under Recent Developments. Filing a 1040x Form 1099-OID not received. Filing a 1040x    The OID listed is for each $1,000 of redemption price. Filing a 1040x You must adjust the listed amount if your debt instrument has a different principal amount. Filing a 1040x For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Filing a 1040x   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. Filing a 1040x (If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. Filing a 1040x ) If you did not hold the debt instrument the entire year, figure your OID using the following method. Filing a 1040x Divide the OID shown by 12. Filing a 1040x Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. Filing a 1040x This is the OID to include in income unless you paid an acquisition premium. Filing a 1040x The reduction for acquisition premium is discussed next. Filing a 1040x Reduction for acquisition premium. Filing a 1040x   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. Filing a 1040x Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. Filing a 1040x This is the monthly OID. Filing a 1040x Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. Filing a 1040x (If the result is zero or less, stop here. Filing a 1040x You did not pay an acquisition premium. Filing a 1040x ) Divide the amount figured in (2) by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. Filing a 1040x Subtract the amount figured in (3) from the amount figured in (1). Filing a 1040x This is the OID to include in income for each month you hold the debt instrument during the year. Filing a 1040x Transfers during the month. Filing a 1040x   If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. Filing a 1040x Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. Filing a 1040x Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. Filing a 1040x For information about showing the correct OID on your tax return, see How To Report OID, earlier. Filing a 1040x Form 1099-OID. Filing a 1040x   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Filing a 1040x However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Filing a 1040x See Constant yield method and the discussions on acquisition premium that follow, later. Filing a 1040x If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Filing a 1040x irs. Filing a 1040x gov/pub1212 by clicking the link under Recent Developments. Filing a 1040x Form 1099-OID not received. Filing a 1040x    The OID listed is for each $1,000 of redemption price. Filing a 1040x You must adjust the listed amount if your debt instrument has a different principal amount. Filing a 1040x For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Filing a 1040x   If you held the debt instrument the entire year, use the OID shown in Section I-A. Filing a 1040x (If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Filing a 1040x ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. Filing a 1040x Method 1. Filing a 1040x    Divide the total OID for a calendar year by 365 (366 for leap years). Filing a 1040x Multiply the result in (1) by the number of days you held the debt instrument during that particular year. Filing a 1040x  This computation is an approximation and may result in a slightly higher OID than Method 2. Filing a 1040x Method 2. Filing a 1040x    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. Filing a 1040x (See Accrual period under Constant yield method, next. Filing a 1040x ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Filing a 1040x If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. Filing a 1040x Add the results of (2) and (3). Filing a 1040x This is the OID to include in income, unless you paid an acquisition premium. Filing a 1040x (The reduction for acquisition premium is discussed later. Filing a 1040x ) Constant yield method. Filing a 1040x   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. Filing a 1040x OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Filing a 1040x   Figure the OID allocable to any accrual period as follows. Filing a 1040x Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. Filing a 1040x Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Filing a 1040x Accrual period. Filing a 1040x   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. Filing a 1040x Your tax year will usually include parts of two accrual periods. Filing a 1040x Daily OID. Filing a 1040x   The OID for any accrual period is allocated equally to each day in the accrual period. Filing a 1040x You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. Filing a 1040x If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. Filing a 1040x Figuring daily OID. Filing a 1040x   The daily OID for the initial accrual period is figured using the following formula. Filing a 1040x   (ip × ytm) − qsi     p   ip = issue price ytm = yield to maturity qsi = qualified stated interest p = number of days in accrual period         The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Filing a 1040x Reduction for acquisition premium on debt instruments purchased before July 19, 1984. Filing a 1040x   If you bought the debt instrument at an acquisition premium before July 19, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Filing a 1040x Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. Filing a 1040x Reduction for acquisition premium on debt instruments purchased after July 18, 1984. Filing a 1040x   If you bought the debt instrument at an acquisition premium after July 18, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Filing a 1040x However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. Filing a 1040x To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. Filing a 1040x The numerator is the acquisition premium. Filing a 1040x The denominator is the total OID remaining for the debt instrument after your purchase date. Filing a 1040x Section I-A is available at www. Filing a 1040x irs. Filing a 1040x gov/pub1212 and clicking the link under Recent Developments. Filing a 1040x Using Section I-A to figure accumulated OID. Filing a 1040x   If you bought your corporate debt instrument in a calendar year or the subsequent year, you can figure the accumulated OID to the date of purchase by adding the following amounts. Filing a 1040x The amount from the “Total OID to January 1, YYYY” column for your debt instrument. Filing a 1040x The OID from January 1 of a calendar year to the date of purchase, figured as follows. Filing a 1040x Multiply the daily OID for the first accrual period in the calendar year by the number of days from January 1 to the date of purchase, or the end of the accrual period if the debt instrument was purchased in the second or third accrual period. Filing a 1040x Multiply the daily OID for each subsequent accrual period by the number of days in the period to the date of purchase or the end of the accrual period, whichever applies. Filing a 1040x Add the amounts figured in (2a) and (2b). Filing a 1040x Debt Instruments Issued After 1984 If you hold debt instruments issued after 1984, you must report part of the OID in gross income each year that you own the debt instruments. Filing a 1040x You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. Filing a 1040x Your basis in the debt instrument is increased by the OID you include in income. Filing a 1040x For information about showing the correct OID on your tax return, see How To Report OID, earlier. Filing a 1040x Form 1099-OID. Filing a 1040x   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. Filing a 1040x However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Filing a 1040x See Constant yield method and Reduction for acquisition premium, later. Filing a 1040x   You may also need to refigure the OID for a contingent payment or inflation-indexed debt instrument on which the amount reported on Form 1099-OID is inaccurate. Filing a 1040x See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. Filing a 1040x If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. Filing a 1040x irs. Filing a 1040x gov/pub1212 by clicking the link under Recent Developments. Filing a 1040x Form 1099-OID not received. Filing a 1040x   The OID listed is for each $1,000 of redemption price. Filing a 1040x You must adjust the listed amount if your debt instrument has a different principal amount. Filing a 1040x For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Filing a 1040x   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. Filing a 1040x (If your debt instrument is not listed in Section I-B, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Filing a 1040x ) If you did not hold the debt instrument the entire year, figure your OID as follows. Filing a 1040x Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. Filing a 1040x (See Accrual period under Constant yield method, later. Filing a 1040x ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Filing a 1040x Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. Filing a 1040x Add the results of (2) and (3). Filing a 1040x This is the OID to include in income for that year, unless you paid an acquisition premium. Filing a 1040x (The reduction for acquisition premium is discussed later. Filing a 1040x ) Tax-exempt bond. Filing a 1040x   If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Filing a 1040x You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. Filing a 1040x In general, use the rules that follow to determine your OID. Filing a 1040x Constant yield method. Filing a 1040x   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. Filing a 1040x (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. Filing a 1040x ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Filing a 1040x   Figure the OID allocable to any accrual period as follows. Filing a 1040x Multiply the adjusted issue price at the beginning of the accrual period by a fraction. Filing a 1040x The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. Filing a 1040x The yield must be stated appropriately taking into account the length of the particular accrual period. Filing a 1040x Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Filing a 1040x Accrual period. Filing a 1040x   For debt instruments issued after 1984 and before April 4, 1994, an accrual period is each 6-month period that ends on the day that corresponds to the stated maturity date of the debt instrument or the date 6 months before that date. Filing a 1040x For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. Filing a 1040x Any short period is included as the first accrual period. Filing a 1040x   For debt instruments issued after April 3, 1994, accrual periods may be of any length and may vary in length over the term of the debt instrument, as long as each accrual period is no longer than 1 year and all payments are made on the first or last day of an accrual period. Filing a 1040x However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. Filing a 1040x Daily OID. Filing a 1040x   The OID for any accrual period is allocated equally to each day in the accrual period. Filing a 1040x Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. Filing a 1040x Since your tax year will usually include parts of two or more accrual periods, you must include the proper daily OID for each accrual period. Filing a 1040x If your debt instrument has 6-month accrual periods, your tax year will usually include one full 6-month accrual period and parts of two other 6-month periods. Filing a 1040x Figuring daily OID. Filing a 1040x   The daily OID for the initial accrual period is figured using the following formula. Filing a 1040x   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Filing a 1040x Example 5. Filing a 1040x On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. Filing a 1040x 17. Filing a 1040x According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. Filing a 1040x The yield to maturity is 12%, compounded semiannually. Filing a 1040x The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. Filing a 1040x The accrual periods are the 6-month periods ending on each of these dates. Filing a 1040x The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). Filing a 1040x The daily OID for the first accrual period is figured as follows. Filing a 1040x   ($86,235. Filing a 1040x 17 x . Filing a 1040x 12/2) – $5,000     181 days     = $174. Filing a 1040x 11020 = $. Filing a 1040x 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. Filing a 1040x 17 + $174. Filing a 1040x 11), or $86,409. Filing a 1040x 28. Filing a 1040x The number of days for the second accrual period (July 1 through December 31) is 184 days. Filing a 1040x The daily OID for the second accrual period is figured as follows. Filing a 1040x   ($86,409. Filing a 1040x 28 x . Filing a 1040x 12/2) – $5,000     184 days     = $184. Filing a 1040x 55681 = $1. Filing a 1040x 00303   184 Since the first and second accrual periods coincide exactly with your tax year, you include in income for Year 1 the OID allocable to the first two accrual periods, $174. Filing a 1040x 11 ($. Filing a 1040x 95665 × 182 days) plus $184. Filing a 1040x 56 ($1. Filing a 1040x 00303 × 184 days), or $358. Filing a 1040x 67. Filing a 1040x Add the OID to the $10,000 interest you report on your income tax return for Year 1. Filing a 1040x Example 6. Filing a 1040x Assume the same facts as in Example 5, except that you bought the debt instrument at original issue on May 1 of Year 1, with a maturity date of April 30, Year 16. Filing a 1040x Also, the interest payment dates are October 31 and April 30 of each calendar year. Filing a 1040x The accrual periods are the 6-month periods ending on each of these dates. Filing a 1040x The number of days for the first accrual period (May 1 through October 31) is 184 days. Filing a 1040x The daily OID for the first accrual period is figured as follows. Filing a 1040x   ($86,235. Filing a 1040x 17 x . Filing a 1040x 12/2) – $5,000     184 days     = $174. Filing a 1040x 11020 = $. Filing a 1040x 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). Filing a 1040x The daily OID for the second accrual period is figured as follows. Filing a 1040x   ($86,409. Filing a 1040x 28 x . Filing a 1040x 12/2) – $5,000     181 days     = $184. Filing a 1040x 55681 = $1. Filing a 1040x 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. Filing a 1040x 31 of OID in income. Filing a 1040x This is $174. Filing a 1040x 11 ($. Filing a 1040x 94625 × 184 days) for the period May 1 through October 31 plus $62. Filing a 1040x 20 ($1. Filing a 1040x 01965 × 61 days) for the period November 1 through December 31. Filing a 1040x The OID is added to the $5,000 interest income paid on October 31 of Year 1. Filing a 1040x Your basis in the debt instrument is increased by the OID you include in income. Filing a 1040x On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. Filing a 1040x 48 ($86,235. Filing a 1040x 17 + $236. Filing a 1040x 31). Filing a 1040x Short first accrual period. Filing a 1040x   You may have to make adjustments if a debt instrument has a short first accrual period. Filing a 1040x For example, a debt instrument with 6-month accrual periods that is issued on February 15 and matures on October 31 has a short first accrual period that ends April 30. Filing a 1040x (The remaining accrual periods begin on May 1 and November 1. Filing a 1040x ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. Filing a 1040x You may use any reasonable compounding method in determining OID for a short period. Filing a 1040x Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). Filing a 1040x Consult your tax advisor for more information about making this computation. Filing a 1040x   The OID for the final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Filing a 1040x Reduction for acquisition premium. Filing a 1040x   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Filing a 1040x To figure the daily acquisition premium, multiply the daily OID by the following fraction. Filing a 1040x The numerator is the acquisition premium. Filing a 1040x The denominator is the total OID remaining for the debt instrument after your purchase date. Filing a 1040x Example 7. Filing a 1040x Assume the same facts as in Example 6, except that you bought the debt instrument on November 1 of Year 1 for $87,000, after its original issue on May 1 of Year 1. Filing a 1040x The adjusted issue price on November 1 of Year 1 is $86,409. Filing a 1040x 28 ($86,235. Filing a 1040x 17 + $174. Filing a 1040x 11). Filing a 1040x In this case, you paid an acquisition premium of $590. Filing a 1040x 72 ($87,000 − $86,409. Filing a 1040x 28). Filing a 1040x The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. Filing a 1040x 1) Daily OID on date of purchase (2nd accrual period) $1. Filing a 1040x 01965*  2)  Acquisition premium $590. Filing a 1040x 72    3)  Total OID remaining after purchase date ($13,764. Filing a 1040x 83 − $174. Filing a 1040x 11) 13,590. Filing a 1040x 72   4) Line 2 ÷ line 3 . Filing a 1040x 04346  5)  Line 1 × line 4 . Filing a 1040x 04432  6)  Daily OID reduced for the acquisition premium. Filing a 1040x Line 1 − line 5 $0. Filing a 1040x 97533  * As shown in Example 6. Filing a 1040x The total OID to include in income for Year 1 is $59. Filing a 1040x 50 ($. Filing a 1040x 97533 × 61 days). Filing a 1040x Contingent Payment Debt Instruments This discussion shows how to figure OID on a contingent payment debt instrument issued after August 12, 1996, that was issued for cash or publicly traded property. Filing a 1040x In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. Filing a 1040x If you hold a contingent payment bond, you must report OID as it accrues each year. Filing a 1040x Because the actual payments on a contingent payment debt instrument cannot be known in advance, issuers and holders cannot use the constant yield method (discussed earlier under Debt Instruments Issued After 1984) without making certain assumptions about the payments on the debt instrument. Filing a 1040x To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. Filing a 1040x Noncontingent bond method. Filing a 1040x    Under this method, the issuer must compute a comparable yield for the debt instrument and, based on this yield, construct a projected payment schedule for the instrument, which includes a projected fixed amount for each contingent payment. Filing a 1040x In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. Filing a 1040x When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. Filing a 1040x If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. Filing a 1040x If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. Filing a 1040x Form 1099-OID. Filing a 1040x   The amount shown on Form 1099-OID in box 1 you receive for a contingent payment debt instrument may not be the correct amount to include in income. Filing a 1040x For example, the amount may not be correct if the contingent payment was different from the projected amount. Filing a 1040x If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. Filing a 1040x For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. Filing a 1040x Figuring OID. Filing a 1040x   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. Filing a 1040x The issuer must make these available to you. Filing a 1040x Comparable yield. Filing a 1040x   The comparable yield generally is the yield at which the issuer would issue a fixed rate debt instrument with terms and conditions similar to those of the contingent payment debt instrument. Filing a 1040x The comparable yield is determined as of the debt instrument's issue date. Filing a 1040x Projected payment schedule. Filing a 1040x   The projected payment schedule for a contingent payment debt instrument includes all fixed payments due under the instrument and a projected fixed amount for each contingent payment. Filing a 1040x The projected payment schedule is created by the issuer as of the debt instrument's issue date. Filing a 1040x It is used to determine the issuer's and holder's interest accruals and adjustments. Filing a 1040x Steps for figuring OID. Filing a 1040x   Figure the OID on a contingent payment debt instrument in two steps. Filing a 1040x Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. Filing a 1040x Use the comparable yield as the yield to maturity. Filing a 1040x In general, use the projected payment schedule to determine the instrument's adjusted issue price at the beginning of each accrual period (other than the initial period). Filing a 1040x Do not treat any amount payable as qualified stated interest. Filing a 1040x Adjust the OID in (1) to account for actual contingent payments. Filing a 1040x If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. Filing a 1040x If the contingent payment is less than the projected fixed amount, you have a negative adjustment. Filing a 1040x Net positive adjustment. Filing a 1040x   A net positive adjustment exists for a tax year when the total of any positive adjustments described in (2) above for the tax year is more than the total of any negative adjustments for the tax year. Filing a 1040x Treat a net positive adjustment as additional OID for the tax year. Filing a 1040x Net negative adjustment. Filing a 1040x   A net negative adjustment exists for a tax year when the total of any negative adjustments described in (2) above for the tax year is more than the total of any positive adjustments for the tax year. Filing a 1040x Use a net negative adjustment to offset OID on the debt instrument for the tax year. Filing a 1040x If the net negative adjustment is more than the OID on the debt instrument for the tax year, you can claim the difference as an ordinary loss. Filing a 1040x However, the amount you can claim as an ordinary loss is limited to the OID on the debt instrument you included in income in prior tax years. Filing a 1040x You must carry forward any net negative adjustment that is more than the total OID for the tax year and prior tax years and treat it as a negative adjustment in the next tax year. Filing a 1040x Basis adjustments. Filing a 1040x   In general, increase your basis in a contingent payment debt instrument by the OID included in income. Filing a 1040x Your basis, however, is not affected by any negative or positive adjustments. Filing a 1040x Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. Filing a 1040x Treatment of gain or loss on sale or exchange. Filing a 1040x   If you sell a contingent payment debt instrument at a gain, your gain is ordinary income (interest income), even if you hold the debt instrument as a capital asset. Filing a 1040x If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. Filing a 1040x If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. Filing a 1040x See Regulations section 1. Filing a 1040x 1275-4 for exceptions to these rules. Filing a 1040x Premium, acquisition premium, and market discount. Filing a 1040x   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. Filing a 1040x See Regulations section 1. Filing a 1040x 1275-4 to determine how to account for these items. Filing a 1040x Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. Filing a 1040x An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d