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Form 1040x 2013

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Form 1040x 2013

Form 1040x 2013 Accelerated Cost Recovery System (ACRS) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: ACRS Defined What Can and Cannot Be Depreciated Under ACRSRecovery Property Nonrecovery Property How To Figure the DeductionUnadjusted Basis Classes of Recovery Property Recovery Periods Alternate ACRS Method (Modified Straight Line Method) ACRS Deduction in Short Tax Year DispositionsEarly dispositions of ACRS property other than 15-, 18-, or 19-year real property. Form 1040x 2013 Dispositions — mass asset accounts. Form 1040x 2013 Early dispositions — 15-year real property. Form 1040x 2013 Early dispositions — 18- and 19-year real property. Form 1040x 2013 Depreciation Recapture Topics - This chapter discusses: The definition of ACRS What can and cannot be depreciated under ACRS How to figure the deduction Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization The Accelerated Cost Recovery System (ACRS) applies to property first used before 1987. Form 1040x 2013 It is the name given to tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. Form 1040x 2013 These rules are mandatory and generally apply to tangible property placed in service after 1980 and before 1987. Form 1040x 2013 If you placed property in service during this period, you must continue to figure your depreciation under ACRS. Form 1040x 2013 If you used listed property placed in service after June 18, 1984, less than 50% for business in 1995, see Predominant Use Test in chapter 3. Form 1040x 2013 Listed property includes cars, other means of transportation, and certain computers. Form 1040x 2013 Any additions or improvements placed in service after 1986, including any components of a building (such as plumbing, wiring, storm windows, etc. Form 1040x 2013 ), are depreciated using MACRS, discussed in chapter 3 of Publication 946. Form 1040x 2013 It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Form 1040x 2013 ACRS Defined ACRS consists of accelerated depreciation methods and an alternate ACRS method that could have been elected. Form 1040x 2013 The alternate ACRS method used a recovery percentage based on a modified straight line method. Form 1040x 2013 The law prescribes fixed percentages to be uses for each class of property. Form 1040x 2013 Property depreciable under ACRS is called recovery property. Form 1040x 2013 The recovery class of property determines the recovery period. Form 1040x 2013 Generally, the class life of property places it in a 3-year, 5-year, 10-year, 15-year, 18-year, or 19-year recovery class. Form 1040x 2013 Under ACRS, the prescribed percentages are used to recover the unadjusted basis of recovery property. Form 1040x 2013 To figure a depreciation deduction, you multiply the prescribed percentage for the recovery class by the unadjusted basis of the recovery property. Form 1040x 2013 You must continue to figure your depreciation under ACRS for property placed in service after 1980 and before 1987. Form 1040x 2013 For property you placed in service after 1986, you must use MACRS, discussed in chapter 3 of Publication 946. Form 1040x 2013 What Can and Cannot Be Depreciated Under ACRS ACRS applies to most depreciable tangible property placed in service after 1980 and before 1987. Form 1040x 2013 It includes new or used and real or personal property. Form 1040x 2013 The property must be for use in a trade or business or for the production of income. Form 1040x 2013 Property you acquired before 1981 or after 1986 is not ACRS recovery property. Form 1040x 2013 For information on depreciating property acquired before 1981, see chapter 2. Form 1040x 2013 For information on depreciating property acquired after 1986, see chapter 3 of Publication 946. Form 1040x 2013 Recovery Property Recovery property under ACRS is tangible depreciable property placed in service after 1980 and before 1987. Form 1040x 2013 It generally includes new or used property that you acquired after 1980 and before 1987 for use in your trade or business or for the production of income. Form 1040x 2013 Nonrecovery Property You cannot use ACRS for property you placed in service before 1981 or after 1986. Form 1040x 2013 Nonrecovery property also includes: Intangible property, Property you elected to exclude from ACRS that is properly depreciated under a method of depreciation that is not based on a term of years, Certain public utility property, and Certain property acquired and excluded from ACRS because of the antichurning rules. Form 1040x 2013 Intangible property. Form 1040x 2013   Intangible property is not depreciated under ACRS. Form 1040x 2013 Property depreciated under methods not expressed in a term of years. Form 1040x 2013   Certain property depreciated under a method not expressed in a term of years is not depreciated under ACRS. Form 1040x 2013 This included any property: If you made an irrevocable election to exclude such property, and In the first year that you could have claimed depreciation, you properly used the unit-of-production method or any method of depreciation not expressed in a term of years (not including the retirement-replacement-betterment method). Form 1040x 2013 Public utility property. Form 1040x 2013   Public utility property for which the taxpayer does not use a normalization method of accounting is excluded from ACRS and is subject to depreciation under a special rule. Form 1040x 2013 Additions or improvements to ACRS property after 1986. Form 1040x 2013   Any additions or improvements placed in service after 1986, including any components of a building (plumbing, wiring, storm windows, etc. Form 1040x 2013 ) are depreciated using MACRS, discussed in chapter 3 of Publication 946. Form 1040x 2013 It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Form 1040x 2013 How To Figure the Deduction After you determine that your property can be depreciated under ACRS, you are ready to figure your deduction. Form 1040x 2013 Because the conventions are built into the percentage table rates, you only need to know the following: The unadjusted basis of your recovery property, The classes of recovery property, The recovery periods, and Whether to use the prescribed percentages based on accelerated methods or percentages based on using the alternate ACRS method. Form 1040x 2013 Unadjusted Basis To figure your ACRS deduction, you multiply the unadjusted basis in your recovery property by its applicable percentage for the year. Form 1040x 2013 Unadjusted basis is the same amount you would use to figure gain on a sale, but it is figured without taking into account any depreciation taken in earlier years. Form 1040x 2013 However, reduce your original basis by the amount of amortization taken on the property and by any section 179 deduction claimed as discussed in chapter 2 of Publication 946. Form 1040x 2013 If you buy property, your unadjusted basis is usually its cost minus any amortized amount and minus any section 179 deduction elected. Form 1040x 2013 If you acquire property in some other way, such as by inheriting it, getting it as a gift, or building it yourself, you figure your unadjusted basis under other rules. Form 1040x 2013 See Publication 551. Form 1040x 2013 Classes of Recovery Property All recovery property under ACRS is in one of the following classes. Form 1040x 2013 The class for your property was determined when you began to depreciate it. Form 1040x 2013 3-Year Property 3-year property includes automobiles, light-duty trucks (actual unloaded weight less than 13,000 pounds), and tractor units for use over-the-road. Form 1040x 2013 Race horses over 2 years old when placed in service are 3-year property. Form 1040x 2013 Any other horses over 12 years old when you placed them in service are also included in the 3-year property class. Form 1040x 2013 The ACRS percentages for 3-year recovery property are: Recovery Period Percentage 1st year 25% 2nd year 38% 3rd year 37% If you used the percentages above to depreciate your 3-year recovery property, your property, except for certain passenger automobiles, is fully depreciated. Form 1040x 2013 You cannot claim depreciation for this property after 1988. Form 1040x 2013 5-Year Property 5-year property includes computers, copiers, and equipment, such as office furniture and fixtures. Form 1040x 2013 It also includes single purpose agricultural or horticultural structures and petroleum storage facilities (other than buildings and their structural components). Form 1040x 2013 The ACRS percentages for 5-year recovery property are: Recovery period Percentage 1st year 15% 2nd year 22% 3rd through 5th year 21% If you used the percentages above to depreciate your 5-year recovery property, it is fully depreciated. Form 1040x 2013 You cannot claim depreciation for this property after 1990. Form 1040x 2013 10-Year Property 10-year property includes certain real property such as theme-park structures and certain public utility property. Form 1040x 2013 Manufactured homes (including mobile homes) and railroad tank cars are also 10-year property. Form 1040x 2013 You do not treat a building, and its structural components, as 10-year property by reason of a change in use after you placed the property in service. Form 1040x 2013 For example, a building (15-year real property) that was placed in service in 1981 and was converted to a theme-park structure in 1986 remains 15-year real property. Form 1040x 2013 The ACRS percentages for 10-year recovery property are: Recovery Period Percentage 1st year 8% 2nd year 14% 3rd year 12% 4th through 6th year 10% 7th through 10th year 9% If you used the percentages above, you cannot claim depreciation for this property after 1995. Form 1040x 2013 Example. Form 1040x 2013 On April 21, 1986, you bought and placed in service a new mobile home for $26,000 to be used as rental property. Form 1040x 2013 You paid $10,000 cash and signed a note for $16,000 giving you an unadjusted basis of $26,000. Form 1040x 2013 On June 8, 1986, you bought and placed in service a used mobile home for use as rental property at a total cost of $11,500. Form 1040x 2013 The total unadjusted basis of your 10-year recovery property placed in service in 1986 was $37,500 ($26,000 + $11,500). Form 1040x 2013 Your ACRS deduction was $3,000 (8% × $37,500). Form 1040x 2013 In 1987, your ACRS deduction was $5,250 (14% × $37,500). Form 1040x 2013 In 1988, your ACRS deduction was $4,500 (12% × $37,500). Form 1040x 2013 In 1989, 1990, and 1991, your ACRS deduction was $3,750 (10% × $37,500). Form 1040x 2013 In 1992, 1993, 1994, and 1995 your deduction for each year is $3,375 (9% × $37,500). Form 1040x 2013 15-Year Real Property 15-year real property is real property that is recovery property placed in service before March 16, 1984. Form 1040x 2013 It includes all real property, such as buildings, other than that designated as 5-year or 10-year property. Form 1040x 2013 Unlike the 3-, 5-, or 10-year classes of property, the percentages for 15-year real property depend on when you placed the property in service during your tax year. Form 1040x 2013 You could group 15-year real property by month and year placed in service. Form 1040x 2013 In Table 1, at the end of this publication in the Appendix, find the month in your tax year that you placed the property in service in your trade or business or for the production of income. Form 1040x 2013 You use the percentages listed under that month for each year of the recovery period to determine your depreciation deduction each year. Form 1040x 2013 Example. Form 1040x 2013 On March 5, 1984, you placed an apartment building in service in your business. Form 1040x 2013 It is 15-year real property. Form 1040x 2013 After subtracting the value of the land, your unadjusted basis in the building is $250,000. Form 1040x 2013 You use the calendar year as your tax year. Form 1040x 2013 March is the third month of your tax year. Form 1040x 2013 Your ACRS deduction for 1984 was $25,000 (10% × $250,000). Form 1040x 2013 For 1985, the percentage for the third month of the second year of the recovery period is 11%. Form 1040x 2013 Your deduction was $27,500 (11% × $250,000). Form 1040x 2013 For the third, fourth, and fifth years of the recovery period (1986, 1987, and 1988), the percentages are 9%, 8%, and 7%. Form 1040x 2013 For 1989 through 1992, the percentage for the third month is 6%. Form 1040x 2013 Your deduction each year is $15,000 (6% × $250,000). Form 1040x 2013 For 1993, 1994, and 1995, the percentage for the third month is 5%. Form 1040x 2013 Your depreciation deduction is $12,500 (5% × $250,000) for 1993, 1994, and 1995. Form 1040x 2013 Low-Income Housing Low-income housing that was assigned a 15-year recovery period under ACRS includes the following types of property: Federally assisted housing projects where the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. Form 1040x 2013 Low-income rental housing for which a depreciation deduction for rehabilitation expenditures is allowed. Form 1040x 2013 Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of state or local laws that authorize similar subsidies for low-income families. Form 1040x 2013 Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Form 1040x 2013 The ACRS percentages for low-income housing real property, like the regular 15-year real property percentages, depend on when you placed the property in service. Form 1040x 2013 Find the month in your tax year in Table 2 or 3 at the end of this publication in the Appendix that you first placed the property in service as rental housing. Form 1040x 2013 Use the percentages listed under that month for each year of the recovery period. Form 1040x 2013 Table 2 shows percentages for low-income housing placed in service before May 9, 1985. Form 1040x 2013 Table 3 shows percentages for low-income housing placed in service after May 8, 1985, and before 1987. Form 1040x 2013 Example. Form 1040x 2013 In May 1986, you acquired and placed in service a house that qualified as low-income rental housing under item 3) of the above listing. Form 1040x 2013 You use the calendar year as your tax year. Form 1040x 2013 You use Table C–3 because the property was placed in service after May 8, 1985. Form 1040x 2013 Your unadjusted basis for the property, not including the land, was $59,000. Form 1040x 2013 Your deduction for 1986 through 2001 is shown in the following table. Form 1040x 2013 Year Rate Deduction 1986 8. Form 1040x 2013 9% $5,251 1987 12. Form 1040x 2013 1% 7,139 1988 10. Form 1040x 2013 5% 6,195 1989 9. Form 1040x 2013 1% 5,369 1990 7. Form 1040x 2013 9% 4,661 1991 6. Form 1040x 2013 9% 4,071 1992 5. Form 1040x 2013 9% 3,481 1993 5. Form 1040x 2013 2% 3,068 1994 4. Form 1040x 2013 6% 2,714 1995 4. Form 1040x 2013 6% 2,714 1996 4. Form 1040x 2013 6% 2,714 1997 4. Form 1040x 2013 6% 2,714 1998 4. Form 1040x 2013 6% 2,714 1999 4. Form 1040x 2013 5% 2,655 2000 4. Form 1040x 2013 5% 2,655 2001 1. Form 1040x 2013 5% 885 18-Year Real Property 18-year real property is real property that is recovery property placed in service after March 15, 1984, and before May 9, 1985. Form 1040x 2013 It includes real property, such as buildings, other than that designated as 5-year, 10-year, 15-year real property, or low-income housing. Form 1040x 2013 The ACRS percentages for 18-year real property depend on when you placed the property in service in your trade or business or for the production of income during your tax year. Form 1040x 2013 There are also tables for 18-year real property in the Appendix. Form 1040x 2013 Table 4 shows the percentages for 18-year real property you placed in service after June 22, 1984, and before May 9, 1985. Form 1040x 2013 Table 5 is for 18-year real property placed in service after March 15, 1984, and before June 23, 1984. Form 1040x 2013 Find the month in your tax year that you placed the property in service in a trade or business or for the production of income. Form 1040x 2013 Use the percentages listed under that month for each year of the recovery period. Form 1040x 2013 Example. Form 1040x 2013 On April 28, 1985, you bought and placed in service a rental house. Form 1040x 2013 The house, not including the land, cost $95,000. Form 1040x 2013 This is your unadjusted basis for the house. Form 1040x 2013 You use the calendar year as your tax year. Form 1040x 2013 Because the house was placed in service after June 22, 1984, and before May 9, 1985, it is 18-year real property. Form 1040x 2013 You use Table 4 to figure your deduction for the house. Form 1040x 2013 April is the fourth month of your tax year. Form 1040x 2013 Your deduction for 1985 through 2003 is shown in the following table. Form 1040x 2013 Year Rate Deduction 1985 7. Form 1040x 2013 0% $6,650 1986 9. Form 1040x 2013 0% 8,550 1987 8. Form 1040x 2013 0% 7,600 1988 7. Form 1040x 2013 0% 6,650 1989 7. Form 1040x 2013 0% 6,650 1990 6. Form 1040x 2013 0% 5,700 1991 5. Form 1040x 2013 0% 4,750 1992 5. Form 1040x 2013 0% 4,750 1993 5. Form 1040x 2013 0% 4,750 1994 5. Form 1040x 2013 0% 4,750 1995 5. Form 1040x 2013 0% 4,750 1996 5. Form 1040x 2013 0% 4,750 1997 5. Form 1040x 2013 0% 4,750 1998 4. Form 1040x 2013 0% 3,800 1999 4. Form 1040x 2013 0% 3,800 2000 4. Form 1040x 2013 0% 3,800 2001 4. Form 1040x 2013 0% 3,800 2002 4. Form 1040x 2013 0% 3,800 2003 1. Form 1040x 2013 0% 950 19-Year Real Property 19-year real property is real property that is recovery property placed in service after May 8, 1985, and before 1987. Form 1040x 2013 It includes all real property, other than that designated as 5-year, 10-year, 15-year, or 18-year real property, or low-income housing. Form 1040x 2013 The ACRS percentages for 19-year real property depend on when you placed the property in service in a trade or business or for the production of income during your tax year. Form 1040x 2013 Table 6 shows the percentages for 19-year real property. Form 1040x 2013 You find the month in your tax year that you placed the property in service. Form 1040x 2013 You use the percentages listed under that month for each year of the recovery period. Form 1040x 2013 Recovery Periods Each item of recovery property is assigned to a class of property. Form 1040x 2013 The classes of recovery property establish the recovery periods over which the unadjusted basis of items in a class is recovered. Form 1040x 2013 The classes of property are: 3-Year property 5-Year property 10-Year property 15-Year real property Low-income housing 18-Year real property 19-Year real property Alternate ACRS Method (Modified Straight Line Method) ACRS provides an alternate ACRS method that could be elected. Form 1040x 2013 This alternate ACRS method uses a recovery percentage based on a modified straight line method. Form 1040x 2013 This alternate ACRS method generally uses percentages other than those from the tables. Form 1040x 2013 If you elected the alternate ACRS method, you determine the recovery period by using the following schedule. Form 1040x 2013 This schedule is for other than 18- and 19-year real property and low-income housing: In the case of: You could have elected a recovery period of: 3-year property 3, 5, or 12 years 5-year property 5, 12, or 25 years 15-year real property 15, 35, or 45 years Percentages. Form 1040x 2013   The straight-line percentages for the alternate ACRS method are: Recovery Period Percentage 5 years 20. Form 1040x 2013 00% 10 years 10. Form 1040x 2013 00% 12 years 8. Form 1040x 2013 333% 15 years 6. Form 1040x 2013 667% 25 years 4. Form 1040x 2013 00% 35 years 2. Form 1040x 2013 857%   You apply the percentage to the unadjusted basis(defined earlier) of the property to figure your ACRS deduction. Form 1040x 2013 There are tables for 18- and 19-year real property later in this publication in the Appendix. Form 1040x 2013 For 15-year real property, see 15-year real property, later. Form 1040x 2013 3-, 5-, and 10-year property. Form 1040x 2013   If you elected to use an alternate recovery percentage, you have to use the same recovery percentage for all property in that class that you placed in service in that tax year. Form 1040x 2013 This applies throughout the recovery period you selected. Form 1040x 2013 Half-year convention. Form 1040x 2013   If you elected the alternate method, only a half-year of depreciation was deducted for the year you placed the property in service. Form 1040x 2013 This applied regardless of when in the tax year you placed the property in service. Form 1040x 2013 For each of the remaining years in the recovery period, you take a full year's deduction. Form 1040x 2013 If you hold the property for the entire recovery period, a half-year of depreciation is allowable for the year following the end of the recovery period. Form 1040x 2013 Example. Form 1040x 2013 You operate a small upholstery business. Form 1040x 2013 On March 19, 1986, you bought and placed in service a $13,000 light-duty panel truck to be used in your business and a $500 electric saw. Form 1040x 2013 You elected to use the alternate ACRS method. Form 1040x 2013 You did not elect to take a section 179 deduction. Form 1040x 2013 You decided to recover the cost of the truck, which is 3-year recovery property, over 5 years. Form 1040x 2013 The saw is 5-year property, but you decided to recover its cost over 12 years. Form 1040x 2013 For 1986, your ACRS deduction reflected the half-year convention. Form 1040x 2013 In the first year, you deducted half of the amount determined for a full year. Form 1040x 2013 Your ACRS deduction for 1986 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. Form 1040x 2013 00     Electric saw   12 years straight line = 8. Form 1040x 2013 333% 8. Form 1040x 2013 333% ÷ $500 = $41. Form 1040x 2013 67 Half-year convention -½ of $41. Form 1040x 2013 67= 20. Form 1040x 2013 84 Total ACRS deduction for 1986 $1,320. Form 1040x 2013 84       You take a full year of depreciation for both the truck and the saw for the years 1987 through 1990. Form 1040x 2013 Your ACRS deduction for each of those years is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600     Electric saw     12 years straight line = 8. Form 1040x 2013 333% 8. Form 1040x 2013 333% ÷ $500 = $41. Form 1040x 2013 67 Total annual ACRS deduction for 1987 through 1990 $2,641. Form 1040x 2013 67       In 1991, you take a half-year of depreciation for the truck and a full year of depreciation for the saw. Form 1040x 2013 Your ACRS deduction for 1991 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. Form 1040x 2013 00     Electric saw   12 years straight line = 8. Form 1040x 2013 333% 8. Form 1040x 2013 333% ÷ $500 = $41. Form 1040x 2013 67 Total ACRS deduction for 1991 $1,341. Form 1040x 2013 67       The truck is fully depreciated after 1991. Form 1040x 2013 You take a full year of depreciation for the saw for the years 1992 through 1997. Form 1040x 2013 Your ACRS deduction for each of those years is as follows: Electric saw     12 years straight line = 8. Form 1040x 2013 333% 8. Form 1040x 2013 333% ÷ $500 = $41. Form 1040x 2013 67 Total annual ACRS deduction for 1992 through 1997 $41. Form 1040x 2013 67       You take a half-year of depreciation for the saw for 1998. Form 1040x 2013 Your ACRS deduction for 1998 is as follows: Electric saw   12 years straight line = 8. Form 1040x 2013 333% 8. Form 1040x 2013 333% ÷ $500 = $41. Form 1040x 2013 67 Half-year convention -½ of $41. Form 1040x 2013 67= 20. Form 1040x 2013 84 Total ACRS deduction for 1998 $20. Form 1040x 2013 84       The saw is fully depreciated after 1998. Form 1040x 2013 15-year real property. Form 1040x 2013   Under ACRS, you could also elect to use the alternate ACRS method for 15-year real property. Form 1040x 2013 The alternate ACRS method allows you to depreciate your 15-year real property using the straight line ACRS method over the alternate recovery periods of 15, 35, or 45 years. Form 1040x 2013 If you selected a 15-year recovery period, you use the percentage (6. Form 1040x 2013 667%) from the schedule above. Form 1040x 2013 You prorate this percentage for the number of months the property was in service in the first year. Form 1040x 2013 If you selected a 35- or 45-year recovery period, you use either Table 11 or 15. Form 1040x 2013 Alternate periods for 18-year real property. Form 1040x 2013   For 18-year real property, the alternate recovery periods are 18, 35, or 45 years. Form 1040x 2013 The percentages for 18-year real property under the alternate method are in Tables 7, 8, 10, 11, 14, and 15 in the Appendix. Form 1040x 2013 There are two tables for each alternate recovery period. Form 1040x 2013 One table shows the percentage for property placed in service after June 22, 1984. Form 1040x 2013 The other table has the percentages for property placed in service after March 15, 1984, and before June 23, 1984. Form 1040x 2013 Alternate periods for 19-year real property. Form 1040x 2013   For 19-year real property, the alternate recovery periods are 19, 35, or 45 years. Form 1040x 2013 If you selected a 19-year recovery period, use Table 9 to determine your deduction. Form 1040x 2013 If you select a 35- or 45-year recovery period, use either Table 13 or 14. Form 1040x 2013 Example. Form 1040x 2013 You placed in service an apartment building on August 3, 1986. Form 1040x 2013 The building is 19-year real property. Form 1040x 2013 The sales contract allocated $300,000 to the building and $100,000 to the land. Form 1040x 2013 You use the calendar year as your tax year. Form 1040x 2013 You chose the alternate ACRS method over a recovery period of 35 years. Form 1040x 2013 For 1986, you figure your ACRS deduction usingTable 13. Form 1040x 2013 August is the eighth month of your tax year. Form 1040x 2013 The percentage from Table 13 for the eighth month is 1. Form 1040x 2013 1%. Form 1040x 2013 Your deduction was $3,300 ($300,000 ÷ 1. Form 1040x 2013 1%). Form 1040x 2013 The deduction rate from ACRS Table 13 for years 2 through 20 is 2. Form 1040x 2013 9% so that your deduction in 1987 through 2005 is $8,700 ($300,000 ÷ 2. Form 1040x 2013 9%). Form 1040x 2013 Alternate periods for low-income housing. Form 1040x 2013   For low-income housing, the alternate recovery periods are 15, 35, or 45 years. Form 1040x 2013 If you selected a 15-year period for this property, use 6. Form 1040x 2013 667% as the percentage. Form 1040x 2013 If you selected a 35- or 45-year period, use either Table 11, 12, or 15. Form 1040x 2013 Election. Form 1040x 2013   You had to make the election to use the alternate ACRS method by the return due date (including extensions) for the tax year you placed the property in service. Form 1040x 2013 Revocation of election. Form 1040x 2013   Your election to use an alternate ACRS method, once made, can be changed only with the consent of the Commissioner. Form 1040x 2013 The Commissioner grants consent only in extraordinary circumstances. Form 1040x 2013 Any request for a revocation will be considered a request for a ruling. Form 1040x 2013 ACRS Deduction in Short Tax Year For a tax year that is less than 12 months, the ACRS deduction is prorated on a 12-month basis. Form 1040x 2013 Figure the amount of the ACRS deduction for a short tax year as follows: First, you figure the ACRS deduction for a full year. Form 1040x 2013 You figure this by multiplying the unadjusted basis by the recovery percentage. Form 1040x 2013 You then multiply the ACRS deduction determined for a full tax year by a fraction. Form 1040x 2013 The numerator (top number) of the fraction is the number of months in the short tax year and the denominator (bottom number) is 12. Form 1040x 2013 For example, a corporation placed in service in June 1986 an item of 3-year property with an unadjusted basis of $10,000. Form 1040x 2013 The corporation files a tax return, because of a change in its accounting period, for the 6-month short tax year ending June 30, 1986. Form 1040x 2013 The full year's ACRS deduction for this item is $2,500 ($10,000 ÷ 25%), the first year percentage from the 3-year table. Form 1040x 2013 The ACRS deduction for the short tax year is $1,250 ($2,500 ÷ 6/12). Form 1040x 2013 You use the full ACRS percentages during the remaining years of the recovery period. Form 1040x 2013 For the first tax year after the recovery period, the unrecovered basis will be deductible. Form 1040x 2013 Exception. Form 1040x 2013   For the tax year in which you placed 15-, 18-, or 19-year real property in service or in the tax year you dispose of it, you compute the ACRS deduction for the number of months that the property is in service during that tax year. Form 1040x 2013 You compute the number of months using either a full month or mid-month convention. Form 1040x 2013 This is true regardless of the number of months in the tax year and the recovery period and method used. Form 1040x 2013 Dispositions A disposition is the permanent withdrawal of property from use in your trade or business or in the production of income. Form 1040x 2013 You can make a withdrawal by sale, exchange, retirement, abandonment, or destruction. Form 1040x 2013 You generally recognize gain or loss on the disposition of an asset by sale. Form 1040x 2013 However, nonrecognition rules can allow you to postpone some gain. Form 1040x 2013 See Publication 544. Form 1040x 2013 If you physically abandon property, you can deduct as a loss the adjusted basis of the asset at the time of its abandonment. Form 1040x 2013 Your intent must be to discard the asset so that you will not use it again or retrieve it for sale, exchange, or other disposition. Form 1040x 2013 Early dispositions. Form 1040x 2013   The disposal of an asset before the end of its specified recovery period, is referred to as an early disposition. Form 1040x 2013 When an early disposition occurs, the depreciation deduction in the year of disposition depends on the class of property involved. Form 1040x 2013 Early dispositions of ACRS property other than 15-, 18-, or 19-year real property. Form 1040x 2013   Generally, you get no ACRS deduction for the tax year in which you dispose of or retire recovery property, except for 15-, 18-, and 19-year real property. Form 1040x 2013 This means there is no depreciation deduction under ACRS in the year you dispose of or retire any of your 3-, 5-, or 10-year recovery property. Form 1040x 2013 Dispositions — mass asset accounts. Form 1040x 2013   The law provides a special rule to avoid the calculation of gain on the disposition of assets from mass asset accounts. Form 1040x 2013 A mass asset account includes items usually minor in value in relation to the group, numerous in quantity, impractical to separately identify, and not usually accounted for on a separate basis, but on a total dollar value. Form 1040x 2013 Examples of mass assets include minor items of office, plant, and store furniture and fixtures. Form 1040x 2013   Under the special rule, if you elected to use a mass asset account, you recognize gain to the extent of the proceeds from the disposition of the asset. Form 1040x 2013 You leave the unadjusted basis of the property in the account until recovered in future years. Form 1040x 2013 If you did this, include the total proceeds realized from the disposition in income on the tax return for the year of disposition. Form 1040x 2013 Early dispositions — 15-year real property. Form 1040x 2013   If you dispose of 15-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. Form 1040x 2013 You use a full-month convention. Form 1040x 2013 For a disposition at any time during a particular month before the end of the recovery period, no deduction is allowed for the month of disposition. Form 1040x 2013 This applies whether you use the regular ACRS method or elected the alternate ACRS method. Form 1040x 2013 Example. Form 1040x 2013 You purchased and placed in service a rental house on March 2, 1984, for $98,000 (not including the cost of land). Form 1040x 2013 You file your return based on a calendar year. Form 1040x 2013 Your rate from Table 1 for the third month is 10%. Form 1040x 2013 Your ACRS deduction for 1984 was $9,800 ($98. Form 1040x 2013 000 ÷ 10%). Form 1040x 2013 For 1985 through 1988, you figured your ACRS deductions using 11%, 9%, 8%, and 7% ÷ $98,000. Form 1040x 2013 For 1989 through 1992, you figured your ACRS deductions using 6% for each year. Form 1040x 2013 The deduction each year was $98,000 ÷ 6%. Form 1040x 2013 For 1993 and 1994, the ACRS deduction is ($98,000 ÷ 5%) $4,900 for each year. Form 1040x 2013 You sell the house on June 1, 1995. Form 1040x 2013 You figure your ACRS deduction for 1995 for the full year and then prorate that amount for the months of use. Form 1040x 2013 The full ACRS deduction for 1995 is $4,900 ($98,000 ÷ 5%). Form 1040x 2013 You then prorate this amount to the 5 months in 1995 during which it was rented. Form 1040x 2013 Your ACRS deduction for 1995 is $2,042 ($4,900 ÷ 5/12). Form 1040x 2013 Early dispositions — 18- and 19-year real property. Form 1040x 2013   If you dispose of 18- or 19-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. Form 1040x 2013 For 18-year property placed in service before June 23, 1984, use a full-month convention on a disposition. Form 1040x 2013 For 18-year property placed in service after June 22, 1984, and for 19-year property, determine the number of months in use by using the mid-month convention. Form 1040x 2013 Under the mid-month convention,treat real property disposed of any time during a month as disposed of in the middle of that month. Form 1040x 2013 Count the month of disposition as half a month of use. Form 1040x 2013 Example. Form 1040x 2013 You purchased and placed in service a rental house on July 2, 1984, for $100,000 (not including the cost of land). Form 1040x 2013 You file your return based on a calendar year. Form 1040x 2013 Your rate from Table 4 for the seventh month is 4%. Form 1040x 2013 You figured your ACRS deduction for 1984 was $4,000 ($100,000 ÷ 4%). Form 1040x 2013 In 1985 through 1994, your ACRS deductions were 9%, 8%, 8%, 7%, 6%, 6%, 5%, 5%, and 5% ÷ $100,000. Form 1040x 2013 You sell the house on September 24, 1995. Form 1040x 2013 Figure your ACRS deduction for 1995 for the months of use. Form 1040x 2013 The full ACRS deduction for 1995 is $5,000 ($100,000 ÷ 5%). Form 1040x 2013 Prorate this amount for the 8. Form 1040x 2013 5 months in 1995 that you held the property. Form 1040x 2013 Under the mid-month convention, you count September as half a month. Form 1040x 2013 Your ACRS deduction for 1995 is $3,542 ($5,000 ÷ 8. Form 1040x 2013 5/12). Form 1040x 2013 Depreciation Recapture If you dispose of property depreciated under ACRS that is section 1245 recovery property, you will generally recognize gain or loss. Form 1040x 2013 Gain recognized on a disposition is ordinary income to the extent of prior depreciation deductions taken. Form 1040x 2013 This recapture rule applies to all personal property in the 3-year, 5-year, and 10-year classes. Form 1040x 2013 You recapture gain on manufactured homes and theme park structures in the 10-year class as section 1245 property. Form 1040x 2013 Section 1245 property generally includes all personal property. Form 1040x 2013 See Section 1245 property in chapter 4 of Publication 544 for more information. Form 1040x 2013 You treat dispositions of section 1250 real property on which you have a gain as section 1245 recovery property. Form 1040x 2013 You recognize gain on this property as ordinary income to the extent of prior depreciation deductions taken. Form 1040x 2013 Section 1250 property includes most real property. Form 1040x 2013 See Section 1250 property in chapter 4 of Publication 544 for more information. Form 1040x 2013 This rule applies to all section 1250 real property except the following property: Any 15-, 18-, or 19-year real property that is residential rental property. Form 1040x 2013 Any 15-, 18-, or 19-year real property that you elected to depreciate using the alternate ACRS method. Form 1040x 2013 Any 15-, 18-, or 19-year real property that is subsidized low-income housing. Form 1040x 2013 For these recapture rules, you treat the section 179 deduction and 50% of the investment credit that reduced your basis as depreciation. Form 1040x 2013 See Publication 544 for further discussion of dispositions of section 1245 and 1250 property. Form 1040x 2013 Prev  Up  Next   Home   More Online Publications
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Historical Highlights of the IRS

1862 - President Lincoln signed into law a revenue-raising measure to help pay for Civil War expenses. The measure created a Commissioner of Internal Revenue and the nation's first income tax. It levied a 3 percent tax on incomes between $600 and $10,000 and a 5 percent tax on incomes of more than $10,000.

1867 - Heeding public opposition to the income tax, Congress cut the tax rate. From 1868 until 1913, 90 percent of all revenue came from taxes on liquor, beer, wine and tobacco.

1872 - Income tax repealed.

1894 - The Wilson Tariff Act revived the income tax and an income tax division within the Bureau of Internal Revenue was created.

1895 - Supreme Court ruled the new income tax unconstitutional on the grounds that it was a direct tax and not apportioned among the states on the basis of population. The income tax division was disbanded.

1909 - President Taft recommended Congress propose a constitutional amendment that would give the government the power to tax incomes without apportioning the burden among the states in line with population. Congress also levied a 1 percent tax on net corporate incomes of more than $5,000.

1913 - As the threat of war loomed, Wyoming became the 36th and last state needed to ratify the 16th Amendment. The amendment stated, "Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration." Later, Congress adopted a 1 percent tax on net personal income of more than $3,000 with a surtax of 6 percent on incomes of more than $500,000. It also repealed the 1909 corporate income tax. The first Form 1040 was introduced.

1918 - The Revenue Act of 1918 raised even greater sums for the World War I effort. It codified all existing tax laws and imposed a progressive income-tax rate structure of up to 77 percent.

1919 - The states ratified the 18th Amendment, barring the manufacture, sale or transport of intoxicating beverages. Congress passed the Volstead Act, which gave the Commissioner of Internal Revenue the primary responsibility for enforcement of Prohibition. Eleven years later, the Department of Justice assumed primary prohibition enforcement duties.

1931 - The IRS Intelligence Unit used an undercover agent to gather evidence against gangster Al Capone. Capone was convicted of tax evasion and sentenced to 11 years.

1933 - Prohibition repealed. IRS again assumed responsibility for alcohol taxation the following year and for administering the National Firearms Act. Later, tobacco tax enforcement was added.

1942 - The Revenue Act of 1942, hailed by President Roosevelt as "the greatest tax bill in American history," passed Congress. It increased taxes and the number of Americans subject to the income tax. It also created deductions for medical and investment expenses.

1943 - Congress passed the Current Tax Payment Act, which required employers to withhold taxes from employees' wages and remit them quarterly.

1944 - Congress passed the Individual Income Tax Act, which created the standard deductions on Form 1040.

1952 - President Truman proposed his Reorganization Plan No. 1, which replaced the patronage system at the IRS with a career civil service system. It also decentralized service to taxpayers and sought to restore public confidence in the agency.

1953 - President Eisenhower endorsed Truman's reorganization plan and changed the name of the agency from the Bureau of Internal Revenue to the Internal Revenue Service.

1954 - The filing deadline for individual tax returns changed from March 15 to April 15.

1961 - The Computer Age began at IRS with the dedication of the National Computer Center at Martinsburg, W.Va.

1965 - IRS instituted its first toll-free telephone site.

1972 - The Alcohol, Tobacco and Firearms Division separated from the IRS to become the independent Bureau of Alcohol, Tobacco and Firearms.

1974 - Congress passed the Employee Retirement and Income Security Act, which gave regulatory responsibilities for employee benefit plans to the IRS.

1986 - Limited electronic filing began. President Reagan signed the Tax Reform Act, the most significant piece of tax legislation in 30 years. It contained 300 provisions and took three years to implement. The Act codified the federal tax laws for the third time since the Revenue Act of 1918.

1992 - Taxpayers who owed money were allowed to file returns electronically.

1998 - Congress passed the IRS Restructuring and Reform Act, which expanded taxpayer rights and called for reorganizing the agency into four operating divisions aligned according to taxpayer needs.

2000 - IRS enacted reforms, ending its geographic-based structure and instituting four major operating divisions: Wage and Investment, Small Business/Self-Employed, Large and Mid-Size Business and Tax Exempt and Government Entities. It was the most sweeping change at the IRS since the 1953 reorganization.

2001 - IRS administered a mid-year tax refund program to provide advance payments of a tax rate reduction.

2003 - IRS administered another mid-year refund program, this time providing an advance payment of an increase in the Child Tax Credit. Electronic filing reached a new high - 52.9 million tax returns, more than 40 percent of all individual returns.

Page Last Reviewed or Updated: 12-Feb-2014

The Form 1040x 2013

Form 1040x 2013 9. Form 1040x 2013   Education Exception to Additional Tax on Early IRA Distributions Table of Contents Introduction Who Is Eligible Figuring the Amount Not Subject to the 10% Tax Reporting Early Distributions Introduction Generally, if you take a distribution from your IRA before you reach age 59½, you must pay a 10% additional tax on the early distribution. Form 1040x 2013 This applies to any IRA you own, whether it is a traditional IRA (including a SEP-IRA), a Roth IRA, or a SIMPLE IRA. Form 1040x 2013 The additional tax on an early distribution from a SIMPLE IRA may be as high as 25%. Form 1040x 2013 See Publication 560, Retirement Plans for Small Business, for information on SEP-IRAs, and Publication 590, for information about all other IRAs. Form 1040x 2013 However, you can take distributions from your IRAs for qualified higher education expenses without having to pay the 10% additional tax. Form 1040x 2013 You may owe income tax on at least part of the amount distributed, but you may not have to pay the 10% additional tax. Form 1040x 2013 Generally, if the taxable part of the distribution is less than or equal to the adjusted qualified education expenses (AQEE), none of the distribution is subject to the additional tax. Form 1040x 2013 If the taxable part of the distribution is more than the AQEE, only the excess is subject to the additional tax. Form 1040x 2013 Who Is Eligible You can take a distribution from your IRA before you reach age 59½ and not have to pay the 10% additional tax if, for the year of the distribution, you pay qualified education expenses for: yourself, your spouse, or your or your spouse's child, foster child, adopted child, or descendant of any of them. Form 1040x 2013 Qualified education expenses. Form 1040x 2013   For purposes of the 10% additional tax, these expenses are tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Form 1040x 2013 They also include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. Form 1040x 2013   In addition, if the student is at least a half-time student, room and board are qualified education expenses. Form 1040x 2013   The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. Form 1040x 2013 The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Form 1040x 2013 The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Form 1040x 2013 You will need to contact the eligible educational institution for qualified room and board costs. Form 1040x 2013 Eligible educational institution. Form 1040x 2013   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Form 1040x 2013 S. Form 1040x 2013 Department of Education. Form 1040x 2013 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Form 1040x 2013 The educational institution should be able to tell you if it is an eligible educational institution. Form 1040x 2013   Certain educational institutions located outside the United States also participate in the U. Form 1040x 2013 S. Form 1040x 2013 Department of Education's Federal Student Aid (FSA) programs. Form 1040x 2013 Half-time student. Form 1040x 2013   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing as determined under the standards of the school where the student is enrolled. Form 1040x 2013 Figuring the Amount Not Subject to the 10% Tax To determine the amount of your distribution that is not subject to the 10% additional tax, first figure your adjusted qualified education expenses. Form 1040x 2013 You do this by reducing your total qualified education expenses by any tax-free educational assistance, which includes: Expenses used to figure the tax-free portion of distributions from a Coverdell education savings account (ESA) (see Distributions in chapter 7, Coverdell Education Savings Account), The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Form 1040x 2013 Do not reduce the qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance given to either the student or the individual making the withdrawal, or A withdrawal from personal savings (including savings from a qualified tuition program (QTP)). Form 1040x 2013 If your IRA distribution is equal to or less than your adjusted qualified education expenses, you are not subject to the 10% additional tax. Form 1040x 2013 Example 1. Form 1040x 2013 In 2013, Erin (age 32) took a year off from teaching to attend graduate school full-time. Form 1040x 2013 She paid $5,800 of qualified education expenses from the following sources. Form 1040x 2013   Employer-provided educational assistance  (tax free) $5,000     Early distribution from IRA (includes $500 taxable earnings) 3,200           Before Erin can determine if she must pay the 10% additional tax on her IRA distribution, she must reduce her total qualified education expenses. Form 1040x 2013   Total qualified education expenses $5,800     Minus: Tax-free educational assistance −5,000     Equals: Adjusted qualified  education expenses (AQEE) $ 800   Because Erin's AQEE ($800) are more than the taxable portion of her IRA distribution ($500), she does not have to pay the 10% additional tax on any part of this distribution. Form 1040x 2013 However, she must include the $500 taxable earnings in her gross income subject to income tax. Form 1040x 2013 Example 2. Form 1040x 2013 Assume the same facts as in Example 1 , except that Erin deducted some of the contributions to her IRA, so the taxable part of her early distribution is higher by $1,000. Form 1040x 2013 This must be included in her income subject to income tax. Form 1040x 2013 The taxable part of Erin's IRA distribution ($1,000) is larger than her $800 AQEE. Form 1040x 2013 Therefore, she must pay the 10% additional tax on $200, the taxable part of her distribution ($1,000) that is more than her qualified education expenses ($800). Form 1040x 2013 She does not have to pay the 10% additional tax on the remaining $800 of her taxable distribution. Form 1040x 2013 Reporting Early Distributions By January 31, 2014, the payer of your IRA distribution should send you Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Form 1040x 2013 The information on this form will help you determine how much of your distribution is taxable for income tax purposes and how much is subject to the 10% additional tax. Form 1040x 2013 If you received an early distribution from your IRA, you must report the taxable earnings on Form 1040, line 15b (Form 1040NR, line 16b). Form 1040x 2013 Then, if you qualify for an exception for qualified higher education expenses, you must file Form 5329 to show how much, if any, of your early distribution is subject to the 10% additional tax. Form 1040x 2013 See the Instructions for Form 5329, Part I, for help in completing the form and entering the results on Form 1040 or 1040NR. Form 1040x 2013 There are many other situations in which Form 5329 is required. Form 1040x 2013 If, during 2013, you had other distributions from IRAs or qualified retirement plans, or have made excess contributions to certain tax-favored accounts, see the instructions for line 58 (Form 1040) or line 56 (Form 1040NR) to determine if you must file Form 5329. Form 1040x 2013 Prev  Up  Next   Home   More Online Publications