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Irs Forms 2012 Taxes

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Irs Forms 2012 Taxes

Irs forms 2012 taxes 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. Irs forms 2012 taxes Dispositions — mass asset accounts. Irs forms 2012 taxes Early dispositions — 15-year real property. Irs forms 2012 taxes Early dispositions — 18- and 19-year real property. Irs forms 2012 taxes 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. Irs forms 2012 taxes 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. Irs forms 2012 taxes These rules are mandatory and generally apply to tangible property placed in service after 1980 and before 1987. Irs forms 2012 taxes If you placed property in service during this period, you must continue to figure your depreciation under ACRS. Irs forms 2012 taxes 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. Irs forms 2012 taxes Listed property includes cars, other means of transportation, and certain computers. Irs forms 2012 taxes Any additions or improvements placed in service after 1986, including any components of a building (such as plumbing, wiring, storm windows, etc. Irs forms 2012 taxes ), are depreciated using MACRS, discussed in chapter 3 of Publication 946. Irs forms 2012 taxes It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Irs forms 2012 taxes ACRS Defined ACRS consists of accelerated depreciation methods and an alternate ACRS method that could have been elected. Irs forms 2012 taxes The alternate ACRS method used a recovery percentage based on a modified straight line method. Irs forms 2012 taxes The law prescribes fixed percentages to be uses for each class of property. Irs forms 2012 taxes Property depreciable under ACRS is called recovery property. Irs forms 2012 taxes The recovery class of property determines the recovery period. Irs forms 2012 taxes 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. Irs forms 2012 taxes Under ACRS, the prescribed percentages are used to recover the unadjusted basis of recovery property. Irs forms 2012 taxes To figure a depreciation deduction, you multiply the prescribed percentage for the recovery class by the unadjusted basis of the recovery property. Irs forms 2012 taxes You must continue to figure your depreciation under ACRS for property placed in service after 1980 and before 1987. Irs forms 2012 taxes For property you placed in service after 1986, you must use MACRS, discussed in chapter 3 of Publication 946. Irs forms 2012 taxes What Can and Cannot Be Depreciated Under ACRS ACRS applies to most depreciable tangible property placed in service after 1980 and before 1987. Irs forms 2012 taxes It includes new or used and real or personal property. Irs forms 2012 taxes The property must be for use in a trade or business or for the production of income. Irs forms 2012 taxes Property you acquired before 1981 or after 1986 is not ACRS recovery property. Irs forms 2012 taxes For information on depreciating property acquired before 1981, see chapter 2. Irs forms 2012 taxes For information on depreciating property acquired after 1986, see chapter 3 of Publication 946. Irs forms 2012 taxes Recovery Property Recovery property under ACRS is tangible depreciable property placed in service after 1980 and before 1987. Irs forms 2012 taxes 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. Irs forms 2012 taxes Nonrecovery Property You cannot use ACRS for property you placed in service before 1981 or after 1986. Irs forms 2012 taxes 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. Irs forms 2012 taxes Intangible property. Irs forms 2012 taxes   Intangible property is not depreciated under ACRS. Irs forms 2012 taxes Property depreciated under methods not expressed in a term of years. Irs forms 2012 taxes   Certain property depreciated under a method not expressed in a term of years is not depreciated under ACRS. Irs forms 2012 taxes 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). Irs forms 2012 taxes Public utility property. Irs forms 2012 taxes   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. Irs forms 2012 taxes Additions or improvements to ACRS property after 1986. Irs forms 2012 taxes   Any additions or improvements placed in service after 1986, including any components of a building (plumbing, wiring, storm windows, etc. Irs forms 2012 taxes ) are depreciated using MACRS, discussed in chapter 3 of Publication 946. Irs forms 2012 taxes It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Irs forms 2012 taxes How To Figure the Deduction After you determine that your property can be depreciated under ACRS, you are ready to figure your deduction. Irs forms 2012 taxes 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. Irs forms 2012 taxes Unadjusted Basis To figure your ACRS deduction, you multiply the unadjusted basis in your recovery property by its applicable percentage for the year. Irs forms 2012 taxes 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. Irs forms 2012 taxes 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. Irs forms 2012 taxes If you buy property, your unadjusted basis is usually its cost minus any amortized amount and minus any section 179 deduction elected. Irs forms 2012 taxes 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. Irs forms 2012 taxes See Publication 551. Irs forms 2012 taxes Classes of Recovery Property All recovery property under ACRS is in one of the following classes. Irs forms 2012 taxes The class for your property was determined when you began to depreciate it. Irs forms 2012 taxes 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. Irs forms 2012 taxes Race horses over 2 years old when placed in service are 3-year property. Irs forms 2012 taxes Any other horses over 12 years old when you placed them in service are also included in the 3-year property class. Irs forms 2012 taxes 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. Irs forms 2012 taxes You cannot claim depreciation for this property after 1988. Irs forms 2012 taxes 5-Year Property 5-year property includes computers, copiers, and equipment, such as office furniture and fixtures. Irs forms 2012 taxes It also includes single purpose agricultural or horticultural structures and petroleum storage facilities (other than buildings and their structural components). Irs forms 2012 taxes 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. Irs forms 2012 taxes You cannot claim depreciation for this property after 1990. Irs forms 2012 taxes 10-Year Property 10-year property includes certain real property such as theme-park structures and certain public utility property. Irs forms 2012 taxes Manufactured homes (including mobile homes) and railroad tank cars are also 10-year property. Irs forms 2012 taxes 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. Irs forms 2012 taxes 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. Irs forms 2012 taxes 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. Irs forms 2012 taxes Example. Irs forms 2012 taxes On April 21, 1986, you bought and placed in service a new mobile home for $26,000 to be used as rental property. Irs forms 2012 taxes You paid $10,000 cash and signed a note for $16,000 giving you an unadjusted basis of $26,000. Irs forms 2012 taxes 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. Irs forms 2012 taxes The total unadjusted basis of your 10-year recovery property placed in service in 1986 was $37,500 ($26,000 + $11,500). Irs forms 2012 taxes Your ACRS deduction was $3,000 (8% × $37,500). Irs forms 2012 taxes In 1987, your ACRS deduction was $5,250 (14% × $37,500). Irs forms 2012 taxes In 1988, your ACRS deduction was $4,500 (12% × $37,500). Irs forms 2012 taxes In 1989, 1990, and 1991, your ACRS deduction was $3,750 (10% × $37,500). Irs forms 2012 taxes In 1992, 1993, 1994, and 1995 your deduction for each year is $3,375 (9% × $37,500). Irs forms 2012 taxes 15-Year Real Property 15-year real property is real property that is recovery property placed in service before March 16, 1984. Irs forms 2012 taxes It includes all real property, such as buildings, other than that designated as 5-year or 10-year property. Irs forms 2012 taxes 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. Irs forms 2012 taxes You could group 15-year real property by month and year placed in service. Irs forms 2012 taxes 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. Irs forms 2012 taxes You use the percentages listed under that month for each year of the recovery period to determine your depreciation deduction each year. Irs forms 2012 taxes Example. Irs forms 2012 taxes On March 5, 1984, you placed an apartment building in service in your business. Irs forms 2012 taxes It is 15-year real property. Irs forms 2012 taxes After subtracting the value of the land, your unadjusted basis in the building is $250,000. Irs forms 2012 taxes You use the calendar year as your tax year. Irs forms 2012 taxes March is the third month of your tax year. Irs forms 2012 taxes Your ACRS deduction for 1984 was $25,000 (10% × $250,000). Irs forms 2012 taxes For 1985, the percentage for the third month of the second year of the recovery period is 11%. Irs forms 2012 taxes Your deduction was $27,500 (11% × $250,000). Irs forms 2012 taxes For the third, fourth, and fifth years of the recovery period (1986, 1987, and 1988), the percentages are 9%, 8%, and 7%. Irs forms 2012 taxes For 1989 through 1992, the percentage for the third month is 6%. Irs forms 2012 taxes Your deduction each year is $15,000 (6% × $250,000). Irs forms 2012 taxes For 1993, 1994, and 1995, the percentage for the third month is 5%. Irs forms 2012 taxes Your depreciation deduction is $12,500 (5% × $250,000) for 1993, 1994, and 1995. Irs forms 2012 taxes 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. Irs forms 2012 taxes Low-income rental housing for which a depreciation deduction for rehabilitation expenditures is allowed. Irs forms 2012 taxes 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. Irs forms 2012 taxes Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Irs forms 2012 taxes 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. Irs forms 2012 taxes 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. Irs forms 2012 taxes Use the percentages listed under that month for each year of the recovery period. Irs forms 2012 taxes Table 2 shows percentages for low-income housing placed in service before May 9, 1985. Irs forms 2012 taxes Table 3 shows percentages for low-income housing placed in service after May 8, 1985, and before 1987. Irs forms 2012 taxes Example. Irs forms 2012 taxes 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. Irs forms 2012 taxes You use the calendar year as your tax year. Irs forms 2012 taxes You use Table C–3 because the property was placed in service after May 8, 1985. Irs forms 2012 taxes Your unadjusted basis for the property, not including the land, was $59,000. Irs forms 2012 taxes Your deduction for 1986 through 2001 is shown in the following table. Irs forms 2012 taxes Year Rate Deduction 1986 8. Irs forms 2012 taxes 9% $5,251 1987 12. Irs forms 2012 taxes 1% 7,139 1988 10. Irs forms 2012 taxes 5% 6,195 1989 9. Irs forms 2012 taxes 1% 5,369 1990 7. Irs forms 2012 taxes 9% 4,661 1991 6. Irs forms 2012 taxes 9% 4,071 1992 5. Irs forms 2012 taxes 9% 3,481 1993 5. Irs forms 2012 taxes 2% 3,068 1994 4. Irs forms 2012 taxes 6% 2,714 1995 4. Irs forms 2012 taxes 6% 2,714 1996 4. Irs forms 2012 taxes 6% 2,714 1997 4. Irs forms 2012 taxes 6% 2,714 1998 4. Irs forms 2012 taxes 6% 2,714 1999 4. Irs forms 2012 taxes 5% 2,655 2000 4. Irs forms 2012 taxes 5% 2,655 2001 1. Irs forms 2012 taxes 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. Irs forms 2012 taxes It includes real property, such as buildings, other than that designated as 5-year, 10-year, 15-year real property, or low-income housing. Irs forms 2012 taxes 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. Irs forms 2012 taxes There are also tables for 18-year real property in the Appendix. Irs forms 2012 taxes Table 4 shows the percentages for 18-year real property you placed in service after June 22, 1984, and before May 9, 1985. Irs forms 2012 taxes Table 5 is for 18-year real property placed in service after March 15, 1984, and before June 23, 1984. Irs forms 2012 taxes 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. Irs forms 2012 taxes Use the percentages listed under that month for each year of the recovery period. Irs forms 2012 taxes Example. Irs forms 2012 taxes On April 28, 1985, you bought and placed in service a rental house. Irs forms 2012 taxes The house, not including the land, cost $95,000. Irs forms 2012 taxes This is your unadjusted basis for the house. Irs forms 2012 taxes You use the calendar year as your tax year. Irs forms 2012 taxes Because the house was placed in service after June 22, 1984, and before May 9, 1985, it is 18-year real property. Irs forms 2012 taxes You use Table 4 to figure your deduction for the house. Irs forms 2012 taxes April is the fourth month of your tax year. Irs forms 2012 taxes Your deduction for 1985 through 2003 is shown in the following table. Irs forms 2012 taxes Year Rate Deduction 1985 7. Irs forms 2012 taxes 0% $6,650 1986 9. Irs forms 2012 taxes 0% 8,550 1987 8. Irs forms 2012 taxes 0% 7,600 1988 7. Irs forms 2012 taxes 0% 6,650 1989 7. Irs forms 2012 taxes 0% 6,650 1990 6. Irs forms 2012 taxes 0% 5,700 1991 5. Irs forms 2012 taxes 0% 4,750 1992 5. Irs forms 2012 taxes 0% 4,750 1993 5. Irs forms 2012 taxes 0% 4,750 1994 5. Irs forms 2012 taxes 0% 4,750 1995 5. Irs forms 2012 taxes 0% 4,750 1996 5. Irs forms 2012 taxes 0% 4,750 1997 5. Irs forms 2012 taxes 0% 4,750 1998 4. Irs forms 2012 taxes 0% 3,800 1999 4. Irs forms 2012 taxes 0% 3,800 2000 4. Irs forms 2012 taxes 0% 3,800 2001 4. Irs forms 2012 taxes 0% 3,800 2002 4. Irs forms 2012 taxes 0% 3,800 2003 1. Irs forms 2012 taxes 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. Irs forms 2012 taxes 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. Irs forms 2012 taxes 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. Irs forms 2012 taxes Table 6 shows the percentages for 19-year real property. Irs forms 2012 taxes You find the month in your tax year that you placed the property in service. Irs forms 2012 taxes You use the percentages listed under that month for each year of the recovery period. Irs forms 2012 taxes Recovery Periods Each item of recovery property is assigned to a class of property. Irs forms 2012 taxes The classes of recovery property establish the recovery periods over which the unadjusted basis of items in a class is recovered. Irs forms 2012 taxes 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. Irs forms 2012 taxes This alternate ACRS method uses a recovery percentage based on a modified straight line method. Irs forms 2012 taxes This alternate ACRS method generally uses percentages other than those from the tables. Irs forms 2012 taxes If you elected the alternate ACRS method, you determine the recovery period by using the following schedule. Irs forms 2012 taxes 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. Irs forms 2012 taxes   The straight-line percentages for the alternate ACRS method are: Recovery Period Percentage 5 years 20. Irs forms 2012 taxes 00% 10 years 10. Irs forms 2012 taxes 00% 12 years 8. Irs forms 2012 taxes 333% 15 years 6. Irs forms 2012 taxes 667% 25 years 4. Irs forms 2012 taxes 00% 35 years 2. Irs forms 2012 taxes 857%   You apply the percentage to the unadjusted basis(defined earlier) of the property to figure your ACRS deduction. Irs forms 2012 taxes There are tables for 18- and 19-year real property later in this publication in the Appendix. Irs forms 2012 taxes For 15-year real property, see 15-year real property, later. Irs forms 2012 taxes 3-, 5-, and 10-year property. Irs forms 2012 taxes   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. Irs forms 2012 taxes This applies throughout the recovery period you selected. Irs forms 2012 taxes Half-year convention. Irs forms 2012 taxes   If you elected the alternate method, only a half-year of depreciation was deducted for the year you placed the property in service. Irs forms 2012 taxes This applied regardless of when in the tax year you placed the property in service. Irs forms 2012 taxes For each of the remaining years in the recovery period, you take a full year's deduction. Irs forms 2012 taxes 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. Irs forms 2012 taxes Example. Irs forms 2012 taxes You operate a small upholstery business. Irs forms 2012 taxes 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. Irs forms 2012 taxes You elected to use the alternate ACRS method. Irs forms 2012 taxes You did not elect to take a section 179 deduction. Irs forms 2012 taxes You decided to recover the cost of the truck, which is 3-year recovery property, over 5 years. Irs forms 2012 taxes The saw is 5-year property, but you decided to recover its cost over 12 years. Irs forms 2012 taxes For 1986, your ACRS deduction reflected the half-year convention. Irs forms 2012 taxes In the first year, you deducted half of the amount determined for a full year. Irs forms 2012 taxes 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. Irs forms 2012 taxes 00     Electric saw   12 years straight line = 8. Irs forms 2012 taxes 333% 8. Irs forms 2012 taxes 333% ÷ $500 = $41. Irs forms 2012 taxes 67 Half-year convention -½ of $41. Irs forms 2012 taxes 67= 20. Irs forms 2012 taxes 84 Total ACRS deduction for 1986 $1,320. Irs forms 2012 taxes 84       You take a full year of depreciation for both the truck and the saw for the years 1987 through 1990. Irs forms 2012 taxes 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. Irs forms 2012 taxes 333% 8. Irs forms 2012 taxes 333% ÷ $500 = $41. Irs forms 2012 taxes 67 Total annual ACRS deduction for 1987 through 1990 $2,641. Irs forms 2012 taxes 67       In 1991, you take a half-year of depreciation for the truck and a full year of depreciation for the saw. Irs forms 2012 taxes 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. Irs forms 2012 taxes 00     Electric saw   12 years straight line = 8. Irs forms 2012 taxes 333% 8. Irs forms 2012 taxes 333% ÷ $500 = $41. Irs forms 2012 taxes 67 Total ACRS deduction for 1991 $1,341. Irs forms 2012 taxes 67       The truck is fully depreciated after 1991. Irs forms 2012 taxes You take a full year of depreciation for the saw for the years 1992 through 1997. Irs forms 2012 taxes Your ACRS deduction for each of those years is as follows: Electric saw     12 years straight line = 8. Irs forms 2012 taxes 333% 8. Irs forms 2012 taxes 333% ÷ $500 = $41. Irs forms 2012 taxes 67 Total annual ACRS deduction for 1992 through 1997 $41. Irs forms 2012 taxes 67       You take a half-year of depreciation for the saw for 1998. Irs forms 2012 taxes Your ACRS deduction for 1998 is as follows: Electric saw   12 years straight line = 8. Irs forms 2012 taxes 333% 8. Irs forms 2012 taxes 333% ÷ $500 = $41. Irs forms 2012 taxes 67 Half-year convention -½ of $41. Irs forms 2012 taxes 67= 20. Irs forms 2012 taxes 84 Total ACRS deduction for 1998 $20. Irs forms 2012 taxes 84       The saw is fully depreciated after 1998. Irs forms 2012 taxes 15-year real property. Irs forms 2012 taxes   Under ACRS, you could also elect to use the alternate ACRS method for 15-year real property. Irs forms 2012 taxes 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. Irs forms 2012 taxes If you selected a 15-year recovery period, you use the percentage (6. Irs forms 2012 taxes 667%) from the schedule above. Irs forms 2012 taxes You prorate this percentage for the number of months the property was in service in the first year. Irs forms 2012 taxes If you selected a 35- or 45-year recovery period, you use either Table 11 or 15. Irs forms 2012 taxes Alternate periods for 18-year real property. Irs forms 2012 taxes   For 18-year real property, the alternate recovery periods are 18, 35, or 45 years. Irs forms 2012 taxes The percentages for 18-year real property under the alternate method are in Tables 7, 8, 10, 11, 14, and 15 in the Appendix. Irs forms 2012 taxes There are two tables for each alternate recovery period. Irs forms 2012 taxes One table shows the percentage for property placed in service after June 22, 1984. Irs forms 2012 taxes The other table has the percentages for property placed in service after March 15, 1984, and before June 23, 1984. Irs forms 2012 taxes Alternate periods for 19-year real property. Irs forms 2012 taxes   For 19-year real property, the alternate recovery periods are 19, 35, or 45 years. Irs forms 2012 taxes If you selected a 19-year recovery period, use Table 9 to determine your deduction. Irs forms 2012 taxes If you select a 35- or 45-year recovery period, use either Table 13 or 14. Irs forms 2012 taxes Example. Irs forms 2012 taxes You placed in service an apartment building on August 3, 1986. Irs forms 2012 taxes The building is 19-year real property. Irs forms 2012 taxes The sales contract allocated $300,000 to the building and $100,000 to the land. Irs forms 2012 taxes You use the calendar year as your tax year. Irs forms 2012 taxes You chose the alternate ACRS method over a recovery period of 35 years. Irs forms 2012 taxes For 1986, you figure your ACRS deduction usingTable 13. Irs forms 2012 taxes August is the eighth month of your tax year. Irs forms 2012 taxes The percentage from Table 13 for the eighth month is 1. Irs forms 2012 taxes 1%. Irs forms 2012 taxes Your deduction was $3,300 ($300,000 ÷ 1. Irs forms 2012 taxes 1%). Irs forms 2012 taxes The deduction rate from ACRS Table 13 for years 2 through 20 is 2. Irs forms 2012 taxes 9% so that your deduction in 1987 through 2005 is $8,700 ($300,000 ÷ 2. Irs forms 2012 taxes 9%). Irs forms 2012 taxes Alternate periods for low-income housing. Irs forms 2012 taxes   For low-income housing, the alternate recovery periods are 15, 35, or 45 years. Irs forms 2012 taxes If you selected a 15-year period for this property, use 6. Irs forms 2012 taxes 667% as the percentage. Irs forms 2012 taxes If you selected a 35- or 45-year period, use either Table 11, 12, or 15. Irs forms 2012 taxes Election. Irs forms 2012 taxes   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. Irs forms 2012 taxes Revocation of election. Irs forms 2012 taxes   Your election to use an alternate ACRS method, once made, can be changed only with the consent of the Commissioner. Irs forms 2012 taxes The Commissioner grants consent only in extraordinary circumstances. Irs forms 2012 taxes Any request for a revocation will be considered a request for a ruling. Irs forms 2012 taxes 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. Irs forms 2012 taxes Figure the amount of the ACRS deduction for a short tax year as follows: First, you figure the ACRS deduction for a full year. Irs forms 2012 taxes You figure this by multiplying the unadjusted basis by the recovery percentage. Irs forms 2012 taxes You then multiply the ACRS deduction determined for a full tax year by a fraction. Irs forms 2012 taxes The numerator (top number) of the fraction is the number of months in the short tax year and the denominator (bottom number) is 12. Irs forms 2012 taxes For example, a corporation placed in service in June 1986 an item of 3-year property with an unadjusted basis of $10,000. Irs forms 2012 taxes 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. Irs forms 2012 taxes The full year's ACRS deduction for this item is $2,500 ($10,000 ÷ 25%), the first year percentage from the 3-year table. Irs forms 2012 taxes The ACRS deduction for the short tax year is $1,250 ($2,500 ÷ 6/12). Irs forms 2012 taxes You use the full ACRS percentages during the remaining years of the recovery period. Irs forms 2012 taxes For the first tax year after the recovery period, the unrecovered basis will be deductible. Irs forms 2012 taxes Exception. Irs forms 2012 taxes   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. Irs forms 2012 taxes You compute the number of months using either a full month or mid-month convention. Irs forms 2012 taxes This is true regardless of the number of months in the tax year and the recovery period and method used. Irs forms 2012 taxes Dispositions A disposition is the permanent withdrawal of property from use in your trade or business or in the production of income. Irs forms 2012 taxes You can make a withdrawal by sale, exchange, retirement, abandonment, or destruction. Irs forms 2012 taxes You generally recognize gain or loss on the disposition of an asset by sale. Irs forms 2012 taxes However, nonrecognition rules can allow you to postpone some gain. Irs forms 2012 taxes See Publication 544. Irs forms 2012 taxes If you physically abandon property, you can deduct as a loss the adjusted basis of the asset at the time of its abandonment. Irs forms 2012 taxes 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. Irs forms 2012 taxes Early dispositions. Irs forms 2012 taxes   The disposal of an asset before the end of its specified recovery period, is referred to as an early disposition. Irs forms 2012 taxes When an early disposition occurs, the depreciation deduction in the year of disposition depends on the class of property involved. Irs forms 2012 taxes Early dispositions of ACRS property other than 15-, 18-, or 19-year real property. Irs forms 2012 taxes   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. Irs forms 2012 taxes 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. Irs forms 2012 taxes Dispositions — mass asset accounts. Irs forms 2012 taxes   The law provides a special rule to avoid the calculation of gain on the disposition of assets from mass asset accounts. Irs forms 2012 taxes 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. Irs forms 2012 taxes Examples of mass assets include minor items of office, plant, and store furniture and fixtures. Irs forms 2012 taxes   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. Irs forms 2012 taxes You leave the unadjusted basis of the property in the account until recovered in future years. Irs forms 2012 taxes If you did this, include the total proceeds realized from the disposition in income on the tax return for the year of disposition. Irs forms 2012 taxes Early dispositions — 15-year real property. Irs forms 2012 taxes   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. Irs forms 2012 taxes You use a full-month convention. Irs forms 2012 taxes 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. Irs forms 2012 taxes This applies whether you use the regular ACRS method or elected the alternate ACRS method. Irs forms 2012 taxes Example. Irs forms 2012 taxes You purchased and placed in service a rental house on March 2, 1984, for $98,000 (not including the cost of land). Irs forms 2012 taxes You file your return based on a calendar year. Irs forms 2012 taxes Your rate from Table 1 for the third month is 10%. Irs forms 2012 taxes Your ACRS deduction for 1984 was $9,800 ($98. Irs forms 2012 taxes 000 ÷ 10%). Irs forms 2012 taxes For 1985 through 1988, you figured your ACRS deductions using 11%, 9%, 8%, and 7% ÷ $98,000. Irs forms 2012 taxes For 1989 through 1992, you figured your ACRS deductions using 6% for each year. Irs forms 2012 taxes The deduction each year was $98,000 ÷ 6%. Irs forms 2012 taxes For 1993 and 1994, the ACRS deduction is ($98,000 ÷ 5%) $4,900 for each year. Irs forms 2012 taxes You sell the house on June 1, 1995. Irs forms 2012 taxes You figure your ACRS deduction for 1995 for the full year and then prorate that amount for the months of use. Irs forms 2012 taxes The full ACRS deduction for 1995 is $4,900 ($98,000 ÷ 5%). Irs forms 2012 taxes You then prorate this amount to the 5 months in 1995 during which it was rented. Irs forms 2012 taxes Your ACRS deduction for 1995 is $2,042 ($4,900 ÷ 5/12). Irs forms 2012 taxes Early dispositions — 18- and 19-year real property. Irs forms 2012 taxes   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. Irs forms 2012 taxes For 18-year property placed in service before June 23, 1984, use a full-month convention on a disposition. Irs forms 2012 taxes 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. Irs forms 2012 taxes Under the mid-month convention,treat real property disposed of any time during a month as disposed of in the middle of that month. Irs forms 2012 taxes Count the month of disposition as half a month of use. Irs forms 2012 taxes Example. Irs forms 2012 taxes You purchased and placed in service a rental house on July 2, 1984, for $100,000 (not including the cost of land). Irs forms 2012 taxes You file your return based on a calendar year. Irs forms 2012 taxes Your rate from Table 4 for the seventh month is 4%. Irs forms 2012 taxes You figured your ACRS deduction for 1984 was $4,000 ($100,000 ÷ 4%). Irs forms 2012 taxes In 1985 through 1994, your ACRS deductions were 9%, 8%, 8%, 7%, 6%, 6%, 5%, 5%, and 5% ÷ $100,000. Irs forms 2012 taxes You sell the house on September 24, 1995. Irs forms 2012 taxes Figure your ACRS deduction for 1995 for the months of use. Irs forms 2012 taxes The full ACRS deduction for 1995 is $5,000 ($100,000 ÷ 5%). Irs forms 2012 taxes Prorate this amount for the 8. Irs forms 2012 taxes 5 months in 1995 that you held the property. Irs forms 2012 taxes Under the mid-month convention, you count September as half a month. Irs forms 2012 taxes Your ACRS deduction for 1995 is $3,542 ($5,000 ÷ 8. Irs forms 2012 taxes 5/12). Irs forms 2012 taxes Depreciation Recapture If you dispose of property depreciated under ACRS that is section 1245 recovery property, you will generally recognize gain or loss. Irs forms 2012 taxes Gain recognized on a disposition is ordinary income to the extent of prior depreciation deductions taken. Irs forms 2012 taxes This recapture rule applies to all personal property in the 3-year, 5-year, and 10-year classes. Irs forms 2012 taxes You recapture gain on manufactured homes and theme park structures in the 10-year class as section 1245 property. Irs forms 2012 taxes Section 1245 property generally includes all personal property. Irs forms 2012 taxes See Section 1245 property in chapter 4 of Publication 544 for more information. Irs forms 2012 taxes You treat dispositions of section 1250 real property on which you have a gain as section 1245 recovery property. Irs forms 2012 taxes You recognize gain on this property as ordinary income to the extent of prior depreciation deductions taken. Irs forms 2012 taxes Section 1250 property includes most real property. Irs forms 2012 taxes See Section 1250 property in chapter 4 of Publication 544 for more information. Irs forms 2012 taxes 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. Irs forms 2012 taxes Any 15-, 18-, or 19-year real property that you elected to depreciate using the alternate ACRS method. Irs forms 2012 taxes Any 15-, 18-, or 19-year real property that is subsidized low-income housing. Irs forms 2012 taxes For these recapture rules, you treat the section 179 deduction and 50% of the investment credit that reduced your basis as depreciation. Irs forms 2012 taxes See Publication 544 for further discussion of dispositions of section 1245 and 1250 property. 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Irs forms 2012 taxes 2. Irs forms 2012 taxes   Depreciation of Rental Property Table of Contents The BasicsWhat Rental Property Can Be Depreciated? When Does Depreciation Begin and End? Depreciation Methods Basis of Depreciable Property Claiming the Special Depreciation Allowance MACRS DepreciationDepreciation Systems Property Classes Under GDS Recovery Periods Under GDS Conventions Figuring Your Depreciation Deduction Figuring MACRS Depreciation Under ADS Claiming the Correct Amount of Depreciation You recover the cost of income producing property through yearly tax deductions. Irs forms 2012 taxes You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Irs forms 2012 taxes Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Irs forms 2012 taxes You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. Irs forms 2012 taxes You can deduct depreciation only on the part of your property used for rental purposes. Irs forms 2012 taxes Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Irs forms 2012 taxes You may have to use Form 4562 to figure and report your depreciation. Irs forms 2012 taxes See Which Forms To Use in chapter 3. Irs forms 2012 taxes Also see Publication 946. Irs forms 2012 taxes Section 179 deduction. Irs forms 2012 taxes   The section 179 deduction is a means of recovering part or all of the cost of certain qualifying property in the year you place the property in service. Irs forms 2012 taxes This deduction is not allowed for property used in connection with residential rental property. Irs forms 2012 taxes See chapter 2 of Publication 946. Irs forms 2012 taxes Alternative minimum tax (AMT). Irs forms 2012 taxes   If you use accelerated depreciation, you may be subject to the AMT. Irs forms 2012 taxes Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Irs forms 2012 taxes   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. Irs forms 2012 taxes However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). Irs forms 2012 taxes   To find out if you are subject to the AMT, see the Instructions for Form 6251. Irs forms 2012 taxes The Basics The following section discusses the information you will need to have about the rental property and the decisions to be made before figuring your depreciation deduction. Irs forms 2012 taxes What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. Irs forms 2012 taxes You own the property. Irs forms 2012 taxes You use the property in your business or income-producing activity (such as rental property). Irs forms 2012 taxes The property has a determinable useful life. Irs forms 2012 taxes The property is expected to last more than one year. Irs forms 2012 taxes Property you own. Irs forms 2012 taxes   To claim depreciation, you usually must be the owner of the property. Irs forms 2012 taxes You are considered as owning property even if it is subject to a debt. Irs forms 2012 taxes Rented property. Irs forms 2012 taxes   Generally, if you pay rent for property, you cannot depreciate that property. Irs forms 2012 taxes Usually, only the owner can depreciate it. Irs forms 2012 taxes However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. Irs forms 2012 taxes See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Irs forms 2012 taxes Cooperative apartments. Irs forms 2012 taxes   If you are a tenant-stockholder in a cooperative housing corporation and rent your cooperative apartment to others, you can deduct depreciation on your stock in the corporation. Irs forms 2012 taxes See chapter 4, Special Situations. Irs forms 2012 taxes Property having a determinable useful life. Irs forms 2012 taxes   To be depreciable, your property must have a determinable useful life. Irs forms 2012 taxes This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Irs forms 2012 taxes What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. Irs forms 2012 taxes This includes land and certain excepted property. Irs forms 2012 taxes Land. Irs forms 2012 taxes   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Irs forms 2012 taxes But if it does, the loss is accounted for upon disposition. Irs forms 2012 taxes The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Irs forms 2012 taxes   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Irs forms 2012 taxes These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Irs forms 2012 taxes Example. Irs forms 2012 taxes You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. Irs forms 2012 taxes Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. Irs forms 2012 taxes If you replace the house, you would have to destroy the bushes and trees right next to it. Irs forms 2012 taxes These bushes and trees are closely associated with the house, so they have a determinable useful life. Irs forms 2012 taxes Therefore, you can depreciate them. Irs forms 2012 taxes Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Irs forms 2012 taxes Excepted property. Irs forms 2012 taxes   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. Irs forms 2012 taxes Property placed in service and disposed of (or taken out of business use) in the same year. Irs forms 2012 taxes Equipment used to build capital improvements. Irs forms 2012 taxes You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Irs forms 2012 taxes For more information, see chapter 1 of Publication 946. Irs forms 2012 taxes When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. Irs forms 2012 taxes You stop depreciating it either when you have fully recovered your cost or other basis, or when you retire it from service, whichever happens first. Irs forms 2012 taxes Placed in Service You place property in service in a rental activity when it is ready and available for a specific use in that activity. Irs forms 2012 taxes Even if you are not using the property, it is in service when it is ready and available for its specific use. Irs forms 2012 taxes Example 1. Irs forms 2012 taxes On November 22 of last year, you purchased a dishwasher for your rental property. Irs forms 2012 taxes The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. Irs forms 2012 taxes Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. Irs forms 2012 taxes If the appliance had been installed and ready for use when it was delivered in December of last year, it would have been considered placed in service in December, even if it was not actually used until this year. Irs forms 2012 taxes Example 2. Irs forms 2012 taxes On April 6, you purchased a house to use as residential rental property. Irs forms 2012 taxes You made extensive repairs to the house and had it ready for rent on July 5. Irs forms 2012 taxes You began to advertise the house for rent in July and actually rented it beginning September 1. Irs forms 2012 taxes The house is considered placed in service in July when it was ready and available for rent. Irs forms 2012 taxes You can begin to depreciate the house in July. Irs forms 2012 taxes Example 3. Irs forms 2012 taxes You moved from your home in July. Irs forms 2012 taxes During August and September you made several repairs to the house. Irs forms 2012 taxes On October 1, you listed the property for rent with a real estate company, which rented it on December 1. Irs forms 2012 taxes The property is considered placed in service on October 1, the date when it was available for rent. Irs forms 2012 taxes Conversion to business use. Irs forms 2012 taxes   If you place property in service in a personal activity, you cannot claim depreciation. Irs forms 2012 taxes However, if you change the property's use to business or the production of income, you can begin to depreciate it at the time of the change. Irs forms 2012 taxes You place the property in service for business or income-producing use on the date of the change. Irs forms 2012 taxes Example. Irs forms 2012 taxes You bought a house and used it as your personal home several years before you converted it to rental property. Irs forms 2012 taxes Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Irs forms 2012 taxes You can begin to claim depreciation in the year you converted it to rental property because at that time its use changed to the production of income. Irs forms 2012 taxes Idle Property Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). Irs forms 2012 taxes For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent. Irs forms 2012 taxes Cost or Other Basis Fully Recovered You must stop depreciating property when the total of your yearly depreciation deductions equals your cost or other basis of your property. Irs forms 2012 taxes For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. Irs forms 2012 taxes See Basis of Depreciable Property , later. Irs forms 2012 taxes Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Irs forms 2012 taxes You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Irs forms 2012 taxes You sell or exchange the property. Irs forms 2012 taxes You convert the property to personal use. Irs forms 2012 taxes You abandon the property. Irs forms 2012 taxes The property is destroyed. Irs forms 2012 taxes Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. Irs forms 2012 taxes If you placed rental property in service before 1987, you are using one of the following methods. Irs forms 2012 taxes ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. Irs forms 2012 taxes Straight line or declining balance method over the useful life of property placed in service before 1981. Irs forms 2012 taxes See MACRS Depreciation , later, for more information. Irs forms 2012 taxes Rental property placed in service before 2013. Irs forms 2012 taxes   Continue to use the same method of figuring depreciation that you used in the past. Irs forms 2012 taxes Use of real property changed. Irs forms 2012 taxes   Generally, you must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Irs forms 2012 taxes This includes your residence that you changed to rental use. Irs forms 2012 taxes See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. Irs forms 2012 taxes Improvements made after 1986. Irs forms 2012 taxes   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Irs forms 2012 taxes As a result, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Irs forms 2012 taxes For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. Irs forms 2012 taxes This publication discusses MACRS depreciation only. Irs forms 2012 taxes If you need information about depreciating property placed in service before 1987, see Publication 534. Irs forms 2012 taxes Basis of Depreciable Property The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. Irs forms 2012 taxes This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity. Irs forms 2012 taxes If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and credits with respect to the property. Irs forms 2012 taxes Basis and adjusted basis are explained in the following discussions. Irs forms 2012 taxes If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its fair market value when you change it to rental use. Irs forms 2012 taxes See Basis of Property Changed to Rental Use in chapter 4. Irs forms 2012 taxes Cost Basis The basis of property you buy is usually its cost. Irs forms 2012 taxes The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. Irs forms 2012 taxes Your cost also includes amounts you pay for: Sales tax charged on the purchase (but see Exception next), Freight charges to obtain the property, and Installation and testing charges. Irs forms 2012 taxes Exception. Irs forms 2012 taxes   If you deducted state and local general sales taxes as an itemized deduction on Schedule A (Form 1040), do not include those sales taxes as part of your cost basis. Irs forms 2012 taxes Such taxes were deductible before 1987 and after 2003. Irs forms 2012 taxes Loans with low or no interest. Irs forms 2012 taxes   If you buy property on any time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, less the amount considered to be unstated interest. Irs forms 2012 taxes See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Irs forms 2012 taxes Real property. Irs forms 2012 taxes   If you buy real property, such as a building and land, certain fees and other expenses you pay are part of your cost basis in the property. Irs forms 2012 taxes Real estate taxes. Irs forms 2012 taxes   If you buy real property and agree to pay real estate taxes on it that were owed by the seller and the seller does not reimburse you, the taxes you pay are treated as part of your basis in the property. Irs forms 2012 taxes You cannot deduct them as taxes paid. Irs forms 2012 taxes   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. Irs forms 2012 taxes Do not include that amount in your basis in the property. Irs forms 2012 taxes Settlement fees and other costs. Irs forms 2012 taxes   The following settlement fees and closing costs for buying the property are part of your basis in the property. Irs forms 2012 taxes Abstract fees. Irs forms 2012 taxes Charges for installing utility services. Irs forms 2012 taxes Legal fees. Irs forms 2012 taxes Recording fees. Irs forms 2012 taxes Surveys. Irs forms 2012 taxes Transfer taxes. Irs forms 2012 taxes Title insurance. Irs forms 2012 taxes Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Irs forms 2012 taxes   The following are settlement fees and closing costs you cannot include in your basis in the property. Irs forms 2012 taxes Fire insurance premiums. Irs forms 2012 taxes Rent or other charges relating to occupancy of the property before closing. Irs forms 2012 taxes Charges connected with getting or refinancing a loan, such as: Points (discount points, loan origination fees), Mortgage insurance premiums, Loan assumption fees, Cost of a credit report, and Fees for an appraisal required by a lender. Irs forms 2012 taxes   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Irs forms 2012 taxes Assumption of a mortgage. Irs forms 2012 taxes   If you buy property and become liable for an existing mortgage on the property, your basis is the amount you pay for the property plus the amount remaining to be paid on the mortgage. Irs forms 2012 taxes Example. Irs forms 2012 taxes You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. Irs forms 2012 taxes Your basis is $300,000. Irs forms 2012 taxes Separating cost of land and buildings. Irs forms 2012 taxes   If you buy buildings and your cost includes the cost of the land on which they stand, you must divide the cost between the land and the buildings to figure the basis for depreciation of the buildings. Irs forms 2012 taxes The part of the cost that you allocate to each asset is the ratio of the fair market value of that asset to the fair market value of the whole property at the time you buy it. Irs forms 2012 taxes   If you are not certain of the fair market values of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes. Irs forms 2012 taxes Example. Irs forms 2012 taxes You buy a house and land for $200,000. Irs forms 2012 taxes The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. Irs forms 2012 taxes The latest real estate tax assessment on the property was based on an assessed value of $160,000, of which $136,000 was for the house and $24,000 was for the land. Irs forms 2012 taxes You can allocate 85% ($136,000 ÷ $160,000) of the purchase price to the house and 15% ($24,000 ÷ $160,000) of the purchase price to the land. Irs forms 2012 taxes Your basis in the house is $170,000 (85% of $200,000) and your basis in the land is $30,000 (15% of $200,000). Irs forms 2012 taxes Basis Other Than Cost You cannot use cost as a basis for property that you received: In return for services you performed; In an exchange for other property; As a gift; From your spouse, or from your former spouse as the result of a divorce; or As an inheritance. Irs forms 2012 taxes If you received property in one of these ways, see Publication 551 for information on how to figure your basis. Irs forms 2012 taxes Adjusted Basis To figure your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service for business or the production of income. Irs forms 2012 taxes The result of these adjustments to the basis is the adjusted basis. Irs forms 2012 taxes Increases to basis. Irs forms 2012 taxes   You must increase the basis of any property by the cost of all items properly added to a capital account. Irs forms 2012 taxes These include the following. Irs forms 2012 taxes The cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year. Irs forms 2012 taxes Amounts spent after a casualty to restore the damaged property. Irs forms 2012 taxes The cost of extending utility service lines to the property. Irs forms 2012 taxes Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. Irs forms 2012 taxes Additions or improvements. Irs forms 2012 taxes   Add to the basis of your property the amount an addition or improvement actually cost you, including any amount you borrowed to make the addition or improvement. Irs forms 2012 taxes This includes all direct costs, such as material and labor, but does not include your own labor. Irs forms 2012 taxes It also includes all expenses related to the addition or improvement. Irs forms 2012 taxes   For example, if you had an architect draw up plans for remodeling your property, the architect's fee is a part of the cost of the remodeling. Irs forms 2012 taxes Or, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. Irs forms 2012 taxes   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. Irs forms 2012 taxes For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Irs forms 2012 taxes    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. Irs forms 2012 taxes However, see What Rental Property Cannot Be Depreciated, earlier. Irs forms 2012 taxes Assessments for local improvements. Irs forms 2012 taxes   Assessments for items which tend to increase the value of property, such as streets and sidewalks, must be added to the basis of the property. Irs forms 2012 taxes For example, if your city installs curbing on the street in front of your house, and assesses you and your neighbors for its cost, you must add the assessment to the basis of your property. Irs forms 2012 taxes Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. Irs forms 2012 taxes You cannot deduct these items as taxes or depreciate them. Irs forms 2012 taxes    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. Irs forms 2012 taxes Do not add them to your basis in the property. Irs forms 2012 taxes Deducting vs. Irs forms 2012 taxes capitalizing costs. Irs forms 2012 taxes   Do not add to your basis costs you can deduct as current expenses. Irs forms 2012 taxes However, there are certain costs you can choose either to deduct or to capitalize. Irs forms 2012 taxes If you capitalize these costs, include them in your basis. Irs forms 2012 taxes If you deduct them, do not include them in your basis. Irs forms 2012 taxes   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. Irs forms 2012 taxes   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. Irs forms 2012 taxes Decreases to basis. Irs forms 2012 taxes   You must decrease the basis of your property by any items that represent a return of your cost. Irs forms 2012 taxes These include the following. Irs forms 2012 taxes Insurance or other payment you receive as the result of a casualty or theft loss. Irs forms 2012 taxes Casualty loss not covered by insurance for which you took a deduction. Irs forms 2012 taxes Amount(s) you receive for granting an easement. Irs forms 2012 taxes Residential energy credits you were allowed before 1986, or after 2005, if you added the cost of the energy items to the basis of your home. Irs forms 2012 taxes Exclusion from income of subsidies for energy conservation measures. Irs forms 2012 taxes Special depreciation allowance claimed on qualified property. Irs forms 2012 taxes Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Irs forms 2012 taxes If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. Irs forms 2012 taxes   If your rental property was previously used as your main home, you must also decrease the basis by the following. Irs forms 2012 taxes Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. Irs forms 2012 taxes District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. Irs forms 2012 taxes Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. Irs forms 2012 taxes Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. Irs forms 2012 taxes This allowance is figured before you figure your regular depreciation deduction. Irs forms 2012 taxes See Publication 946, chapter 3, for details. Irs forms 2012 taxes Also see the Instructions for Form 4562, Line 14. Irs forms 2012 taxes If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. Irs forms 2012 taxes The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. Irs forms 2012 taxes MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. Irs forms 2012 taxes This section explains how to determine which MACRS depreciation system applies to your property. Irs forms 2012 taxes It also discusses other information you need to know before you can figure depreciation under MACRS. Irs forms 2012 taxes This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. Irs forms 2012 taxes Depreciation Systems MACRS consists of two systems that determine how you depreciate your property—the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Irs forms 2012 taxes You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Irs forms 2012 taxes Excluded Property You cannot use MACRS for certain personal property (such as furniture or appliances) placed in service in your rental property in 2013 if it had been previously placed in service before 1987 when MACRS became effective. Irs forms 2012 taxes In most cases, personal property is excluded from MACRS if you (or a person related to you) owned or used it in 1986 or if your tenant is a person (or someone related to the person) who owned or used it in 1986. Irs forms 2012 taxes However, the property is not excluded if your 2013 deduction under MACRS (using a half-year convention) is less than the deduction you would have under ACRS. Irs forms 2012 taxes For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. Irs forms 2012 taxes Electing ADS If you choose, you can use the ADS method for most property. Irs forms 2012 taxes Under ADS, you use the straight line method of depreciation. Irs forms 2012 taxes The election of ADS for one item in a class of property generally applies to all property in that class that is placed in service during the tax year of the election. Irs forms 2012 taxes However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. Irs forms 2012 taxes If you choose to use ADS for your residential rental property, the election must be made in the first year the property is placed in service. Irs forms 2012 taxes Once you make this election, you can never revoke it. Irs forms 2012 taxes For property placed in service during 2013, you make the election to use ADS by entering the depreciation on Form 4562, Part III, Section C, line 20c. Irs forms 2012 taxes Property Classes Under GDS Each item of property that can be depreciated under MACRS is assigned to a property class, determined by its class life. Irs forms 2012 taxes The property class generally determines the depreciation method, recovery period, and convention. Irs forms 2012 taxes The property classes under GDS are: 3-year property, 5-year property, 7-year property, 10-year property, 15-year property, 20-year property, Nonresidential real property, and Residential rental property. Irs forms 2012 taxes Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. Irs forms 2012 taxes 5-year property. Irs forms 2012 taxes This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. Irs forms 2012 taxes ), automobiles, and light trucks. Irs forms 2012 taxes This class also includes appliances, carpeting, furniture, etc. Irs forms 2012 taxes , used in a residential rental real estate activity. Irs forms 2012 taxes Depreciation on automobiles, other property used for transportation, computers and related peripheral equipment, and property of a type generally used for entertainment, recreation, or amusement is limited. Irs forms 2012 taxes See chapter 5 of Publication 946. Irs forms 2012 taxes 7-year property. Irs forms 2012 taxes This class includes office furniture and equipment (desks, file cabinets, etc. Irs forms 2012 taxes ). Irs forms 2012 taxes This class also includes any property that does not have a class life and that has not been designated by law as being in any other class. Irs forms 2012 taxes 15-year property. Irs forms 2012 taxes This class includes roads, fences, and shrubbery (if depreciable). Irs forms 2012 taxes Residential rental property. Irs forms 2012 taxes This class includes any real property that is a rental building or structure (including a mobile home) for which 80% or more of the gross rental income for the tax year is from dwelling units. Irs forms 2012 taxes It does not include a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis. Irs forms 2012 taxes If you live in any part of the building or structure, the gross rental income includes the fair rental value of the part you live in. Irs forms 2012 taxes The other property classes do not generally apply to property used in rental activities. Irs forms 2012 taxes These classes are not discussed in this publication. Irs forms 2012 taxes See Publication 946 for more information. Irs forms 2012 taxes Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. Irs forms 2012 taxes The recovery periods are generally longer under ADS than GDS. Irs forms 2012 taxes The recovery period of property depends on its property class. Irs forms 2012 taxes Under GDS, the recovery period of an asset is generally the same as its property class. Irs forms 2012 taxes Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. Irs forms 2012 taxes See Table 2-1 for recovery periods of property commonly used in residential rental activities. Irs forms 2012 taxes Qualified Indian reservation property. Irs forms 2012 taxes   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. Irs forms 2012 taxes For more information, see chapter 4 of Publication 946. Irs forms 2012 taxes Additions or improvements to property. Irs forms 2012 taxes   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. Irs forms 2012 taxes   The property class and recovery period of the addition or improvement is the one that would apply to the original property if you had placed it in service at the same time as the addition or improvement. Irs forms 2012 taxes   The recovery period for an addition or improvement to property begins on the later of: The date the addition or improvement is placed in service, or The date the property to which the addition or improvement was made is placed in service. Irs forms 2012 taxes Example. Irs forms 2012 taxes You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. Irs forms 2012 taxes You built an addition onto the house and placed it in service in 2013. Irs forms 2012 taxes You must use MACRS for the addition. Irs forms 2012 taxes Under GDS, the addition is depreciated as residential rental property over 27. Irs forms 2012 taxes 5 years. Irs forms 2012 taxes Table 2-1. Irs forms 2012 taxes MACRS Recovery Periods for Property Used in Rental Activities   MACRS Recovery Period   Type of Property General Depreciation System Alternative Depreciation System   Computers and their peripheral equipment 5 years 5 years   Office machinery, such as: Typewriters Calculators Copiers 5 years 6 years   Automobiles 5 years 5 years   Light trucks 5 years 5 years   Appliances, such as: Stoves Refrigerators 5 years 9 years   Carpets 5 years 9 years   Furniture used in rental property 5 years 9 years   Office furniture and equipment, such as: Desks Files 7 years 10 years   Any property that does not have a class life and that has not been designated by law as being in any other class 7 years 12 years   Roads 15 years 20 years   Shrubbery 15 years 20 years   Fences 15 years 20 years   Residential rental property (buildings or structures) and structural components such as furnaces, waterpipes, venting, etc. Irs forms 2012 taxes 27. Irs forms 2012 taxes 5 years 40 years   Additions and improvements, such as a new roof The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement. Irs forms 2012 taxes   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. Irs forms 2012 taxes 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. Irs forms 2012 taxes Mid-month convention. Irs forms 2012 taxes    A mid-month convention is used for all residential rental property and nonresidential real property. Irs forms 2012 taxes Under this convention, you treat all property placed in service, or disposed of, during any month as placed in service, or disposed of, at the midpoint of that month. Irs forms 2012 taxes Mid-quarter convention. Irs forms 2012 taxes   A mid-quarter convention must be used if the mid-month convention does not apply and the total depreciable basis of MACRS property placed in service in the last 3 months of a tax year (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) is more than 40% of the total basis of all such property you place in service during the year. Irs forms 2012 taxes   Under this convention, you treat all property placed in service, or disposed of, during any quarter of a tax year as placed in service, or disposed of, at the midpoint of the quarter. Irs forms 2012 taxes Example. Irs forms 2012 taxes During the tax year, Tom Martin purchased the following items to use in his rental property. Irs forms 2012 taxes He elects not to claim the special depreciation allowance discussed earlier. Irs forms 2012 taxes A dishwasher for $400 that he placed in service in January. Irs forms 2012 taxes Used furniture for $100 that he placed in service in September. Irs forms 2012 taxes A refrigerator for $800 that he placed in service in October. Irs forms 2012 taxes Tom uses the calendar year as his tax year. Irs forms 2012 taxes The total basis of all property placed in service that year is $1,300. Irs forms 2012 taxes The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). Irs forms 2012 taxes Tom must use the mid-quarter convention instead of the half-year convention for all three items. Irs forms 2012 taxes Half-year convention. Irs forms 2012 taxes    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. Irs forms 2012 taxes Under this convention, you treat all property placed in service, or disposed of, during a tax year as placed in service, or disposed of, at the midpoint of that tax year. Irs forms 2012 taxes   If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. Irs forms 2012 taxes You deduct a full year of depreciation for any other year during the recovery period. Irs forms 2012 taxes Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. Irs forms 2012 taxes The deduction is substantially the same both ways. Irs forms 2012 taxes You can either: Actually compute the deduction using the depreciation method and convention that apply over the recovery period of the property, or Use the percentage from the MACRS percentage tables. Irs forms 2012 taxes In this publication we will use the percentage tables. Irs forms 2012 taxes For instructions on how to compute the deduction, see chapter 4 of Publication 946. Irs forms 2012 taxes Residential rental property. Irs forms 2012 taxes   You must use the straight line method and a mid-month convention for residential rental property. Irs forms 2012 taxes In the first year that you claim depreciation for residential rental property, you can claim depreciation only for the number of months the property is in use, and you must use the mid-month convention (explained under Conventions , earlier). Irs forms 2012 taxes 5-, 7-, or 15-year property. Irs forms 2012 taxes   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. Irs forms 2012 taxes However, in limited cases you must use the mid-quarter convention, if it applies. Irs forms 2012 taxes For property in the 15-year class, use the 150% declining balance method and a half-year convention. Irs forms 2012 taxes   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. Irs forms 2012 taxes The choice to use the 150% method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Irs forms 2012 taxes You make this election on Form 4562. Irs forms 2012 taxes In Part III, column (f), enter “150 DB. Irs forms 2012 taxes ” Once you make this election, you cannot change to another method. Irs forms 2012 taxes   If you use either the 200% or 150% declining balance method, you figure your deduction using the straight line method in the first tax year that the straight line method gives you an equal or larger deduction. Irs forms 2012 taxes   You can also choose to use the straight line method with a half-year or mid-quarter convention for 5-, 7-, or 15-year property. Irs forms 2012 taxes The choice to use the straight line method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Irs forms 2012 taxes You elect the straight line method on Form 4562. Irs forms 2012 taxes In Part III, column (f), enter “S/L. Irs forms 2012 taxes ” Once you make this election, you cannot change to another method. Irs forms 2012 taxes MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. Irs forms 2012 taxes The tables show the percentages for the first few years or until the change to the straight line method is made. Irs forms 2012 taxes See Appendix A of Publication 946 for complete tables. Irs forms 2012 taxes The percentages in Tables 2-2a, 2-2b, and 2-2c make the change from declining balance to straight line in the year that straight line will give a larger deduction. Irs forms 2012 taxes If you elect to use the straight line method for 5-, 7-, or 15-year property, or the 150% declining balance method for 5- or 7-year property, use the tables in Appendix A of Publication 946. Irs forms 2012 taxes How to use the percentage tables. Irs forms 2012 taxes   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. Irs forms 2012 taxes   Once you begin using a percentage table to figure depreciation, you must continue to use it for the entire recovery period unless there is an adjustment to the basis of your property for a reason other than: Depreciation allowed or allowable, or An addition or improvement that is depreciated as a separate item of property. Irs forms 2012 taxes   If there is an adjustment for any reason other than (1) or (2), for example, because of a deductible casualty loss, you can no longer use the table. Irs forms 2012 taxes For the year of the adjustment and for the remaining recovery period, figure depreciation using the property's adjusted basis at the end of the year and the appropriate depreciation method, as explained earlier under Figuring Your Depreciation Deduction . Irs forms 2012 taxes See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. Irs forms 2012 taxes Unadjusted basis. Irs forms 2012 taxes   This is the same basis you would use to figure gain on a sale (see Basis of Depreciable Property , earlier), but without reducing your original basis by any MACRS depreciation taken in earlier years. Irs forms 2012 taxes   However, you do reduce your original basis by other amounts claimed on the property, including: Any amortization, Any section 179 deduction, and Any special depreciation allowance. Irs forms 2012 taxes For more information, see chapter 4 of Publication 946. Irs forms 2012 taxes Please click here for the text description of the image. Irs forms 2012 taxes Table 2-2 Tables 2-2a, 2-2b, and 2-2c. Irs forms 2012 taxes   The percentages in these tables take into account the half-year and mid-quarter conventions. Irs forms 2012 taxes Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. Irs forms 2012 taxes Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). Irs forms 2012 taxes If you must use the mid-quarter convention, use the column that corresponds to the calendar year quarter in which you placed the property in service. Irs forms 2012 taxes Example 1. Irs forms 2012 taxes You purchased a stove and refrigerator and placed them in service in June. Irs forms 2012 taxes Your basis in the stove is $600 and your basis in the refrigerator is $1,000. Irs forms 2012 taxes Both are 5-year property. Irs forms 2012 taxes Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. Irs forms 2012 taxes For that year your depreciation deduction is $120 ($600 × . Irs forms 2012 taxes 20) for the stove and $200 ($1,000 × . Irs forms 2012 taxes 20) for the refrigerator. Irs forms 2012 taxes For Year 2, the depreciation percentage is 32%. Irs forms 2012 taxes That year's depreciation deduction will be $192 ($600 × . Irs forms 2012 taxes 32) for the stove and $320 ($1,000 × . Irs forms 2012 taxes 32) for the refrigerator. Irs forms 2012 taxes Example 2. Irs forms 2012 taxes Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. Irs forms 2012 taxes Since the refrigerator was placed in service in the last 3 months of the tax year, and its basis ($1,000) is more than 40% of the total basis of all property placed in service during the year ($1,600 × . Irs forms 2012 taxes 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. Irs forms 2012 taxes Because you placed the refrigerator in service in October, you use the fourth quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 5%. Irs forms 2012 taxes Your depreciation deduction for the refrigerator is $50 ($1,000 x . Irs forms 2012 taxes 05). Irs forms 2012 taxes Because you placed the stove in service in June, you use the second quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 25%. Irs forms 2012 taxes For that year, your depreciation deduction for the stove is $150 ($600 x . Irs forms 2012 taxes 25). Irs forms 2012 taxes Table 2-2d. Irs forms 2012 taxes    Use this table when you are using the GDS 27. Irs forms 2012 taxes 5 year option for residential rental property. Irs forms 2012 taxes Find the row for the month that you placed the property in service. Irs forms 2012 taxes Use the percentages listed for that month to figure your depreciation deduction. Irs forms 2012 taxes The mid-month convention is taken into account in the percentages shown in the table. Irs forms 2012 taxes Continue to use the same row (month) under the column for the appropriate year. Irs forms 2012 taxes Example. Irs forms 2012 taxes You purchased a single family rental house for $185,000 and placed it in service on February 8. Irs forms 2012 taxes The sales contract showed that the building cost $160,000 and the land cost $25,000. Irs forms 2012 taxes Your basis for depreciation is its original cost, $160,000. Irs forms 2012 taxes This is the first year of service for your residential rental property and you decide to use GDS which has a recovery period of 27. Irs forms 2012 taxes 5 years. Irs forms 2012 taxes Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. Irs forms 2012 taxes 182%. Irs forms 2012 taxes That year's depreciation deduction is $5,091 ($160,000 x . Irs forms 2012 taxes 03182). Irs forms 2012 taxes Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. Irs forms 2012 taxes See Appendix B in Publication 946 for other property. Irs forms 2012 taxes If your property is not listed in Appendix B, it is considered to have no class life. Irs forms 2012 taxes Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. Irs forms 2012 taxes Use the mid-month convention for residential rental property and nonresidential real property. Irs forms 2012 taxes For all other property, use the half-year or mid-quarter convention, as appropriate. Irs forms 2012 taxes See Publication 946 for ADS depreciation tables. Irs forms 2012 taxes Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. Irs forms 2012 taxes If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Irs forms 2012 taxes For more information, see Depreciation under Decreases to Basis in Publication 551. Irs forms 2012 taxes If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Irs forms 2012 taxes S. Irs forms 2012 taxes Individual Income Tax Return. Irs forms 2012 taxes If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Irs forms 2012 taxes Filing an amended return. Irs forms 2012 taxes   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Irs forms 2012 taxes You claimed the incorrect amount because of a mathematical error made in any year. Irs forms 2012 taxes You claimed the incorrect amount because of a posting error made in any year. Irs forms 2012 taxes You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Irs forms 2012 taxes You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Irs forms 2012 taxes   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return for the property used in your rental activity. Irs forms 2012 taxes This also occurs when you use the same impermissible method of determining depreciation (for example, using the wrong MACRS recovery period) in two or more consecutively filed tax returns. Irs forms 2012 taxes   If an amended return is allowed, you must file it by the later of the following dates. Irs forms 2012 taxes 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Irs forms 2012 taxes A return filed before an unextended due date is considered filed on that due date. Irs forms 2012 taxes 2 years from the time you paid your tax for that year. Irs forms 2012 taxes Changing your accounting method. Irs forms 2012 taxes   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Irs forms 2012 taxes In some instances, that consent is automatic. Irs forms 2012 taxes For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. Irs forms 2012 taxes Prev  Up  Next   Home   More Online Publications