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Irs Gov Form1040ez

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Irs Gov Form1040ez

Irs gov form1040ez 8. Irs gov form1040ez   Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesDetermining Gain or Loss Like-Kind Exchanges Transfer to Spouse Ordinary or Capital Gain or LossCapital Assets Noncapital Assets Hedging (Commodity Futures) Livestock Converted Wetland and Highly Erodible Cropland Timber Sale of a Farm Foreclosure or Repossession Abandonment Introduction This chapter explains how to figure, and report on your tax return, your gain or loss on the disposition of your property or debt and whether such gain or loss is ordinary or capital. Irs gov form1040ez Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Irs gov form1040ez Dispositions discussed in this chapter include sales, exchanges, foreclosures, repossessions, canceled debts, hedging transactions, and elections to treat cutting of timber as a sale or exchange. Irs gov form1040ez Topics - This chapter discusses: Sales and exchanges Ordinary or capital gain or loss Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8949 Sales and Other Dispositions of Capital Assets See chapter 16 for information about getting publications and forms. Irs gov form1040ez Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Irs gov form1040ez This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Irs gov form1040ez A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Irs gov form1040ez An exchange is a transfer of property for other property or services. Irs gov form1040ez Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Irs gov form1040ez If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Irs gov form1040ez If the adjusted basis of the property is more than the amount you realize, you will have a loss. Irs gov form1040ez Basis and adjusted basis. Irs gov form1040ez   The basis of property you buy is usually its cost. Irs gov form1040ez The adjusted basis of property is basis plus certain additions and minus certain deductions. Irs gov form1040ez See chapter 6 for more information about basis and adjusted basis. Irs gov form1040ez Amount realized. Irs gov form1040ez   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (FMV) (defined in chapter 6) of all property or services you receive. Irs gov form1040ez The amount you realize also includes any of your liabilities assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Irs gov form1040ez   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Irs gov form1040ez Amount recognized. Irs gov form1040ez   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Irs gov form1040ez A recognized gain is a gain you must include in gross income and report on your income tax return. Irs gov form1040ez A recognized loss is a loss you deduct from gross income. Irs gov form1040ez However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Irs gov form1040ez See Like-Kind Exchanges next. Irs gov form1040ez Also, a loss from the disposition of property held for personal use is not deductible. Irs gov form1040ez Like-Kind Exchanges Certain exchanges of property are not taxable. Irs gov form1040ez This means any gain from the exchange is not recognized, and any loss cannot be deducted. Irs gov form1040ez Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Irs gov form1040ez The exchange of property for the same kind of property is the most common type of nontaxable exchange. Irs gov form1040ez To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Irs gov form1040ez Qualifying property. Irs gov form1040ez Like-kind property. Irs gov form1040ez These two requirements are discussed later. Irs gov form1040ez Multiple-party transactions. Irs gov form1040ez   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Irs gov form1040ez Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Irs gov form1040ez Receipt of title from third party. Irs gov form1040ez   If you receive property in a like-kind exchange and the other party who transfers the property to you does not give you the title, but a third party does, you can still treat this transaction as a like-kind exchange if it meets all the requirements. Irs gov form1040ez Basis of property received. Irs gov form1040ez   If you receive property in a like-kind exchange, the basis of the property will be the same as the basis of the property you gave up. Irs gov form1040ez See chapter 6 for more information. Irs gov form1040ez Money paid. Irs gov form1040ez   If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. Irs gov form1040ez The basis of the property received is the basis of the property given up, increased by the money paid. Irs gov form1040ez Example. Irs gov form1040ez You traded an old tractor with an adjusted basis of $15,000 for a new one. Irs gov form1040ez The new tractor costs $300,000. Irs gov form1040ez You were allowed $80,000 for the old tractor and paid $220,000 cash. Irs gov form1040ez You have no recognized gain or loss on the transaction regardless of the adjusted basis of your old tractor and the basis of the new tractor is $235,000, the adjusted basis of the old tractor plus the cash paid ($15,000 + $220,000). Irs gov form1040ez If you had sold the old tractor to a third party for $80,000 and bought a new one, you would have a recognized gain or loss on the sale of your old tractor equal to the difference between the amount realized and the adjusted basis of the old tractor. Irs gov form1040ez In this case, the taxable gain would be $65,000 ($80,000 − $15,000) and the basis of the new tractor would be $300,000. Irs gov form1040ez Reporting the exchange. Irs gov form1040ez   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Irs gov form1040ez The Instructions for Form 8824 explain how to report the details of the exchange. Irs gov form1040ez   If you have any recognized gain because you received money or unlike property, report it on Schedule D (Form 1040) or Form 4797, whichever applies. Irs gov form1040ez You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Irs gov form1040ez See chapter 9 for more information. Irs gov form1040ez Qualifying property. Irs gov form1040ez   In a like-kind exchange, both the property you give up and the property you receive must be held by you for investment or for productive use in your trade or business. Irs gov form1040ez Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Irs gov form1040ez Nonqualifying property. Irs gov form1040ez   The rules for like-kind exchanges do not apply to exchanges of the following property. Irs gov form1040ez Property you use for personal purposes, such as your home and family car. Irs gov form1040ez Stock in trade or other property held primarily for sale, such as crops and produce. Irs gov form1040ez Stocks, bonds, or notes. Irs gov form1040ez However, see Qualifying property above. Irs gov form1040ez Other securities or evidences of indebtedness, such as accounts receivable. Irs gov form1040ez Partnership interests. Irs gov form1040ez However, you may have a nontaxable exchange under other rules. Irs gov form1040ez See Other Nontaxable Exchanges in chapter 1 of Publication 544. Irs gov form1040ez Like-kind property. Irs gov form1040ez   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Irs gov form1040ez Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Irs gov form1040ez Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Irs gov form1040ez For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Irs gov form1040ez   An exchange of a tractor for a new tractor is an exchange of like-kind property, and so is an exchange of timber land for crop acreage. Irs gov form1040ez An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Irs gov form1040ez The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Irs gov form1040ez For example, the exchange of a bull for a cow is not a like-kind exchange. Irs gov form1040ez An exchange of the assets of a business for the assets of a similar business cannot be treated as an exchange of one property for another property. Irs gov form1040ez    Note. Irs gov form1040ez Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Irs gov form1040ez Personal property. Irs gov form1040ez   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Irs gov form1040ez Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Irs gov form1040ez Property classified in any General Asset Class may not be classified within a Product Class. Irs gov form1040ez Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Irs gov form1040ez General Asset Classes. Irs gov form1040ez   General Asset Classes describe the types of property frequently used in many businesses. Irs gov form1040ez They include, but are not limited to, the following property. Irs gov form1040ez Office furniture, fixtures, and equipment (asset class 00. Irs gov form1040ez 11). Irs gov form1040ez Information systems, such as computers and peripheral equipment (asset class 00. Irs gov form1040ez 12). Irs gov form1040ez Data handling equipment except computers (asset class 00. Irs gov form1040ez 13). Irs gov form1040ez Automobiles and taxis (asset class 00. Irs gov form1040ez 22). Irs gov form1040ez Light general purpose trucks (asset class 00. Irs gov form1040ez 241). Irs gov form1040ez Heavy general purpose trucks (asset class 00. Irs gov form1040ez 242). Irs gov form1040ez Tractor units for use over-the-road (asset class 00. Irs gov form1040ez 26). Irs gov form1040ez Trailers and trailer-mounted containers (asset class 00. Irs gov form1040ez 27). Irs gov form1040ez Industrial steam and electric generation and/or distribution systems (asset class 00. Irs gov form1040ez 4). Irs gov form1040ez Product Classes. Irs gov form1040ez   Product Classes include property listed in a 6-digit product class in sectors 31 through 33 of the North American Industry Classification System (NAICS) of the Executive Office of the President, Office of Management and Budget, United States, (NAICS Manual). Irs gov form1040ez The latest version of the manual can be accessed at www. Irs gov form1040ez census. Irs gov form1040ez gov/eos/www/naics/. Irs gov form1040ez Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Irs gov form1040ez ntis. Irs gov form1040ez gov/products/naics. Irs gov form1040ez aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Irs gov form1040ez A CD-ROM version with search and retrieval software is also available from NTIS. Irs gov form1040ez    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Irs gov form1040ez Partially nontaxable exchange. Irs gov form1040ez   If, in addition to like-kind property, you receive money or unlike property in an exchange on which you realize gain, you have a partially nontaxable exchange. Irs gov form1040ez You are taxed on the gain you realize, but only to the extent of the money and the FMV of the unlike property you receive. Irs gov form1040ez A loss is not deductible. Irs gov form1040ez Example 1. Irs gov form1040ez You trade farmland that cost $30,000 for $10,000 cash and other land to be used in farming with a FMV of $50,000. Irs gov form1040ez You have a realized gain of $30,000 ($50,000 FMV of new land + $10,000 cash − $30,000 basis of old farmland = $30,000 realized gain). Irs gov form1040ez However, only $10,000, the cash received, is recognized (included in income). Irs gov form1040ez Example 2. Irs gov form1040ez Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Irs gov form1040ez Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Irs gov form1040ez Example 3. Irs gov form1040ez Assume in Example 1 that the FMV of the land you received was only $15,000. Irs gov form1040ez Your $5,000 loss is not recognized. Irs gov form1040ez Unlike property given up. Irs gov form1040ez   If, in addition to like-kind property, you give up unlike property, you must recognize gain or loss on the unlike property you give up. Irs gov form1040ez The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Irs gov form1040ez Like-kind exchanges between related persons. Irs gov form1040ez   Special rules apply to like-kind exchanges between related persons. Irs gov form1040ez These rules affect both direct and indirect exchanges. Irs gov form1040ez Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Irs gov form1040ez The gain or loss on the original exchange must be recognized as of the date of the later disposition. Irs gov form1040ez The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Irs gov form1040ez Related persons. Irs gov form1040ez   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Irs gov form1040ez ), you and a corporation in which you have more than 50% ownership, you and a partnership in which you directly or indirectly own more than a 50% interest of the capital or profits, and two partnerships in which you directly or indirectly own more than 50% of the capital interests or profits. Irs gov form1040ez   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Irs gov form1040ez Example. Irs gov form1040ez You used a grey pickup truck in your farming business. Irs gov form1040ez Your sister used a red pickup truck in her landscaping business. Irs gov form1040ez In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Irs gov form1040ez At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Irs gov form1040ez The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Irs gov form1040ez You realized a gain of $1,000 (the $7,200 FMV of the red pickup truck, minus the grey pickup truck's $6,000 adjusted basis, minus the $200 you paid). Irs gov form1040ez Your sister realized a gain of $6,200 (the $7,000 FMV of the grey pickup truck plus the $200 you paid, minus the $1,000 adjusted basis of the red pickup truck). Irs gov form1040ez However, because this was a like-kind exchange, you recognized no gain. Irs gov form1040ez Your basis in the red pickup truck was $6,200 (the $6,000 adjusted basis of the grey pickup truck plus the $200 you paid). Irs gov form1040ez She recognized gain only to the extent of the money she received, $200. Irs gov form1040ez Her basis in the grey pickup truck was $1,000 (the $1,000 adjusted basis of the red pickup truck minus the $200 received, plus the $200 gain recognized). Irs gov form1040ez In 2013, you sold the red pickup truck to a third party for $7,000. Irs gov form1040ez Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Irs gov form1040ez On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Irs gov form1040ez You also report a loss on the sale as $200 (the adjusted basis of the red pickup truck, $7,200 (its $6,200 basis plus the $1,000 gain recognized), minus the $7,000 realized from the sale). Irs gov form1040ez In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Irs gov form1040ez Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Irs gov form1040ez Exceptions to the rules for related persons. Irs gov form1040ez   The following property dispositions are excluded from these rules. Irs gov form1040ez Dispositions due to the death of either related person. Irs gov form1040ez Involuntary conversions. Irs gov form1040ez Dispositions where it is established to the satisfaction of the IRS that neither the exchange nor the disposition has, as a main purpose, the avoidance of federal income tax. Irs gov form1040ez Multiple property exchanges. Irs gov form1040ez   Under the like-kind exchange rules, you must generally make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. Irs gov form1040ez However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Irs gov form1040ez Transfer and receive properties in two or more exchange groups. Irs gov form1040ez Transfer or receive more than one property within a single exchange group. Irs gov form1040ez   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Irs gov form1040ez Deferred exchange. Irs gov form1040ez   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Irs gov form1040ez A deferred exchange is an exchange in which you transfer property you use in business or hold for investment and later receive like-kind property you will use in business or hold for investment. Irs gov form1040ez The property you receive is replacement property. Irs gov form1040ez The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Irs gov form1040ez In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Irs gov form1040ez   For more information see Deferred Exchanges in chapter 1 of Publication 544. Irs gov form1040ez Transfer to Spouse No gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse if incident to divorce. Irs gov form1040ez This rule does not apply if the recipient is a nonresident alien. Irs gov form1040ez Nor does this rule apply to a transfer in trust to the extent the liabilities assumed and the liabilities on the property are more than the property's adjusted basis. Irs gov form1040ez Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is not considered a sale or exchange. Irs gov form1040ez The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Irs gov form1040ez This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its FMV at the time of transfer or any consideration paid by the recipient. Irs gov form1040ez This rule applies for determining loss as well as gain. Irs gov form1040ez Any gain recognized on a transfer in trust increases the basis. Irs gov form1040ez For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Irs gov form1040ez Ordinary or Capital Gain or Loss Generally, you will have a capital gain or loss if you sell or exchange a capital asset (defined below). Irs gov form1040ez You may also have a capital gain if your section 1231 transactions result in a net gain. Irs gov form1040ez See Section 1231 Gains and Losses in  chapter 9. Irs gov form1040ez To figure your net capital gain or loss, you must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Irs gov form1040ez Your net capital gains may be taxed at a lower tax rate than ordinary income. Irs gov form1040ez See Capital Gains Tax Rates , later. Irs gov form1040ez Your deduction for a net capital loss may be limited. Irs gov form1040ez See Treatment of Capital Losses , later. Irs gov form1040ez Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Irs gov form1040ez The following items are examples of capital assets. Irs gov form1040ez A home owned and occupied by you and your family. Irs gov form1040ez Household furnishings. Irs gov form1040ez A car used for pleasure. Irs gov form1040ez If your car is used both for pleasure and for farm business, it is partly a capital asset and partly a noncapital asset, defined later. Irs gov form1040ez Stocks and bonds. Irs gov form1040ez However, there are special rules for gains on qualified small business stock. Irs gov form1040ez For more information on this subject, see Gains on Qualified Small Business Stock and Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Irs gov form1040ez Personal-use property. Irs gov form1040ez   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Irs gov form1040ez Loss from the sale or exchange of personal-use property is not deductible. Irs gov form1040ez You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Irs gov form1040ez For information on casualties and thefts, see chapter 11. Irs gov form1040ez Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Irs gov form1040ez The time you own an asset before disposing of it is the holding period. Irs gov form1040ez If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Irs gov form1040ez Report it in Part I of Schedule D (Form 1040). Irs gov form1040ez If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Irs gov form1040ez Report it in Part II of Schedule D (Form 1040). Irs gov form1040ez Holding period. Irs gov form1040ez   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Irs gov form1040ez The day you disposed of the property is part of your holding period. Irs gov form1040ez Example. Irs gov form1040ez If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Irs gov form1040ez If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Irs gov form1040ez Inherited property. Irs gov form1040ez   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Irs gov form1040ez This rule does not apply to livestock used in a farm business. Irs gov form1040ez See Holding period under Livestock , later. Irs gov form1040ez Nonbusiness bad debt. Irs gov form1040ez   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Irs gov form1040ez See chapter 4 of Publication 550. Irs gov form1040ez Nontaxable exchange. Irs gov form1040ez   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Irs gov form1040ez That is, it begins on the same day as your holding period for the old property. Irs gov form1040ez Gift. Irs gov form1040ez   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Irs gov form1040ez Real property. Irs gov form1040ez   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, on the day after you took possession of it and assumed the burdens and privileges of ownership. Irs gov form1040ez   However, taking possession of real property under an option agreement is not enough to start the holding period. Irs gov form1040ez The holding period cannot start until there is an actual contract of sale. Irs gov form1040ez The holding period of the seller cannot end before that time. Irs gov form1040ez Figuring Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Irs gov form1040ez Net short-term capital gain or loss. Irs gov form1040ez   Combine your short-term capital gains and losses. Irs gov form1040ez Do this by adding all of your short-term capital gains. Irs gov form1040ez Then add all of your short-term capital losses. Irs gov form1040ez Subtract the lesser total from the greater. Irs gov form1040ez The difference is your net short-term capital gain or loss. Irs gov form1040ez Net long-term capital gain or loss. Irs gov form1040ez   Follow the same steps to combine your long-term capital gains and losses. Irs gov form1040ez The result is your net long-term capital gain or loss. Irs gov form1040ez Net gain. Irs gov form1040ez   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Irs gov form1040ez However, part of your gain (but not more than your net capital gain) may be taxed at a lower rate than the rate of tax on your ordinary income. Irs gov form1040ez See Capital Gains Tax Rates , later. Irs gov form1040ez Net loss. Irs gov form1040ez   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Irs gov form1040ez But there are limits on how much loss you can deduct and when you can deduct it. Irs gov form1040ez See Treatment of Capital Losses next. Irs gov form1040ez Treatment of Capital Losses If your capital losses are more than your capital gains, you must claim the difference even if you do not have ordinary income to offset it. Irs gov form1040ez For taxpayers other than corporations, the yearly limit on the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Irs gov form1040ez If your other income is low, you may not be able to use the full $3,000. Irs gov form1040ez The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Irs gov form1040ez Capital loss carryover. Irs gov form1040ez   Generally, you have a capital loss carryover if either of the following situations applies to you. Irs gov form1040ez Your net loss on Schedule D (Form 1040), is more than the yearly limit. Irs gov form1040ez Your taxable income without your deduction for exemptions is less than zero. Irs gov form1040ez If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carry over to 2014. Irs gov form1040ez    To figure your capital loss carryover from 2013 to 2014, you will need a copy of your 2013 Form 1040 and Schedule D (Form 1040). Irs gov form1040ez Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Irs gov form1040ez These lower rates are called the maximum capital gains rates. Irs gov form1040ez The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Irs gov form1040ez See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Irs gov form1040ez Also see Publication 550. Irs gov form1040ez Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Irs gov form1040ez A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Irs gov form1040ez Property held for sale in the ordinary course of your farm business. Irs gov form1040ez   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Irs gov form1040ez Gain or loss from sales or other dispositions of this property is reported on Schedule F (Form 1040) (not on Schedule D (Form 1040) or Form 4797). Irs gov form1040ez The treatment of this property is discussed in chapter 3. Irs gov form1040ez Land and depreciable properties. Irs gov form1040ez   Land and depreciable property you use in farming are not capital assets. Irs gov form1040ez Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Irs gov form1040ez However, your gains and losses from sales and exchanges of your farmland and depreciable properties must be considered together with certain other transactions to determine whether the gains and losses are treated as capital or ordinary gains and losses. Irs gov form1040ez The sales of these business assets are reported on Form 4797. Irs gov form1040ez See chapter 9 for more information. Irs gov form1040ez Hedging (Commodity Futures) Hedging transactions are transactions that you enter into in the normal course of business primarily to manage the risk of interest rate or price changes, or currency fluctuations, with respect to borrowings, ordinary property, or ordinary obligations. Irs gov form1040ez Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Irs gov form1040ez A commodity futures contract is a standardized, exchange-traded contract for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price. Irs gov form1040ez The holder of an option on a futures contract has the right (but not the obligation) for a specified period of time to enter into a futures contract to buy or sell at a particular price. Irs gov form1040ez A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Irs gov form1040ez Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Irs gov form1040ez Hedging transactions. Irs gov form1040ez Transactions that are not hedging transactions. Irs gov form1040ez Futures transactions with exchange-traded commodity futures contracts that are not hedging transactions, generally, result in capital gain or loss and are subject to the mark-to-market rules discussed in Publication 550. Irs gov form1040ez There is a limit on the amount of capital losses you can deduct each year. Irs gov form1040ez Hedging transactions are not subject to the mark-to-market rules. Irs gov form1040ez If, as a farmer-producer, to protect yourself from the risk of unfavorable price fluctuations, you enter into commodity forward contracts, futures contracts, or options on futures contracts and the contracts cover an amount of the commodity within your range of production, the transactions are generally considered hedging transactions. Irs gov form1040ez They can take place at any time you have the commodity under production, have it on hand for sale, or reasonably expect to have it on hand. Irs gov form1040ez The gain or loss on the termination of these hedges is generally ordinary gain or loss. Irs gov form1040ez Farmers who file their income tax returns on the cash method report any profit or loss on the hedging transaction on Schedule F, line 8. Irs gov form1040ez Gains or losses from hedging transactions that hedge supplies of a type regularly used or consumed in the ordinary course of your trade or business may be ordinary gains or losses. Irs gov form1040ez Examples include fuel and feed. Irs gov form1040ez If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Irs gov form1040ez Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Irs gov form1040ez It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Irs gov form1040ez Retain the identification of each hedging transaction with your books and records. Irs gov form1040ez Also, identify the item(s) or aggregate risk that is being hedged in your records. Irs gov form1040ez Although the identification of the hedging transaction must be made before the end of the day it was entered into, you have 35 days after entering into the transaction to identify the hedged item(s) or risk. Irs gov form1040ez For more information on the tax treatment of futures and options contracts, see Commodity Futures and Section 1256 Contracts Marked to Market in Publication 550. Irs gov form1040ez Accounting methods for hedging transactions. Irs gov form1040ez   The accounting method you use for a hedging transaction must clearly reflect income. Irs gov form1040ez This means that your accounting method must reasonably match the timing of income, deduction, gain, or loss from a hedging transaction with the timing of income, deduction, gain, or loss from the item or items being hedged. Irs gov form1040ez There are requirements and limits on the method you can use for certain hedging transactions. Irs gov form1040ez See Regulations section 1. Irs gov form1040ez 446-4(e) for those requirements and limits. Irs gov form1040ez   Hedging transactions must be accounted for under the rules stated above unless the transaction is subject to mark-to-market accounting under section 475 or you use an accounting method other than the following methods. Irs gov form1040ez Cash method. Irs gov form1040ez Farm-price method. Irs gov form1040ez Unit-livestock-price method. Irs gov form1040ez   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Irs gov form1040ez   Your books and records must describe the accounting method used for each type of hedging transaction. Irs gov form1040ez They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Irs gov form1040ez You must make the additional identification no more than 35 days after entering into the hedging transaction. Irs gov form1040ez Example of a hedging transaction. Irs gov form1040ez   You file your income tax returns on the cash method. Irs gov form1040ez On July 2 you anticipate a yield of 50,000 bushels of corn this year. Irs gov form1040ez The December futures price is $5. Irs gov form1040ez 75 a bushel, but there are indications that by harvest time the price will drop. Irs gov form1040ez To protect yourself against a drop in the price, you enter into the following hedging transaction. Irs gov form1040ez You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Irs gov form1040ez 75 a bushel. Irs gov form1040ez   The price did not drop as anticipated but rose to $6 a bushel. Irs gov form1040ez In November, you sell your crop at a local elevator for $6 a bushel. Irs gov form1040ez You also close out your futures position by buying ten December contracts for $6 a bushel. Irs gov form1040ez You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Irs gov form1040ez   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Irs gov form1040ez Your loss on the hedge is 25 cents a bushel. Irs gov form1040ez In effect, the net selling price of your corn is $5. Irs gov form1040ez 75 a bushel. Irs gov form1040ez   Report the results of your futures transactions and your sale of corn separately on Schedule F. Irs gov form1040ez See the instructions for the 2013 Schedule F (Form 1040). Irs gov form1040ez   The loss on your futures transactions is $13,900, figured as follows. Irs gov form1040ez July 2 - Sold December corn futures (50,000 bu. Irs gov form1040ez @$5. Irs gov form1040ez 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Irs gov form1040ez @$6 plus $1,400 broker's commission) 301,400 Futures loss ($13,900) This loss is reported as a negative figure on Schedule F, Part I, line 8, as other income. Irs gov form1040ez   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Irs gov form1040ez × $6). Irs gov form1040ez Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Irs gov form1040ez   Assume you were right and the price went down 25 cents a bushel. Irs gov form1040ez In effect, you would still net $5. Irs gov form1040ez 75 a bushel, figured as follows. Irs gov form1040ez Sold cash corn, per bushel $5. Irs gov form1040ez 50 Gain on hedge, per bushel . Irs gov form1040ez 25 Net price, per bushel $5. Irs gov form1040ez 75       The gain on your futures transactions would have been $11,100, figured as follows. Irs gov form1040ez July 2 - Sold December corn futures (50,000 bu. Irs gov form1040ez @$5. Irs gov form1040ez 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Irs gov form1040ez @$5. Irs gov form1040ez 50 plus $1,400 broker's commission) 276,400 Futures gain $11,100 The $11,100 is reported on Schedule F, Part I, line 8, as other income. Irs gov form1040ez   The proceeds from the sale of your corn at the local elevator, $275,000, are reported on Schedule F, Part I, line 2, as income from sales of products you raised. Irs gov form1040ez Livestock This part discusses the sale or exchange of livestock used in your farm business. Irs gov form1040ez Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Irs gov form1040ez However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Irs gov form1040ez See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Irs gov form1040ez The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Irs gov form1040ez The sale of this livestock is reported on Schedule F. Irs gov form1040ez See chapter 3. Irs gov form1040ez Also, special rules apply to sales or exchanges caused by weather-related conditions. Irs gov form1040ez See chapter 3. Irs gov form1040ez Holding period. Irs gov form1040ez   The sale or exchange of livestock used in your farm business (defined below) qualifies as a section 1231 transaction if you held the livestock for 12 months or more (24 months or more for horses and cattle). Irs gov form1040ez Livestock. Irs gov form1040ez   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Irs gov form1040ez Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Irs gov form1040ez Livestock used in farm business. Irs gov form1040ez   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Irs gov form1040ez The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Irs gov form1040ez An animal is not held for draft, breeding, dairy, or sporting purposes merely because it is suitable for that purpose, or because it is held for sale to other persons for use by them for that purpose. Irs gov form1040ez However, a draft, breeding, or sporting purpose may be present if an animal is disposed of within a reasonable time after it is prevented from its intended use or made undesirable as a result of an accident, disease, drought, or unfitness of the animal. Irs gov form1040ez Example 1. Irs gov form1040ez You discover an animal that you intend to use for breeding purposes is sterile. Irs gov form1040ez You dispose of it within a reasonable time. Irs gov form1040ez This animal was held for breeding purposes. Irs gov form1040ez Example 2. Irs gov form1040ez You retire and sell your entire herd, including young animals that you would have used for breeding or dairy purposes had you remained in business. Irs gov form1040ez These young animals were held for breeding or dairy purposes. Irs gov form1040ez Also, if you sell young animals to reduce your breeding or dairy herd because of drought, these animals are treated as having been held for breeding or dairy purposes. Irs gov form1040ez See Sales Caused by Weather-Related Conditions in chapter 3. Irs gov form1040ez Example 3. Irs gov form1040ez You are in the business of raising hogs for slaughter. Irs gov form1040ez Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Irs gov form1040ez You sell the brood sows after obtaining the litter. Irs gov form1040ez Even though you hold these brood sows for ultimate sale to customers in the ordinary course of your business, they are considered to be held for breeding purposes. Irs gov form1040ez Example 4. Irs gov form1040ez You are in the business of raising registered cattle for sale to others for use as breeding cattle. Irs gov form1040ez The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Irs gov form1040ez Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Irs gov form1040ez Such use does not demonstrate that you are holding the cattle for breeding purposes. Irs gov form1040ez However, those cattle you held as additions or replacements to your own breeding herd to produce calves are considered to be held for breeding purposes, even though they may not actually have produced calves. Irs gov form1040ez The same applies to hog and sheep breeders. Irs gov form1040ez Example 5. Irs gov form1040ez You breed, raise, and train horses for racing purposes. Irs gov form1040ez Every year you cull horses from your racing stable. Irs gov form1040ez In 2013, you decided that to prevent your racing stable from getting too large to be effectively operated, you must cull six horses that had been raced at public tracks in 2012. Irs gov form1040ez These horses are all considered held for sporting purposes. Irs gov form1040ez Figuring gain or loss on the cash method. Irs gov form1040ez   Farmers or ranchers who use the cash method of accounting figure their gain or loss on the sale of livestock used in their farming business as follows. Irs gov form1040ez Raised livestock. Irs gov form1040ez   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Irs gov form1040ez Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Irs gov form1040ez The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Irs gov form1040ez However, see Uniform Capitalization Rules in chapter 6. Irs gov form1040ez Purchased livestock. Irs gov form1040ez   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Irs gov form1040ez Example. Irs gov form1040ez A farmer sold a breeding cow on January 8, 2013, for $1,250. Irs gov form1040ez Expenses of the sale were $125. Irs gov form1040ez The cow was bought July 2, 2009, for $1,300. Irs gov form1040ez Depreciation (not less than the amount allowable) was $867. Irs gov form1040ez Gross sales price $1,250 Cost (basis) $1,300   Minus: Depreciation deduction 867   Unrecovered cost (adjusted basis) $ 433   Expense of sale 125 558 Gain realized $ 692 Converted Wetland and Highly Erodible Cropland Special rules apply to dispositions of land converted to farming use after March 1, 1986. Irs gov form1040ez Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Irs gov form1040ez Any loss on the disposition of such property is treated as a long-term capital loss. Irs gov form1040ez Converted wetland. Irs gov form1040ez   This is generally land that was drained or filled to make the production of agricultural commodities possible. Irs gov form1040ez It includes converted wetland held by the person who originally converted it or held by any other person who used the converted wetland at any time after conversion for farming. Irs gov form1040ez   A wetland (before conversion) is land that meets all the following conditions. Irs gov form1040ez It is mostly soil that, in its undrained condition, is saturated, flooded, or ponded long enough during a growing season to develop an oxygen-deficient state that supports the growth and regeneration of plants growing in water. Irs gov form1040ez It is saturated by surface or groundwater at a frequency and duration sufficient to support mostly plants that are adapted for life in saturated soil. Irs gov form1040ez It supports, under normal circumstances, mostly plants that grow in saturated soil. Irs gov form1040ez Highly erodible cropland. Irs gov form1040ez   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Irs gov form1040ez Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Irs gov form1040ez Highly erodible cropland also includes land that would have an excessive average annual erosion rate in relation to the soil loss tolerance level, as determined by the Department of Agriculture. Irs gov form1040ez Successor. Irs gov form1040ez   Converted wetland or highly erodible cropland is also land held by any person whose basis in the land is figured by reference to the adjusted basis of a person in whose hands the property was converted wetland or highly erodible cropland. Irs gov form1040ez Timber Standing timber you held as investment property is a capital asset. Irs gov form1040ez Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Irs gov form1040ez If you held the timber primarily for sale to customers, it is not a capital asset. Irs gov form1040ez Gain or loss on its sale is ordinary business income or loss. Irs gov form1040ez It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Irs gov form1040ez See the Instructions for Schedule F (Form 1040). Irs gov form1040ez Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. Irs gov form1040ez Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Irs gov form1040ez , are ordinary farm income and expenses reported on Schedule F. Irs gov form1040ez Different rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange or you enter into a cutting contract, discussed below. Irs gov form1040ez Timber considered cut. Irs gov form1040ez   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Irs gov form1040ez This is true whether the timber is cut under contract or whether you cut it yourself. Irs gov form1040ez Christmas trees. Irs gov form1040ez   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. Irs gov form1040ez They qualify for both rules discussed below. Irs gov form1040ez Election to treat cutting as a sale or exchange. Irs gov form1040ez   Under the general rule, the cutting of timber results in no gain or loss. Irs gov form1040ez It is not until a sale or exchange occurs that gain or loss is realized. Irs gov form1040ez But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year it is cut. Irs gov form1040ez Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. Irs gov form1040ez Any later sale results in ordinary business income or loss. Irs gov form1040ez See the example below. Irs gov form1040ez   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or use in your trade or business. Irs gov form1040ez Making the election. Irs gov form1040ez   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of your gain or loss. Irs gov form1040ez You do not have to make the election in the first year you cut the timber. Irs gov form1040ez You can make it in any year to which the election would apply. Irs gov form1040ez If the timber is partnership property, the election is made on the partnership return. Irs gov form1040ez This election cannot be made on an amended return. Irs gov form1040ez   Once you have made the election, it remains in effect for all later years unless you revoke it. Irs gov form1040ez Election under section 631(a) may be revoked. Irs gov form1040ez   If you previously elected for any tax year ending before October 23, 2004, to treat the cutting of timber as a sale or exchange under section 631(a), you may revoke this election without the consent of the IRS for any tax year ending after October 22, 2004. Irs gov form1040ez The prior election (and revocation) is disregarded for purposes of making a subsequent election. Irs gov form1040ez See Form T (Timber), Forest Activities Schedule, for more information. Irs gov form1040ez Gain or loss. Irs gov form1040ez   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its FMV on the first day of your tax year in which it is cut. Irs gov form1040ez   Your adjusted basis for depletion of cut timber is based on the number of units (board feet, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Irs gov form1040ez Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 and Regulations section 1. Irs gov form1040ez 611-3. Irs gov form1040ez   Depletion of timber is discussed in chapter 7. Irs gov form1040ez Example. Irs gov form1040ez   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Irs gov form1040ez It had an adjusted basis for depletion of $40 per MBF. Irs gov form1040ez You are a calendar year taxpayer. Irs gov form1040ez On January 1, 2013, the timber had a FMV of $350 per MBF. Irs gov form1040ez It was cut in April for sale. Irs gov form1040ez On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Irs gov form1040ez You report the difference between the FMV and your adjusted basis for depletion as a gain. Irs gov form1040ez This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as a capital gain or as ordinary gain. Irs gov form1040ez You figure your gain as follows. Irs gov form1040ez FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000   The FMV becomes your basis in the cut timber, and a later sale of the cut timber, including any by-product or tree tops, will result in ordinary business income or loss. Irs gov form1040ez Outright sales of timber. Irs gov form1040ez   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined later). Irs gov form1040ez However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see Date of disposal below). Irs gov form1040ez Cutting contract. Irs gov form1040ez   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Irs gov form1040ez You are the owner of the timber. Irs gov form1040ez You held the timber longer than 1 year before its disposal. Irs gov form1040ez You kept an economic interest in the timber. Irs gov form1040ez   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. Irs gov form1040ez   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. Irs gov form1040ez Include this amount on Form 4797 along with your other section 1231 gains or losses. Irs gov form1040ez Date of disposal. Irs gov form1040ez   The date of disposal is the date the timber is cut. Irs gov form1040ez However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. Irs gov form1040ez   This election applies only to figure the holding period of the timber. Irs gov form1040ez It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Irs gov form1040ez   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Irs gov form1040ez The statement must identify the advance payments subject to the election and the contract under which they were made. Irs gov form1040ez   If you timely filed your return for the year you received payment without making the election, you can still make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Irs gov form1040ez Attach the statement to the amended return and write “Filed pursuant to section 301. Irs gov form1040ez 9100-2” at the top of the statement. Irs gov form1040ez File the amended return at the same address the original return was filed. Irs gov form1040ez Owner. Irs gov form1040ez   An owner is any person who owns an interest in the timber, including a sublessor and the holder of a contract to cut the timber. Irs gov form1040ez You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. Irs gov form1040ez Tree stumps. Irs gov form1040ez   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. Irs gov form1040ez Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Irs gov form1040ez However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Irs gov form1040ez Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Irs gov form1040ez   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Irs gov form1040ez Sale of a Farm The sale of your farm will usually involve the sale of both nonbusiness property (your home) and business property (the land and buildings used in the farm operation and perhaps machinery and livestock). Irs gov form1040ez If you have a gain from the sale, you may be allowed to exclude the gain on your home. Irs gov form1040ez For more information, see Publication 523, Selling Your Home. Irs gov form1040ez The gain on the sale of your business property is taxable. Irs gov form1040ez A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Irs gov form1040ez Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Irs gov form1040ez See chapter 9. Irs gov form1040ez Losses from personal-use property, other than casualty or theft losses, are not deductible. Irs gov form1040ez If you receive payments for your farm in installments, your gain is taxed over the period of years the payments are received, unless you elect not to use the installment method of reporting the gain. Irs gov form1040ez See chapter 10 for information about installment sales. Irs gov form1040ez When you sell your farm, the gain or loss on each asset is figured separately. Irs gov form1040ez The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Irs gov form1040ez Each of the assets sold must be classified as one of the following. Irs gov form1040ez Capital asset held 1 year or less. Irs gov form1040ez Capital asset held longer than 1 year. Irs gov form1040ez Property (including real estate) used in your business and held 1 year or less (including draft, breeding, dairy, and sporting animals held less than the holding periods discussed earlier under Livestock ). Irs gov form1040ez Property (including real estate) used in your business and held longer than 1 year (including only draft, breeding, dairy, and sporting animals held for the holding periods discussed earlier). Irs gov form1040ez Property held primarily for sale or which is of the kind that would be included in inventory if on hand at the end of your tax year. Irs gov form1040ez Allocation of consideration paid for a farm. Irs gov form1040ez   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Irs gov form1040ez The residual method is required only if the group of assets sold constitutes a trade or business. Irs gov form1040ez This method determines gain or loss from the transfer of each asset. Irs gov form1040ez It also determines the buyer's basis in the business assets. Irs gov form1040ez For more information, see Sale of a Business in chapter 2 of Publication 544. Irs gov form1040ez Property used in farm operation. Irs gov form1040ez   The rules for excluding the gain on the sale of your home, described later under Sale of your home , do not apply to the property used for your farming business. Irs gov form1040ez Recognized gains and losses on business property must be reported on your return for the year of the sale. Irs gov form1040ez If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Irs gov form1040ez Example. Irs gov form1040ez You sell your farm, including your main home, which you have owned since December 2001. Irs gov form1040ez You realize gain on the sale as follows. Irs gov form1040ez   Farm   Farm   With Home Without   Home Only Home Selling price $382,000 $158,000 $224,000 Cost (or other basis) 240,000 110,000 130,000 Gain $142,000 $48,000 $94,000 You must report the $94,000 gain from the sale of the property used in your farm business. Irs gov form1040ez All or a part of that gain may have to be reported as ordinary income from the recapture of depreciation or soil and water conservation expenses. Irs gov form1040ez Treat the balance as section 1231 gain. Irs gov form1040ez The $48,000 gain from the sale of your home is not taxable as long as you meet the requirements explained later under Sale of your home . Irs gov form1040ez Partial sale. Irs gov form1040ez   If you sell only part of your farm, you must report any recognized gain or loss on the sale of that part on your tax return for the year of the sale. Irs gov form1040ez You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Irs gov form1040ez For a detailed discussion on installment sales, see Publication 544. Irs gov form1040ez Adjusted basis of the part sold. Irs gov form1040ez   This is the properly allocated part of your original cost or other basis of the entire farm plus or minus necessary adjustments for improvements, depreciation, etc. Irs gov form1040ez , on the part sold. Irs gov form1040ez If your home is on the farm, you must properly adjust the basis to exclude those costs from your farm asset costs, as discussed below under Sale of your home . Irs gov form1040ez Example. Irs gov form1040ez You bought a 600-acre farm for $700,000. Irs gov form1040ez The farm included land and buildings. Irs gov form1040ez The purchase contract designated $600,000 of the purchase price to the land. Irs gov form1040ez You later sold 60 acres of land on which you had installed a fence. Irs gov form1040ez Your adjusted basis for the part of your farm sold is $60,000 (1/10 of $600,000), plus any unrecovered cost (cost not depreciated) of the fence on the 60 acres at the time of sale. Irs gov form1040ez Use this amount to determine your gain or loss on the sale of the 60 acres. Irs gov form1040ez Assessed values for local property taxes. Irs gov form1040ez   If you paid a flat sum for the entire farm and no other facts are available for properly allocating your original cost or other basis between the land and the buildings, you can use the assessed values for local property taxes for the year of purchase to allocate the costs. Irs gov form1040ez Example. Irs gov form1040ez Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Irs gov form1040ez However, in the year of purchase, local taxes on the entire property were based on assessed valuations of $420,000 for land and $140,000 for improvements, or a total of $560,000. Irs gov form1040ez The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Irs gov form1040ez Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Irs gov form1040ez The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Irs gov form1040ez Sale of your home. Irs gov form1040ez   Your home is a capital asset and not property used in the trade or business of farming. Irs gov form1040ez If you sell a farm that includes a house you and your family occupy, you must determine the part of the selling price and the part of the cost or other basis allocable to your home. Irs gov form1040ez Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Irs gov form1040ez   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Irs gov form1040ez For more information on basis, see chapter 6. Irs gov form1040ez More information. Irs gov form1040ez   For more information on selling your home, see Publication 523. Irs gov form1040ez Gain from condemnation. Irs gov form1040ez   If you have a gain from a condemnation or sale under threat of condemnation, you may use the preceding rules for excluding the gain, rather than the rules discussed under Postponing Gain in chapter 11. Irs gov form1040ez However, any gain that cannot be excluded (because it is more than the limit) may be postponed under the rules discussed under Postponing Gain in chapter 11. Irs gov form1040ez Foreclosure or Repossession If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Irs gov form1040ez The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Irs gov form1040ez This is true even if you voluntarily return the property to the lender. Irs gov form1040ez You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Irs gov form1040ez Buyer's (borrower's) gain or loss. Irs gov form1040ez   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Irs gov form1040ez The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Irs gov form1040ez See Determining Gain or Loss , earlier. Irs gov form1040ez Worksheet 8-1. Irs gov form1040ez Worksheet for Foreclosures andRepossessions Part 1. Irs gov form1040ez Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Irs gov form1040ez Complete this part only if you were personally liable for the debt. Irs gov form1040ez Otherwise, go to Part 2. Irs gov form1040ez   1. Irs gov form1040ez Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable after the transfer of property   2. Irs gov form1040ez Enter the Fair Market Value of the transferred property   3. Irs gov form1040ez Ordinary income from cancellation of debt upon foreclosure or repossession. Irs gov form1040ez * Subtract line 2 from line 1. Irs gov form1040ez If zero or less, enter -0-   Part 2. Irs gov form1040ez Figure your gain or loss from foreclosure or repossession. Irs gov form1040ez   4. Irs gov form1040ez If you completed Part 1, enter the smaller of line 1 or line 2. Irs gov form1040ez If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Irs gov form1040ez Enter any proceeds you received from the foreclosure sale   6. Irs gov form1040ez Add lines 4 and 5   7. Irs gov form1040ez Enter the adjusted basis of the transferred property   8. Irs gov form1040ez Gain or loss from foreclosure or repossession. Irs gov form1040ez Subtract line 7  from line 6   * The income may not be taxable. Irs gov form1040ez See Cancellation of debt . Irs gov form1040ez    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Irs gov form1040ez Amount realized on a nonrecourse debt. Irs gov form1040ez   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full amount of the debt canceled by the transfer. Irs gov form1040ez The full canceled debt is included in the amount realized even if the fair market value of the property is less than the canceled debt. Irs gov form1040ez Example 1. Irs gov form1040ez Ann paid $200,000 for land used in her farming business. Irs gov form1040ez She paid $15,000 down and borrowed the remaining $185,000 from a bank. Irs gov form1040ez Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Irs gov form1040ez The bank foreclosed on the loan 2 years after Ann stopped making payments. Irs gov form1040ez When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Irs gov form1040ez The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Irs gov form1040ez She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Irs gov form1040ez She has a $20,000 deductible loss. Irs gov form1040ez Example 2. Irs gov form1040ez Assume the same facts as in Example 1 except the FMV of the land was $210,000. Irs gov form1040ez The result is the same. Irs gov form1040ez The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Irs gov form1040ez Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Irs gov form1040ez Amount realized on a recourse debt. Irs gov form1040ez   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Irs gov form1040ez   You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Irs gov form1040ez The amount realized does not include the canceled debt that is your income from cancellation of debt. Irs gov form1040ez See Cancellation of debt , later. Irs gov form1040ez Example 3. Irs gov form1040ez Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Irs gov form1040ez In this case, the amount she realizes is $170,000. Irs gov form1040ez This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Irs gov form1040ez Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Irs gov form1040ez She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Irs gov form1040ez She is also treated as receiving ordinary income from cancellation of debt. Irs gov form1040ez That income is $10,000 ($180,000 − $170,000). Irs gov form1040ez This is the part of the canceled debt not included in the amount realized. Irs gov form1040ez She reports this as other income on Schedule F, line 8. Irs gov form1040ez Seller's (lender's) gain or loss on repossession. Irs gov form1040ez   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Irs gov form1040ez For more information, see Repossession in Publication 537, Installment Sales. Irs gov form1040ez Cancellation of debt. Irs gov form1040ez   If property that is repossessed or foreclosed upon secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the FMV of the property. Irs gov form1040ez This income is separate from any gain or loss realized from the foreclosure or repossession. Irs gov form1040ez Report the income from cancellation of a business debt on Schedule F, line 8. Irs gov form1040ez Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Irs gov form1040ez    You can use Worksheet 8-1 to figure your income from cancellation of debt. Irs gov form1040ez   However, income from cancellation of debt is not taxed if any of the following apply. Irs gov form1040ez The cancellation is intended as a gift. Irs gov form1040ez The debt is qualified farm debt (see chapter 3). Irs gov form1040ez The debt is qualified real property business debt (see chapter 5 of Publication 334). Irs gov form1040ez You are insolvent or bankrupt (see  chapter 3). Irs gov form1040ez The debt is qualified principal residence indebtedness (see chapter 3). Irs gov form1040ez   Use Form 982 to report the income exclusion. Irs gov form1040ez Abandonment The abandonment of property is a disposition of property. Irs gov form1040ez You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership, but without passing it on to anyone else. Irs gov form1040ez Business or investment property. Irs gov form1040ez   Loss from abandonment of business or investment property is deductible as a loss. Irs gov form1040ez Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Irs gov form1040ez If your adjusted basis is more than the amount you realize (if any), then you have a loss. Irs gov form1040ez If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Irs gov form1040ez This rule also applies to leasehold improvements the lessor made for the lessee. Irs gov form1040ez However, if the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed earlier under Foreclosure or Repossession . Irs gov form1040ez   If the abandoned property is secured by debt, special rules apply. Irs gov form1040ez The tax consequences of abandonment of property that secures a debt depend on whether you are personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Irs gov form1040ez For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Irs gov form1040ez The abandonment loss is deducted in the tax year in which the loss is sustained. Irs gov form1040ez Report the loss on Form 4797, Part II, line 10. Irs gov form1040ez Personal-use property. Irs gov form1040ez   You cannot deduct any loss from abandonment of your home or other property held for personal use. Irs gov form1040ez Canceled debt. Irs gov form1040ez   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Irs gov form1040ez This income is separate from any loss realized from abandonment of the property. Irs gov form1040ez Report income from cancellation of a debt related to a business or rental activity as business or rental income. Irs gov form1040ez Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Irs gov form1040ez   However, income from cancellation of debt is not taxed in certain circumstances. Irs gov form1040ez See Cancellation of debt earlier under Foreclosure or Repossession . Irs gov form1040ez Forms 1099-A and 1099-C. Irs gov form1040ez   A lender who acquires an interest in your property in a foreclosure, repossession, or abandonment should send you Form 1099-A showing the information you need to figure your loss from the foreclosure, repossession, or abandonment. Irs gov form1040ez However, if the lender cancels part of your debt and the lender must file Form 1099-C, the lender may include the information about the foreclosure, repossession, or abandonment on that form instead of Form 1099-A. Irs gov form1040ez The lender must file Form 1099-C and send you a copy if the canceled debt is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Irs gov form1040ez For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Irs gov form1040ez Prev  Up  Next   Home   More Online Publications
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The Irs Gov Form1040ez

Irs gov form1040ez 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 gov form1040ez Dispositions — mass asset accounts. Irs gov form1040ez Early dispositions — 15-year real property. Irs gov form1040ez Early dispositions — 18- and 19-year real property. Irs gov form1040ez 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 gov form1040ez 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 gov form1040ez These rules are mandatory and generally apply to tangible property placed in service after 1980 and before 1987. Irs gov form1040ez If you placed property in service during this period, you must continue to figure your depreciation under ACRS. Irs gov form1040ez 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 gov form1040ez Listed property includes cars, other means of transportation, and certain computers. Irs gov form1040ez Any additions or improvements placed in service after 1986, including any components of a building (such as plumbing, wiring, storm windows, etc. Irs gov form1040ez ), are depreciated using MACRS, discussed in chapter 3 of Publication 946. Irs gov form1040ez It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Irs gov form1040ez ACRS Defined ACRS consists of accelerated depreciation methods and an alternate ACRS method that could have been elected. Irs gov form1040ez The alternate ACRS method used a recovery percentage based on a modified straight line method. Irs gov form1040ez The law prescribes fixed percentages to be uses for each class of property. Irs gov form1040ez Property depreciable under ACRS is called recovery property. Irs gov form1040ez The recovery class of property determines the recovery period. Irs gov form1040ez 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 gov form1040ez Under ACRS, the prescribed percentages are used to recover the unadjusted basis of recovery property. Irs gov form1040ez To figure a depreciation deduction, you multiply the prescribed percentage for the recovery class by the unadjusted basis of the recovery property. Irs gov form1040ez You must continue to figure your depreciation under ACRS for property placed in service after 1980 and before 1987. Irs gov form1040ez For property you placed in service after 1986, you must use MACRS, discussed in chapter 3 of Publication 946. Irs gov form1040ez What Can and Cannot Be Depreciated Under ACRS ACRS applies to most depreciable tangible property placed in service after 1980 and before 1987. Irs gov form1040ez It includes new or used and real or personal property. Irs gov form1040ez The property must be for use in a trade or business or for the production of income. Irs gov form1040ez Property you acquired before 1981 or after 1986 is not ACRS recovery property. Irs gov form1040ez For information on depreciating property acquired before 1981, see chapter 2. Irs gov form1040ez For information on depreciating property acquired after 1986, see chapter 3 of Publication 946. Irs gov form1040ez Recovery Property Recovery property under ACRS is tangible depreciable property placed in service after 1980 and before 1987. Irs gov form1040ez 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 gov form1040ez Nonrecovery Property You cannot use ACRS for property you placed in service before 1981 or after 1986. Irs gov form1040ez 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 gov form1040ez Intangible property. Irs gov form1040ez   Intangible property is not depreciated under ACRS. Irs gov form1040ez Property depreciated under methods not expressed in a term of years. Irs gov form1040ez   Certain property depreciated under a method not expressed in a term of years is not depreciated under ACRS. Irs gov form1040ez 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 gov form1040ez Public utility property. Irs gov form1040ez   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 gov form1040ez Additions or improvements to ACRS property after 1986. Irs gov form1040ez   Any additions or improvements placed in service after 1986, including any components of a building (plumbing, wiring, storm windows, etc. Irs gov form1040ez ) are depreciated using MACRS, discussed in chapter 3 of Publication 946. Irs gov form1040ez It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Irs gov form1040ez How To Figure the Deduction After you determine that your property can be depreciated under ACRS, you are ready to figure your deduction. Irs gov form1040ez 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 gov form1040ez Unadjusted Basis To figure your ACRS deduction, you multiply the unadjusted basis in your recovery property by its applicable percentage for the year. Irs gov form1040ez 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 gov form1040ez 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 gov form1040ez If you buy property, your unadjusted basis is usually its cost minus any amortized amount and minus any section 179 deduction elected. Irs gov form1040ez 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 gov form1040ez See Publication 551. Irs gov form1040ez Classes of Recovery Property All recovery property under ACRS is in one of the following classes. Irs gov form1040ez The class for your property was determined when you began to depreciate it. Irs gov form1040ez 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 gov form1040ez Race horses over 2 years old when placed in service are 3-year property. Irs gov form1040ez Any other horses over 12 years old when you placed them in service are also included in the 3-year property class. Irs gov form1040ez 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 gov form1040ez You cannot claim depreciation for this property after 1988. Irs gov form1040ez 5-Year Property 5-year property includes computers, copiers, and equipment, such as office furniture and fixtures. Irs gov form1040ez It also includes single purpose agricultural or horticultural structures and petroleum storage facilities (other than buildings and their structural components). Irs gov form1040ez 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 gov form1040ez You cannot claim depreciation for this property after 1990. Irs gov form1040ez 10-Year Property 10-year property includes certain real property such as theme-park structures and certain public utility property. Irs gov form1040ez Manufactured homes (including mobile homes) and railroad tank cars are also 10-year property. Irs gov form1040ez 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 gov form1040ez 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 gov form1040ez 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 gov form1040ez Example. Irs gov form1040ez On April 21, 1986, you bought and placed in service a new mobile home for $26,000 to be used as rental property. Irs gov form1040ez You paid $10,000 cash and signed a note for $16,000 giving you an unadjusted basis of $26,000. Irs gov form1040ez 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 gov form1040ez The total unadjusted basis of your 10-year recovery property placed in service in 1986 was $37,500 ($26,000 + $11,500). Irs gov form1040ez Your ACRS deduction was $3,000 (8% × $37,500). Irs gov form1040ez In 1987, your ACRS deduction was $5,250 (14% × $37,500). Irs gov form1040ez In 1988, your ACRS deduction was $4,500 (12% × $37,500). Irs gov form1040ez In 1989, 1990, and 1991, your ACRS deduction was $3,750 (10% × $37,500). Irs gov form1040ez In 1992, 1993, 1994, and 1995 your deduction for each year is $3,375 (9% × $37,500). Irs gov form1040ez 15-Year Real Property 15-year real property is real property that is recovery property placed in service before March 16, 1984. Irs gov form1040ez It includes all real property, such as buildings, other than that designated as 5-year or 10-year property. Irs gov form1040ez 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 gov form1040ez You could group 15-year real property by month and year placed in service. Irs gov form1040ez 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 gov form1040ez You use the percentages listed under that month for each year of the recovery period to determine your depreciation deduction each year. Irs gov form1040ez Example. Irs gov form1040ez On March 5, 1984, you placed an apartment building in service in your business. Irs gov form1040ez It is 15-year real property. Irs gov form1040ez After subtracting the value of the land, your unadjusted basis in the building is $250,000. Irs gov form1040ez You use the calendar year as your tax year. Irs gov form1040ez March is the third month of your tax year. Irs gov form1040ez Your ACRS deduction for 1984 was $25,000 (10% × $250,000). Irs gov form1040ez For 1985, the percentage for the third month of the second year of the recovery period is 11%. Irs gov form1040ez Your deduction was $27,500 (11% × $250,000). Irs gov form1040ez For the third, fourth, and fifth years of the recovery period (1986, 1987, and 1988), the percentages are 9%, 8%, and 7%. Irs gov form1040ez For 1989 through 1992, the percentage for the third month is 6%. Irs gov form1040ez Your deduction each year is $15,000 (6% × $250,000). Irs gov form1040ez For 1993, 1994, and 1995, the percentage for the third month is 5%. Irs gov form1040ez Your depreciation deduction is $12,500 (5% × $250,000) for 1993, 1994, and 1995. Irs gov form1040ez 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 gov form1040ez Low-income rental housing for which a depreciation deduction for rehabilitation expenditures is allowed. Irs gov form1040ez 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 gov form1040ez Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Irs gov form1040ez 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 gov form1040ez 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 gov form1040ez Use the percentages listed under that month for each year of the recovery period. Irs gov form1040ez Table 2 shows percentages for low-income housing placed in service before May 9, 1985. Irs gov form1040ez Table 3 shows percentages for low-income housing placed in service after May 8, 1985, and before 1987. Irs gov form1040ez Example. Irs gov form1040ez 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 gov form1040ez You use the calendar year as your tax year. Irs gov form1040ez You use Table C–3 because the property was placed in service after May 8, 1985. Irs gov form1040ez Your unadjusted basis for the property, not including the land, was $59,000. Irs gov form1040ez Your deduction for 1986 through 2001 is shown in the following table. Irs gov form1040ez Year Rate Deduction 1986 8. Irs gov form1040ez 9% $5,251 1987 12. Irs gov form1040ez 1% 7,139 1988 10. Irs gov form1040ez 5% 6,195 1989 9. Irs gov form1040ez 1% 5,369 1990 7. Irs gov form1040ez 9% 4,661 1991 6. Irs gov form1040ez 9% 4,071 1992 5. Irs gov form1040ez 9% 3,481 1993 5. Irs gov form1040ez 2% 3,068 1994 4. Irs gov form1040ez 6% 2,714 1995 4. Irs gov form1040ez 6% 2,714 1996 4. Irs gov form1040ez 6% 2,714 1997 4. Irs gov form1040ez 6% 2,714 1998 4. Irs gov form1040ez 6% 2,714 1999 4. Irs gov form1040ez 5% 2,655 2000 4. Irs gov form1040ez 5% 2,655 2001 1. Irs gov form1040ez 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 gov form1040ez 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 gov form1040ez 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 gov form1040ez There are also tables for 18-year real property in the Appendix. Irs gov form1040ez Table 4 shows the percentages for 18-year real property you placed in service after June 22, 1984, and before May 9, 1985. Irs gov form1040ez Table 5 is for 18-year real property placed in service after March 15, 1984, and before June 23, 1984. Irs gov form1040ez 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 gov form1040ez Use the percentages listed under that month for each year of the recovery period. Irs gov form1040ez Example. Irs gov form1040ez On April 28, 1985, you bought and placed in service a rental house. Irs gov form1040ez The house, not including the land, cost $95,000. Irs gov form1040ez This is your unadjusted basis for the house. Irs gov form1040ez You use the calendar year as your tax year. Irs gov form1040ez Because the house was placed in service after June 22, 1984, and before May 9, 1985, it is 18-year real property. Irs gov form1040ez You use Table 4 to figure your deduction for the house. Irs gov form1040ez April is the fourth month of your tax year. Irs gov form1040ez Your deduction for 1985 through 2003 is shown in the following table. Irs gov form1040ez Year Rate Deduction 1985 7. Irs gov form1040ez 0% $6,650 1986 9. Irs gov form1040ez 0% 8,550 1987 8. Irs gov form1040ez 0% 7,600 1988 7. Irs gov form1040ez 0% 6,650 1989 7. Irs gov form1040ez 0% 6,650 1990 6. Irs gov form1040ez 0% 5,700 1991 5. Irs gov form1040ez 0% 4,750 1992 5. Irs gov form1040ez 0% 4,750 1993 5. Irs gov form1040ez 0% 4,750 1994 5. Irs gov form1040ez 0% 4,750 1995 5. Irs gov form1040ez 0% 4,750 1996 5. Irs gov form1040ez 0% 4,750 1997 5. Irs gov form1040ez 0% 4,750 1998 4. Irs gov form1040ez 0% 3,800 1999 4. Irs gov form1040ez 0% 3,800 2000 4. Irs gov form1040ez 0% 3,800 2001 4. Irs gov form1040ez 0% 3,800 2002 4. Irs gov form1040ez 0% 3,800 2003 1. Irs gov form1040ez 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 gov form1040ez 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 gov form1040ez 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 gov form1040ez Table 6 shows the percentages for 19-year real property. Irs gov form1040ez You find the month in your tax year that you placed the property in service. Irs gov form1040ez You use the percentages listed under that month for each year of the recovery period. Irs gov form1040ez Recovery Periods Each item of recovery property is assigned to a class of property. Irs gov form1040ez The classes of recovery property establish the recovery periods over which the unadjusted basis of items in a class is recovered. Irs gov form1040ez 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 gov form1040ez This alternate ACRS method uses a recovery percentage based on a modified straight line method. Irs gov form1040ez This alternate ACRS method generally uses percentages other than those from the tables. Irs gov form1040ez If you elected the alternate ACRS method, you determine the recovery period by using the following schedule. Irs gov form1040ez 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 gov form1040ez   The straight-line percentages for the alternate ACRS method are: Recovery Period Percentage 5 years 20. Irs gov form1040ez 00% 10 years 10. Irs gov form1040ez 00% 12 years 8. Irs gov form1040ez 333% 15 years 6. Irs gov form1040ez 667% 25 years 4. Irs gov form1040ez 00% 35 years 2. Irs gov form1040ez 857%   You apply the percentage to the unadjusted basis(defined earlier) of the property to figure your ACRS deduction. Irs gov form1040ez There are tables for 18- and 19-year real property later in this publication in the Appendix. Irs gov form1040ez For 15-year real property, see 15-year real property, later. Irs gov form1040ez 3-, 5-, and 10-year property. Irs gov form1040ez   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 gov form1040ez This applies throughout the recovery period you selected. Irs gov form1040ez Half-year convention. Irs gov form1040ez   If you elected the alternate method, only a half-year of depreciation was deducted for the year you placed the property in service. Irs gov form1040ez This applied regardless of when in the tax year you placed the property in service. Irs gov form1040ez For each of the remaining years in the recovery period, you take a full year's deduction. Irs gov form1040ez 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 gov form1040ez Example. Irs gov form1040ez You operate a small upholstery business. Irs gov form1040ez 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 gov form1040ez You elected to use the alternate ACRS method. Irs gov form1040ez You did not elect to take a section 179 deduction. Irs gov form1040ez You decided to recover the cost of the truck, which is 3-year recovery property, over 5 years. Irs gov form1040ez The saw is 5-year property, but you decided to recover its cost over 12 years. Irs gov form1040ez For 1986, your ACRS deduction reflected the half-year convention. Irs gov form1040ez In the first year, you deducted half of the amount determined for a full year. Irs gov form1040ez 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 gov form1040ez 00     Electric saw   12 years straight line = 8. Irs gov form1040ez 333% 8. Irs gov form1040ez 333% ÷ $500 = $41. Irs gov form1040ez 67 Half-year convention -½ of $41. Irs gov form1040ez 67= 20. Irs gov form1040ez 84 Total ACRS deduction for 1986 $1,320. Irs gov form1040ez 84       You take a full year of depreciation for both the truck and the saw for the years 1987 through 1990. Irs gov form1040ez 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 gov form1040ez 333% 8. Irs gov form1040ez 333% ÷ $500 = $41. Irs gov form1040ez 67 Total annual ACRS deduction for 1987 through 1990 $2,641. Irs gov form1040ez 67       In 1991, you take a half-year of depreciation for the truck and a full year of depreciation for the saw. Irs gov form1040ez 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 gov form1040ez 00     Electric saw   12 years straight line = 8. Irs gov form1040ez 333% 8. Irs gov form1040ez 333% ÷ $500 = $41. Irs gov form1040ez 67 Total ACRS deduction for 1991 $1,341. Irs gov form1040ez 67       The truck is fully depreciated after 1991. Irs gov form1040ez You take a full year of depreciation for the saw for the years 1992 through 1997. Irs gov form1040ez Your ACRS deduction for each of those years is as follows: Electric saw     12 years straight line = 8. Irs gov form1040ez 333% 8. Irs gov form1040ez 333% ÷ $500 = $41. Irs gov form1040ez 67 Total annual ACRS deduction for 1992 through 1997 $41. Irs gov form1040ez 67       You take a half-year of depreciation for the saw for 1998. Irs gov form1040ez Your ACRS deduction for 1998 is as follows: Electric saw   12 years straight line = 8. Irs gov form1040ez 333% 8. Irs gov form1040ez 333% ÷ $500 = $41. Irs gov form1040ez 67 Half-year convention -½ of $41. Irs gov form1040ez 67= 20. Irs gov form1040ez 84 Total ACRS deduction for 1998 $20. Irs gov form1040ez 84       The saw is fully depreciated after 1998. Irs gov form1040ez 15-year real property. Irs gov form1040ez   Under ACRS, you could also elect to use the alternate ACRS method for 15-year real property. Irs gov form1040ez 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 gov form1040ez If you selected a 15-year recovery period, you use the percentage (6. Irs gov form1040ez 667%) from the schedule above. Irs gov form1040ez You prorate this percentage for the number of months the property was in service in the first year. Irs gov form1040ez If you selected a 35- or 45-year recovery period, you use either Table 11 or 15. Irs gov form1040ez Alternate periods for 18-year real property. Irs gov form1040ez   For 18-year real property, the alternate recovery periods are 18, 35, or 45 years. Irs gov form1040ez 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 gov form1040ez There are two tables for each alternate recovery period. Irs gov form1040ez One table shows the percentage for property placed in service after June 22, 1984. Irs gov form1040ez The other table has the percentages for property placed in service after March 15, 1984, and before June 23, 1984. Irs gov form1040ez Alternate periods for 19-year real property. Irs gov form1040ez   For 19-year real property, the alternate recovery periods are 19, 35, or 45 years. Irs gov form1040ez If you selected a 19-year recovery period, use Table 9 to determine your deduction. Irs gov form1040ez If you select a 35- or 45-year recovery period, use either Table 13 or 14. Irs gov form1040ez Example. Irs gov form1040ez You placed in service an apartment building on August 3, 1986. Irs gov form1040ez The building is 19-year real property. Irs gov form1040ez The sales contract allocated $300,000 to the building and $100,000 to the land. Irs gov form1040ez You use the calendar year as your tax year. Irs gov form1040ez You chose the alternate ACRS method over a recovery period of 35 years. Irs gov form1040ez For 1986, you figure your ACRS deduction usingTable 13. Irs gov form1040ez August is the eighth month of your tax year. Irs gov form1040ez The percentage from Table 13 for the eighth month is 1. Irs gov form1040ez 1%. Irs gov form1040ez Your deduction was $3,300 ($300,000 ÷ 1. Irs gov form1040ez 1%). Irs gov form1040ez The deduction rate from ACRS Table 13 for years 2 through 20 is 2. Irs gov form1040ez 9% so that your deduction in 1987 through 2005 is $8,700 ($300,000 ÷ 2. Irs gov form1040ez 9%). Irs gov form1040ez Alternate periods for low-income housing. Irs gov form1040ez   For low-income housing, the alternate recovery periods are 15, 35, or 45 years. Irs gov form1040ez If you selected a 15-year period for this property, use 6. Irs gov form1040ez 667% as the percentage. Irs gov form1040ez If you selected a 35- or 45-year period, use either Table 11, 12, or 15. Irs gov form1040ez Election. Irs gov form1040ez   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 gov form1040ez Revocation of election. Irs gov form1040ez   Your election to use an alternate ACRS method, once made, can be changed only with the consent of the Commissioner. Irs gov form1040ez The Commissioner grants consent only in extraordinary circumstances. Irs gov form1040ez Any request for a revocation will be considered a request for a ruling. Irs gov form1040ez 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 gov form1040ez 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 gov form1040ez You figure this by multiplying the unadjusted basis by the recovery percentage. Irs gov form1040ez You then multiply the ACRS deduction determined for a full tax year by a fraction. Irs gov form1040ez 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 gov form1040ez For example, a corporation placed in service in June 1986 an item of 3-year property with an unadjusted basis of $10,000. Irs gov form1040ez 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 gov form1040ez 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 gov form1040ez The ACRS deduction for the short tax year is $1,250 ($2,500 ÷ 6/12). Irs gov form1040ez You use the full ACRS percentages during the remaining years of the recovery period. Irs gov form1040ez For the first tax year after the recovery period, the unrecovered basis will be deductible. Irs gov form1040ez Exception. Irs gov form1040ez   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 gov form1040ez You compute the number of months using either a full month or mid-month convention. Irs gov form1040ez This is true regardless of the number of months in the tax year and the recovery period and method used. Irs gov form1040ez Dispositions A disposition is the permanent withdrawal of property from use in your trade or business or in the production of income. Irs gov form1040ez You can make a withdrawal by sale, exchange, retirement, abandonment, or destruction. Irs gov form1040ez You generally recognize gain or loss on the disposition of an asset by sale. Irs gov form1040ez However, nonrecognition rules can allow you to postpone some gain. Irs gov form1040ez See Publication 544. Irs gov form1040ez If you physically abandon property, you can deduct as a loss the adjusted basis of the asset at the time of its abandonment. Irs gov form1040ez 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 gov form1040ez Early dispositions. Irs gov form1040ez   The disposal of an asset before the end of its specified recovery period, is referred to as an early disposition. Irs gov form1040ez When an early disposition occurs, the depreciation deduction in the year of disposition depends on the class of property involved. Irs gov form1040ez Early dispositions of ACRS property other than 15-, 18-, or 19-year real property. Irs gov form1040ez   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 gov form1040ez 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 gov form1040ez Dispositions — mass asset accounts. Irs gov form1040ez   The law provides a special rule to avoid the calculation of gain on the disposition of assets from mass asset accounts. Irs gov form1040ez 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 gov form1040ez Examples of mass assets include minor items of office, plant, and store furniture and fixtures. Irs gov form1040ez   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 gov form1040ez You leave the unadjusted basis of the property in the account until recovered in future years. Irs gov form1040ez If you did this, include the total proceeds realized from the disposition in income on the tax return for the year of disposition. Irs gov form1040ez Early dispositions — 15-year real property. Irs gov form1040ez   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 gov form1040ez You use a full-month convention. Irs gov form1040ez 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 gov form1040ez This applies whether you use the regular ACRS method or elected the alternate ACRS method. Irs gov form1040ez Example. Irs gov form1040ez You purchased and placed in service a rental house on March 2, 1984, for $98,000 (not including the cost of land). Irs gov form1040ez You file your return based on a calendar year. Irs gov form1040ez Your rate from Table 1 for the third month is 10%. Irs gov form1040ez Your ACRS deduction for 1984 was $9,800 ($98. Irs gov form1040ez 000 ÷ 10%). Irs gov form1040ez For 1985 through 1988, you figured your ACRS deductions using 11%, 9%, 8%, and 7% ÷ $98,000. Irs gov form1040ez For 1989 through 1992, you figured your ACRS deductions using 6% for each year. Irs gov form1040ez The deduction each year was $98,000 ÷ 6%. Irs gov form1040ez For 1993 and 1994, the ACRS deduction is ($98,000 ÷ 5%) $4,900 for each year. Irs gov form1040ez You sell the house on June 1, 1995. Irs gov form1040ez You figure your ACRS deduction for 1995 for the full year and then prorate that amount for the months of use. Irs gov form1040ez The full ACRS deduction for 1995 is $4,900 ($98,000 ÷ 5%). Irs gov form1040ez You then prorate this amount to the 5 months in 1995 during which it was rented. Irs gov form1040ez Your ACRS deduction for 1995 is $2,042 ($4,900 ÷ 5/12). Irs gov form1040ez Early dispositions — 18- and 19-year real property. Irs gov form1040ez   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 gov form1040ez For 18-year property placed in service before June 23, 1984, use a full-month convention on a disposition. Irs gov form1040ez 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 gov form1040ez 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 gov form1040ez Count the month of disposition as half a month of use. Irs gov form1040ez Example. Irs gov form1040ez You purchased and placed in service a rental house on July 2, 1984, for $100,000 (not including the cost of land). Irs gov form1040ez You file your return based on a calendar year. Irs gov form1040ez Your rate from Table 4 for the seventh month is 4%. Irs gov form1040ez You figured your ACRS deduction for 1984 was $4,000 ($100,000 ÷ 4%). Irs gov form1040ez In 1985 through 1994, your ACRS deductions were 9%, 8%, 8%, 7%, 6%, 6%, 5%, 5%, and 5% ÷ $100,000. Irs gov form1040ez You sell the house on September 24, 1995. Irs gov form1040ez Figure your ACRS deduction for 1995 for the months of use. Irs gov form1040ez The full ACRS deduction for 1995 is $5,000 ($100,000 ÷ 5%). Irs gov form1040ez Prorate this amount for the 8. Irs gov form1040ez 5 months in 1995 that you held the property. Irs gov form1040ez Under the mid-month convention, you count September as half a month. Irs gov form1040ez Your ACRS deduction for 1995 is $3,542 ($5,000 ÷ 8. Irs gov form1040ez 5/12). Irs gov form1040ez Depreciation Recapture If you dispose of property depreciated under ACRS that is section 1245 recovery property, you will generally recognize gain or loss. Irs gov form1040ez Gain recognized on a disposition is ordinary income to the extent of prior depreciation deductions taken. Irs gov form1040ez This recapture rule applies to all personal property in the 3-year, 5-year, and 10-year classes. Irs gov form1040ez You recapture gain on manufactured homes and theme park structures in the 10-year class as section 1245 property. Irs gov form1040ez Section 1245 property generally includes all personal property. Irs gov form1040ez See Section 1245 property in chapter 4 of Publication 544 for more information. Irs gov form1040ez You treat dispositions of section 1250 real property on which you have a gain as section 1245 recovery property. Irs gov form1040ez You recognize gain on this property as ordinary income to the extent of prior depreciation deductions taken. Irs gov form1040ez Section 1250 property includes most real property. Irs gov form1040ez See Section 1250 property in chapter 4 of Publication 544 for more information. Irs gov form1040ez 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 gov form1040ez Any 15-, 18-, or 19-year real property that you elected to depreciate using the alternate ACRS method. Irs gov form1040ez Any 15-, 18-, or 19-year real property that is subsidized low-income housing. Irs gov form1040ez For these recapture rules, you treat the section 179 deduction and 50% of the investment credit that reduced your basis as depreciation. Irs gov form1040ez See Publication 544 for further discussion of dispositions of section 1245 and 1250 property. 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