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Is It Too Late To File 2012 Tax Return

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Is It Too Late To File 2012 Tax Return

Is it too late to file 2012 tax return 4. Is it too late to file 2012 tax return   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. Is it too late to file 2012 tax return Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. Is it too late to file 2012 tax return Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. Is it too late to file 2012 tax return If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. Is it too late to file 2012 tax return You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. Is it too late to file 2012 tax return Special rules apply if you rent your condominium to others. Is it too late to file 2012 tax return You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. Is it too late to file 2012 tax return In addition, you can deduct any dues or assessments paid for maintenance of the common elements. Is it too late to file 2012 tax return You cannot deduct special assessments you pay to a condominium management corporation for improvements. Is it too late to file 2012 tax return However, you may be able to recover your share of the cost of any improvement by taking depreciation. Is it too late to file 2012 tax return Cooperatives If you live in a cooperative, you do not own your apartment. Is it too late to file 2012 tax return Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. Is it too late to file 2012 tax return If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. Is it too late to file 2012 tax return In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. Is it too late to file 2012 tax return Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. Is it too late to file 2012 tax return Figure your depreciation deduction as follows. Is it too late to file 2012 tax return Figure the depreciation for all the depreciable real property owned by the corporation. Is it too late to file 2012 tax return (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Is it too late to file 2012 tax return ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Is it too late to file 2012 tax return Multiply your cost per share by the total number of outstanding shares. Is it too late to file 2012 tax return Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Is it too late to file 2012 tax return Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Is it too late to file 2012 tax return Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Is it too late to file 2012 tax return Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Is it too late to file 2012 tax return Multiply the result of (2) by the percentage you figured in (3). Is it too late to file 2012 tax return This is your depreciation on the stock. Is it too late to file 2012 tax return Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. Is it too late to file 2012 tax return Payments added to capital account. Is it too late to file 2012 tax return   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. Is it too late to file 2012 tax return For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. Is it too late to file 2012 tax return   Treat as a capital cost the amount you were assessed for capital items. Is it too late to file 2012 tax return This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. Is it too late to file 2012 tax return   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. Is it too late to file 2012 tax return Otherwise, figure your share in the following manner. Is it too late to file 2012 tax return Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Is it too late to file 2012 tax return Multiply the corporation's deductible interest by the number you figured in (1). Is it too late to file 2012 tax return This is your share of the interest. Is it too late to file 2012 tax return Multiply the corporation's deductible taxes by the number you figured in (1). Is it too late to file 2012 tax return This is your share of the taxes. Is it too late to file 2012 tax return Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Is it too late to file 2012 tax return You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Is it too late to file 2012 tax return You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Is it too late to file 2012 tax return However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Is it too late to file 2012 tax return Example. Is it too late to file 2012 tax return Your tax year is the calendar year. Is it too late to file 2012 tax return You moved from your home in May and started renting it out on June 1. Is it too late to file 2012 tax return You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Is it too late to file 2012 tax return Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Is it too late to file 2012 tax return When figuring depreciation, treat the property as placed in service on June 1. Is it too late to file 2012 tax return Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. Is it too late to file 2012 tax return Fair market value. Is it too late to file 2012 tax return   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Is it too late to file 2012 tax return Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. Is it too late to file 2012 tax return Figuring the basis. Is it too late to file 2012 tax return   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. Is it too late to file 2012 tax return For other increases and decreases to basis, see Adjusted Basis in chapter 2. Is it too late to file 2012 tax return Example. Is it too late to file 2012 tax return Several years ago you built your home for $140,000 on a lot that cost you $14,000. Is it too late to file 2012 tax return Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. Is it too late to file 2012 tax return Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. Is it too late to file 2012 tax return Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. Is it too late to file 2012 tax return The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). Is it too late to file 2012 tax return On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. Is it too late to file 2012 tax return The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). Is it too late to file 2012 tax return Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. Is it too late to file 2012 tax return (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Is it too late to file 2012 tax return ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Is it too late to file 2012 tax return The fair market value of the property on the date you change your apartment to rental use. Is it too late to file 2012 tax return This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Is it too late to file 2012 tax return The corporation's adjusted basis in the property on that date. Is it too late to file 2012 tax return Do not subtract depreciation when figuring the corporation's adjusted basis. Is it too late to file 2012 tax return If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). Is it too late to file 2012 tax return The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Is it too late to file 2012 tax return Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. Is it too late to file 2012 tax return Generally, that will be MACRS for any conversion after 1986. Is it too late to file 2012 tax return Treat the property as placed in service on the conversion date. Is it too late to file 2012 tax return Example. Is it too late to file 2012 tax return Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. Is it too late to file 2012 tax return Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. Is it too late to file 2012 tax return 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . Is it too late to file 2012 tax return 01364). Is it too late to file 2012 tax return Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Is it too late to file 2012 tax return You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Is it too late to file 2012 tax return You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. Is it too late to file 2012 tax return There is no change in the types of expenses deductible for the personal-use part of your property. Is it too late to file 2012 tax return Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Is it too late to file 2012 tax return You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Is it too late to file 2012 tax return You do not have to divide the expenses that belong only to the rental part of your property. Is it too late to file 2012 tax return For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Is it too late to file 2012 tax return If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. Is it too late to file 2012 tax return You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Is it too late to file 2012 tax return How to divide expenses. Is it too late to file 2012 tax return   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. Is it too late to file 2012 tax return You can use any reasonable method for dividing the expense. Is it too late to file 2012 tax return It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Is it too late to file 2012 tax return The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. Is it too late to file 2012 tax return Example. Is it too late to file 2012 tax return You rent a room in your house. Is it too late to file 2012 tax return The room is 12 × 15 feet, or 180 square feet. Is it too late to file 2012 tax return Your entire house has 1,800 square feet of floor space. Is it too late to file 2012 tax return You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. Is it too late to file 2012 tax return If your heating bill for the year for the entire house was $600, $60 ($600 × . Is it too late to file 2012 tax return 10) is a rental expense. Is it too late to file 2012 tax return The balance, $540, is a personal expense that you cannot deduct. Is it too late to file 2012 tax return Duplex. Is it too late to file 2012 tax return   A common situation is the duplex where you live in one unit and rent out the other. Is it too late to file 2012 tax return Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. Is it too late to file 2012 tax return Example. Is it too late to file 2012 tax return You own a duplex and live in one half, renting the other half. Is it too late to file 2012 tax return Both units are approximately the same size. Is it too late to file 2012 tax return Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. Is it too late to file 2012 tax return You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). Is it too late to file 2012 tax return Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Is it too late to file 2012 tax return You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Is it too late to file 2012 tax return Where to report. Is it too late to file 2012 tax return   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. Is it too late to file 2012 tax return For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Is it too late to file 2012 tax return   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. Is it too late to file 2012 tax return You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Is it too late to file 2012 tax return Presumption of profit. Is it too late to file 2012 tax return   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. Is it too late to file 2012 tax return Postponing decision. Is it too late to file 2012 tax return   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. Is it too late to file 2012 tax return You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. Is it too late to file 2012 tax return You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Is it too late to file 2012 tax return More information. Is it too late to file 2012 tax return   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Is it too late to file 2012 tax return Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. Is it too late to file 2012 tax return Instead of selling the house she had been living in, she decided to change it to rental property. Is it too late to file 2012 tax return Eileen selected a tenant and started renting the house on February 1. Is it too late to file 2012 tax return Eileen charges $750 a month for rent and collects it herself. Is it too late to file 2012 tax return Eileen also received a $750 security deposit from her tenant. Is it too late to file 2012 tax return Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. Is it too late to file 2012 tax return Her rental expenses for the year are as follows. Is it too late to file 2012 tax return   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. Is it too late to file 2012 tax return She can deduct eleven-twelfths of these expenses as rental expenses. Is it too late to file 2012 tax return She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. Is it too late to file 2012 tax return She cannot deduct the balance of the fire insurance because it is a personal expense. Is it too late to file 2012 tax return Eileen bought this house in 1984 for $35,000. Is it too late to file 2012 tax return Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. Is it too late to file 2012 tax return Before changing it to rental property, Eileen added several improvements to the house. Is it too late to file 2012 tax return She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. Is it too late to file 2012 tax return Of this amount, $35,000 was for the land and $117,000 was for the house. Is it too late to file 2012 tax return Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. Is it too late to file 2012 tax return As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. Is it too late to file 2012 tax return She chooses the GDS recovery period of 27. Is it too late to file 2012 tax return 5 years. Is it too late to file 2012 tax return She uses Table 2-2d to find her depreciation percentage. Is it too late to file 2012 tax return Since she placed the property in service in February, the percentage is 3. Is it too late to file 2012 tax return 182%. Is it too late to file 2012 tax return On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. Is it too late to file 2012 tax return The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. Is it too late to file 2012 tax return She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. Is it too late to file 2012 tax return On May 1, Eileen paid $4,000 to have a furnace installed in the house. Is it too late to file 2012 tax return The furnace is residential rental property. Is it too late to file 2012 tax return Because she placed the property in service in May, the percentage from Table 2-2d is 2. Is it too late to file 2012 tax return 273%. Is it too late to file 2012 tax return Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . Is it too late to file 2012 tax return 03182) $1,241   Dishwasher ($425 × . Is it too late to file 2012 tax return 20) 85   Furnace ($4,000 × . Is it too late to file 2012 tax return 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. Is it too late to file 2012 tax return She enters her income, expenses, and depreciation for the house in the column for Property A. Is it too late to file 2012 tax return Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. Is it too late to file 2012 tax return See the Instructions for Form 4562 for more information on preparing the form. Is it too late to file 2012 tax return Prev  Up  Next   Home   More Online Publications
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The Is It Too Late To File 2012 Tax Return

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