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School Tax Forms

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School Tax Forms

School tax forms Part Six -   Figuring Your Taxes and Credits The eight chapters in this part explain how to figure your tax and how to figure the tax of certain children who have more than $2,000 of unearned income. School tax forms They also discuss tax credits that, unlike deductions, are subtracted directly from your tax and reduce your tax dollar for dollar. School tax forms Chapter 36 discusses the earned income credit. School tax forms Chapter 37 discusses a wide variety of other credits, such as the adoption credit. School tax forms Table of Contents 30. School tax forms   How To Figure Your TaxIntroduction Figuring Your Tax Alternative Minimum Tax (AMT) Tax Figured by IRSFiling the Return 31. School tax forms   Tax on Unearned Income of Certain ChildrenWhat's New Introduction Useful Items - You may want to see: Which Parent's Return To UseParents Who Do Not File a Joint Return Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, lines A–C) Step 1. School tax forms Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. School tax forms Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. School tax forms Figuring the Child's Tax (Form 8615, Part III) 32. School tax forms   Child and Dependent Care CreditReminders Introduction Useful Items - You may want to see: Tests To Claim the CreditQualifying Person Test Earned Income Test Work-Related Expense Test Joint Return Test Provider Identification Test How To Figure the CreditFiguring Total Work-Related Expenses Earned Income Limit Dollar Limit Amount of Credit How To Claim the CreditTax credit not refundable. School tax forms Employment Taxes for Household Employers 33. School tax forms   Credit for the Elderly or the DisabledIntroduction Useful Items - You may want to see: Are You Eligible for the Credit?Qualified Individual Income Limits How to Claim the CreditCredit Figured for You Credit Figured by You 34. School tax forms   Child Tax CreditIntroduction Useful Items - You may want to see: Qualifying Child Amount of CreditLimits on the Credit Claiming the Credit Additional Child Tax Credit Completing Schedule 8812 (Form 1040A or 1040)Part I Parts II–IV 35. School tax forms   Education CreditsIntroduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses 36. School tax forms   Earned Income Credit (EIC)What's New Reminders Introduction Useful Items - You may want to see: Do You Qualify for the Credit?If Improper Claim Made in Prior Year Part A. School tax forms Rules for EveryoneRule 1. School tax forms Your AGI Must Be Less Than: Rule 2. School tax forms You Must Have a Valid Social Security Number (SSN) Rule 3. School tax forms Your Filing Status Cannot Be Married Filing Separately Rule 4. School tax forms You Must Be a U. School tax forms S. School tax forms Citizen or Resident Alien All Year Rule 5. School tax forms You Cannot File Form 2555 or Form 2555-EZ Rule 6. School tax forms Your Investment Income Must Be $3,300 or Less Rule 7. School tax forms You Must Have Earned Income Part B. School tax forms Rules If You Have a Qualifying ChildRule 8. School tax forms Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9. School tax forms Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Rule 10. School tax forms You Cannot Be a Qualifying Child of Another Taxpayer Part C. School tax forms Rules If You Do Not Have a Qualifying ChildRule 11. School tax forms You Must Be at Least Age 25 but Under Age 65 Rule 12. School tax forms You Cannot Be the Dependent of Another Person Rule 13. School tax forms You Cannot Be a Qualifying Child of Another Taxpayer Rule 14. School tax forms You Must Have Lived in the United States More Than Half of the Year Part D. School tax forms Figuring and Claiming the EICRule 15. School tax forms Your Earned Income Must Be Less Than: IRS Will Figure the EIC for You How To Figure the EIC Yourself ExamplesExample 1. School tax forms John and Janet Smith (Form 1040A) Example 2. School tax forms Kelly Green (Form 1040EZ) 37. School tax forms   Other CreditsWhat's New Introduction Useful Items - You may want to see: Nonrefundable CreditsAdoption Credit Alternative Motor Vehicle Credit Alternative Fuel Vehicle Refueling Property Credit Credit to Holders of Tax Credit Bonds Foreign Tax Credit Mortgage Interest Credit Nonrefundable Credit for Prior Year Minimum Tax Plug-in Electric Drive Motor Vehicle Credit Residential Energy Credits Retirement Savings Contributions Credit (Saver's Credit) Refundable CreditsCredit for Tax on Undistributed Capital Gain Health Coverage Tax Credit Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld Prev  Up  Next   Home   More Online Publications
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The School Tax Forms

School tax forms 2. School tax forms   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. School tax forms You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. School tax forms 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. School tax forms You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. School tax forms You can deduct depreciation only on the part of your property used for rental purposes. School tax forms Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. School tax forms You may have to use Form 4562 to figure and report your depreciation. School tax forms See Which Forms To Use in chapter 3. School tax forms Also see Publication 946. School tax forms Section 179 deduction. School tax forms   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. School tax forms This deduction is not allowed for property used in connection with residential rental property. School tax forms See chapter 2 of Publication 946. School tax forms Alternative minimum tax (AMT). School tax forms   If you use accelerated depreciation, you may be subject to the AMT. School tax forms 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). School tax forms   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. School tax forms However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). School tax forms   To find out if you are subject to the AMT, see the Instructions for Form 6251. School tax forms 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. School tax forms What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. School tax forms You own the property. School tax forms You use the property in your business or income-producing activity (such as rental property). School tax forms The property has a determinable useful life. School tax forms The property is expected to last more than one year. School tax forms Property you own. School tax forms   To claim depreciation, you usually must be the owner of the property. School tax forms You are considered as owning property even if it is subject to a debt. School tax forms Rented property. School tax forms   Generally, if you pay rent for property, you cannot depreciate that property. School tax forms Usually, only the owner can depreciate it. School tax forms However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. School tax forms See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. School tax forms Cooperative apartments. School tax forms   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. School tax forms See chapter 4, Special Situations. School tax forms Property having a determinable useful life. School tax forms   To be depreciable, your property must have a determinable useful life. School tax forms This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. School tax forms What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. School tax forms This includes land and certain excepted property. School tax forms Land. School tax forms   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. School tax forms But if it does, the loss is accounted for upon disposition. School tax forms The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. School tax forms   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. School tax forms 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. School tax forms Example. School tax forms You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. School tax forms Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. School tax forms If you replace the house, you would have to destroy the bushes and trees right next to it. School tax forms These bushes and trees are closely associated with the house, so they have a determinable useful life. School tax forms Therefore, you can depreciate them. School tax forms Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. School tax forms Excepted property. School tax forms   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. School tax forms Property placed in service and disposed of (or taken out of business use) in the same year. School tax forms Equipment used to build capital improvements. School tax forms You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. School tax forms For more information, see chapter 1 of Publication 946. School tax forms When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. School tax forms 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. School tax forms 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. School tax forms Even if you are not using the property, it is in service when it is ready and available for its specific use. School tax forms Example 1. School tax forms On November 22 of last year, you purchased a dishwasher for your rental property. School tax forms The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. School tax forms Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. School tax forms 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. School tax forms Example 2. School tax forms On April 6, you purchased a house to use as residential rental property. School tax forms You made extensive repairs to the house and had it ready for rent on July 5. School tax forms You began to advertise the house for rent in July and actually rented it beginning September 1. School tax forms The house is considered placed in service in July when it was ready and available for rent. School tax forms You can begin to depreciate the house in July. School tax forms Example 3. School tax forms You moved from your home in July. School tax forms During August and September you made several repairs to the house. School tax forms On October 1, you listed the property for rent with a real estate company, which rented it on December 1. School tax forms The property is considered placed in service on October 1, the date when it was available for rent. School tax forms Conversion to business use. School tax forms   If you place property in service in a personal activity, you cannot claim depreciation. School tax forms 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. School tax forms You place the property in service for business or income-producing use on the date of the change. School tax forms Example. School tax forms You bought a house and used it as your personal home several years before you converted it to rental property. School tax forms 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. School tax forms 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. School tax forms 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). School tax forms 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. School tax forms 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. School tax forms For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. School tax forms See Basis of Depreciable Property , later. School tax forms 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. School tax forms 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. School tax forms You sell or exchange the property. School tax forms You convert the property to personal use. School tax forms You abandon the property. School tax forms The property is destroyed. School tax forms Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. School tax forms If you placed rental property in service before 1987, you are using one of the following methods. School tax forms ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. School tax forms Straight line or declining balance method over the useful life of property placed in service before 1981. School tax forms See MACRS Depreciation , later, for more information. School tax forms Rental property placed in service before 2013. School tax forms   Continue to use the same method of figuring depreciation that you used in the past. School tax forms Use of real property changed. School tax forms   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. School tax forms This includes your residence that you changed to rental use. School tax forms See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. School tax forms Improvements made after 1986. School tax forms   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. School tax forms 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. School tax forms For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. School tax forms This publication discusses MACRS depreciation only. School tax forms If you need information about depreciating property placed in service before 1987, see Publication 534. School tax forms 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. School tax forms 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. School tax forms 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. School tax forms Basis and adjusted basis are explained in the following discussions. School tax forms 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. School tax forms See Basis of Property Changed to Rental Use in chapter 4. School tax forms Cost Basis The basis of property you buy is usually its cost. School tax forms The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. School tax forms 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. School tax forms Exception. School tax forms   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. School tax forms Such taxes were deductible before 1987 and after 2003. School tax forms Loans with low or no interest. School tax forms   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. School tax forms See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. School tax forms Real property. School tax forms   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. School tax forms Real estate taxes. School tax forms   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. School tax forms You cannot deduct them as taxes paid. School tax forms   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. School tax forms Do not include that amount in your basis in the property. School tax forms Settlement fees and other costs. School tax forms   The following settlement fees and closing costs for buying the property are part of your basis in the property. School tax forms Abstract fees. School tax forms Charges for installing utility services. School tax forms Legal fees. School tax forms Recording fees. School tax forms Surveys. School tax forms Transfer taxes. School tax forms Title insurance. School tax forms 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. School tax forms   The following are settlement fees and closing costs you cannot include in your basis in the property. School tax forms Fire insurance premiums. School tax forms Rent or other charges relating to occupancy of the property before closing. School tax forms 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. School tax forms   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. School tax forms Assumption of a mortgage. School tax forms   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. School tax forms Example. School tax forms You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. School tax forms Your basis is $300,000. School tax forms Separating cost of land and buildings. School tax forms   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. School tax forms 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. School tax forms   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. School tax forms Example. School tax forms You buy a house and land for $200,000. School tax forms The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. School tax forms 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. School tax forms 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. School tax forms 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). School tax forms 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. School tax forms If you received property in one of these ways, see Publication 551 for information on how to figure your basis. School tax forms 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. School tax forms The result of these adjustments to the basis is the adjusted basis. School tax forms Increases to basis. School tax forms   You must increase the basis of any property by the cost of all items properly added to a capital account. School tax forms These include the following. School tax forms 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. School tax forms Amounts spent after a casualty to restore the damaged property. School tax forms The cost of extending utility service lines to the property. School tax forms Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. School tax forms Additions or improvements. School tax forms   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. School tax forms This includes all direct costs, such as material and labor, but does not include your own labor. School tax forms It also includes all expenses related to the addition or improvement. School tax forms   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. School tax forms 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. School tax forms   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. School tax forms For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. School tax forms    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. School tax forms However, see What Rental Property Cannot Be Depreciated, earlier. School tax forms Assessments for local improvements. School tax forms   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. School tax forms 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. School tax forms Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. School tax forms You cannot deduct these items as taxes or depreciate them. School tax forms    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. School tax forms Do not add them to your basis in the property. School tax forms Deducting vs. School tax forms capitalizing costs. School tax forms   Do not add to your basis costs you can deduct as current expenses. School tax forms However, there are certain costs you can choose either to deduct or to capitalize. School tax forms If you capitalize these costs, include them in your basis. School tax forms If you deduct them, do not include them in your basis. School tax forms   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. School tax forms   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. School tax forms Decreases to basis. School tax forms   You must decrease the basis of your property by any items that represent a return of your cost. School tax forms These include the following. School tax forms Insurance or other payment you receive as the result of a casualty or theft loss. School tax forms Casualty loss not covered by insurance for which you took a deduction. School tax forms Amount(s) you receive for granting an easement. School tax forms 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. School tax forms Exclusion from income of subsidies for energy conservation measures. School tax forms Special depreciation allowance claimed on qualified property. School tax forms Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. School tax forms If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. School tax forms   If your rental property was previously used as your main home, you must also decrease the basis by the following. School tax forms Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. School tax forms District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. School tax forms Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. School tax forms Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. School tax forms This allowance is figured before you figure your regular depreciation deduction. School tax forms See Publication 946, chapter 3, for details. School tax forms Also see the Instructions for Form 4562, Line 14. School tax forms If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. School tax forms The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. School tax forms MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. School tax forms This section explains how to determine which MACRS depreciation system applies to your property. School tax forms It also discusses other information you need to know before you can figure depreciation under MACRS. School tax forms This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. School tax forms 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). School tax forms You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. School tax forms 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. School tax forms 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. School tax forms 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. School tax forms For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. School tax forms Electing ADS If you choose, you can use the ADS method for most property. School tax forms Under ADS, you use the straight line method of depreciation. School tax forms 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. School tax forms However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. School tax forms 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. School tax forms Once you make this election, you can never revoke it. School tax forms 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. School tax forms 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. School tax forms The property class generally determines the depreciation method, recovery period, and convention. School tax forms 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. School tax forms Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. School tax forms 5-year property. School tax forms This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. School tax forms ), automobiles, and light trucks. School tax forms This class also includes appliances, carpeting, furniture, etc. School tax forms , used in a residential rental real estate activity. School tax forms 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. School tax forms See chapter 5 of Publication 946. School tax forms 7-year property. School tax forms This class includes office furniture and equipment (desks, file cabinets, etc. School tax forms ). School tax forms 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. School tax forms 15-year property. School tax forms This class includes roads, fences, and shrubbery (if depreciable). School tax forms Residential rental property. School tax forms 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. School tax forms 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. School tax forms 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. School tax forms The other property classes do not generally apply to property used in rental activities. School tax forms These classes are not discussed in this publication. School tax forms See Publication 946 for more information. School tax forms Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. School tax forms The recovery periods are generally longer under ADS than GDS. School tax forms The recovery period of property depends on its property class. School tax forms Under GDS, the recovery period of an asset is generally the same as its property class. School tax forms Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. School tax forms See Table 2-1 for recovery periods of property commonly used in residential rental activities. School tax forms Qualified Indian reservation property. School tax forms   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. School tax forms For more information, see chapter 4 of Publication 946. School tax forms Additions or improvements to property. School tax forms   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. School tax forms   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. School tax forms   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. School tax forms Example. School tax forms You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. School tax forms You built an addition onto the house and placed it in service in 2013. School tax forms You must use MACRS for the addition. School tax forms Under GDS, the addition is depreciated as residential rental property over 27. School tax forms 5 years. School tax forms Table 2-1. School tax forms 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. School tax forms 27. School tax forms 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. School tax forms   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. School tax forms 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. School tax forms Mid-month convention. School tax forms    A mid-month convention is used for all residential rental property and nonresidential real property. School tax forms 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. School tax forms Mid-quarter convention. School tax forms   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. School tax forms   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. School tax forms Example. School tax forms During the tax year, Tom Martin purchased the following items to use in his rental property. School tax forms He elects not to claim the special depreciation allowance discussed earlier. School tax forms A dishwasher for $400 that he placed in service in January. School tax forms Used furniture for $100 that he placed in service in September. School tax forms A refrigerator for $800 that he placed in service in October. School tax forms Tom uses the calendar year as his tax year. School tax forms The total basis of all property placed in service that year is $1,300. School tax forms The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). School tax forms Tom must use the mid-quarter convention instead of the half-year convention for all three items. School tax forms Half-year convention. School tax forms    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. School tax forms 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. School tax forms   If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. School tax forms You deduct a full year of depreciation for any other year during the recovery period. School tax forms Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. School tax forms The deduction is substantially the same both ways. School tax forms 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. School tax forms In this publication we will use the percentage tables. School tax forms For instructions on how to compute the deduction, see chapter 4 of Publication 946. School tax forms Residential rental property. School tax forms   You must use the straight line method and a mid-month convention for residential rental property. School tax forms 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). School tax forms 5-, 7-, or 15-year property. School tax forms   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. School tax forms However, in limited cases you must use the mid-quarter convention, if it applies. School tax forms For property in the 15-year class, use the 150% declining balance method and a half-year convention. School tax forms   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. School tax forms 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. School tax forms You make this election on Form 4562. School tax forms In Part III, column (f), enter “150 DB. School tax forms ” Once you make this election, you cannot change to another method. School tax forms   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. School tax forms   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. School tax forms 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. School tax forms You elect the straight line method on Form 4562. School tax forms In Part III, column (f), enter “S/L. School tax forms ” Once you make this election, you cannot change to another method. School tax forms MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. School tax forms The tables show the percentages for the first few years or until the change to the straight line method is made. School tax forms See Appendix A of Publication 946 for complete tables. School tax forms 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. School tax forms 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. School tax forms How to use the percentage tables. School tax forms   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. School tax forms   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. School tax forms   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. School tax forms 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 . School tax forms See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. School tax forms Unadjusted basis. School tax forms   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. School tax forms   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. School tax forms For more information, see chapter 4 of Publication 946. School tax forms Please click here for the text description of the image. School tax forms Table 2-2 Tables 2-2a, 2-2b, and 2-2c. School tax forms   The percentages in these tables take into account the half-year and mid-quarter conventions. School tax forms Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. School tax forms Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). School tax forms 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. School tax forms Example 1. School tax forms You purchased a stove and refrigerator and placed them in service in June. School tax forms Your basis in the stove is $600 and your basis in the refrigerator is $1,000. School tax forms Both are 5-year property. School tax forms Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. School tax forms For that year your depreciation deduction is $120 ($600 × . School tax forms 20) for the stove and $200 ($1,000 × . School tax forms 20) for the refrigerator. School tax forms For Year 2, the depreciation percentage is 32%. School tax forms That year's depreciation deduction will be $192 ($600 × . School tax forms 32) for the stove and $320 ($1,000 × . School tax forms 32) for the refrigerator. School tax forms Example 2. School tax forms Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. School tax forms 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 × . School tax forms 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. School tax forms 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%. School tax forms Your depreciation deduction for the refrigerator is $50 ($1,000 x . School tax forms 05). School tax forms 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%. School tax forms For that year, your depreciation deduction for the stove is $150 ($600 x . School tax forms 25). School tax forms Table 2-2d. School tax forms    Use this table when you are using the GDS 27. School tax forms 5 year option for residential rental property. School tax forms Find the row for the month that you placed the property in service. School tax forms Use the percentages listed for that month to figure your depreciation deduction. School tax forms The mid-month convention is taken into account in the percentages shown in the table. School tax forms Continue to use the same row (month) under the column for the appropriate year. School tax forms Example. School tax forms You purchased a single family rental house for $185,000 and placed it in service on February 8. School tax forms The sales contract showed that the building cost $160,000 and the land cost $25,000. School tax forms Your basis for depreciation is its original cost, $160,000. School tax forms 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. School tax forms 5 years. School tax forms Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. School tax forms 182%. School tax forms That year's depreciation deduction is $5,091 ($160,000 x . School tax forms 03182). School tax forms Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. School tax forms See Appendix B in Publication 946 for other property. School tax forms If your property is not listed in Appendix B, it is considered to have no class life. School tax forms Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. School tax forms Use the mid-month convention for residential rental property and nonresidential real property. School tax forms For all other property, use the half-year or mid-quarter convention, as appropriate. School tax forms See Publication 946 for ADS depreciation tables. School tax forms Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. School tax forms 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. School tax forms For more information, see Depreciation under Decreases to Basis in Publication 551. School tax forms 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. School tax forms S. School tax forms Individual Income Tax Return. School tax forms 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. School tax forms Filing an amended return. School tax forms   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. School tax forms You claimed the incorrect amount because of a mathematical error made in any year. School tax forms You claimed the incorrect amount because of a posting error made in any year. School tax forms You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. School tax forms You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. School tax forms   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. School tax forms 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. School tax forms   If an amended return is allowed, you must file it by the later of the following dates. School tax forms 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. School tax forms A return filed before an unextended due date is considered filed on that due date. School tax forms 2 years from the time you paid your tax for that year. School tax forms Changing your accounting method. School tax forms   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. School tax forms In some instances, that consent is automatic. School tax forms For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. School tax forms Prev  Up  Next   Home   More Online Publications