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Self Employment Tax Form

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Self Employment Tax Form

Self employment tax form Publication 80 - Introductory Material Table of Contents Future Developments What's New Reminders Calendar Future Developments For the latest information about developments related to Publication 80 (Circular SS), such as legislation enacted after it was published, go to www. Self employment tax form irs. Self employment tax form gov/pub80. Self employment tax form What's New Social security and Medicare tax for 2014. Self employment tax form  The social security tax rate is 6. Self employment tax form 2% each for the employee and employer, unchanged from 2013. Self employment tax form The social security wage base limit is $117,000. Self employment tax form The Medicare tax rate is 1. Self employment tax form 45% each for the employee and employer, unchanged from 2013. Self employment tax form There is no wage base limit for Medicare tax. Self employment tax form Social security and Medicare taxes apply to the wages of household workers you pay $1,900 or more in cash or an equivalent form of compensation. Self employment tax form Social security and Medicare taxes apply to election workers who are paid $1,600 or more in cash or an equivalent form of compensation. Self employment tax form Change of responsible party. Self employment tax form . Self employment tax form  Beginning January 1, 2014, any entity with an employer identification number (EIN) must file Form 8822-B, Change of Address or Responsible Party—Business, to report the latest change to its responsible party. Self employment tax form Form 8822-B must be filed within 60 days of the change. Self employment tax form If the change in the identity of your responsible party occurred before 2014, and you have not previously notified the IRS of the change, file Form 8822-B before March 1, 2014, reporting only the most recent change. Self employment tax form For a definition of “responsible party”, see the Form 8822-B instructions. Self employment tax form Same-sex marriage. Self employment tax form  For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Self employment tax form For more information, see Revenue Ruling 2013-17, 2013-38 I. Self employment tax form R. Self employment tax form B. Self employment tax form 201, available at www. Self employment tax form irs. Self employment tax form gov/irb/2013-38_IRB/ar07. Self employment tax form html. Self employment tax form Notice 2013-61 provides special administrative procedures for employers to make claims for refund or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. Self employment tax form Notice 2013-61, 2013-44 I. Self employment tax form R. Self employment tax form B. Self employment tax form 432, is available at www. Self employment tax form irs. Self employment tax form gov/irb/2013-44_IRB/ar10. Self employment tax form html. Self employment tax form Reminders Additional Medicare Tax withholding. Self employment tax form  In addition to withholding Medicare tax at 1. Self employment tax form 45%, you must withhold a 0. Self employment tax form 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Self employment tax form You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Self employment tax form Additional Medicare Tax is only imposed on the employee. Self employment tax form There is no employer share of Additional Medicare Tax. Self employment tax form All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. Self employment tax form For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Employment and Payments , in section 12. Self employment tax form For more information on Additional Medicare Tax, visit IRS. Self employment tax form gov and enter “Additional Medicare Tax” in the search box. Self employment tax form Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans. Self employment tax form  The work opportunity tax credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2014. Self employment tax form Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. Self employment tax form For more information, visit IRS. Self employment tax form gov and enter “work opportunity tax credit” in the search box. Self employment tax form Outsourcing payroll duties. Self employment tax form  Employers are responsible to ensure that tax returns are filed and deposits and payments are made, even if the employer contracts with a third party to perform these acts. Self employment tax form The employer remains responsible if the third party fails to perform any required action. Self employment tax form If you choose to outsource any of your payroll and related tax duties (that is, withholding, reporting, and paying over social security, Medicare, FUTA, and income taxes) to a third-party payer such as a payroll service provider or reporting agent, visit IRS. Self employment tax form gov and enter “outsourcing payroll duties” in the search box for helpful information on this topic. Self employment tax form Residents of the Philippines working in the Commonwealth of the Northern Mariana Islands (CNMI). Self employment tax form  The IRS will not assert that an employer has understated liability for social security and Medicare taxes because they failed to treat services performed before January 1, 2015, in the CNMI by a resident of the Philippines as employment as defined under Internal Revenue Code section 3121(b). Self employment tax form For more information, see Announcement 2012-43, 2012-51 I. Self employment tax form R. Self employment tax form B. Self employment tax form 723, available at www. Self employment tax form irs. Self employment tax form gov/irb/2012-51_IRB/ar15. Self employment tax form html. Self employment tax form CNMI government employees now subject to social security and Medicare taxes. Self employment tax form  Beginning in the fourth calendar quarter of 2012, CNMI government employees are subject to social security and Medicare taxes. Self employment tax form COBRA premium assistance credit. Self employment tax form  The credit for COBRA premium assistance payments applies to premiums paid for employees involuntarily terminated between September 1, 2008 and May 31, 2010, and to premiums paid for up to 15 months. Self employment tax form See COBRA premium assistance credit in Publication 15 (Circular E), Employer's Tax Guide. Self employment tax form You can get Publication 15 (Circular E) at IRS. Self employment tax form gov. Self employment tax form You must receive written notice from the IRS to file Form 944. Self employment tax form  If you have been filing Forms 941-SS and believe your employment taxes for the calendar year will be $1,000 or less, and you would like to file Form 944, Employer's ANNUAL Federal Tax Return, instead of Forms 941-SS, you must contact the IRS to request to file Form 944. Self employment tax form You must receive written notice from the IRS to file Form 944 instead of Forms 941-SS before you may file this form. Self employment tax form For more information on requesting to file Form 944 visit IRS. Self employment tax form gov and enter “file employment taxes annually” in the search box. Self employment tax form Federal employers in the CNMI. Self employment tax form  The U. Self employment tax form S. Self employment tax form Treasury Department and the CNMI Division of Revenue and Taxation entered into an agreement under 5 USC 5517 in December 2006. Self employment tax form Under this agreement, all federal employers (including the Department of Defense) are required to withhold CNMI income taxes (rather than federal income taxes) and deposit the CNMI taxes with the CNMI Treasury for employees who are subject to CNMI taxes and whose regular place of federal employment is in the CNMI. Self employment tax form Federal employers are also required to file quarterly and annual reports with the CNMI Division of Revenue and Taxation. Self employment tax form For questions, contact the CNMI Division of Revenue and Taxation. Self employment tax form Change of address. Self employment tax form  Use Form 8822-B to notify the IRS of an address change. Self employment tax form Do not mail Form 8822-B with your employment tax return. Self employment tax form Federal tax deposits must be made by electronic funds transfer. Self employment tax form  You must use electronic funds transfer to make all federal tax deposits. Self employment tax form Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). Self employment tax form If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Self employment tax form Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Self employment tax form EFTPS is a free service provided by the Department of Treasury. Self employment tax form Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Self employment tax form For more information on making federal tax deposits, see How To Deposit in section 8. Self employment tax form For more information about EFTPS or to enroll in EFTPS, visit the EFTPS website at www. Self employment tax form eftps. Self employment tax form gov or call 1-800-555-4477 (U. Self employment tax form S. Self employment tax form Virgin Islands only) or 303-967-5916 (toll call) or 1-800-733-4829 (TDD). Self employment tax form Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. Self employment tax form Electronic filing and payment. Self employment tax form  Using electronic options can make filing a return and paying your federal tax easier. Self employment tax form Use the Electronic Federal Tax Payment System (EFTPS) to make deposits or pay in full, whether you rely on a tax professional or prepare your own taxes. Self employment tax form You can use IRS e-file to file certain returns. Self employment tax form If there is a balance due on the return, you can e-file and e-pay in a single step by authorizing an electronic funds withdrawal (EFW) from your bank account while e-filing. Self employment tax form Do not use EFW to pay taxes that are required to be deposited. Self employment tax form Visit the IRS website at www. Self employment tax form irs. Self employment tax form gov/efile for more information on filing electronically. Self employment tax form For more information on paying your taxes using EFW, visit the IRS website at www. Self employment tax form irs. Self employment tax form gov/e-pay. Self employment tax form A fee may be charged to file electronically. Self employment tax form For EFTPS, visit www. Self employment tax form eftps. Self employment tax form gov or call EFTPS Customer Service at 1-800-555-4477 (U. Self employment tax form S. Self employment tax form Virgin Islands only) or 303-967-5916 (toll call). Self employment tax form For electronic filing of Forms W-2AS, W-2CM, W-2GU, W-2VI, Wage and Tax Statements; W-3SS, Transmittal of Wage and Tax Statements; and W-2c, Corrected Wage and Tax Statement, visit www. Self employment tax form socialsecurity. Self employment tax form gov/employer. Self employment tax form If you are filing your tax return or paying your federal taxes electronically, a valid EIN is required. Self employment tax form If a valid EIN is not provided, the return or payment will not be processed. Self employment tax form This may result in penalties and delays in processing your return or payment. Self employment tax form Electronic option for filing Forms W-2AS, W-2CM, W-2GU, or W-2VI. Self employment tax form  Employers in American Samoa, the CNMI, Guam, and the U. Self employment tax form S. Self employment tax form Virgin Islands can now use the Social Security Administration's W-2 Online service to create, save, print, and submit up to 50 Forms W-2AS, W-2CM, W-2GU, or W-2VI at a time over the Internet. Self employment tax form Form W-3SS will be generated automatically based on your Forms W-2AS, W-2CM, W-2GU, or W-2VI. Self employment tax form For more information, visit Social Security Administration's SSA website at www. Self employment tax form ssa. Self employment tax form gov/bso/bsowelcome. Self employment tax form htm. Self employment tax form Credit or debit card payments. Self employment tax form  For information on paying your taxes with a credit or debit card, visit the IRS website at www. Self employment tax form irs. Self employment tax form gov/e-pay. Self employment tax form However, do not use credit or debit cards to make federal tax deposits. Self employment tax form Hiring new employees. Self employment tax form  Record the number and name from each new employee's social security card. Self employment tax form An employee who does not have a social security card should apply for one on Form SS-5, Application for a Social Security Card. Self employment tax form See section 3. Self employment tax form Reporting discrepancies between Forms 941-SS (or Form 944) and Forms W-2. Self employment tax form  File Schedule D (Form 941), Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations, to explain certain wage, tax, and payment discrepancies between Forms 941-SS (or Form 944), and Forms W-2 that were caused by acquisitions, statutory mergers, or consolidations. Self employment tax form For more information, see the Instructions for Schedule D (Form 941). Self employment tax form Apply for an employer identification number (EIN) online. Self employment tax form  You can apply for an EIN online by visiting IRS. Self employment tax form gov and clicking on the Apply for an EIN Online link under Tools. Self employment tax form Dishonored payments. Self employment tax form  Any form of payment that is dishonored and returned from a financial institution is subject to a penalty. Self employment tax form The penalty is $25 or 2% of the payment, whichever is more. Self employment tax form However, the penalty on dishonored payments of $24. Self employment tax form 99 or less is an amount equal to the payment. Self employment tax form For example, a dishonored payment of $18 is charged a penalty of $18. Self employment tax form Private delivery services. Self employment tax form  You can use certain private delivery services designated by the IRS to send tax returns or payments. Self employment tax form The list includes only the following: DHL Express (DHL): DHL Same Day Service. Self employment tax form Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. Self employment tax form United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Self employment tax form M. Self employment tax form , UPS Worldwide Express Plus, and UPS Worldwide Express. Self employment tax form For the IRS mailing address to use if you are using a private delivery service, go to IRS. Self employment tax form gov and enter “private delivery service” in the search box. Self employment tax form Your private delivery service can tell you how to get written proof of the mailing date. Self employment tax form Private delivery services cannot deliver items to P. Self employment tax form O. Self employment tax form boxes. Self employment tax form You must use the U. Self employment tax form S. Self employment tax form Postal Service to mail any item to an IRS P. Self employment tax form O. Self employment tax form box address. Self employment tax form Recordkeeping. Self employment tax form  Keep all records of employment taxes for 4 years. Self employment tax form These should be available for IRS review. Self employment tax form There is no required format for such records, but they should include your EIN; the amounts and dates of all wage payments (including fringe benefits) and tips reported; the names, addresses, and occupations of employees receiving such payments and their social security numbers; copies of returns filed; dates of employment; and the dates and amounts of deposits made. Self employment tax form Farm employers must keep a record of the name, permanent address, and EIN of each crew leader. Self employment tax form See Farm Crew Leaders in section 2. Self employment tax form Disregarded entities and qualified subchapter S subsidiaries (QSubs). Self employment tax form  Eligible single-owner disregarded entities and QSubs are treated as separate entities for employment tax purposes. Self employment tax form Eligible single-member entities that have not elected to be taxed as corporations must report and pay employment taxes on wages paid to their employees using the entities' own names and EINs. Self employment tax form See Regulations sections 1. Self employment tax form 1361-4(a)(7) and 301. Self employment tax form 7701-2(c)(2)(iv). Self employment tax form Photographs of missing children. Self employment tax form  The IRS is a proud partner with the National Center for Missing and Exploited Children. Self employment tax form Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Self employment tax form You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Self employment tax form Calendar   If any date for filing a return, furnishing a form, or depositing taxes falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. Self employment tax form A statewide legal holiday delays a filing due date only if the IRS office where you are required to file is located in that state. Self employment tax form However, a statewide legal holiday does not delay the due date of federal tax deposits. Self employment tax form See Deposits on Business Days Only in section 8. Self employment tax form For any filing due date, you will meet the “file” or “furnish” requirement if the envelope containing the return or form is properly addressed, contains sufficient postage, and is postmarked by the U. Self employment tax form S. Self employment tax form Postal Service on or before the due date, or sent by an IRS-designated delivery service on or before the due date. Self employment tax form See Private delivery services under Reminders. Self employment tax form The following are important dates and responsibilities. Self employment tax form Also see Publication 509, Tax Calendars. Self employment tax form By January 31. Self employment tax form   Furnish wage and tax statements to employees. Self employment tax form Give each employee a completed Form W-2AS, W-2CM, W-2GU, or W-2VI. Self employment tax form See section 10 for more information. Self employment tax form File Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, with the IRS. Self employment tax form If you deposited all Form 943 taxes when due, you have 10 additional calendar days to file. Self employment tax form U. Self employment tax form S. Self employment tax form Virgin Islands employers only must file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, with the IRS. Self employment tax form Pay or deposit (if more than $500) any balance of the tax due. Self employment tax form If you deposited the full amount of taxes when due, you have 10 additional calendar days to file. Self employment tax form File Form 944 with the IRS if you were notified by the IRS to file Form 944 instead of quarterly Forms 941-SS. Self employment tax form If you deposited the full amount of taxes when due, you have 10 additional calendar days to file. Self employment tax form By February 28. Self employment tax form  File paper wage and tax statements with the Social Security Administration (SSA). Self employment tax form File Copy A of Forms W-2AS, W-2CM, W-2GU, or W-2VI, and Form W-3SS with the Social Security Administration (SSA). Self employment tax form For electronically filed returns, see By March 31 next. Self employment tax form By March 31. Self employment tax form  File electronic Forms W-2AS, W-2CM, W-2GU, or W-2VI with the SSA. Self employment tax form Visit the SSA's Reporting Instructions & Information webpage at www. Self employment tax form socialsecurity. Self employment tax form gov/employer for more information. Self employment tax form By April 30, July 31, October 31, and January 31. Self employment tax form  File Form 941-SS with the IRS. Self employment tax form If you deposited the full amount of taxes when due, you have 10 additional calendar days to file. Self employment tax form Do not file Forms 941-SS for these quarters if you have been notified to file Form 944 and you did not request to file quarterly Forms 941-SS. Self employment tax form Deposit FUTA tax for the quarter (including any amount carried over from other quarters) if over $500. Self employment tax form If $500 or less, carry it over to the next quarter. Self employment tax form See section 11 for more information. Self employment tax form Prev  Up  Next   Home   More Online Publications
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The Self Employment Tax Form

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