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Turbotax 2011 Free Edition

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Turbotax 2011 Free Edition

Turbotax 2011 free edition 9. Turbotax 2011 free edition   Tax Treaty Benefits Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Treaty Income Some Typical Tax Treaty BenefitsPersonal Services Teachers, Professors, and Researchers Employees of Foreign Governments Students, Apprentices, and Trainees Capital Gains Resident Aliens Reporting Treaty Benefits Claimed Introduction A nonresident alien (and certain resident aliens) from a country with which the United States has an income tax treaty may qualify for certain benefits. Turbotax 2011 free edition Most treaties require that the nonresident alien be a resident of the treaty country to qualify. Turbotax 2011 free edition However, some treaties require that the nonresident alien be a national or a citizen of the treaty country. Turbotax 2011 free edition See Table 9-1 for a list of tax treaty countries. Turbotax 2011 free edition You can generally arrange to have withholding tax reduced or eliminated on wages and other income that are eligible for tax treaty benefits. Turbotax 2011 free edition See Income Entitled to Tax Treaty Benefits in chapter 8. Turbotax 2011 free edition Topics - This chapter discusses: Typical tax treaty benefits, How to obtain copies of tax treaties, and How to claim tax treaty benefits on your tax return. Turbotax 2011 free edition Useful Items - You may want to see: Publication 901 U. Turbotax 2011 free edition S. Turbotax 2011 free edition Tax Treaties Form (and Instructions) 1040NR U. Turbotax 2011 free edition S. Turbotax 2011 free edition Nonresident Alien Income Tax Return 1040NR-EZ U. Turbotax 2011 free edition S. Turbotax 2011 free edition Income Tax Return for Certain Nonresident Aliens With No Dependents 8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) See chapter 12 for information about getting these publications and forms. Turbotax 2011 free edition Treaty Income A nonresident alien's treaty income is the gross income on which the tax is limited by a tax treaty. Turbotax 2011 free edition Treaty income includes, for example, dividends from sources in the United States that are subject to tax at a tax treaty rate not to exceed 15%. Turbotax 2011 free edition Nontreaty income is the gross income of a nonresident alien on which the tax is not limited by a tax treaty. Turbotax 2011 free edition Figure the tax on treaty income on each separate item of income at the reduced rate that applies to that item under the treaty. Turbotax 2011 free edition To determine tax on nontreaty income, figure the tax at either the flat 30% rate or the graduated rate, depending upon whether or not the income is effectively connected with your trade or business in the United States. Turbotax 2011 free edition Your tax liability is the sum of the tax on treaty income plus the tax on nontreaty income, but cannot be more than the tax liability figured as if the tax treaty had not come into effect. Turbotax 2011 free edition Example. Turbotax 2011 free edition Arthur Banks is a nonresident alien who is single and a resident of a foreign country that has a tax treaty with the United States. Turbotax 2011 free edition He received gross income of $25,850 during the tax year from sources within the United States, consisting of the following items: Dividends on which the tax is limited to a 15% rate by the tax treaty $1,400 Compensation for personal services on which the tax is not limited by the tax treaty 24,450 Total gross income $25,850 Arthur was engaged in business in the United States during the tax year. Turbotax 2011 free edition His dividends are not effectively connected with that business. Turbotax 2011 free edition He has no deductions other than his own personal exemption. Turbotax 2011 free edition His tax liability, figured as though the tax treaty had not come into effect, is $3,060 determined as follows: Total compensation $24,450 Less: Personal exemption 3,900 Taxable income $20,550 Tax determined by graduated rate (Tax Table column for single taxpayers) $2,640 Plus: Tax on gross dividends ($1,400 × 30%) 420 Tax determined as though treaty had not come into effect $3,060 Arthur's tax liability, figured by taking into account the reduced rate on dividend income as provided by the tax treaty, is $2,850 determined as follows: Tax determined by graduated rate (same as figured above) $2,640 Plus: Tax on gross dividends ($1,400 × 15%) 210 Tax on compensation and dividends $2,850 His tax liability, therefore, is limited to $2,850, the tax liability figured using the tax treaty rate on the dividends. Turbotax 2011 free edition Some Typical Tax Treaty Benefits The following paragraphs briefly explain the exemptions that are available under tax treaties for personal services income, remittances, scholarships, fellowships, and capital gain income. Turbotax 2011 free edition The conditions for claiming the exemptions vary under each tax treaty. Turbotax 2011 free edition For more information about the conditions under a particular tax treaty, see Publication 901. Turbotax 2011 free edition Or, you may download the complete text of most U. Turbotax 2011 free edition S. Turbotax 2011 free edition tax treaties at IRS. Turbotax 2011 free edition gov. Turbotax 2011 free edition Technical explanations for many of those treaties are also available at that site. Turbotax 2011 free edition Tax treaty benefits also cover income such as dividends, interest, rentals, royalties, pensions, and annuities. Turbotax 2011 free edition These types of income may be exempt from U. Turbotax 2011 free edition S. Turbotax 2011 free edition tax or may be subject to a reduced rate of tax. Turbotax 2011 free edition For more information, see Publication 901 or the applicable tax treaty. Turbotax 2011 free edition Personal Services Nonresident aliens from treaty countries who are in the United States for a short stay and also meet certain other requirements may be exempt from tax on their compensation received for personal services performed in the United States. Turbotax 2011 free edition Many tax treaties require that the nonresident alien claiming this exemption be present in the United States for a total of not more than 183 days during the tax year. Turbotax 2011 free edition Other tax treaties specify different periods of maximum presence in the United States, such as 180 days or 90 days. Turbotax 2011 free edition Spending part of a day in the United States counts as a day of presence. Turbotax 2011 free edition Tax treaties may also require that: The compensation cannot be more than a specific amount (frequently $3,000), and The individual have a foreign employer; that is, an individual, corporation, or entity of a foreign country. Turbotax 2011 free edition Note. Turbotax 2011 free edition Under most treaties, income received as an employee (generally designated as dependent personal services) and income received as a self-employed person (generally designated as independent personal services or business income) are treated differently. Turbotax 2011 free edition Teachers, Professors, and Researchers Under many income tax treaties, nonresident alien teachers or professors who temporarily visit the United States for the primary purpose of teaching at a university or other accredited educational institution are not subject to U. Turbotax 2011 free edition S. Turbotax 2011 free edition income tax on compensation received for teaching for the first 2 or 3 years after their arrival in the United States. Turbotax 2011 free edition Many treaties also provide an exemption for engaging in research. Turbotax 2011 free edition Generally, the teacher or professor must be in the United States primarily to teach, lecture, instruct, or engage in research. Turbotax 2011 free edition A substantial part of that person's time must be devoted to those duties. Turbotax 2011 free edition The normal duties of a teacher or professor include not only formal classroom work involving regularly scheduled lectures, demonstrations, or other student-participation activities, but also the less formal method of presenting ideas in seminars or other informal groups and in joint efforts in the laboratory. Turbotax 2011 free edition If you entered the United States as a nonresident alien, but are now a resident alien, the treaty exemption may still apply. Turbotax 2011 free edition See Students, Apprentices, Trainees, Teachers, Professors, and Researchers Who Became Resident Aliens later under Resident Aliens. Turbotax 2011 free edition Employees of Foreign Governments All treaties have provisions for the exemption of income earned by certain employees of foreign governments. Turbotax 2011 free edition However, a difference exists among treaties as to who qualifies for this benefit. Turbotax 2011 free edition Under many treaties, aliens admitted to the United States for permanent residence do not qualify. Turbotax 2011 free edition Under most treaties, aliens who are not nationals or subjects of the foreign country do not qualify. Turbotax 2011 free edition Employees of foreign governments should read the pertinent treaty carefully to determine whether they qualify for benefits. Turbotax 2011 free edition Chapter 10 of this publication also has information for employees of foreign governments. Turbotax 2011 free edition Students, Apprentices, and Trainees Under some income tax treaties, students, apprentices, and trainees are exempt from tax on remittances received from abroad for study and maintenance. Turbotax 2011 free edition Also, under some treaties, scholarship and fellowship grants, and a limited amount of compensation received by students, apprentices, and trainees may be exempt from tax. Turbotax 2011 free edition If you entered the United States as a nonresident alien, but are now a resident alien, the treaty exemption may still apply. Turbotax 2011 free edition See Students, Apprentices, Trainees, Teachers, Professors, and Researchers Who Became Resident Aliens , later, under Resident Aliens. Turbotax 2011 free edition Capital Gains Most treaties provide for the exemption of gains from the sale or exchange of personal property. Turbotax 2011 free edition Generally, gains from the sale or exchange of real property located in the United States are taxable. Turbotax 2011 free edition Resident Aliens Resident aliens may qualify for tax treaty benefits in the situations discussed below. Turbotax 2011 free edition U. Turbotax 2011 free edition S. Turbotax 2011 free edition Residency Under Tax Treaty “Tie-Breaker” Rule In certain circumstances, individuals who are treated as residents of the United States under an income tax treaty (after application of the so-called “tie-breaker” rule) will be entitled to treaty benefits. Turbotax 2011 free edition (The “tie-breaker” rule is explained in chapter 1 under Effect of Tax Treaties. Turbotax 2011 free edition ) If this applies to you, you generally will not need to file a Form 8833 for the income for which treaty benefits are claimed. Turbotax 2011 free edition This is because the income will typically be of a category for which disclosure on a Form 8833 is waived. Turbotax 2011 free edition See Reporting Treaty Benefits Claimed . Turbotax 2011 free edition In most cases, you also will not need to report the income on your Form 1040 because the income will be exempt from U. Turbotax 2011 free edition S. Turbotax 2011 free edition tax under the treaty. Turbotax 2011 free edition However, if the income has been reported as taxable income on a Form W-2, Form 1042-S, Form 1099, or other information return, you should report it on the appropriate line of Form 1040 (for example, line 7 in the case of wages or salaries). Turbotax 2011 free edition Enter the amount for which treaty benefits are claimed in parentheses on Form 1040, line 21. Turbotax 2011 free edition Next to the amount write “Exempt income,” the name of the treaty country, and the treaty article that provides the exemption. Turbotax 2011 free edition On Form 1040, subtract this amount from your income to arrive at total income on Form 1040, line 22. Turbotax 2011 free edition Also follow the above procedure for income that is subject to a reduced rate of tax, instead of an exemption, under the treaty. Turbotax 2011 free edition Attach a statement to Form 1040 showing a computation of the tax at the reduced rate, the name of the treaty country, and the treaty article that provides for the reduced tax rate. Turbotax 2011 free edition Include this tax on Form 1040, line 61. Turbotax 2011 free edition On the dotted line next to line 61, write “Tax from attached statement” and the amount of the tax. Turbotax 2011 free edition Example. Turbotax 2011 free edition Jacques Dubois, who is a resident of the United States under Article 4 of the U. Turbotax 2011 free edition S. Turbotax 2011 free edition -France income tax treaty, receives French social security benefits. Turbotax 2011 free edition Under Article 18(1) of the treaty, French social security benefits are not taxable by the United States. Turbotax 2011 free edition Mr. Turbotax 2011 free edition Dubois is not required to file a Form 8833 for his French social security benefits or report the benefits on Form 1040. Turbotax 2011 free edition Special Rule for Canadian and German Social Security Benefits Under income tax treaties with Canada and Germany, if a U. Turbotax 2011 free edition S. Turbotax 2011 free edition resident receives social security benefits from Canada or Germany, those benefits are treated for U. Turbotax 2011 free edition S. Turbotax 2011 free edition income tax purposes as if they were received under the social security legislation of the United States. Turbotax 2011 free edition If you receive social security benefits from Canada or Germany, include them on line 1 of your Social Security Benefits Worksheet for purposes of determining the taxable amount to be reported on Form 1040, line 20b or Form 1040A, line 14b. Turbotax 2011 free edition You are not required to file a Form 8833 for those benefits. Turbotax 2011 free edition Students, Apprentices, Trainees, Teachers, Professors, and Researchers Who Became Resident Aliens Generally, you must be a nonresident alien student, apprentice, trainee, teacher, professor, or researcher in order to claim a tax treaty exemption for remittances from abroad for study and maintenance in the United States, for scholarship, fellowship, and research grants, and for wages or other personal service compensation. Turbotax 2011 free edition Once you become a resident alien, you generally can no longer claim a tax treaty exemption for this income. Turbotax 2011 free edition However, if you entered the United States as a nonresident alien, but you are now a resident alien for U. Turbotax 2011 free edition S. Turbotax 2011 free edition tax purposes, the treaty exemption will continue to apply if the tax treaty's saving clause (explained later) provides an exception for it and you otherwise meet the requirements for the treaty exemption (including any time limit, explained later). Turbotax 2011 free edition This is true even if you are a nonresident alien electing to file a joint return as explained in chapter 1. Turbotax 2011 free edition Some exceptions to the saving clause apply to all resident aliens (for example, under the U. Turbotax 2011 free edition S. Turbotax 2011 free edition -People's Republic of China treaty); others apply only to resident aliens who are not lawful permanent residents of the United States (green card holders). Turbotax 2011 free edition If you qualify under an exception to the treaty's saving clause, you can avoid income tax withholding by giving the payor a Form W-9 with the statement required by the Form W-9 instructions. Turbotax 2011 free edition Saving clause. Turbotax 2011 free edition   Most tax treaties have a saving clause. Turbotax 2011 free edition A saving clause preserves or “saves” the right of each country to tax its own residents as if no tax treaty were in effect. Turbotax 2011 free edition Thus, once you become a resident alien of the United States, you generally lose any tax treaty benefits that relate to your income. Turbotax 2011 free edition However, many tax treaties have exceptions to the saving clause, which may allow you to continue to claim certain treaty benefits when you become a resident alien. Turbotax 2011 free edition Read the treaty to find out if it has a saving clause and an exception to it. Turbotax 2011 free edition Time limit for claiming treaty exemptions. Turbotax 2011 free edition   Many treaties limit the number of years you can claim a treaty exemption. Turbotax 2011 free edition For students, apprentices, and trainees, the limit is usually 4–5 years; for teachers, professors, and researchers, the limit is usually 2–3 years. Turbotax 2011 free edition Once you reach this limit, you can no longer claim the treaty exemption. Turbotax 2011 free edition See the treaty or Publication 901 for the time limits that apply. Turbotax 2011 free edition How to report income on your tax return. Turbotax 2011 free edition   In most cases, you also will not need to report the income on your Form 1040 because the income will be exempt from U. Turbotax 2011 free edition S. Turbotax 2011 free edition tax under the treaty. Turbotax 2011 free edition However, if the income has been reported as taxable income on a Form W-2, Form 1042-S, Form 1099, or other information return, you should report it on the appropriate line of Form 1040 (for example, line 7 in the case of wages, salaries, scholarships, or fellowships). Turbotax 2011 free edition Enter the amount for which treaty benefits are claimed in parentheses on Form 1040, line 21. Turbotax 2011 free edition Next to the amount write “Exempt income,” the name of the treaty country, and the treaty article that provides the exemption. Turbotax 2011 free edition On Form 1040, subtract this amount from your income to arrive at total income on Form 1040, line 22. Turbotax 2011 free edition Example. Turbotax 2011 free edition Mr. Turbotax 2011 free edition Yu, a citizen of the People's Republic of China, entered the United States as a nonresident alien student on January 1, 2009. Turbotax 2011 free edition He remained a nonresident alien through 2013 and was able to exclude his scholarship from U. Turbotax 2011 free edition S. Turbotax 2011 free edition tax in those years under Article 20 of the U. Turbotax 2011 free edition S. Turbotax 2011 free edition -People's Republic of China income tax treaty. Turbotax 2011 free edition On January 1, 2014, he became a resident alien under the substantial presence test because his stay in the United States exceeded 5 years. Turbotax 2011 free edition Even though Mr. Turbotax 2011 free edition Yu is now a resident alien, the provisions of Article 20 still apply because of the exception to the saving clause in paragraph 2 of the Protocol to the U. Turbotax 2011 free edition S. Turbotax 2011 free edition -People's Republic of China treaty dated April 30, 1984. Turbotax 2011 free edition Mr. Turbotax 2011 free edition Yu should submit Form W-9 and the required statement to the payor. Turbotax 2011 free edition Reporting Treaty Benefits Claimed If you claim treaty benefits that override or modify any provision of the Internal Revenue Code, and by claiming these benefits your tax is, or might be, reduced, you must attach a fully completed Form 8833 to your tax return. Turbotax 2011 free edition See below, for the situations where you are not required to file Form 8833. Turbotax 2011 free edition You must file a U. Turbotax 2011 free edition S. Turbotax 2011 free edition tax return and Form 8833 if you claim the following treaty benefits. Turbotax 2011 free edition You claim a reduction or modification in the taxation of gain or loss from the disposition of a U. Turbotax 2011 free edition S. Turbotax 2011 free edition real property interest based on a treaty. Turbotax 2011 free edition You claim a credit for a specific foreign tax for which foreign tax credit would not be allowed by the Internal Revenue Code. Turbotax 2011 free edition You receive payments or income items totaling more than $100,000 and you determine your country of residence under a treaty and not under the rules for residency discussed in chapter 1. Turbotax 2011 free edition These are the more common situations for which Form 8833 is required. Turbotax 2011 free edition Exceptions. Turbotax 2011 free edition   You do not have to file Form 8833 for any of the following situations. Turbotax 2011 free edition You claim a reduced rate of withholding tax under a treaty on interest, dividends, rent, royalties, or other fixed or determinable annual or periodic income ordinarily subject to the 30% rate. Turbotax 2011 free edition You claim a treaty reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. Turbotax 2011 free edition This includes taxable scholarship and fellowship grants. Turbotax 2011 free edition You claim a reduction or modification of taxation of income under an International Social Security Agreement or a Diplomatic or Consular Agreement. Turbotax 2011 free edition You are a partner in a partnership or a beneficiary of an estate or trust and the partnership, estate, or trust reports the required information on its return. Turbotax 2011 free edition The payments or items of income that are otherwise required to be disclosed total no more than $10,000. Turbotax 2011 free edition You are claiming treaty benefits for amounts that are: Reported to you on Form 1042-S and Received by you: As a related party from a reporting corporation within the meaning of Internal Revenue Code section 6038A (relating to information returns on Form 5472 filed by U. Turbotax 2011 free edition S. Turbotax 2011 free edition corporations that are 25-percent owned by a foreign person), or As a beneficial owner that is a direct account holder of a U. Turbotax 2011 free edition S. Turbotax 2011 free edition financial institution or qualified intermediary, or a direct partner, beneficiary, or owner of a withholding foreign partnership or trust, from that U. Turbotax 2011 free edition S. Turbotax 2011 free edition financial institution, qualified intermediary, or withholding foreign partnership or trust. Turbotax 2011 free edition The exception described in (6) above does not apply to any amounts for which a treaty-based return disclosure is specifically required by the Form 8833 instructions. Turbotax 2011 free edition Penalty for failure to provide required information on Form 8833. Turbotax 2011 free edition   If you are required to report the treaty benefits but do not, you may be subject to a penalty of $1,000 for each failure. Turbotax 2011 free edition Additional information. Turbotax 2011 free edition   For additional information, see section 301. Turbotax 2011 free edition 6114-1(c) of the Income Tax Regulations. Turbotax 2011 free edition Table 9-1. Turbotax 2011 free edition Table of Tax Treaties (Updated through December 31, 2013) Country Official Text  Symbol1 General  Effective Date Citation Applicable Treasury Explanations  or Treasury Decision (T. Turbotax 2011 free edition D. Turbotax 2011 free edition ) Australia TIAS 10773 Dec. Turbotax 2011 free edition 1, 1983 1986-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 220 1986-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 246 Protocol TIAS Jan. Turbotax 2011 free edition 1, 2004     Austria TIAS Jan. Turbotax 2011 free edition 1, 1999     Bangladesh TIAS Jan. Turbotax 2011 free edition 1, 2007     Barbados TIAS 11090 Jan. Turbotax 2011 free edition 1, 1984 1991-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 436 1991-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 466 Protocol TIAS Jan. Turbotax 2011 free edition 1, 1994     Protocol TIAS Jan. Turbotax 2011 free edition 1, 2005     Belgium TIAS Jan. Turbotax 2011 free edition 1, 2008     Bulgaria TIAS Jan. Turbotax 2011 free edition 1, 2009     Canada2 TIAS 11087 Jan. Turbotax 2011 free edition 1, 1985 1986-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 258 1987-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 298 Protocol TIAS Jan. Turbotax 2011 free edition 1, 1996     Protocol TIAS Dec. Turbotax 2011 free edition 16, 1997     Protocol TIAS Jan. Turbotax 2011 free edition 1, 2009     China, People's Republic of TIAS 12065 Jan. Turbotax 2011 free edition 1, 1987 1988-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 414 1988-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 447 Commonwealth of Independent States3 TIAS 8225 Jan. Turbotax 2011 free edition 1, 1976 1976-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 463 1976-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 475 Cyprus TIAS 10965 Jan. Turbotax 2011 free edition 1, 1986 1989-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 280 1989-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 314 Czech Republic TIAS Jan. Turbotax 2011 free edition 1, 1993     Denmark TIAS Jan. Turbotax 2011 free edition 1, 2001     Protocol TIAS Jan. Turbotax 2011 free edition 1, 2008     Egypt TIAS 10149 Jan. Turbotax 2011 free edition 1, 1982 1982-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 219 1982-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 243 Estonia TIAS Jan. Turbotax 2011 free edition 1, 2000     Finland TIAS 12101 Jan. Turbotax 2011 free edition 1, 1991     Protocol TIAS Jan. Turbotax 2011 free edition 1, 2008     France TIAS Jan. Turbotax 2011 free edition 1, 1996     Protocol TIAS Jan. Turbotax 2011 free edition 1, 2007     Protocol TIAS Jan. Turbotax 2011 free edition 1, 2010     Germany TIAS Jan. Turbotax 2011 free edition 1, 1990     Protocol TIAS Jan. Turbotax 2011 free edition 1, 2008     Greece TIAS 2902 Jan. Turbotax 2011 free edition 1, 1953 1958-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 1054 T. Turbotax 2011 free edition D. Turbotax 2011 free edition 6109, 1954-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 638 Hungary TIAS 9560 Jan. Turbotax 2011 free edition 1, 1980 1980-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 333 1980-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 354 Iceland TIAS Jan. Turbotax 2011 free edition 1, 2009     India TIAS Jan. Turbotax 2011 free edition 1, 1991     Indonesia TIAS 11593 Jan. Turbotax 2011 free edition 1, 1990     Ireland TIAS Jan. Turbotax 2011 free edition 1, 1998     Israel TIAS Jan. Turbotax 2011 free edition 1, 1995     Italy TIAS Jan. Turbotax 2011 free edition 1, 2010     Jamaica TIAS 10207 Jan. Turbotax 2011 free edition 1, 1982 1982-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 257 1982-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 291 Japan TIAS Jan. Turbotax 2011 free edition 1, 2005     Kazakhstan TIAS Jan. Turbotax 2011 free edition 1, 1996     Korea, South TIAS 9506 Jan. Turbotax 2011 free edition 1, 1980 1979-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 435 1979-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 458 Latvia TIAS Jan. Turbotax 2011 free edition 1, 2000     Lithuania TIAS Jan. Turbotax 2011 free edition 1, 2000     Luxembourg TIAS Jan. Turbotax 2011 free edition 1, 2001     Malta TIAS Jan. Turbotax 2011 free edition 1, 2011     Mexico TIAS Jan. Turbotax 2011 free edition 1, 1994 1994-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 424 1994-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 489 Protocol TIAS Oct. Turbotax 2011 free edition 26, 1995     Protocol TIAS Jan. Turbotax 2011 free edition 1, 2004     Morocco TIAS 10195 Jan. Turbotax 2011 free edition 1, 1981 1982-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 405 1982-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 427 Netherlands TIAS Jan. Turbotax 2011 free edition 1, 1994     Protocol TIAS Jan. Turbotax 2011 free edition 1, 2005     New Zealand TIAS 10772 Nov. Turbotax 2011 free edition 2, 1983 1990-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 274 1990-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 303 Protocol TIAS Jan. Turbotax 2011 free edition 1, 2011     Norway TIAS 7474 Jan. Turbotax 2011 free edition 1, 1971 1973-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 669 1973-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 693 Protocol TIAS 10205 Jan. Turbotax 2011 free edition 1, 1982 1982-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 440 1982-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 454 Pakistan TIAS 4232 Jan. Turbotax 2011 free edition 1, 1959 1960-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 646 T. Turbotax 2011 free edition D. Turbotax 2011 free edition 6431, 1960-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 755 Philippines TIAS 10417 Jan. Turbotax 2011 free edition 1, 1983 1984-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 384 1984-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 412 Poland TIAS 8486 Jan. Turbotax 2011 free edition 1, 1974 1977-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 416 1977-1 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 427 Portugal TIAS Jan. Turbotax 2011 free edition 1, 1996     Romania TIAS 8228 Jan. Turbotax 2011 free edition 1, 1974 1976-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 492 1976-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 504 Russia TIAS Jan. Turbotax 2011 free edition 1, 1994     Slovak Republic TIAS Jan. Turbotax 2011 free edition 1, 1993     Slovenia TIAS Jan. Turbotax 2011 free edition 1, 2002     South Africa TIAS Jan. Turbotax 2011 free edition 1, 1998     Spain TIAS Jan. Turbotax 2011 free edition 1, 1991     Sri Lanka TIAS Jan. Turbotax 2011 free edition 1, 2004     Sweden TIAS Jan. Turbotax 2011 free edition 1, 1996     Protocol TIAS Jan. Turbotax 2011 free edition 1, 2007     Switzerland TIAS Jan. Turbotax 2011 free edition 1, 1998     Thailand TIAS Jan. Turbotax 2011 free edition 1, 1998     Trinidad and Tobago TIAS 7047 Jan. Turbotax 2011 free edition 1, 1970 1971-2 C. Turbotax 2011 free edition B. Turbotax 2011 free edition 479   Tunisia TIAS Jan. Turbotax 2011 free edition 1, 1990     Turkey TIAS Jan. Turbotax 2011 free edition 1, 1998     Ukraine TIAS Jan. Turbotax 2011 free edition 1, 2001     United Kingdom TIAS Jan. Turbotax 2011 free edition 1, 2004     Venezuela TIAS Jan. Turbotax 2011 free edition 1, 2000     1(TIAS) Treaties and Other International Act Series 2Information on the treaty can be found in Publication 597, Information on the United States-Canada Income Tax Treaty. Turbotax 2011 free edition 3The U. Turbotax 2011 free edition S. Turbotax 2011 free edition -U. Turbotax 2011 free edition S. Turbotax 2011 free edition S. Turbotax 2011 free edition R. Turbotax 2011 free edition income tax treaty applies to the countries of Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan. Turbotax 2011 free edition Prev  Up  Next   Home   More Online Publications
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EO Select Check

Exempt Organizations Select Check is an on-line search tool that allows users to search for and select an exempt organization and check certain information about its federal tax status and filings.  It consolidates three former search sites into one, providing expanded search capability and a more efficient way to search for organizations that:

  • Are eligible to receive tax-deductible charitable contributions (Publication 78 data). Users may rely on this list in determining deductibility of their contributions (just as they did when Publication 78 was a separate electronic publication rather than part of Select Check).
    Updated data posting date: 3-10-2014
  • Have had their tax-exempt status automatically revoked under the law because they have not filed Form 990 series returns or notices annually as required for three consecutive years (Auto-Revocation List)
    Updated data posting date: 3-10-2014
  • Have filed a Form 990-N (e-Postcard) annual electronic notice. (Most small exempt organizations whose annual gross receipts are normally $50,000 or less are required to electronically submit Form 990-N, unless they choose instead to file a completed Form 990 or Form 990-EZ.)
    Updated data posting date: 3-31-2014

A tip for organizations and donors about the timing of data updates.

In addition to searching for a particular organization, users may download a complete list of each of the three types of organizations through Exempt Organizations Select Check.

 

 

Search Tips for Exempt Organizations Select Check

Note:  The Statistics of Income Division maintains a list of organizations recognized as exempt by the IRS, SOI Tax Stats - Exempt Organizations Business Master File Extract (EO BMF).

FOR RELATED INFORMATION SEE:

  
 
Page Last Reviewed or Updated: 31-Mar-2014

The Turbotax 2011 Free Edition

Turbotax 2011 free edition 3. Turbotax 2011 free edition   Ordinary or Capital Gain or Loss for Business Property Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. Turbotax 2011 free edition Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sales Gifts Transfers at Death Like-Kind Exchanges and Involuntary Conversions Multiple Properties Introduction When you dispose of business property, your taxable gain or loss is usually a section 1231 gain or loss. Turbotax 2011 free edition Its treatment as ordinary or capital is determined under rules for section 1231 transactions. Turbotax 2011 free edition When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. Turbotax 2011 free edition Any remaining gain is a section 1231 gain. Turbotax 2011 free edition Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 537 Installment Sales 547 Casualties, Disasters and Thefts 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) 4797 Sales of Business Property See chapter 5 for information about getting publications and forms. Turbotax 2011 free edition Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (discussed below). Turbotax 2011 free edition Their treatment as ordinary or capital depends on whether you have a net gain or a net loss from all your section 1231 transactions. Turbotax 2011 free edition If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). Turbotax 2011 free edition Do not take that gain into account as section 1231 gain. Turbotax 2011 free edition Section 1231 transactions. Turbotax 2011 free edition   The following transactions result in gain or loss subject to section 1231 treatment. Turbotax 2011 free edition Sales or exchanges of real property or depreciable personal property. Turbotax 2011 free edition This property must be used in a trade or business and held longer than 1 year. Turbotax 2011 free edition Generally, property held for the production of rents or royalties is considered to be used in a trade or business. Turbotax 2011 free edition Depreciable personal property includes amortizable section 197 intangibles (described in chapter 2 under Other Dispositions). Turbotax 2011 free edition Sales or exchanges of leaseholds. Turbotax 2011 free edition The leasehold must be used in a trade or business and held longer than 1 year. Turbotax 2011 free edition Sales or exchanges of cattle and horses. Turbotax 2011 free edition The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 2 years or longer. Turbotax 2011 free edition Sales or exchanges of other livestock. Turbotax 2011 free edition This livestock does not include poultry. Turbotax 2011 free edition It must be held for draft, breeding, dairy, or sporting purposes and held for 1 year or longer. Turbotax 2011 free edition Sales or exchanges of unharvested crops. Turbotax 2011 free edition The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person and the land must be held longer than 1 year. Turbotax 2011 free edition You cannot keep any right or option to directly or indirectly reacquire the land (other than a right customarily incident to a mortgage or other security transaction). Turbotax 2011 free edition Growing crops sold with a lease on the land, though sold to the same person in the same transaction, are not included. Turbotax 2011 free edition Cutting of timber or disposal of timber, coal, or iron ore. Turbotax 2011 free edition The cutting or disposal must be treated as a sale, as described in chapter 2 under Timber and Coal and Iron Ore. Turbotax 2011 free edition Condemnations. Turbotax 2011 free edition The condemned property must have been held longer than 1 year. Turbotax 2011 free edition It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. Turbotax 2011 free edition It cannot be property held for personal use. Turbotax 2011 free edition Casualties and thefts. Turbotax 2011 free edition The casualty or theft must have affected business property, property held for the production of rents and royalties, or investment property (such as notes and bonds). Turbotax 2011 free edition You must have held the property longer than 1 year. Turbotax 2011 free edition However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. Turbotax 2011 free edition For more information on casualties and thefts, see Publication 547. Turbotax 2011 free edition Property for sale to customers. Turbotax 2011 free edition   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. Turbotax 2011 free edition If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. Turbotax 2011 free edition Example. Turbotax 2011 free edition You manufacture and sell steel cable, which you deliver on returnable reels that are depreciable property. Turbotax 2011 free edition Customers make deposits on the reels, which you refund if the reels are returned within a year. Turbotax 2011 free edition If they are not returned, you keep each deposit as the agreed-upon sales price. Turbotax 2011 free edition Most reels are returned within the 1-year period. Turbotax 2011 free edition You keep adequate records showing depreciation and other charges to the capitalized cost of the reels. Turbotax 2011 free edition Under these conditions, the reels are not property held for sale to customers in the ordinary course of your business. Turbotax 2011 free edition Any gain or loss resulting from their not being returned may be capital or ordinary, depending on your section 1231 transactions. Turbotax 2011 free edition Copyrights. Turbotax 2011 free edition    The sale of a copyright, a literary, musical, or artistic composition, or similar property is not a section 1231 transaction if your personal efforts created the property, or if you acquired the property in a way that entitled you to the basis of the previous owner whose personal efforts created it (for example, if you receive the property as a gift). Turbotax 2011 free edition The sale of such property results in ordinary income and generally is reported in Part II of Form 4797. Turbotax 2011 free edition Treatment as ordinary or capital. Turbotax 2011 free edition   To determine the treatment of section 1231 gains and losses, combine all your section 1231 gains and losses for the year. Turbotax 2011 free edition If you have a net section 1231 loss, it is ordinary loss. Turbotax 2011 free edition If you have a net section 1231 gain, it is ordinary income up to the amount of your nonrecaptured section 1231 losses from previous years. Turbotax 2011 free edition The rest, if any, is long-term capital gain. Turbotax 2011 free edition Nonrecaptured section 1231 losses. Turbotax 2011 free edition   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain. Turbotax 2011 free edition Therefore, if in any of your five preceding tax years you had section 1231 losses, a net gain for the current year from the sale of section 1231 assets is ordinary gain to the extent of your prior losses. Turbotax 2011 free edition These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Turbotax 2011 free edition Example. Turbotax 2011 free edition In 2013, Ben has a $2,000 net section 1231 gain. Turbotax 2011 free edition To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. Turbotax 2011 free edition From 2008 through 2012 he had the following section 1231 gains and losses. Turbotax 2011 free edition Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800 Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. Turbotax 2011 free edition 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if otherwise nontaxable) as ordinary income. Turbotax 2011 free edition To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. Turbotax 2011 free edition This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis. Turbotax 2011 free edition On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information. Turbotax 2011 free edition Whether the adjusted basis was figured using depreciation or amortization you claimed on other property. Turbotax 2011 free edition Whether the adjusted basis was figured using depreciation or amortization another person claimed. Turbotax 2011 free edition Corporate distributions. Turbotax 2011 free edition   For information on property distributed by corporations, see Distributions to Shareholders in Publication 542, Corporations. Turbotax 2011 free edition General asset accounts. Turbotax 2011 free edition   Different rules apply to dispositions of property you depreciated using a general asset account. Turbotax 2011 free edition For information on these rules, see Publication 946. Turbotax 2011 free edition Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable on the property. Turbotax 2011 free edition See Gain Treated as Ordinary Income, later. Turbotax 2011 free edition Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain. Turbotax 2011 free edition See Treatment as ordinary or capital under Section 1231 Gains and Losses, earlier. Turbotax 2011 free edition Section 1245 property defined. Turbotax 2011 free edition   Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. Turbotax 2011 free edition Personal property (either tangible or intangible). Turbotax 2011 free edition Other tangible property (except buildings and their structural components) used as any of the following. Turbotax 2011 free edition See Buildings and structural components below. Turbotax 2011 free edition An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services. Turbotax 2011 free edition A research facility in any of the activities in (a). Turbotax 2011 free edition A facility in any of the activities in (a) for the bulk storage of fungible commodities (discussed on the next page). Turbotax 2011 free edition That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. Turbotax 2011 free edition Amortization of certified pollution control facilities. Turbotax 2011 free edition The section 179 expense deduction. Turbotax 2011 free edition Deduction for clean-fuel vehicles and certain refueling property. Turbotax 2011 free edition Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations. Turbotax 2011 free edition Deduction for certain qualified refinery property. Turbotax 2011 free edition Deduction for qualified energy efficient commercial building property. Turbotax 2011 free edition Amortization of railroad grading and tunnel bores, if in effect before the repeal by the Revenue Reconciliation Act of 1990. Turbotax 2011 free edition (Repealed by Public Law 99-514, Tax Reform Act of 1986, section 242(a). Turbotax 2011 free edition ) Certain expenditures for child care facilities if in effect before repeal by Public Law 101-58, Omnibus Budget Reconciliation Act of 1990, section 11801(a)(13) (except with regards to deductions made prior to November 5, 1990). Turbotax 2011 free edition Expenditures to remove architectural and transportation barriers to the handicapped and elderly. Turbotax 2011 free edition Deduction for qualified tertiary injectant expenses. Turbotax 2011 free edition Certain reforestation expenditures. Turbotax 2011 free edition Deduction for election to expense qualified advanced mine safety equipment property. Turbotax 2011 free edition Single purpose agricultural (livestock) or horticultural structures. Turbotax 2011 free edition Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. Turbotax 2011 free edition Any railroad grading or tunnel bore. Turbotax 2011 free edition Buildings and structural components. Turbotax 2011 free edition   Section 1245 property does not include buildings and structural components. Turbotax 2011 free edition The term building includes a house, barn, warehouse, or garage. Turbotax 2011 free edition The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. Turbotax 2011 free edition   Do not treat a structure that is essentially machinery or equipment as a building or structural component. Turbotax 2011 free edition Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. Turbotax 2011 free edition   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. Turbotax 2011 free edition Structures such as oil and gas storage tanks, grain storage bins, silos, fractionating towers, blast furnaces, basic oxygen furnaces, coke ovens, brick kilns, and coal tipples are not treated as buildings, but as section 1245 property. Turbotax 2011 free edition Facility for bulk storage of fungible commodities. Turbotax 2011 free edition   This term includes oil or gas storage tanks and grain storage bins. Turbotax 2011 free edition Bulk storage means the storage of a commodity in a large mass before it is used. Turbotax 2011 free edition For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. Turbotax 2011 free edition To be fungible, a commodity must be such that one part may be used in place of another. Turbotax 2011 free edition   Stored materials that vary in composition, size, and weight are not fungible. Turbotax 2011 free edition Materials are not fungible if one part cannot be used in place of another part and the materials cannot be estimated and replaced by simple reference to weight, measure, and number. Turbotax 2011 free edition For example, the storage of different grades and forms of aluminum scrap is not storage of fungible commodities. Turbotax 2011 free edition Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. Turbotax 2011 free edition The depreciation and amortization allowed or allowable on the property. Turbotax 2011 free edition The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). Turbotax 2011 free edition A limit on this amount for gain on like-kind exchanges and involuntary conversions is explained later. Turbotax 2011 free edition For any other disposition of section 1245 property, ordinary income is the lesser of (1) earlier or the amount by which its fair market value is more than its adjusted basis. Turbotax 2011 free edition See Gifts and Transfers at Death, later. Turbotax 2011 free edition Use Part III of Form 4797 to figure the ordinary income part of the gain. Turbotax 2011 free edition Depreciation taken on other property or taken by other taxpayers. Turbotax 2011 free edition   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. Turbotax 2011 free edition Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. Turbotax 2011 free edition Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift). Turbotax 2011 free edition Depreciation and amortization. Turbotax 2011 free edition   Depreciation and amortization that must be recaptured as ordinary income include (but are not limited to) the following items. Turbotax 2011 free edition Ordinary depreciation deductions. Turbotax 2011 free edition Any special depreciation allowance you claimed. Turbotax 2011 free edition Amortization deductions for all the following costs. Turbotax 2011 free edition Acquiring a lease. Turbotax 2011 free edition Lessee improvements. Turbotax 2011 free edition Certified pollution control facilities. Turbotax 2011 free edition Certain reforestation expenses. Turbotax 2011 free edition Section 197 intangibles. Turbotax 2011 free edition Childcare facility expenses made before 1982, if in effect before the repeal of IRC 188. Turbotax 2011 free edition Franchises, trademarks, and trade names acquired before August 11, 1993. Turbotax 2011 free edition The section 179 deduction. Turbotax 2011 free edition Deductions for all the following costs. Turbotax 2011 free edition Removing barriers to the disabled and the elderly. Turbotax 2011 free edition Tertiary injectant expenses. Turbotax 2011 free edition Depreciable clean-fuel vehicles and refueling property (minus the amount of any recaptured deduction). Turbotax 2011 free edition Environmental cleanup costs. Turbotax 2011 free edition Certain reforestation expenses. Turbotax 2011 free edition Qualified disaster expenses. Turbotax 2011 free edition Any basis reduction for the investment credit (minus any basis increase for credit recapture). Turbotax 2011 free edition Any basis reduction for the qualified electric vehicle credit (minus any basis increase for credit recapture). Turbotax 2011 free edition Example. Turbotax 2011 free edition You file your returns on a calendar year basis. Turbotax 2011 free edition In February 2011, you bought and placed in service for 100% use in your business a light-duty truck (5-year property) that cost $10,000. Turbotax 2011 free edition You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2011 and $3,200 in 2012. Turbotax 2011 free edition You did not take the section 179 deduction. Turbotax 2011 free edition You sold the truck in May 2013 for $7,000. Turbotax 2011 free edition The MACRS deduction in 2013, the year of sale, is $960 (½ of $1,920). Turbotax 2011 free edition Figure the gain treated as ordinary income as follows. Turbotax 2011 free edition 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $2,000 + $3,200 + $960) 6,160   4) Adjusted basis (subtract line 3 from line 2) $3,840 5) Gain realized (subtract line 4 from line 1) $3,160 6) Gain treated as ordinary income (lesser of line 3 or line 5) $3,160 Depreciation on other tangible property. Turbotax 2011 free edition   You must take into account depreciation during periods when the property was not used as an integral part of an activity or did not constitute a research or storage facility, as described earlier under Section 1245 property. Turbotax 2011 free edition   For example, if depreciation deductions taken on certain storage facilities amounted to $10,000, of which $6,000 is from the periods before their use in a prescribed business activity, you must use the entire $10,000 in determining ordinary income from depreciation. Turbotax 2011 free edition Depreciation allowed or allowable. Turbotax 2011 free edition   The greater of the depreciation allowed or allowable is generally the amount to use in figuring the part of gain to report as ordinary income. Turbotax 2011 free edition However, if in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. Turbotax 2011 free edition If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. Turbotax 2011 free edition   This treatment applies only when figuring what part of gain is treated as ordinary income under the rules for section 1245 depreciation recapture. Turbotax 2011 free edition Multiple asset accounts. Turbotax 2011 free edition   In figuring ordinary income from depreciation, you can treat any number of units of section 1245 property in a single depreciation account as one item if the total ordinary income from depreciation figured by using this method is not less than it would be if depreciation on each unit were figured separately. Turbotax 2011 free edition Example. Turbotax 2011 free edition In one transaction you sold 50 machines, 25 trucks, and certain other property that is not section 1245 property. Turbotax 2011 free edition All of the depreciation was recorded in a single depreciation account. Turbotax 2011 free edition After dividing the total received among the various assets sold, you figured that each unit of section 1245 property was sold at a gain. Turbotax 2011 free edition You can figure the ordinary income from depreciation as if the 50 machines and 25 trucks were one item. Turbotax 2011 free edition However, if five of the trucks had been sold at a loss, only the 50 machines and 20 of the trucks could be treated as one item in determining the ordinary income from depreciation. Turbotax 2011 free edition Normal retirement. Turbotax 2011 free edition   The normal retirement of section 1245 property in multiple asset accounts does not require recognition of gain as ordinary income from depreciation if your method of accounting for asset retirements does not require recognition of that gain. Turbotax 2011 free edition Section 1250 Property Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable on the property. Turbotax 2011 free edition To determine the additional depreciation on section 1250 property, see Additional Depreciation, below. Turbotax 2011 free edition Section 1250 property defined. Turbotax 2011 free edition   This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. Turbotax 2011 free edition It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. Turbotax 2011 free edition A fee simple interest in land is not included because it is not depreciable. Turbotax 2011 free edition   If your section 1250 property becomes section 1245 property because you change its use, you can never again treat it as section 1250 property. Turbotax 2011 free edition Additional Depreciation If you hold section 1250 property longer than 1 year, the additional depreciation is the actual depreciation adjustments that are more than the depreciation figured using the straight line method. Turbotax 2011 free edition For a list of items treated as depreciation adjustments, see Depreciation and amortization under Gain Treated as Ordinary Income, earlier. Turbotax 2011 free edition For the treatment of unrecaptured section 1250 gain, see Capital Gains Tax Rate, later. Turbotax 2011 free edition If you hold section 1250 property for 1 year or less, all the depreciation is additional depreciation. Turbotax 2011 free edition You will not have additional depreciation if any of the following conditions apply to the property disposed of. Turbotax 2011 free edition You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method; you held the property longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Turbotax 2011 free edition In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction for property placed in service before January 1, 2010. Turbotax 2011 free edition The property was residential low-income rental property you held for 162/3 years or longer. Turbotax 2011 free edition For low-income rental housing on which the special 60-month depreciation for rehabilitation expenses was allowed, the 162/3 years start when the rehabilitated property is placed in service. Turbotax 2011 free edition You chose the alternate ACRS method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. Turbotax 2011 free edition The property was residential rental property or nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made); you held it longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Turbotax 2011 free edition These properties are depreciated using the straight line method. Turbotax 2011 free edition In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction. Turbotax 2011 free edition Depreciation taken by other taxpayers or on other property. Turbotax 2011 free edition   Additional depreciation includes all depreciation adjustments to the basis of section 1250 property whether allowed to you or another person (as carryover basis property). Turbotax 2011 free edition Example. Turbotax 2011 free edition Larry Johnson gives his son section 1250 property on which he took $2,000 in depreciation deductions, of which $500 is additional depreciation. Turbotax 2011 free edition Immediately after the gift, the son's adjusted basis in the property is the same as his father's and reflects the $500 additional depreciation. Turbotax 2011 free edition On January 1 of the next year, after taking depreciation deductions of $1,000 on the property, of which $200 is additional depreciation, the son sells the property. Turbotax 2011 free edition At the time of sale, the additional depreciation is $700 ($500 allowed the father plus $200 allowed the son). Turbotax 2011 free edition Depreciation allowed or allowable. Turbotax 2011 free edition   The greater of depreciation allowed or allowable (to any person who held the property if the depreciation was used in figuring its adjusted basis in your hands) generally is the amount to use in figuring the part of the gain to be reported as ordinary income. Turbotax 2011 free edition If you can show that the deduction allowed for any tax year was less than the amount allowable, the lesser figure will be the depreciation adjustment for figuring additional depreciation. Turbotax 2011 free edition Retired or demolished property. Turbotax 2011 free edition   The adjustments reflected in adjusted basis generally do not include deductions for depreciation on retired or demolished parts of section 1250 property unless these deductions are reflected in the basis of replacement property that is section 1250 property. Turbotax 2011 free edition Example. Turbotax 2011 free edition A wing of your building is totally destroyed by fire. Turbotax 2011 free edition The depreciation adjustments figured in the adjusted basis of the building after the wing is destroyed do not include any deductions for depreciation on the destroyed wing unless it is replaced and the adjustments for depreciation on it are reflected in the basis of the replacement property. Turbotax 2011 free edition Figuring straight line depreciation. Turbotax 2011 free edition   The useful life and salvage value you would have used to figure straight line depreciation are the same as those used under the depreciation method you actually used. Turbotax 2011 free edition If you did not use a useful life under the depreciation method actually used (such as with the units-of-production method) or if you did not take salvage value into account (such as with the declining balance method), the useful life or salvage value for figuring what would have been the straight line depreciation is the useful life and salvage value you would have used under the straight line method. Turbotax 2011 free edition   Salvage value and useful life are not used for the ACRS method of depreciation. Turbotax 2011 free edition Figure straight line depreciation for ACRS real property by using its 15-, 18-, or 19-year recovery period as the property's useful life. Turbotax 2011 free edition   The straight line method is applied without any basis reduction for the investment credit. Turbotax 2011 free edition Property held by lessee. Turbotax 2011 free edition   If a lessee makes a leasehold improvement, the lease period for figuring what would have been the straight line depreciation adjustments includes all renewal periods. Turbotax 2011 free edition This inclusion of the renewal periods cannot extend the lease period taken into account to a period that is longer than the remaining useful life of the improvement. Turbotax 2011 free edition The same rule applies to the cost of acquiring a lease. Turbotax 2011 free edition   The term renewal period means any period for which the lease may be renewed, extended, or continued under an option exercisable by the lessee. Turbotax 2011 free edition However, the inclusion of renewal periods cannot extend the lease by more than two-thirds of the period that was the basis on which the actual depreciation adjustments were allowed. Turbotax 2011 free edition Applicable Percentage The applicable percentage used to figure the ordinary income because of additional depreciation depends on whether the real property you disposed of is nonresidential real property, residential rental property, or low-income housing. Turbotax 2011 free edition The percentages for these types of real property are as follows. Turbotax 2011 free edition Nonresidential real property. Turbotax 2011 free edition   For real property that is not residential rental property, the applicable percentage for periods after 1969 is 100%. Turbotax 2011 free edition For periods before 1970, the percentage is zero and no ordinary income because of additional depreciation before 1970 will result from its disposition. Turbotax 2011 free edition Residential rental property. Turbotax 2011 free edition   For residential rental property (80% or more of the gross income is from dwelling units) other than low-income housing, the applicable percentage for periods after 1975 is 100%. Turbotax 2011 free edition The percentage for periods before 1976 is zero. Turbotax 2011 free edition Therefore, no ordinary income because of additional depreciation before 1976 will result from a disposition of residential rental property. Turbotax 2011 free edition Low-income housing. Turbotax 2011 free edition    Low-income housing includes all the following types of residential rental property. Turbotax 2011 free edition Federally assisted housing projects if the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. Turbotax 2011 free edition Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed. Turbotax 2011 free edition Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under provisions of state or local laws that authorize similar subsidies for low-income families. Turbotax 2011 free edition Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Turbotax 2011 free edition   The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. Turbotax 2011 free edition If you have held low-income housing at least 16 years and 8 months, the percentage is zero and no ordinary income will result from its disposition. Turbotax 2011 free edition Foreclosure. Turbotax 2011 free edition   If low-income housing is disposed of because of foreclosure or similar proceedings, the monthly applicable percentage reduction is figured as if you disposed of the property on the starting date of the proceedings. Turbotax 2011 free edition Example. Turbotax 2011 free edition On June 1, 2001, you acquired low-income housing property. Turbotax 2011 free edition On April 3, 2012 (130 months after the property was acquired), foreclosure proceedings were started on the property and on December 3, 2013 (150 months after the property was acquired), the property was disposed of as a result of the foreclosure proceedings. Turbotax 2011 free edition The property qualifies for a reduced applicable percentage because it was held more than 100 full months. Turbotax 2011 free edition The applicable percentage reduction is 30% (130 months minus 100 months) rather than 50% (150 months minus 100 months) because it does not apply after April 3, 2012, the starting date of the foreclosure proceedings. Turbotax 2011 free edition Therefore, 70% of the additional depreciation is treated as ordinary income. Turbotax 2011 free edition Holding period. Turbotax 2011 free edition   The holding period used to figure the applicable percentage for low-income housing generally starts on the day after you acquired it. Turbotax 2011 free edition For example, if you bought low-income housing on January 1, 1997, the holding period starts on January 2, 1997. Turbotax 2011 free edition If you sold it on January 2, 2013, the holding period is exactly 192 full months. Turbotax 2011 free edition The applicable percentage for additional depreciation is 8%, or 100% minus 1% for each full month the property was held over 100 full months. Turbotax 2011 free edition Holding period for constructed, reconstructed, or erected property. Turbotax 2011 free edition   The holding period used to figure the applicable percentage for low-income housing you constructed, reconstructed, or erected starts on the first day of the month it is placed in service in a trade or business, in an activity for the production of income, or in a personal activity. Turbotax 2011 free edition Property acquired by gift or received in a tax-free transfer. Turbotax 2011 free edition   For low-income housing you acquired by gift or in a tax-free transfer the basis of which is figured by reference to the basis in the hands of the transferor, the holding period for the applicable percentage includes the holding period of the transferor. Turbotax 2011 free edition   If the adjusted basis of the property in your hands just after acquiring it is more than its adjusted basis to the transferor just before transferring it, the holding period of the difference is figured as if it were a separate improvement. Turbotax 2011 free edition See Low-Income Housing With Two or More Elements, next. Turbotax 2011 free edition Low-Income Housing With Two or More Elements If you dispose of low-income housing property that has two or more separate elements, the applicable percentage used to figure ordinary income because of additional depreciation may be different for each element. Turbotax 2011 free edition The gain to be reported as ordinary income is the sum of the ordinary income figured for each element. Turbotax 2011 free edition The following are the types of separate elements. Turbotax 2011 free edition A separate improvement (defined below). Turbotax 2011 free edition The basic section 1250 property plus improvements not qualifying as separate improvements. Turbotax 2011 free edition The units placed in service at different times before all the section 1250 property is finished. Turbotax 2011 free edition For example, this happens when a taxpayer builds an apartment building of 100 units and places 30 units in service (available for renting) on January 4, 2011, 50 on July 18, 2011, and the remaining 20 on January 18, 2012. Turbotax 2011 free edition As a result, the apartment house consists of three separate elements. Turbotax 2011 free edition The 36-month test for separate improvements. Turbotax 2011 free edition   A separate improvement is any improvement (qualifying under The 1-year test, below) added to the capital account of the property, but only if the total of the improvements during the 36-month period ending on the last day of any tax year is more than the greatest of the following amounts. Turbotax 2011 free edition Twenty-five percent of the adjusted basis of the property at the start of the first day of the 36-month period, or the first day of the holding period of the property, whichever is later. Turbotax 2011 free edition Ten percent of the unadjusted basis (adjusted basis plus depreciation and amortization adjustments) of the property at the start of the period determined in (1). Turbotax 2011 free edition $5,000. Turbotax 2011 free edition The 1-year test. Turbotax 2011 free edition   An addition to the capital account for any tax year (including a short tax year) is treated as an improvement only if the sum of all additions for the year is more than the greater of $2,000 or 1% of the unadjusted basis of the property. Turbotax 2011 free edition The unadjusted basis is figured as of the start of that tax year or the holding period of the property, whichever is later. Turbotax 2011 free edition In applying the 36-month test, improvements in any one of the 3 years are omitted entirely if the total improvements in that year do not qualify under the 1-year test. Turbotax 2011 free edition Example. Turbotax 2011 free edition The unadjusted basis of a calendar year taxpayer's property was $300,000 on January 1 of this year. Turbotax 2011 free edition During the year, the taxpayer made improvements A, B, and C, which cost $1,000, $600, and $700, respectively. Turbotax 2011 free edition The sum of the improvements, $2,300, is less than 1% of the unadjusted basis ($3,000), so the improvements do not satisfy the 1-year test and are not treated as improvements for the 36-month test. Turbotax 2011 free edition However, if improvement C had cost $1,500, the sum of these improvements would have been $3,100. Turbotax 2011 free edition Then, it would be necessary to apply the 36-month test to figure if the improvements must be treated as separate improvements. Turbotax 2011 free edition Addition to the capital account. Turbotax 2011 free edition   Any addition to the capital account made after the initial acquisition or completion of the property by you or any person who held the property during a period included in your holding period is to be considered when figuring the total amount of separate improvements. Turbotax 2011 free edition   The addition to the capital account of depreciable real property is the gross addition not reduced by amounts attributable to replaced property. Turbotax 2011 free edition For example, if a roof with an adjusted basis of $20,000 is replaced by a new roof costing $50,000, the improvement is the gross addition to the account, $50,000, and not the net addition of $30,000. Turbotax 2011 free edition The $20,000 adjusted basis of the old roof is no longer reflected in the basis of the property. Turbotax 2011 free edition The status of an addition to the capital account is not affected by whether it is treated as a separate property for determining depreciation deductions. Turbotax 2011 free edition   Whether an expense is treated as an addition to the capital account may depend on the final disposition of the entire property. Turbotax 2011 free edition If the expense item property and the basic property are sold in two separate transactions, the entire section 1250 property is treated as consisting of two distinct properties. Turbotax 2011 free edition Unadjusted basis. Turbotax 2011 free edition   In figuring the unadjusted basis as of a certain date, include the actual cost of all previous additions to the capital account plus those that did not qualify as separate improvements. Turbotax 2011 free edition However, the cost of components retired before that date is not included in the unadjusted basis. Turbotax 2011 free edition Holding period. Turbotax 2011 free edition   Use the following guidelines for figuring the applicable percentage for property with two or more elements. Turbotax 2011 free edition The holding period of a separate element placed in service before the entire section 1250 property is finished starts on the first day of the month that the separate element is placed in service. Turbotax 2011 free edition The holding period for each separate improvement qualifying as a separate element starts on the day after the improvement is acquired or, for improvements constructed, reconstructed, or erected, the first day of the month that the improvement is placed in service. Turbotax 2011 free edition The holding period for each improvement not qualifying as a separate element takes the holding period of the basic property. Turbotax 2011 free edition   If an improvement by itself does not meet the 1-year test (greater of $2,000 or 1% of the unadjusted basis), but it does qualify as a separate improvement that is a separate element (when grouped with other improvements made during the tax year), determine the start of its holding period as follows. Turbotax 2011 free edition Use the first day of a calendar month that is closest to the middle of the tax year. Turbotax 2011 free edition If there are two first days of a month that are equally close to the middle of the year, use the earlier date. Turbotax 2011 free edition Figuring ordinary income attributable to each separate element. Turbotax 2011 free edition   Figure ordinary income attributable to each separate element as follows. Turbotax 2011 free edition   Step 1. Turbotax 2011 free edition Divide the element's additional depreciation after 1975 by the sum of all the elements' additional depreciation after 1975 to determine the percentage used in Step 2. Turbotax 2011 free edition   Step 2. Turbotax 2011 free edition Multiply the percentage figured in Step 1 by the lesser of the additional depreciation after 1975 for the entire property or the gain from disposition of the entire property (the difference between the fair market value or amount realized and the adjusted basis). Turbotax 2011 free edition   Step 3. Turbotax 2011 free edition Multiply the result in Step 2 by the applicable percentage for the element. Turbotax 2011 free edition Example. Turbotax 2011 free edition You sold at a gain of $25,000 low-income housing property subject to the ordinary income rules of section 1250. Turbotax 2011 free edition The property consisted of four elements (W, X, Y, and Z). Turbotax 2011 free edition Step 1. Turbotax 2011 free edition The additional depreciation for each element is: W-$12,000; X-None; Y-$6,000; and Z-$6,000. Turbotax 2011 free edition The sum of the additional depreciation for all the elements is $24,000. Turbotax 2011 free edition Step 2. Turbotax 2011 free edition The depreciation deducted on element X was $4,000 less than it would have been under the straight line method. Turbotax 2011 free edition Additional depreciation on the property as a whole is $20,000 ($24,000 − $4,000). Turbotax 2011 free edition $20,000 is lower than the $25,000 gain on the sale, so $20,000 is used in Step 2. Turbotax 2011 free edition Step 3. Turbotax 2011 free edition The applicable percentages to be used in Step 3 for the elements are: W-68%; X-85%; Y-92%; and Z-100%. Turbotax 2011 free edition From these facts, the sum of the ordinary income for each element is figured as follows. Turbotax 2011 free edition   Step 1 Step 2 Step 3 Ordinary Income W . Turbotax 2011 free edition 50 $10,000 68% $ 6,800 X -0- -0- 85% -0- Y . Turbotax 2011 free edition 25 5,000 92% 4,600 Z . Turbotax 2011 free edition 25 5,000 100% 5,000 Sum of ordinary income of separate elements $16,400 Gain Treated as Ordinary Income To find what part of the gain from the disposition of section 1250 property is treated as ordinary income, follow these steps. Turbotax 2011 free edition In a sale, exchange, or involuntary conversion of the property, figure the amount realized that is more than the adjusted basis of the property. Turbotax 2011 free edition In any other disposition of the property, figure the fair market value that is more than the adjusted basis. Turbotax 2011 free edition Figure the additional depreciation for the periods after 1975. Turbotax 2011 free edition Multiply the lesser of (1) or (2) by the applicable percentage, discussed earlier under Applicable Percentage. Turbotax 2011 free edition Stop here if this is residential rental property or if (2) is equal to or more than (1). Turbotax 2011 free edition This is the gain treated as ordinary income because of additional depreciation. Turbotax 2011 free edition Subtract (2) from (1). Turbotax 2011 free edition Figure the additional depreciation for periods after 1969 but before 1976. Turbotax 2011 free edition Add the lesser of (4) or (5) to the result in (3). Turbotax 2011 free edition This is the gain treated as ordinary income because of additional depreciation. Turbotax 2011 free edition A limit on the amount treated as ordinary income for gain on like-kind exchanges and involuntary conversions is explained later. Turbotax 2011 free edition Use Form 4797, Part III, to figure the ordinary income part of the gain. Turbotax 2011 free edition Corporations. Turbotax 2011 free edition   Corporations, other than S corporations, must recognize an additional amount as ordinary income on the sale or other disposition of section 1250 property. Turbotax 2011 free edition The additional amount treated as ordinary income is 20% of the excess of the amount that would have been ordinary income if the property were section 1245 property over the amount treated as ordinary income under section 1250. Turbotax 2011 free edition Report this additional ordinary income on Form 4797, Part III, line 26 (f). Turbotax 2011 free edition Installment Sales If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. Turbotax 2011 free edition This applies even if no payments are received in that year. Turbotax 2011 free edition If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. Turbotax 2011 free edition For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. Turbotax 2011 free edition If you dispose of more than one asset in a single transaction, you must figure the gain on each asset separately so that it may be properly reported. Turbotax 2011 free edition To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Turbotax 2011 free edition Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. Turbotax 2011 free edition For a detailed discussion of installment sales, see Publication 537. Turbotax 2011 free edition Gifts If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. Turbotax 2011 free edition However, if the person who receives it (donee) sells or otherwise disposes of the property in a disposition subject to recapture, the donee must take into account the depreciation you deducted in figuring the gain to be reported as ordinary income. Turbotax 2011 free edition For low-income housing, the donee must take into account the donor's holding period to figure the applicable percentage. Turbotax 2011 free edition See Applicable Percentage and its discussion Holding period under Section 1250 Property, earlier. Turbotax 2011 free edition Part gift and part sale or exchange. Turbotax 2011 free edition   If you transfer depreciable personal property or real property for less than its fair market value in a transaction considered to be partly a gift and partly a sale or exchange and you have a gain because the amount realized is more than your adjusted basis, you must report ordinary income (up to the amount of gain) to recapture depreciation. Turbotax 2011 free edition If the depreciation (additional depreciation, if section 1250 property) is more than the gain, the balance is carried over to the transferee to be taken into account on any later disposition of the property. Turbotax 2011 free edition However, see Bargain sale to charity, later. Turbotax 2011 free edition Example. Turbotax 2011 free edition You transferred depreciable personal property to your son for $20,000. Turbotax 2011 free edition When transferred, the property had an adjusted basis to you of $10,000 and a fair market value of $40,000. Turbotax 2011 free edition You took depreciation of $30,000. Turbotax 2011 free edition You are considered to have made a gift of $20,000, the difference between the $40,000 fair market value and the $20,000 sale price to your son. Turbotax 2011 free edition You have a taxable gain on the transfer of $10,000 ($20,000 sale price minus $10,000 adjusted basis) that must be reported as ordinary income from depreciation. Turbotax 2011 free edition You report $10,000 of your $30,000 depreciation as ordinary income on the transfer of the property, so the remaining $20,000 depreciation is carried over to your son for him to take into account on any later disposition of the property. Turbotax 2011 free edition Gift to charitable organization. Turbotax 2011 free edition   If you give property to a charitable organization, you figure your deduction for your charitable contribution by reducing the fair market value of the property by the ordinary income and short-term capital gain that would have resulted had you sold the property at its fair market value at the time of the contribution. Turbotax 2011 free edition Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation. Turbotax 2011 free edition   You also may have to reduce the fair market value of the contributed property by the long-term capital gain (including any section 1231 gain) that would have resulted had the property been sold. Turbotax 2011 free edition For more information, see Giving Property That Has Increased in Value in Publication 526. Turbotax 2011 free edition Bargain sale to charity. Turbotax 2011 free edition   If you transfer section 1245 or section 1250 property to a charitable organization for less than its fair market value and a deduction for the contribution part of the transfer is allowable, your ordinary income from depreciation is figured under different rules. Turbotax 2011 free edition First, figure the ordinary income as if you had sold the property at its fair market value. Turbotax 2011 free edition Then, allocate that amount between the sale and the contribution parts of the transfer in the same proportion that you allocated your adjusted basis in the property to figure your gain. Turbotax 2011 free edition See Bargain Sale under Gain or Loss From Sales and Exchanges in chapter 1. Turbotax 2011 free edition Report as ordinary income the lesser of the ordinary income allocated to the sale or your gain from the sale. Turbotax 2011 free edition Example. Turbotax 2011 free edition You sold section 1245 property in a bargain sale to a charitable organization and are allowed a deduction for your contribution. Turbotax 2011 free edition Your gain on the sale was $1,200, figured by allocating 20% of your adjusted basis in the property to the part sold. Turbotax 2011 free edition If you had sold the property at its fair market value, your ordinary income would have been $5,000. Turbotax 2011 free edition Your ordinary income is $1,000 ($5,000 × 20%) and your section 1231 gain is $200 ($1,200 – $1,000). Turbotax 2011 free edition Transfers at Death When a taxpayer dies, no gain is reported on depreciable personal property or real property transferred to his or her estate or beneficiary. Turbotax 2011 free edition For information on the tax liability of a decedent, see Publication 559, Survivors, Executors, and Administrators. Turbotax 2011 free edition However, if the decedent disposed of the property while alive and, because of his or her method of accounting or for any other reason, the gain from the disposition is reportable by the estate or beneficiary, it must be reported in the same way the decedent would have had to report it if he or she were still alive. Turbotax 2011 free edition Ordinary income due to depreciation must be reported on a transfer from an executor, administrator, or trustee to an heir, beneficiary, or other individual if the transfer is a sale or exchange on which gain is realized. Turbotax 2011 free edition Example 1. Turbotax 2011 free edition Janet Smith owned depreciable property that, upon her death, was inherited by her son. Turbotax 2011 free edition No ordinary income from depreciation is reportable on the transfer, even though the value used for estate tax purposes is more than the adjusted basis of the property to Janet when she died. Turbotax 2011 free edition However, if she sold the property before her death and realized a gain and if, because of her method of accounting, the proceeds from the sale are income in respect of a decedent reportable by her son, he must report ordinary income from depreciation. Turbotax 2011 free edition Example 2. Turbotax 2011 free edition The trustee of a trust created by a will transfers depreciable property to a beneficiary in satisfaction of a specific bequest of $10,000. Turbotax 2011 free edition If the property had a value of $9,000 at the date used for estate tax valuation purposes, the $1,000 increase in value to the date of distribution is a gain realized by the trust. Turbotax 2011 free edition Ordinary income from depreciation must be reported by the trust on the transfer. Turbotax 2011 free edition Like-Kind Exchanges and Involuntary Conversions A like-kind exchange of your depreciable property or an involuntary conversion of the property into similar or related property will not result in your having to report ordinary income from depreciation unless money or property other than like-kind, similar, or related property is also received in the transaction. Turbotax 2011 free edition For information on like-kind exchanges and involuntary conversions, see chapter 1. Turbotax 2011 free edition Depreciable personal property. Turbotax 2011 free edition   If you have a gain from either a like-kind exchange or an involuntary conversion of your depreciable personal property, the amount to be reported as ordinary income from depreciation is the amount figured under the rules explained earlier (see Section 1245 Property), limited to the sum of the following amounts. Turbotax 2011 free edition The gain that must be included in income under the rules for like-kind exchanges or involuntary conversions. Turbotax 2011 free edition The fair market value of the like-kind, similar, or related property other than depreciable personal property acquired in the transaction. Turbotax 2011 free edition Example 1. Turbotax 2011 free edition You bought a new machine for $4,300 cash plus your old machine for which you were allowed a $1,360 trade-in. Turbotax 2011 free edition The old machine cost you $5,000 two years ago. Turbotax 2011 free edition You took depreciation deductions of $3,950. Turbotax 2011 free edition Even though you deducted depreciation of $3,950, the $310 gain ($1,360 trade-in allowance minus $1,050 adjusted basis) is not reported because it is postponed under the rules for like-kind exchanges and you received only depreciable personal property in the exchange. Turbotax 2011 free edition Example 2. Turbotax 2011 free edition You bought office machinery for $1,500 two years ago and deducted $780 depreciation. Turbotax 2011 free edition This year a fire destroyed the machinery and you received $1,200 from your fire insurance, realizing a gain of $480 ($1,200 − $720 adjusted basis). Turbotax 2011 free edition You choose to postpone reporting gain, but replacement machinery cost you only $1,000. Turbotax 2011 free edition Your taxable gain under the rules for involuntary conversions is limited to the remaining $200 insurance payment. Turbotax 2011 free edition All your replacement property is depreciable personal property, so your ordinary income from depreciation is limited to $200. Turbotax 2011 free edition Example 3. Turbotax 2011 free edition A fire destroyed office machinery you bought for $116,000. Turbotax 2011 free edition The depreciation deductions were $91,640 and the machinery had an adjusted basis of $24,360. Turbotax 2011 free edition You received a $117,000 insurance payment, realizing a gain of $92,640. Turbotax 2011 free edition You immediately spent $105,000 of the insurance payment for replacement machinery and $9,000 for stock that qualifies as replacement property and you choose to postpone reporting the gain. Turbotax 2011 free edition $114,000 of the $117,000 insurance payment was used to buy replacement property, so the gain that must be included in income under the rules for involuntary conversions is the part not spent, or $3,000. Turbotax 2011 free edition The part of the insurance payment ($9,000) used to buy the nondepreciable property (the stock) also must be included in figuring the gain from depreciation. Turbotax 2011 free edition The amount you must report as ordinary income on the transaction is $12,000, figured as follows. Turbotax 2011 free edition 1) Gain realized on the transaction ($92,640) limited to depreciation ($91,640) $91,640 2) Gain includible in income (amount not spent) 3,000     Plus: fair market value of property other than depreciable personal property (the stock) 9,000 12,000 Amount reportable as ordinary income (lesser of (1) or (2)) $12,000   If, instead of buying $9,000 in stock, you bought $9,000 worth of depreciable personal property similar or related in use to the destroyed property, you would only report $3,000 as ordinary income. Turbotax 2011 free edition Depreciable real property. Turbotax 2011 free edition   If you have a gain from either a like-kind exchange or involuntary conversion of your depreciable real property, ordinary income from additional depreciation is figured under the rules explained earlier (see Section 1250 Property), limited to the greater of the following amounts. Turbotax 2011 free edition The gain that must be reported under the rules for like-kind exchanges or involuntary conversions plus the fair market value of stock bought as replacement property in acquiring control of a corporation. Turbotax 2011 free edition The gain you would have had to report as ordinary income from additional depreciation had the transaction been a cash sale minus the cost (or fair market value in an exchange) of the depreciable real property acquired. Turbotax 2011 free edition   The ordinary income not reported for the year of the disposition is carried over to the depreciable real property acquired in the like-kind exchange or involuntary conversion as additional depreciation from the property disposed of. Turbotax 2011 free edition Further, to figure the applicable percentage of additional depreciation to be treated as ordinary income, the holding period starts over for the new property. Turbotax 2011 free edition Example. Turbotax 2011 free edition The state paid you $116,000 when it condemned your depreciable real property for public use. Turbotax 2011 free edition You bought other real property similar in use to the property condemned for $110,000 ($15,000 for depreciable real property and $95,000 for land). Turbotax 2011 free edition You also bought stock for $5,000 to get control of a corporation owning property similar in use to the property condemned. Turbotax 2011 free edition You choose to postpone reporting the gain. Turbotax 2011 free edition If the transaction had been a sale for cash only, under the rules described earlier, $20,000 would have been reportable as ordinary income because of additional depreciation. Turbotax 2011 free edition The ordinary income to be reported is $6,000, which is the greater of the following amounts. Turbotax 2011 free edition The gain that must be reported under the rules for involuntary conversions, $1,000 ($116,000 − $115,000) plus the fair market value of stock bought as qualified replacement property, $5,000, for a total of $6,000. Turbotax 2011 free edition The gain you would have had to report as ordinary income from additional depreciation ($20,000) had this transaction been a cash sale minus the cost of the depreciable real property bought ($15,000), or $5,000. Turbotax 2011 free edition   The ordinary income not reported, $14,000 ($20,000 − $6,000), is carried over to the depreciable real property you bought as additional depreciation. Turbotax 2011 free edition Basis of property acquired. Turbotax 2011 free edition   If the ordinary income you have to report because of additional depreciation is limited, the total basis of the property you acquired is its fair market value (its cost, if bought to replace property involuntarily converted into money) minus the gain postponed. Turbotax 2011 free edition   If you acquired more than one item of property, allocate the total basis among the properties in proportion to their fair market value (their cost, in an involuntary conversion into money). Turbotax 2011 free edition However, if you acquired both depreciable real property and other property, allocate the total basis as follows. Turbotax 2011 free edition Subtract the ordinary income because of additional depreciation that you do not have to report from the fair market value (or cost) of the depreciable real property acquired. Turbotax 2011 free edition Add the fair market value (or cost) of the other property acquired to the result in (1). Turbotax 2011 free edition Divide the result in (1) by the result in (2). Turbotax 2011 free edition Multiply the total basis by the result in (3). Turbotax 2011 free edition This is the basis of the depreciable real property acquired. Turbotax 2011 free edition If you acquired more than one item of depreciable real property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Turbotax 2011 free edition Subtract the result in (4) from the total basis. Turbotax 2011 free edition This is the basis of the other property acquired. Turbotax 2011 free edition If you acquired more than one item of other property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Turbotax 2011 free edition Example 1. Turbotax 2011 free edition In 1988, low-income housing property that you acquired and placed in service in 1983 was destroyed by fire and you received a $90,000 insurance payment. Turbotax 2011 free edition The property's adjusted basis was $38,400, with additional depreciation of $14,932. Turbotax 2011 free edition On December 1, 1988, you used the insurance payment to acquire and place in service replacement low-income housing property. Turbotax 2011 free edition Your realized gain from the involuntary conversion was $51,600 ($90,000 − $38,400). Turbotax 2011 free edition You chose to postpone reporting the gain under the involuntary conversion rules. Turbotax 2011 free edition Under the rules for depreciation recapture on real property, the ordinary gain was $14,932, but you did not have to report any of it because of the limit for involuntary conversions. Turbotax 2011 free edition The basis of the replacement low-income housing property was its $90,000 cost minus the $51,600 gain you postponed, or $38,400. Turbotax 2011 free edition The $14,932 ordinary gain you did not report is treated as additional depreciation on the replacement property. Turbotax 2011 free edition If you sold the property in 2013, your holding period for figuring the applicable percentage of additional depreciation to report as ordinary income will have begun December 2, 1988, the day after you acquired the property. Turbotax 2011 free edition Example 2. Turbotax 2011 free edition John Adams received a $90,000 fire insurance payment for depreciable real property (office building) with an adjusted basis of $30,000. Turbotax 2011 free edition He uses the whole payment to buy property similar in use, spending $42,000 for depreciable real property and $48,000 for land. Turbotax 2011 free edition He chooses to postpone reporting the $60,000 gain realized on the involuntary conversion. Turbotax 2011 free edition Of this gain, $10,000 is ordinary income from additional depreciation but is not reported because of the limit for involuntary conversions of depreciable real property. Turbotax 2011 free edition The basis of the property bought is $30,000 ($90,000 − $60,000), allocated as follows. Turbotax 2011 free edition The $42,000 cost of depreciable real property minus $10,000 ordinary income not reported is $32,000. Turbotax 2011 free edition The $48,000 cost of other property (land) plus the $32,000 figured in (1) is $80,000. Turbotax 2011 free edition The $32,000 figured in (1) divided by the $80,000 figured in (2) is 0. Turbotax 2011 free edition 4. Turbotax 2011 free edition The basis of the depreciable real property is $12,000. Turbotax 2011 free edition This is the $30,000 total basis multiplied by the 0. Turbotax 2011 free edition 4 figured in (3). Turbotax 2011 free edition The basis of the other property (land) is $18,000. Turbotax 2011 free edition This is the $30,000 total basis minus the $12,000 figured in (4). Turbotax 2011 free edition The ordinary income that is not reported ($10,000) is carried over as additional depreciation to the depreciable real property that was bought and may be taxed as ordinary income on a later disposition. Turbotax 2011 free edition Multiple Properties If you dispose of depreciable property and other property in one transaction and realize a gain, you must allocate the amount realized between the two types of property in proportion to their respective fair market values to figure the part of your gain to be reported as ordinary income from depreciation. Turbotax 2011 free edition Different rules may apply to the allocation of the amount realized on the sale of a business that includes a group of assets. Turbotax 2011 free edition See chapter 2. Turbotax 2011 free edition In general, if a buyer and seller have adverse interests as to the allocation of the amount realized between the depreciable property and other property, any arm's length agreement between them will establish the allocation. Turbotax 2011 free edition In the absence of an agreement, the allocation should be made by taking into account the appropriate facts and circumstances. Turbotax 2011 free edition These include, but are not limited to, a comparison between the depreciable property and all the other property being disposed of in the transaction. Turbotax 2011 free edition The comparison should take into account all the following facts and circumstances. Turbotax 2011 free edition The original cost and reproduction cost of construction, erection, or production. Turbotax 2011 free edition The remaining economic useful life. Turbotax 2011 free edition The state of obsolescence. Turbotax 2011 free edition The anticipated expenditures required to maintain, renovate, or modernize the properties. Turbotax 2011 free edition Like-kind exchanges and involuntary conversions. Turbotax 2011 free edition   If you dispose of and acquire depreciable personal property and other property (other than depreciable real property) in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Turbotax 2011 free edition The amount allocated to the depreciable personal property disposed of is treated as consisting of, first, the fair market value of the depreciable personal property acquired and, second (to the extent of any remaining balance), the fair market value of the other property acquired. Turbotax 2011 free edition The amount allocated to the other property disposed of is treated as consisting of the fair market value of all property acquired that has not already been taken into account. Turbotax 2011 free edition   If you dispose of and acquire depreciable real property and other property in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Turbotax 2011 free edition The amount allocated to each of the three types of property (depreciable real property, depreciable personal property, or other property) disposed of is treated as consisting of, first, the fair market value of that type of property acquired and, second (to the extent of any remaining balance), any excess fair market value of the other types of property acquired. Turbotax 2011 free edition If the excess fair market value is more than the remaining balance of the amount realized and is from both of the other two types of property, you can apply the unallocated amount in any manner you choose. Turbotax 2011 free edition Example. Turbotax 2011 free edition A fire destroyed your property with a total fair market value of $50,000. Turbotax 2011 free edition It consisted of machinery worth $30,000 and nondepreciable property worth $20,000. Turbotax 2011 free edition You received an insurance payment of $40,000 and immediately used it with $10,000 of your own funds (for a total of $50,000) to buy machinery with a fair market value of $15,000 and nondepreciable property with a fair market value of $35,000. Turbotax 2011 free edition The adjusted basis of the destroyed machinery was $5,000 and your depreciation on it was $35,000. Turbotax 2011 free edition You choose to postpone reporting your gain from the involuntary conversion. Turbotax 2011 free edition You must report $9,000 as ordinary income from depreciation arising from this transaction, figured as follows. Turbotax 2011 free edition The $40,000 insurance payment must be allocated between the machinery and the other property destroyed in proportion to the fair market value of each. Turbotax 2011 free edition The amount allocated to the machinery is 30,000/50,000 × $40,000, or $24,000. Turbotax 2011 free edition The amount allocated to the other property is 20,000/50,000 × $40,000, or $16,000. Turbotax 2011 free edition Your gain on the involuntary conversion of the machinery is $24,000 minus $5,000 adjusted basis, or $19,000. Turbotax 2011 free edition The $24,000 allocated to the machinery disposed of is treated as consisting of the $15,000 fair market value of the replacement machinery bought and $9,000 of the fair market value of other property bought in the transaction. Turbotax 2011 free edition All $16,000 allocated to the other property disposed of is treated as consisting of the fair market value of the other property that was bought. Turbotax 2011 free edition Your potential ordinary income from depreciation is $19,000, the gain on the machinery, because it is less than the $35,000 depreciation. Turbotax 2011 free edition However, the amount you must report as ordinary income is limited to the $9,000 included in the amount realized for the machinery that represents the fair market value of property other than the depreciable property you bought. Turbotax 2011 free edition Prev  Up  Next   Home   More Online Publications