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Www h&rblock com Accelerated Cost Recovery System (ACRS) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: ACRS Defined What Can and Cannot Be Depreciated Under ACRSRecovery Property Nonrecovery Property How To Figure the DeductionUnadjusted Basis Classes of Recovery Property Recovery Periods Alternate ACRS Method (Modified Straight Line Method) ACRS Deduction in Short Tax Year DispositionsEarly dispositions of ACRS property other than 15-, 18-, or 19-year real property. Www h&rblock com Dispositions — mass asset accounts. Www h&rblock com Early dispositions — 15-year real property. Www h&rblock com Early dispositions — 18- and 19-year real property. Www h&rblock com Depreciation Recapture Topics - This chapter discusses: The definition of ACRS What can and cannot be depreciated under ACRS How to figure the deduction Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization The Accelerated Cost Recovery System (ACRS) applies to property first used before 1987. Www h&rblock com It is the name given to tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. Www h&rblock com These rules are mandatory and generally apply to tangible property placed in service after 1980 and before 1987. Www h&rblock com If you placed property in service during this period, you must continue to figure your depreciation under ACRS. Www h&rblock com If you used listed property placed in service after June 18, 1984, less than 50% for business in 1995, see Predominant Use Test in chapter 3. Www h&rblock com Listed property includes cars, other means of transportation, and certain computers. Www h&rblock com Any additions or improvements placed in service after 1986, including any components of a building (such as plumbing, wiring, storm windows, etc. Www h&rblock com ), are depreciated using MACRS, discussed in chapter 3 of Publication 946. Www h&rblock com It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Www h&rblock com ACRS Defined ACRS consists of accelerated depreciation methods and an alternate ACRS method that could have been elected. Www h&rblock com The alternate ACRS method used a recovery percentage based on a modified straight line method. Www h&rblock com The law prescribes fixed percentages to be uses for each class of property. Www h&rblock com Property depreciable under ACRS is called recovery property. Www h&rblock com The recovery class of property determines the recovery period. Www h&rblock com Generally, the class life of property places it in a 3-year, 5-year, 10-year, 15-year, 18-year, or 19-year recovery class. Www h&rblock com Under ACRS, the prescribed percentages are used to recover the unadjusted basis of recovery property. Www h&rblock com To figure a depreciation deduction, you multiply the prescribed percentage for the recovery class by the unadjusted basis of the recovery property. Www h&rblock com You must continue to figure your depreciation under ACRS for property placed in service after 1980 and before 1987. Www h&rblock com For property you placed in service after 1986, you must use MACRS, discussed in chapter 3 of Publication 946. Www h&rblock com What Can and Cannot Be Depreciated Under ACRS ACRS applies to most depreciable tangible property placed in service after 1980 and before 1987. Www h&rblock com It includes new or used and real or personal property. Www h&rblock com The property must be for use in a trade or business or for the production of income. Www h&rblock com Property you acquired before 1981 or after 1986 is not ACRS recovery property. Www h&rblock com For information on depreciating property acquired before 1981, see chapter 2. Www h&rblock com For information on depreciating property acquired after 1986, see chapter 3 of Publication 946. Www h&rblock com Recovery Property Recovery property under ACRS is tangible depreciable property placed in service after 1980 and before 1987. Www h&rblock com It generally includes new or used property that you acquired after 1980 and before 1987 for use in your trade or business or for the production of income. Www h&rblock com Nonrecovery Property You cannot use ACRS for property you placed in service before 1981 or after 1986. Www h&rblock com Nonrecovery property also includes: Intangible property, Property you elected to exclude from ACRS that is properly depreciated under a method of depreciation that is not based on a term of years, Certain public utility property, and Certain property acquired and excluded from ACRS because of the antichurning rules. Www h&rblock com Intangible property. Www h&rblock com   Intangible property is not depreciated under ACRS. Www h&rblock com Property depreciated under methods not expressed in a term of years. Www h&rblock com   Certain property depreciated under a method not expressed in a term of years is not depreciated under ACRS. Www h&rblock com This included any property: If you made an irrevocable election to exclude such property, and In the first year that you could have claimed depreciation, you properly used the unit-of-production method or any method of depreciation not expressed in a term of years (not including the retirement-replacement-betterment method). Www h&rblock com Public utility property. Www h&rblock com   Public utility property for which the taxpayer does not use a normalization method of accounting is excluded from ACRS and is subject to depreciation under a special rule. Www h&rblock com Additions or improvements to ACRS property after 1986. Www h&rblock com   Any additions or improvements placed in service after 1986, including any components of a building (plumbing, wiring, storm windows, etc. Www h&rblock com ) are depreciated using MACRS, discussed in chapter 3 of Publication 946. Www h&rblock com It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Www h&rblock com How To Figure the Deduction After you determine that your property can be depreciated under ACRS, you are ready to figure your deduction. Www h&rblock com Because the conventions are built into the percentage table rates, you only need to know the following: The unadjusted basis of your recovery property, The classes of recovery property, The recovery periods, and Whether to use the prescribed percentages based on accelerated methods or percentages based on using the alternate ACRS method. Www h&rblock com Unadjusted Basis To figure your ACRS deduction, you multiply the unadjusted basis in your recovery property by its applicable percentage for the year. Www h&rblock com Unadjusted basis is the same amount you would use to figure gain on a sale, but it is figured without taking into account any depreciation taken in earlier years. Www h&rblock com However, reduce your original basis by the amount of amortization taken on the property and by any section 179 deduction claimed as discussed in chapter 2 of Publication 946. Www h&rblock com If you buy property, your unadjusted basis is usually its cost minus any amortized amount and minus any section 179 deduction elected. Www h&rblock com If you acquire property in some other way, such as by inheriting it, getting it as a gift, or building it yourself, you figure your unadjusted basis under other rules. Www h&rblock com See Publication 551. Www h&rblock com Classes of Recovery Property All recovery property under ACRS is in one of the following classes. Www h&rblock com The class for your property was determined when you began to depreciate it. Www h&rblock com 3-Year Property 3-year property includes automobiles, light-duty trucks (actual unloaded weight less than 13,000 pounds), and tractor units for use over-the-road. Www h&rblock com Race horses over 2 years old when placed in service are 3-year property. Www h&rblock com Any other horses over 12 years old when you placed them in service are also included in the 3-year property class. Www h&rblock com The ACRS percentages for 3-year recovery property are: Recovery Period Percentage 1st year 25% 2nd year 38% 3rd year 37% If you used the percentages above to depreciate your 3-year recovery property, your property, except for certain passenger automobiles, is fully depreciated. Www h&rblock com You cannot claim depreciation for this property after 1988. Www h&rblock com 5-Year Property 5-year property includes computers, copiers, and equipment, such as office furniture and fixtures. Www h&rblock com It also includes single purpose agricultural or horticultural structures and petroleum storage facilities (other than buildings and their structural components). Www h&rblock com The ACRS percentages for 5-year recovery property are: Recovery period Percentage 1st year 15% 2nd year 22% 3rd through 5th year 21% If you used the percentages above to depreciate your 5-year recovery property, it is fully depreciated. Www h&rblock com You cannot claim depreciation for this property after 1990. Www h&rblock com 10-Year Property 10-year property includes certain real property such as theme-park structures and certain public utility property. Www h&rblock com Manufactured homes (including mobile homes) and railroad tank cars are also 10-year property. Www h&rblock com You do not treat a building, and its structural components, as 10-year property by reason of a change in use after you placed the property in service. Www h&rblock com For example, a building (15-year real property) that was placed in service in 1981 and was converted to a theme-park structure in 1986 remains 15-year real property. Www h&rblock com The ACRS percentages for 10-year recovery property are: Recovery Period Percentage 1st year 8% 2nd year 14% 3rd year 12% 4th through 6th year 10% 7th through 10th year 9% If you used the percentages above, you cannot claim depreciation for this property after 1995. Www h&rblock com Example. Www h&rblock com On April 21, 1986, you bought and placed in service a new mobile home for $26,000 to be used as rental property. Www h&rblock com You paid $10,000 cash and signed a note for $16,000 giving you an unadjusted basis of $26,000. Www h&rblock com On June 8, 1986, you bought and placed in service a used mobile home for use as rental property at a total cost of $11,500. Www h&rblock com The total unadjusted basis of your 10-year recovery property placed in service in 1986 was $37,500 ($26,000 + $11,500). Www h&rblock com Your ACRS deduction was $3,000 (8% × $37,500). Www h&rblock com In 1987, your ACRS deduction was $5,250 (14% × $37,500). Www h&rblock com In 1988, your ACRS deduction was $4,500 (12% × $37,500). Www h&rblock com In 1989, 1990, and 1991, your ACRS deduction was $3,750 (10% × $37,500). Www h&rblock com In 1992, 1993, 1994, and 1995 your deduction for each year is $3,375 (9% × $37,500). Www h&rblock com 15-Year Real Property 15-year real property is real property that is recovery property placed in service before March 16, 1984. Www h&rblock com It includes all real property, such as buildings, other than that designated as 5-year or 10-year property. Www h&rblock com Unlike the 3-, 5-, or 10-year classes of property, the percentages for 15-year real property depend on when you placed the property in service during your tax year. Www h&rblock com You could group 15-year real property by month and year placed in service. Www h&rblock com In Table 1, at the end of this publication in the Appendix, find the month in your tax year that you placed the property in service in your trade or business or for the production of income. Www h&rblock com You use the percentages listed under that month for each year of the recovery period to determine your depreciation deduction each year. Www h&rblock com Example. Www h&rblock com On March 5, 1984, you placed an apartment building in service in your business. Www h&rblock com It is 15-year real property. Www h&rblock com After subtracting the value of the land, your unadjusted basis in the building is $250,000. Www h&rblock com You use the calendar year as your tax year. Www h&rblock com March is the third month of your tax year. Www h&rblock com Your ACRS deduction for 1984 was $25,000 (10% × $250,000). Www h&rblock com For 1985, the percentage for the third month of the second year of the recovery period is 11%. Www h&rblock com Your deduction was $27,500 (11% × $250,000). Www h&rblock com For the third, fourth, and fifth years of the recovery period (1986, 1987, and 1988), the percentages are 9%, 8%, and 7%. Www h&rblock com For 1989 through 1992, the percentage for the third month is 6%. Www h&rblock com Your deduction each year is $15,000 (6% × $250,000). Www h&rblock com For 1993, 1994, and 1995, the percentage for the third month is 5%. Www h&rblock com Your depreciation deduction is $12,500 (5% × $250,000) for 1993, 1994, and 1995. Www h&rblock com Low-Income Housing Low-income housing that was assigned a 15-year recovery period under ACRS includes the following types of property: Federally assisted housing projects where the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. Www h&rblock com Low-income rental housing for which a depreciation deduction for rehabilitation expenditures is allowed. Www h&rblock com Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of state or local laws that authorize similar subsidies for low-income families. Www h&rblock com Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Www h&rblock com The ACRS percentages for low-income housing real property, like the regular 15-year real property percentages, depend on when you placed the property in service. Www h&rblock com Find the month in your tax year in Table 2 or 3 at the end of this publication in the Appendix that you first placed the property in service as rental housing. Www h&rblock com Use the percentages listed under that month for each year of the recovery period. Www h&rblock com Table 2 shows percentages for low-income housing placed in service before May 9, 1985. Www h&rblock com Table 3 shows percentages for low-income housing placed in service after May 8, 1985, and before 1987. Www h&rblock com Example. Www h&rblock com In May 1986, you acquired and placed in service a house that qualified as low-income rental housing under item 3) of the above listing. Www h&rblock com You use the calendar year as your tax year. Www h&rblock com You use Table C–3 because the property was placed in service after May 8, 1985. Www h&rblock com Your unadjusted basis for the property, not including the land, was $59,000. Www h&rblock com Your deduction for 1986 through 2001 is shown in the following table. Www h&rblock com Year Rate Deduction 1986 8. Www h&rblock com 9% $5,251 1987 12. Www h&rblock com 1% 7,139 1988 10. Www h&rblock com 5% 6,195 1989 9. Www h&rblock com 1% 5,369 1990 7. Www h&rblock com 9% 4,661 1991 6. Www h&rblock com 9% 4,071 1992 5. Www h&rblock com 9% 3,481 1993 5. Www h&rblock com 2% 3,068 1994 4. Www h&rblock com 6% 2,714 1995 4. Www h&rblock com 6% 2,714 1996 4. Www h&rblock com 6% 2,714 1997 4. Www h&rblock com 6% 2,714 1998 4. Www h&rblock com 6% 2,714 1999 4. Www h&rblock com 5% 2,655 2000 4. Www h&rblock com 5% 2,655 2001 1. Www h&rblock com 5% 885 18-Year Real Property 18-year real property is real property that is recovery property placed in service after March 15, 1984, and before May 9, 1985. Www h&rblock com It includes real property, such as buildings, other than that designated as 5-year, 10-year, 15-year real property, or low-income housing. Www h&rblock com The ACRS percentages for 18-year real property depend on when you placed the property in service in your trade or business or for the production of income during your tax year. Www h&rblock com There are also tables for 18-year real property in the Appendix. Www h&rblock com Table 4 shows the percentages for 18-year real property you placed in service after June 22, 1984, and before May 9, 1985. Www h&rblock com Table 5 is for 18-year real property placed in service after March 15, 1984, and before June 23, 1984. Www h&rblock com Find the month in your tax year that you placed the property in service in a trade or business or for the production of income. Www h&rblock com Use the percentages listed under that month for each year of the recovery period. Www h&rblock com Example. Www h&rblock com On April 28, 1985, you bought and placed in service a rental house. Www h&rblock com The house, not including the land, cost $95,000. Www h&rblock com This is your unadjusted basis for the house. Www h&rblock com You use the calendar year as your tax year. Www h&rblock com Because the house was placed in service after June 22, 1984, and before May 9, 1985, it is 18-year real property. Www h&rblock com You use Table 4 to figure your deduction for the house. Www h&rblock com April is the fourth month of your tax year. Www h&rblock com Your deduction for 1985 through 2003 is shown in the following table. Www h&rblock com Year Rate Deduction 1985 7. Www h&rblock com 0% $6,650 1986 9. Www h&rblock com 0% 8,550 1987 8. Www h&rblock com 0% 7,600 1988 7. Www h&rblock com 0% 6,650 1989 7. Www h&rblock com 0% 6,650 1990 6. Www h&rblock com 0% 5,700 1991 5. Www h&rblock com 0% 4,750 1992 5. Www h&rblock com 0% 4,750 1993 5. Www h&rblock com 0% 4,750 1994 5. Www h&rblock com 0% 4,750 1995 5. Www h&rblock com 0% 4,750 1996 5. Www h&rblock com 0% 4,750 1997 5. Www h&rblock com 0% 4,750 1998 4. Www h&rblock com 0% 3,800 1999 4. Www h&rblock com 0% 3,800 2000 4. Www h&rblock com 0% 3,800 2001 4. Www h&rblock com 0% 3,800 2002 4. Www h&rblock com 0% 3,800 2003 1. Www h&rblock com 0% 950 19-Year Real Property 19-year real property is real property that is recovery property placed in service after May 8, 1985, and before 1987. Www h&rblock com It includes all real property, other than that designated as 5-year, 10-year, 15-year, or 18-year real property, or low-income housing. Www h&rblock com The ACRS percentages for 19-year real property depend on when you placed the property in service in a trade or business or for the production of income during your tax year. Www h&rblock com Table 6 shows the percentages for 19-year real property. Www h&rblock com You find the month in your tax year that you placed the property in service. Www h&rblock com You use the percentages listed under that month for each year of the recovery period. Www h&rblock com Recovery Periods Each item of recovery property is assigned to a class of property. Www h&rblock com The classes of recovery property establish the recovery periods over which the unadjusted basis of items in a class is recovered. Www h&rblock com The classes of property are: 3-Year property 5-Year property 10-Year property 15-Year real property Low-income housing 18-Year real property 19-Year real property Alternate ACRS Method (Modified Straight Line Method) ACRS provides an alternate ACRS method that could be elected. Www h&rblock com This alternate ACRS method uses a recovery percentage based on a modified straight line method. Www h&rblock com This alternate ACRS method generally uses percentages other than those from the tables. Www h&rblock com If you elected the alternate ACRS method, you determine the recovery period by using the following schedule. Www h&rblock com This schedule is for other than 18- and 19-year real property and low-income housing: In the case of: You could have elected a recovery period of: 3-year property 3, 5, or 12 years 5-year property 5, 12, or 25 years 15-year real property 15, 35, or 45 years Percentages. Www h&rblock com   The straight-line percentages for the alternate ACRS method are: Recovery Period Percentage 5 years 20. Www h&rblock com 00% 10 years 10. Www h&rblock com 00% 12 years 8. Www h&rblock com 333% 15 years 6. Www h&rblock com 667% 25 years 4. Www h&rblock com 00% 35 years 2. Www h&rblock com 857%   You apply the percentage to the unadjusted basis(defined earlier) of the property to figure your ACRS deduction. Www h&rblock com There are tables for 18- and 19-year real property later in this publication in the Appendix. Www h&rblock com For 15-year real property, see 15-year real property, later. Www h&rblock com 3-, 5-, and 10-year property. Www h&rblock com   If you elected to use an alternate recovery percentage, you have to use the same recovery percentage for all property in that class that you placed in service in that tax year. Www h&rblock com This applies throughout the recovery period you selected. Www h&rblock com Half-year convention. Www h&rblock com   If you elected the alternate method, only a half-year of depreciation was deducted for the year you placed the property in service. Www h&rblock com This applied regardless of when in the tax year you placed the property in service. Www h&rblock com For each of the remaining years in the recovery period, you take a full year's deduction. Www h&rblock com If you hold the property for the entire recovery period, a half-year of depreciation is allowable for the year following the end of the recovery period. Www h&rblock com Example. Www h&rblock com You operate a small upholstery business. Www h&rblock com On March 19, 1986, you bought and placed in service a $13,000 light-duty panel truck to be used in your business and a $500 electric saw. Www h&rblock com You elected to use the alternate ACRS method. Www h&rblock com You did not elect to take a section 179 deduction. Www h&rblock com You decided to recover the cost of the truck, which is 3-year recovery property, over 5 years. Www h&rblock com The saw is 5-year property, but you decided to recover its cost over 12 years. Www h&rblock com For 1986, your ACRS deduction reflected the half-year convention. Www h&rblock com In the first year, you deducted half of the amount determined for a full year. Www h&rblock com Your ACRS deduction for 1986 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. Www h&rblock com 00     Electric saw   12 years straight line = 8. Www h&rblock com 333% 8. Www h&rblock com 333% ÷ $500 = $41. Www h&rblock com 67 Half-year convention -½ of $41. Www h&rblock com 67= 20. Www h&rblock com 84 Total ACRS deduction for 1986 $1,320. Www h&rblock com 84       You take a full year of depreciation for both the truck and the saw for the years 1987 through 1990. Www h&rblock com Your ACRS deduction for each of those years is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600     Electric saw     12 years straight line = 8. Www h&rblock com 333% 8. Www h&rblock com 333% ÷ $500 = $41. Www h&rblock com 67 Total annual ACRS deduction for 1987 through 1990 $2,641. Www h&rblock com 67       In 1991, you take a half-year of depreciation for the truck and a full year of depreciation for the saw. Www h&rblock com Your ACRS deduction for 1991 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. Www h&rblock com 00     Electric saw   12 years straight line = 8. Www h&rblock com 333% 8. Www h&rblock com 333% ÷ $500 = $41. Www h&rblock com 67 Total ACRS deduction for 1991 $1,341. Www h&rblock com 67       The truck is fully depreciated after 1991. Www h&rblock com You take a full year of depreciation for the saw for the years 1992 through 1997. Www h&rblock com Your ACRS deduction for each of those years is as follows: Electric saw     12 years straight line = 8. Www h&rblock com 333% 8. Www h&rblock com 333% ÷ $500 = $41. Www h&rblock com 67 Total annual ACRS deduction for 1992 through 1997 $41. Www h&rblock com 67       You take a half-year of depreciation for the saw for 1998. Www h&rblock com Your ACRS deduction for 1998 is as follows: Electric saw   12 years straight line = 8. Www h&rblock com 333% 8. Www h&rblock com 333% ÷ $500 = $41. Www h&rblock com 67 Half-year convention -½ of $41. Www h&rblock com 67= 20. Www h&rblock com 84 Total ACRS deduction for 1998 $20. Www h&rblock com 84       The saw is fully depreciated after 1998. Www h&rblock com 15-year real property. Www h&rblock com   Under ACRS, you could also elect to use the alternate ACRS method for 15-year real property. Www h&rblock com The alternate ACRS method allows you to depreciate your 15-year real property using the straight line ACRS method over the alternate recovery periods of 15, 35, or 45 years. Www h&rblock com If you selected a 15-year recovery period, you use the percentage (6. Www h&rblock com 667%) from the schedule above. Www h&rblock com You prorate this percentage for the number of months the property was in service in the first year. Www h&rblock com If you selected a 35- or 45-year recovery period, you use either Table 11 or 15. Www h&rblock com Alternate periods for 18-year real property. Www h&rblock com   For 18-year real property, the alternate recovery periods are 18, 35, or 45 years. Www h&rblock com The percentages for 18-year real property under the alternate method are in Tables 7, 8, 10, 11, 14, and 15 in the Appendix. Www h&rblock com There are two tables for each alternate recovery period. Www h&rblock com One table shows the percentage for property placed in service after June 22, 1984. Www h&rblock com The other table has the percentages for property placed in service after March 15, 1984, and before June 23, 1984. Www h&rblock com Alternate periods for 19-year real property. Www h&rblock com   For 19-year real property, the alternate recovery periods are 19, 35, or 45 years. Www h&rblock com If you selected a 19-year recovery period, use Table 9 to determine your deduction. Www h&rblock com If you select a 35- or 45-year recovery period, use either Table 13 or 14. Www h&rblock com Example. Www h&rblock com You placed in service an apartment building on August 3, 1986. Www h&rblock com The building is 19-year real property. Www h&rblock com The sales contract allocated $300,000 to the building and $100,000 to the land. Www h&rblock com You use the calendar year as your tax year. Www h&rblock com You chose the alternate ACRS method over a recovery period of 35 years. Www h&rblock com For 1986, you figure your ACRS deduction usingTable 13. Www h&rblock com August is the eighth month of your tax year. Www h&rblock com The percentage from Table 13 for the eighth month is 1. Www h&rblock com 1%. Www h&rblock com Your deduction was $3,300 ($300,000 ÷ 1. Www h&rblock com 1%). Www h&rblock com The deduction rate from ACRS Table 13 for years 2 through 20 is 2. Www h&rblock com 9% so that your deduction in 1987 through 2005 is $8,700 ($300,000 ÷ 2. Www h&rblock com 9%). Www h&rblock com Alternate periods for low-income housing. Www h&rblock com   For low-income housing, the alternate recovery periods are 15, 35, or 45 years. Www h&rblock com If you selected a 15-year period for this property, use 6. Www h&rblock com 667% as the percentage. Www h&rblock com If you selected a 35- or 45-year period, use either Table 11, 12, or 15. Www h&rblock com Election. Www h&rblock com   You had to make the election to use the alternate ACRS method by the return due date (including extensions) for the tax year you placed the property in service. Www h&rblock com Revocation of election. Www h&rblock com   Your election to use an alternate ACRS method, once made, can be changed only with the consent of the Commissioner. Www h&rblock com The Commissioner grants consent only in extraordinary circumstances. Www h&rblock com Any request for a revocation will be considered a request for a ruling. Www h&rblock com ACRS Deduction in Short Tax Year For a tax year that is less than 12 months, the ACRS deduction is prorated on a 12-month basis. Www h&rblock com Figure the amount of the ACRS deduction for a short tax year as follows: First, you figure the ACRS deduction for a full year. Www h&rblock com You figure this by multiplying the unadjusted basis by the recovery percentage. Www h&rblock com You then multiply the ACRS deduction determined for a full tax year by a fraction. Www h&rblock com The numerator (top number) of the fraction is the number of months in the short tax year and the denominator (bottom number) is 12. Www h&rblock com For example, a corporation placed in service in June 1986 an item of 3-year property with an unadjusted basis of $10,000. Www h&rblock com The corporation files a tax return, because of a change in its accounting period, for the 6-month short tax year ending June 30, 1986. Www h&rblock com The full year's ACRS deduction for this item is $2,500 ($10,000 ÷ 25%), the first year percentage from the 3-year table. Www h&rblock com The ACRS deduction for the short tax year is $1,250 ($2,500 ÷ 6/12). Www h&rblock com You use the full ACRS percentages during the remaining years of the recovery period. Www h&rblock com For the first tax year after the recovery period, the unrecovered basis will be deductible. Www h&rblock com Exception. Www h&rblock com   For the tax year in which you placed 15-, 18-, or 19-year real property in service or in the tax year you dispose of it, you compute the ACRS deduction for the number of months that the property is in service during that tax year. Www h&rblock com You compute the number of months using either a full month or mid-month convention. Www h&rblock com This is true regardless of the number of months in the tax year and the recovery period and method used. Www h&rblock com Dispositions A disposition is the permanent withdrawal of property from use in your trade or business or in the production of income. Www h&rblock com You can make a withdrawal by sale, exchange, retirement, abandonment, or destruction. Www h&rblock com You generally recognize gain or loss on the disposition of an asset by sale. Www h&rblock com However, nonrecognition rules can allow you to postpone some gain. Www h&rblock com See Publication 544. Www h&rblock com If you physically abandon property, you can deduct as a loss the adjusted basis of the asset at the time of its abandonment. Www h&rblock com Your intent must be to discard the asset so that you will not use it again or retrieve it for sale, exchange, or other disposition. Www h&rblock com Early dispositions. Www h&rblock com   The disposal of an asset before the end of its specified recovery period, is referred to as an early disposition. Www h&rblock com When an early disposition occurs, the depreciation deduction in the year of disposition depends on the class of property involved. Www h&rblock com Early dispositions of ACRS property other than 15-, 18-, or 19-year real property. Www h&rblock com   Generally, you get no ACRS deduction for the tax year in which you dispose of or retire recovery property, except for 15-, 18-, and 19-year real property. Www h&rblock com This means there is no depreciation deduction under ACRS in the year you dispose of or retire any of your 3-, 5-, or 10-year recovery property. Www h&rblock com Dispositions — mass asset accounts. Www h&rblock com   The law provides a special rule to avoid the calculation of gain on the disposition of assets from mass asset accounts. Www h&rblock com A mass asset account includes items usually minor in value in relation to the group, numerous in quantity, impractical to separately identify, and not usually accounted for on a separate basis, but on a total dollar value. Www h&rblock com Examples of mass assets include minor items of office, plant, and store furniture and fixtures. Www h&rblock com   Under the special rule, if you elected to use a mass asset account, you recognize gain to the extent of the proceeds from the disposition of the asset. Www h&rblock com You leave the unadjusted basis of the property in the account until recovered in future years. Www h&rblock com If you did this, include the total proceeds realized from the disposition in income on the tax return for the year of disposition. Www h&rblock com Early dispositions — 15-year real property. Www h&rblock com   If you dispose of 15-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. Www h&rblock com You use a full-month convention. Www h&rblock com For a disposition at any time during a particular month before the end of the recovery period, no deduction is allowed for the month of disposition. Www h&rblock com This applies whether you use the regular ACRS method or elected the alternate ACRS method. Www h&rblock com Example. Www h&rblock com You purchased and placed in service a rental house on March 2, 1984, for $98,000 (not including the cost of land). Www h&rblock com You file your return based on a calendar year. Www h&rblock com Your rate from Table 1 for the third month is 10%. Www h&rblock com Your ACRS deduction for 1984 was $9,800 ($98. Www h&rblock com 000 ÷ 10%). Www h&rblock com For 1985 through 1988, you figured your ACRS deductions using 11%, 9%, 8%, and 7% ÷ $98,000. Www h&rblock com For 1989 through 1992, you figured your ACRS deductions using 6% for each year. Www h&rblock com The deduction each year was $98,000 ÷ 6%. Www h&rblock com For 1993 and 1994, the ACRS deduction is ($98,000 ÷ 5%) $4,900 for each year. Www h&rblock com You sell the house on June 1, 1995. Www h&rblock com You figure your ACRS deduction for 1995 for the full year and then prorate that amount for the months of use. Www h&rblock com The full ACRS deduction for 1995 is $4,900 ($98,000 ÷ 5%). Www h&rblock com You then prorate this amount to the 5 months in 1995 during which it was rented. Www h&rblock com Your ACRS deduction for 1995 is $2,042 ($4,900 ÷ 5/12). Www h&rblock com Early dispositions — 18- and 19-year real property. Www h&rblock com   If you dispose of 18- or 19-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. Www h&rblock com For 18-year property placed in service before June 23, 1984, use a full-month convention on a disposition. Www h&rblock com For 18-year property placed in service after June 22, 1984, and for 19-year property, determine the number of months in use by using the mid-month convention. Www h&rblock com Under the mid-month convention,treat real property disposed of any time during a month as disposed of in the middle of that month. Www h&rblock com Count the month of disposition as half a month of use. Www h&rblock com Example. Www h&rblock com You purchased and placed in service a rental house on July 2, 1984, for $100,000 (not including the cost of land). Www h&rblock com You file your return based on a calendar year. Www h&rblock com Your rate from Table 4 for the seventh month is 4%. Www h&rblock com You figured your ACRS deduction for 1984 was $4,000 ($100,000 ÷ 4%). Www h&rblock com In 1985 through 1994, your ACRS deductions were 9%, 8%, 8%, 7%, 6%, 6%, 5%, 5%, and 5% ÷ $100,000. Www h&rblock com You sell the house on September 24, 1995. Www h&rblock com Figure your ACRS deduction for 1995 for the months of use. Www h&rblock com The full ACRS deduction for 1995 is $5,000 ($100,000 ÷ 5%). Www h&rblock com Prorate this amount for the 8. Www h&rblock com 5 months in 1995 that you held the property. Www h&rblock com Under the mid-month convention, you count September as half a month. Www h&rblock com Your ACRS deduction for 1995 is $3,542 ($5,000 ÷ 8. Www h&rblock com 5/12). Www h&rblock com Depreciation Recapture If you dispose of property depreciated under ACRS that is section 1245 recovery property, you will generally recognize gain or loss. Www h&rblock com Gain recognized on a disposition is ordinary income to the extent of prior depreciation deductions taken. Www h&rblock com This recapture rule applies to all personal property in the 3-year, 5-year, and 10-year classes. Www h&rblock com You recapture gain on manufactured homes and theme park structures in the 10-year class as section 1245 property. Www h&rblock com Section 1245 property generally includes all personal property. Www h&rblock com See Section 1245 property in chapter 4 of Publication 544 for more information. Www h&rblock com You treat dispositions of section 1250 real property on which you have a gain as section 1245 recovery property. Www h&rblock com You recognize gain on this property as ordinary income to the extent of prior depreciation deductions taken. Www h&rblock com Section 1250 property includes most real property. Www h&rblock com See Section 1250 property in chapter 4 of Publication 544 for more information. Www h&rblock com This rule applies to all section 1250 real property except the following property: Any 15-, 18-, or 19-year real property that is residential rental property. Www h&rblock com Any 15-, 18-, or 19-year real property that you elected to depreciate using the alternate ACRS method. Www h&rblock com Any 15-, 18-, or 19-year real property that is subsidized low-income housing. Www h&rblock com For these recapture rules, you treat the section 179 deduction and 50% of the investment credit that reduced your basis as depreciation. Www h&rblock com See Publication 544 for further discussion of dispositions of section 1245 and 1250 property. Www h&rblock com Prev  Up  Next   Home   More Online Publications
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Understanding your CP71D Notice

You received this notice to remind you of the amount you owe in tax, penalty and interest.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully — it will explain how much money you owe on your taxes.

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Answers to Common Questions

Am I charged interest on the money I owe?
Yes, interest accrues on your unpaid balance until you pay it in full.

Do I receive a penalty if I cannot pay the full amount?
Yes, you receive a late payment penalty.

What happens if I cannot pay the full amount I owe?
You can arrange to make a payment plan with us if you cannot pay the full amount you owe.

How can I set up a payment plan?
Call the toll-free number listed on the top right corner of your notice to discuss payment options or learn more about payment arrangements.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 06-Mar-2014

The Www H&rblock Com

Www h&rblock com Publication 1542 - Introductory Material Table of Contents What's New IntroductionOrdering forms and publications. Www h&rblock com Tax questions. Www h&rblock com What's New Future developments. Www h&rblock com  The IRS has created a page on IRS. Www h&rblock com gov for information about Publication 1542, at www. Www h&rblock com irs. Www h&rblock com gov/pub1542. Www h&rblock com Information about any future developments affecting Publication 1542 (such as legislation enacted after we release it) will be posted on that page. Www h&rblock com Introduction This publication is for employers who pay a per diem allowance to employees for business travel away from home within the continental United States (CONUS) (the 48 contiguous states), on or after October 1, 2010, and before January 1, 2011. Www h&rblock com It gives the maximum per diem rate you can use without treating part of the per diem allowance as wages for tax purposes. Www h&rblock com For a detailed discussion on the tax treatment of a per diem allowance, see chapter 11 of Publication 535, Business Expenses, or Revenue Procedure 2011-47, 2011-42 I. Www h&rblock com R. Www h&rblock com B. Www h&rblock com 520, which can be found on the Internet at www. Www h&rblock com irs. Www h&rblock com gov/irb/2011-42_IRB/ar12. Www h&rblock com html. Www h&rblock com Per diem rates on the Internet. Www h&rblock com   You will find links to per diem rates at www. Www h&rblock com gsa. Www h&rblock com gov/perdiem, including links to: CONUS per diem rates; Per diem rates for areas outside the continental United States (OCONUS), such as Alaska, Hawaii, Puerto Rico, and U. Www h&rblock com S. Www h&rblock com possessions; and Foreign per diem rates. Www h&rblock com Publication 1542 revisions. Www h&rblock com   Publication 1542 is available only on the Internet at IRS. Www h&rblock com gov. Www h&rblock com Print copies can no longer be ordered. Www h&rblock com   During the year, as changes to the federal per diem rates (updates) are announced by the General Services Administration (GSA), we will incorporate the changes into Publication 1542. Www h&rblock com An article on IRS. Www h&rblock com gov will alert you to which locations have updated rates. Www h&rblock com To reach these articles, go to www. Www h&rblock com irs. Www h&rblock com gov/formspubs and click on “Changes to Current Tax Products,” under Important Changes. Www h&rblock com You will find the new rates in Table 4. Www h&rblock com   We will also incorporate mid-year changes to the high-low rates into Publication 1542. Www h&rblock com You will be alerted to these changes by a similar article on IRS. Www h&rblock com gov and can find the changes in Table 2 of the revised publication. Www h&rblock com   The annual changes, both federal per diem and high-low rates, will be incorporated into the publication as soon as possible after being announced by GSA and the IRS. Www h&rblock com The annual issue of the publication should be available each year in mid- to late-October. Www h&rblock com Comments and suggestions. Www h&rblock com   We welcome your comments about this publication and your suggestions for future editions. Www h&rblock com   You can write to us at the following address: Internal Revenue Service Individual Forms and Publications Branch SE:W:CAR:MP:T:I 1111 Constitution Ave. Www h&rblock com NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Www h&rblock com Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Www h&rblock com   You can email us at taxforms@irs. Www h&rblock com gov. Www h&rblock com Please put “Publications Comment” on the subject line. Www h&rblock com You can also send us comments from www. Www h&rblock com irs. Www h&rblock com gov/formspubs/, select “Comment on Tax Forms and Publications” under “Information about. Www h&rblock com ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Www h&rblock com Ordering forms and publications. Www h&rblock com   Visit www. Www h&rblock com irs. Www h&rblock com gov/formspubs/ to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received. Www h&rblock com Internal Revenue Service 1201 N. Www h&rblock com Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Www h&rblock com   If you have a tax question, check the information available on IRS. Www h&rblock com gov or call 1-800-829-1040. Www h&rblock com We cannot answer tax questions sent to either of the above addresses. Www h&rblock com Prev  Up  Next   Home   More Online Publications