Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

1040x Processing Time

Online Turbotax 2011File Taxes 20121040ez 2014Free State And Federal Tax ReturnsCan I File My State Taxes Online For FreeTax Return 2011How To File An Amended Return For 2013Federal Income Tax Ez FormAmend 2011 Federal Tax ReturnIrs Forms 1040ezFreetaxusa 2011Federal Tax Extension OnlineState Taxes Online For FreeNeed File 2010 TaxesAmended Tax Form 1040xAarp Tax Help2012 Tax Form 1040Turbotax 20102010 Form 1040ez1040ezformHow Do I File My 2012 TaxesFree Tax FormsOn Line 1040xH & R Block TaxEztaxformHow To File 2010 Taxes Online For FreeIrs Amended Tax Return 2011Tax Software ReviewFile Taxes For 2012 Free2012 Amended Tax FormFile 2012 Taxes Free OnlineEfile IrsTaxact2012Turbotax Deluxe Federal E File 2012 For Pc DownloadStudent Tax Information2013 Amended Tax Return1040ez 2012 Tax FormAmending A Tax Return Online1040ez 2013 Tax FormEfile Tax Return Online Free Federal And State

1040x Processing Time

1040x processing time 3. 1040x processing time   Environmental Taxes Table of Contents Oil Spill Liability Tax ODCs Imported Taxable Products Floor Stocks Tax Environmental taxes are imposed on crude oil and petroleum products (oil spill liability), the sale or use of ozone-depleting chemicals (ODCs), and imported products containing or manufactured with ODCs. 1040x processing time In addition, a floor stocks tax is imposed on ODCs held on January 1 by any person (other than the manufacturer or importer of the ODCs) for sale or for use in further manufacture. 1040x processing time Figure the environmental tax on Form 6627. 1040x processing time Enter the tax on the appropriate lines of Form 720 and attach Form 6627 to Form 720. 1040x processing time For environmental tax purposes, United States includes the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, any possession of the United States, the Commonwealth of the Northern Mariana Islands, the Trust Territory of the Pacific Islands, the continental shelf areas (applying the principles of section 638), and foreign trade zones. 1040x processing time No one is exempt from the environmental taxes, including the federal government, state and local governments, Indian tribal governments, and nonprofit educational organizations. 1040x processing time Oil Spill Liability Tax The oil spill liability tax is reported on Form 6627, Environmental Taxes, and Form 720, Quarterly Federal Excise Tax Return (IRS Nos. 1040x processing time 18 and 21). 1040x processing time The oil spill liability tax rate is $. 1040x processing time 08 per barrel and generally applies to crude oil received at a U. 1040x processing time S. 1040x processing time refinery and to petroleum products entered into the United States for consumption, use, or warehousing. 1040x processing time The tax also applies to certain uses and the exportation of domestic crude oil. 1040x processing time Crude oil includes crude oil condensates and natural gasoline. 1040x processing time Petroleum products include crude oil, refined and residual oil, and other liquid hydrocarbon refinery products. 1040x processing time Crude oil. 1040x processing time   Tax is imposed on crude oil when it is received at a United Sates refinery. 1040x processing time The operator of the refinery is liable for the tax. 1040x processing time   Tax is imposed on domestic crude oil used or exported before it is received at a United States refinery. 1040x processing time However, the use of crude oil for extracting oil or natural gas on the premises where such crude oil was produced is not taxable. 1040x processing time The user or exporter is liable for the tax. 1040x processing time Imported petroleum products. 1040x processing time   Tax is imposed on petroleum products when they enter the United States for consumption, use, or warehousing. 1040x processing time The person entering the petroleum product into the country is liable for the tax, including the tax on imported crude oil, even if it is subsequently received at a U. 1040x processing time S. 1040x processing time refinery. 1040x processing time   Tax is imposed only once on any imported petroleum product. 1040x processing time Thus, the operator of a U. 1040x processing time S. 1040x processing time refinery that receives imported crude oil must establish that the petroleum tax has already been imposed on such crude oil in order not to be liable for the tax. 1040x processing time ODCs For a list of the taxable ODCs and tax rates, see the Form 6627 instructions. 1040x processing time Taxable event. 1040x processing time   Tax is imposed on an ODC when it is first used or sold by its manufacturer or importer. 1040x processing time The manufacturer or importer is liable for the tax. 1040x processing time Use of ODCs. 1040x processing time   You use an ODC if you put it into service in a trade or business or for the production of income. 1040x processing time Also, an ODC is used if you use it in the making of an article, including incorporation into the article, chemical transformation, or release into the air. 1040x processing time The loss, destruction, packaging, repackaging, or warehousing of ODCs is not a use of the ODC. 1040x processing time   The creation of a mixture containing an ODC is treated as a taxable use of the ODC contained in the mixture. 1040x processing time An ODC is contained in a mixture only if the chemical identity of the ODC is not changed. 1040x processing time Generally, tax is imposed when the mixture is created and not on its sale or use. 1040x processing time However, you can choose to have the tax imposed on its sale or use by checking the appropriate box on Form 6627. 1040x processing time You can revoke this choice only with IRS consent. 1040x processing time   The creation of a mixture for export or for use as a feedstock is not a taxable use of the ODCs contained in the mixture. 1040x processing time Exceptions. 1040x processing time   The following may be exempt from the tax on ODCs. 1040x processing time Metered-dose inhalers. 1040x processing time Recycled ODCs. 1040x processing time Exported ODCs. 1040x processing time ODCs used as feedstock. 1040x processing time Metered-dose inhalers. 1040x processing time   There is no tax on ODCs used or sold for use as propellants in metered-dose inhalers. 1040x processing time For a sale to be nontaxable, you must obtain from the purchaser an exemption certificate that you rely on in good faith. 1040x processing time The certificate must be in substantially the form as the sample certificate set forth in Regulations section 52. 1040x processing time 4682-2(d)(5). 1040x processing time The certificate may be included as part of the sales documentation. 1040x processing time Keep the certificate with your records. 1040x processing time Recycled ODCs. 1040x processing time   There is no tax on any ODC diverted or recovered in the United States as part of a recycling process (and not as part of the original manufacturing or production process). 1040x processing time There is no tax on recycled Halon-1301 or recycled Halon-2402 imported from a country that has signed the Montreal Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol). 1040x processing time   The Montreal Protocol is administered by the United Nations (U. 1040x processing time N. 1040x processing time ). 1040x processing time To determine if a country has signed the Montreal Protocol, contact the U. 1040x processing time N. 1040x processing time The website is untreaty. 1040x processing time un. 1040x processing time org. 1040x processing time Exported ODCs. 1040x processing time   Generally, there is no tax on ODCs sold for export if certain requirements are met. 1040x processing time For a sale to be nontaxable, you and the purchaser must be registered. 1040x processing time See Form 637, Application for Registration (for Certain Excise Tax Activities). 1040x processing time Also, you must obtain from the purchaser an exemption certificate that you rely on in good faith. 1040x processing time Keep the certificate with your records. 1040x processing time The certificate must be in substantially the form as the sample certificate set forth in Regulations section 52. 1040x processing time 4682-5(d)(3). 1040x processing time The tax benefit of this exemption is limited. 1040x processing time For more information, see Regulations section 52. 1040x processing time 4682-5. 1040x processing time ODCs used as feedstock. 1040x processing time   There is no tax on ODCs sold for use or used as a feedstock. 1040x processing time An ODC is used as a feedstock only if the ODC is entirely consumed in the manufacture of another chemical. 1040x processing time The transformation of an ODC into one or more new compounds qualifies as use as a feedstock, but use of an ODC in a mixture does not qualify. 1040x processing time   For a sale to be nontaxable, you must obtain from the purchaser an exemption certificate that you rely on in good faith. 1040x processing time The certificate must be in substantially the form as the sample certificate set forth in Regulations section 52. 1040x processing time 4682-2(d)(2). 1040x processing time Keep the certificate with your records. 1040x processing time Credits or refunds. 1040x processing time   A credit or refund (without interest) of tax paid on ODCs may be claimed if a taxed ODC is: Used as a propellant in a metered-dose inhaler (the person who used the ODC as a propellant may file a claim), Exported (the manufacturer may file a claim), or Used as a feedstock (the person who used the ODC may file a claim). 1040x processing time For information on how to file for credits or refunds, see the Instructions for Form 720 or Schedule 6 (Form 8849). 1040x processing time Conditions to allowance for ODCs exported. 1040x processing time   To claim a credit or refund for ODCs that are exported, you must have repaid or agreed to repay the tax to the exporter, or obtained the exporter's written consent to allowance of the credit or refund. 1040x processing time You must also have the evidence required by the EPA as proof that the ODCs were exported. 1040x processing time Imported Taxable Products An imported product containing or manufactured with ODCs is subject to tax if it is entered into the United States for consumption, use, or warehousing and is listed in the Imported Products Table. 1040x processing time The Imported Products Table is listed in Regulations section 52. 1040x processing time 4682-3(f)(6). 1040x processing time The tax is based on the weight of the ODCs used in the manufacture of the product. 1040x processing time Use the following methods to figure the ODC weight. 1040x processing time The actual (exact) weight of each ODC used as a material in manufacturing the product. 1040x processing time If the actual weight cannot be determined, the ODC weight listed for the product in the Imported Products Table. 1040x processing time However, if you cannot determine the actual weight and the table does not list an ODC weight for the product, the rate of tax is 1% of the entry value of the product. 1040x processing time Taxable event. 1040x processing time   Tax is imposed on an imported taxable product when the product is first sold or used by its importer. 1040x processing time The importer is liable for the tax. 1040x processing time Use of imported products. 1040x processing time   You use an imported product if you put it into service in a trade or business or for the production of income or use it in the making of an article, including incorporation into the article. 1040x processing time The loss, destruction, packaging, repackaging, warehousing, or repair of an imported product is not a use of that product. 1040x processing time Entry as use. 1040x processing time   The importer may choose to treat the entry of a product into the United States as the use of the product. 1040x processing time Tax is imposed on the date of entry instead of when the product is sold or used. 1040x processing time The choice applies to all imported taxable products that you own and have not used when you make the choice and all later entries. 1040x processing time Make the choice by checking the box in Part II of Form 6627. 1040x processing time The choice is effective as of the beginning of the calendar quarter to which the Form 6627 applies. 1040x processing time You can revoke this choice only with IRS consent. 1040x processing time Sale of article incorporating imported product. 1040x processing time   The importer may treat the sale of an article manufactured or assembled in the United States as the first sale or use of an imported taxable product incorporated in that article if both the following apply. 1040x processing time The importer has consistently treated the sale of similar items as the first sale or use of similar taxable imported products. 1040x processing time The importer has not chosen to treat entry into the United States as use of the product. 1040x processing time Imported products table. 1040x processing time   The table lists all the products that are subject to the tax on imported taxable products and specifies the ODC weight (discussed later) of each product. 1040x processing time   Each listing in the table identifies a product by name and includes only products that are described by that name. 1040x processing time Most listings identify a product by both name and Harmonized Tariff Schedule (HTS) heading. 1040x processing time In those cases, a product is included in that listing only if the product is described by that name and the rate of duty on the product is determined by reference to that HTS heading. 1040x processing time A product is included in the listing even if it is manufactured with or contains a different ODC than the one specified in the table. 1040x processing time   Part II of the table lists electronic items that are not included within any other list in the table. 1040x processing time An imported product is included in this list only if the product meets one of the following tests. 1040x processing time It is an electronic component whose operation involves the use of nonmechanical amplification or switching devices such as tubes, transistors, and integrated circuits. 1040x processing time It contains components described in (1), which account for more than 15% of the cost of the product. 1040x processing time   These components do not include passive electrical devices, such as resistors and capacitors. 1040x processing time Items such as screws, nuts, bolts, plastic parts, and similar specially fabricated parts that may be used to construct an electronic item are not themselves included in the listing for electronic items. 1040x processing time Rules for listing products. 1040x processing time   Products are listed in the table according to the following rules. 1040x processing time A product is listed in Part I of the table if it is a mixture containing ODCs. 1040x processing time A product is listed in Part II of the table if the Commissioner has determined that the ODCs used as materials in the manufacture of the product under the predominant method are used for purposes of refrigeration or air conditioning, creating an aerosol or foam, or manufacturing electronic components. 1040x processing time A product is listed in Part III of the table if the Commissioner has determined that the product meets both the following tests. 1040x processing time It is not an imported taxable product. 1040x processing time It would otherwise be included within a list in Part II of the table. 1040x processing time   For example, floppy disk drive units are listed in Part III because they are not imported taxable products and would have been included in the Part II list for electronic items not specifically identified, but for their listing in Part III. 1040x processing time ODC weight. 1040x processing time   The Table ODC weight of a product is the weight, determined by the Commissioner, of the ODCs used as materials in the manufacture of the product under the predominant method of manufacturing. 1040x processing time The ODC weight is listed in Part II in pounds per single unit of product unless otherwise specified. 1040x processing time Modifying the table. 1040x processing time   A manufacturer or importer of a product may request the IRS add a product and its ODC weight to the table. 1040x processing time They also may request the IRS remove a product from the table, or change or specify the ODC weight of a product. 1040x processing time To request a modification, see Regulations section 52. 1040x processing time 4682-3(g) for the mailing address and information that must be included in the request. 1040x processing time Floor Stocks Tax Tax is imposed on any ODC held (other than by the manufacturer or importer of the ODC) on January 1 for sale or use in further manufacturing. 1040x processing time The person holding title (as determined under local law) to the ODC is liable for the tax, whether or not delivery has been made. 1040x processing time These chemicals are taxable without regard to the type or size of storage container in which the ODCs are held. 1040x processing time The tax may apply to an ODC whether it is in a 14-ounce can or a 30-pound tank. 1040x processing time You are liable for the floor stocks tax if you hold any of the following on January 1. 1040x processing time At least 400 pounds of ODCs other than halons or methyl chloroform, At least 50 pounds of halons, or At least 1,000 pounds of methyl chloroform. 1040x processing time If you are liable for the tax, prepare an inventory on January 1 of the taxable ODCs held on that date for sale or for use in further manufacturing. 1040x processing time You must pay this floor stocks tax by June 30 of each year. 1040x processing time Report the tax on Form 6627 and Part II of Form 720 for the second calendar quarter. 1040x processing time For the tax rates, see the Form 6627 instructions. 1040x processing time ODCs not subject to floor stocks tax. 1040x processing time   The floor stocks tax is not imposed on any of the following ODCs. 1040x processing time ODCs mixed with other ingredients that contribute to achieving the purpose for which the mixture will be used, unless the mixture contains only ODCs and one or more stabilizers. 1040x processing time ODCs contained in a manufactured article in which the ODCs will be used for their intended purpose without being released from the article. 1040x processing time ODCs that have been reclaimed or recycled. 1040x processing time ODCs sold in a qualifying sale for: Use as a feedstock, Export, or Use as a propellant in a metered-dose inhaler. 1040x processing time Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Understanding your 2800C Letter

We sent you this letter because we believe your employee may have filed an incorrect Form W-4, Employee's Withholding Allowance Certificate.  

What you need to do

Begin withholding income tax from this employee's wages based on the following withholding rates, effective 60 days from the date of this letter:  

  • Withholding rate (marital status): single
  • Withholding allowances:  0000   

You may want to…

  • Search keyword "withholding compliance" for more information on income tax withholding
  • Download the following materials:
    • Publication 15 (Circular E), Employer's Tax Guide  
    • Publication 51 (Circular A), Agricultural Employer's Tax Guide

Answers to Common Questions

If the IRS determines that an employee doesn’t have enough federal income tax withheld, what will you ask an employer to do?
If we determine that an employee doesn’t have enough withholding, we’ll send you a lock-in letter that specifies the maximum number of withholding allowances permitted for the employee. You must withhold tax as indicated in the lock-in letter by the date specified unless we notify you otherwise. This date is 60 days after the date of the lock-in letter. Once a lock-in rate is effective, an employer can’t decrease withholding unless the IRS approves it.
 

You’ll also receive a copy of the letter to give to the employee. If the employee no longer works for you, you don’t need to do anything. However, if the employee returns to work within 12 months, you should begin withholding income tax from the employee’s wages based on the withholding rate in the letter.

The letter will explain how the employee can provide additional information to help us determine the appropriate number of withholding exemptions. We’ll give the employee some time before the lock-in rate is effective to submit a new Form W-4 and a statement that supports the claims made on it. The employee must send the Form W-4 and the statement to the IRS address as shown on this webpage.

If an employer no longer has to submit Forms W-4 claiming complete exemption from withholding or claiming more than 10 allowances, how does the IRS determine adequate withholding?
We‘re more effectively using information in our records and reported on Form W-2 wage statements to ensure that employees have enough federal income tax withheld.

After I lock in withholding on an employee, what do I do if I receive a revised Form W-4 from the employee?
You must disregard any Form W-4 that decreases the amount of withholding. The employee must submit for IRS approval any new Form W-4 and a statement that supports his or her request to decrease federal income tax withholding. The employee should send the Form W-4 and statement to the address on the lock-in letter. We’ll notify you if we approve the employee’s request. However, if the employee submits a Form W-4 that claims fewer withholding allowances than the maximum number specified in the lock-in letter, you must increase withholding based on that Form W-4.

As an employer who has received a modification letter (Letter 2808C) from the Withholding Compliance Program, do I wait for another 60 days to change the marital status or number of allowances as indicated in the modification letter?
The changes to the marital status or number of allowances become effective immediately upon receipt of the Letter 2808C.

Our employees can submit or change their Forms W-4 on line. How can I prevent them from changing their Forms W-4 after the IRS has locked them in?
You’ll need to block employees who have been locked-in from using an on-line Form W-4 system to decrease their withholding.

How to get help

  • Call toll free 1-855-839-2235 weekdays between 8:00 a.m. and 8:00 p.m.
  • Send a fax to 1-855-202-8300
  • Write to:

    Internal Revenue Service
    Compliance Services
    Withholding Compliance Unit
    P.O. Box 9047, Stop 837
    Andover, MA 01810-0947
Page Last Reviewed or Updated: 10-Jan-2014

The 1040x Processing Time

1040x processing time Other Methods of Depreciation Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: How To Figure the DeductionBasis Useful Life Salvage Value Methods To UseStraight Line Method Declining Balance Method Income Forecast Method How To Change Methods DispositionsSale or exchange. 1040x processing time Property not disposed of or abandoned. 1040x processing time Special rule for normal retirements from item accounts. 1040x processing time Abandoned property. 1040x processing time Single item accounts. 1040x processing time Multiple property account. 1040x processing time Topics - This chapter discusses: How to figure the deduction Methods to use How to change methods 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 946 How To Depreciate Property Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization Schedule C (Form 1040) Profit or Loss From Business If your property is being depreciated under ACRS, you must continue to use rules for depreciation that applied when you placed the property in service. 1040x processing time If your property qualified for MACRS, you must depreciate it under MACRS. 1040x processing time See Publication 946. 1040x processing time However, you cannot use MACRS for certain property because of special rules that exclude it from MACRS. 1040x processing time Also, you can elect to exclude certain property from being depreciated under MACRS. 1040x processing time Property that you cannot depreciate using MACRS includes: Intangible property, Property you can elect to exclude from MACRS that you properly depreciate under a method that is not based on a term of years, Certain public utility property, Any motion picture film or video tape, Any sound recording, and Certain real and personal property placed in service before 1987. 1040x processing time Intangible property. 1040x processing time   You cannot depreciate intangible property under ACRS or MACRS. 1040x processing time You depreciate intangible property using any other reasonable method, usually, the straight line method. 1040x processing time Note. 1040x processing time The cost of certain intangible property that you acquire after August 10, 1993, must be amortized over a 15-year period. 1040x processing time For more information, see chapter 12 of Publication 535. 1040x processing time Public utility property. 1040x processing time   The law excludes from MACRS any public utility property for which the taxpayer does not use a normalization method of accounting. 1040x processing time This type of property is subject to depreciation under a special rule. 1040x processing time Videocassettes. 1040x processing time   If you are in the videocassette rental business, you can depreciate those videocassettes purchased for rental. 1040x processing time You can depreciate the cost less salvage value of those videocassettes that have a useful life over one year using either: The straight line method, or The income forecast method. 1040x processing time The straight line method, salvage value, and useful life are discussed later under Methods To Use. 1040x processing time You can deduct in the year of purchase as a business expense the cost of any cassette that has a useful life of one year or less. 1040x processing time How To Figure the Deduction Two other reasonable methods can be used to figure your deduction for property not covered under ACRS or MACRS. 1040x processing time These methods are straight line and declining balance. 1040x processing time To figure depreciation using these methods, you must generally determine three things about the property you intend to depreciate. 1040x processing time They are: The basis, The useful life, and The estimated salvage value at the end of its useful life. 1040x processing time The amount of the deduction in any year also depends on which method of depreciation you choose. 1040x processing time Basis To deduct the proper amount of depreciation each year, first determine your basis in the property you intend to depreciate. 1040x processing time The basis used for figuring depreciation is the same as the basis that would be used for figuring the gain on a sale. 1040x processing time Your original basis is usually the purchase price. 1040x processing time However, if you acquire property in some other way, such as inheriting it, getting it as a gift, or building it yourself, you have to figure your original basis in a different way. 1040x processing time Adjusted basis. 1040x processing time   Events will often change the basis of property. 1040x processing time When this occurs, the changed basis is called the adjusted basis. 1040x processing time Some events, such as improvements you make, increase basis. 1040x processing time Events such as deducting casualty losses and depreciation decrease basis. 1040x processing time If basis is adjusted, the depreciation deduction may also have to be changed, depending on the reason for the adjustment and the method of depreciation you are using. 1040x processing time   Publication 551 explains how to figure basis for property acquired in different ways. 1040x processing time It also discusses what items increase and decrease basis, how to figure adjusted basis, and how to allocate cost if you buy several pieces of property at one time. 1040x processing time Useful Life The useful life of a piece of property is an estimate of how long you can expect to use it in your trade or business, or to produce income. 1040x processing time It is the length of time over which you will make yearly depreciation deductions of your basis in the property. 1040x processing time It is how long it will continue to be useful to you, not how long the property will last. 1040x processing time Many things affect the useful life of property, such as: Frequency of use, Age when acquired, Your repair policy, and Environmental conditions. 1040x processing time The useful life can also be affected by technological improvements, progress in the arts, reasonably foreseeable economic changes, shifting of business centers, prohibitory laws, and other causes. 1040x processing time Consider all these factors before you arrive at a useful life for your property. 1040x processing time The useful life of the same type of property varies from user to user. 1040x processing time When you determine the useful life of your property, keep in mind your own experience with similar property. 1040x processing time You can use the general experience of the industry you are in until you are able to determine a useful life of your property from your own experience. 1040x processing time Change in useful life. 1040x processing time   You base your estimate of useful life on certain facts. 1040x processing time If these facts change significantly, you can adjust your estimate of the remaining useful life. 1040x processing time However, you redetermine the estimated useful life only when the change is substantial and there is a clear reason for making the change. 1040x processing time Salvage Value It is important for you to accurately determine the correct salvage value of the property you want to depreciate. 1040x processing time You generally cannot depreciate property below a reasonable salvage value. 1040x processing time Determining salvage value. 1040x processing time   Salvage value is the estimated value of property at the end of its useful life. 1040x processing time It is what you expect to get for the property if you sell it after you can no longer use it productively. 1040x processing time You must estimate the salvage value of a piece of property when you first acquire it. 1040x processing time   Salvage value is affected both by how you use the property and how long you use it. 1040x processing time If it is your policy to dispose of property that is still in good operating condition, the salvage value can be relatively large. 1040x processing time However, if your policy is to use property until it is no longer usable, its salvage value can be its junk value. 1040x processing time Changing salvage value. 1040x processing time   Once you determine the salvage value for property, you should not change it merely because prices have changed. 1040x processing time However, if you redetermine the useful life of property, as discussed earlier under Change in useful life, you can also redetermine the salvage value. 1040x processing time When you redetermine the salvage value, take into account the facts that exist at the time. 1040x processing time Net salvage. 1040x processing time   Net salvage is the salvage value of property minus what it costs to remove it when you dispose of it. 1040x processing time You can choose either salvage value or net salvage when you figure depreciation. 1040x processing time You must consistently use the one you choose and the treatment of the costs of removal must be consistent with the practice adopted. 1040x processing time However, if the cost to remove the property is more than the estimated salvage value, then net salvage is zero. 1040x processing time Your salvage value can never be less than zero. 1040x processing time Ten percent rule. 1040x processing time   If you acquire personal property that has a useful life of 3 years or more, you can use an amount for salvage value that is less than your actual estimate. 1040x processing time You can subtract from your estimate of salvage value an amount equal to 10% of your basis in the property. 1040x processing time If salvage value is less than 10% of basis, you can ignore salvage value when you figure depreciation. 1040x processing time Methods To Use Two methods of depreciation are the straight line and declining balance methods. 1040x processing time If ACRS or MACRS does not apply, you can use one of these methods. 1040x processing time The straight line and declining balance methods discussed in this section are not figured in the same way as straight line or declining balance methods under MACRS. 1040x processing time Straight Line Method Before 1981, you could use any reasonable method for every kind of depreciable property. 1040x processing time One of these methods was the straight line method. 1040x processing time This method was also used for intangible property. 1040x processing time It lets you deduct the same amount of depreciation each year. 1040x processing time To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. 1040x processing time Subtract the salvage value, if any, from the adjusted basis. 1040x processing time The balance is the total amount of depreciation you can take over the useful life of the property. 1040x processing time Divide the balance by the number of years remaining in the useful life. 1040x processing time This gives you the amount of your yearly depreciation deduction. 1040x processing time Unless there is a big change in adjusted basis, or useful life, this amount will stay the same throughout the time you depreciate the property. 1040x processing time If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. 1040x processing time Example. 1040x processing time In April 1994, Frank bought a franchise for $5,600. 1040x processing time It expires in 10 years. 1040x processing time This property is intangible property that cannot be depreciated under MACRS. 1040x processing time Frank depreciates the franchise under the straight line method, using a 10-year useful life and no salvage value. 1040x processing time He takes the $5,600 basis and divides that amount by 10 years ($5,600 ÷ 10 = $560, a full year's use). 1040x processing time He must prorate the $560 for his 9 months of use in 1994. 1040x processing time This gives him a deduction of $420 ($560 ÷ 9/12). 1040x processing time In 1995, Frank can deduct $560 for the full year. 1040x processing time Declining Balance Method The declining balance method allows you to recover a larger amount of the cost of the property in the early years of your use of the property. 1040x processing time The rate cannot be more than twice the straight line rate. 1040x processing time Rate of depreciation. 1040x processing time   Under this method, you must determine your declining balance rate of depreciation. 1040x processing time The initial step is to: Divide the number 1 by the useful life of your property to get a straight line rate. 1040x processing time (For example, if property has a useful life of 5 years, its normal straight line rate of depreciation is ⅕, or 20%. 1040x processing time ) Multiply this straight line rate by a number that is more than 1 but not more than 2 to determine the declining balance rate. 1040x processing time Unless there is a change in the useful life during the time you depreciate the property, the rate of depreciation generally will not change. 1040x processing time Depreciation deductions. 1040x processing time   After you determine the rate of depreciation, multiply the adjusted basis of the property by it. 1040x processing time This gives you the amount of your deduction. 1040x processing time For example, if your adjusted basis at the beginning of the first year is $10,000, and your declining balance rate is 20%, your depreciation deduction for the first year is $2,000 ($10,000 ÷ 20%). 1040x processing time To figure your depreciation deduction in the second year, you must first adjust the basis for the amount of depreciation you deducted in the first year. 1040x processing time Subtract the previous year's depreciation from your basis ($10,000 - $2,000 = $8,000). 1040x processing time Multiply this amount by the rate of depreciation ($8,000 ÷ 20% = $1,600). 1040x processing time Your depreciation deduction for the second year is $1,600. 1040x processing time   As you can see from this example, your adjusted basis in the property gets smaller each year. 1040x processing time Also, under this method, deductions are larger in the earlier years and smaller in the later years. 1040x processing time You can make a change to the straight line method without consent. 1040x processing time Salvage value. 1040x processing time   Do not subtract salvage value when you figure your yearly depreciation deductions under the declining balance method. 1040x processing time However, you cannot depreciate the property below its reasonable salvage value. 1040x processing time Determine salvage value using the rules discussed earlier, including the special 10% rule. 1040x processing time Example. 1040x processing time If your adjusted basis has been decreased to $1,000 and the rate of depreciation is 20%, your depreciation deduction should be $200. 1040x processing time But if your estimate of salvage value was $900, you can only deduct $100. 1040x processing time This is because $100 is the amount that would lower your adjusted basis to equal salvage value. 1040x processing time Income Forecast Method The income forecast method requires income projections for each videocassette or group of videocassettes. 1040x processing time You can group the videocassettes by title for making this projection. 1040x processing time You determine the depreciation by applying a fraction to the cost less salvage value of the cassette. 1040x processing time The numerator is the income from the videocassette for the tax year and the denominator is the total projected income for the cassette. 1040x processing time For more information on the income forecast method, see Revenue Ruling 60-358 in Cumulative Bulletin 1960, Volume 2, on page 68. 1040x processing time How To Change Methods In some cases, you may change your method of depreciation for property depreciated under a reasonable method. 1040x processing time If you change your method of depreciation, it is generally a change in your method of accounting. 1040x processing time You must get IRS consent before making the change. 1040x processing time However, you do not need permission for certain changes in your method of depreciation. 1040x processing time The rules discussed in this section do not apply to property depreciated under ACRS or MACRS. 1040x processing time For information on ACRS elections,see Revocation of election, in chapter 1 under Alternate ACRS Method. 1040x processing time Change to the straight line method. 1040x processing time   You can change from the declining balance method to the straight line method at any time during the useful life of your property without IRS consent. 1040x processing time However, if you have a written agreement with the IRS that prohibits a change, you must first get IRS permission. 1040x processing time When the change is made, figure depreciation based on your adjusted basis in the property at that time. 1040x processing time Your adjusted basis takes into account all previous depreciation deductions. 1040x processing time Use the estimated remaining useful life of your property at the time of change and its estimated salvage value. 1040x processing time   You can change from the declining balance method to straight line only on the original tax return for the year you first use the straight line method. 1040x processing time You cannot make the change on an amended return filed after the due date of the original return (including extensions). 1040x processing time   When you make the change, attach a statement to your tax return showing: When you acquired the property, Its original cost or other original basis, The total amount claimed for depreciation and other allowances since you acquired it, Its salvage value and remaining useful life, and A description of the property and its use. 1040x processing time   After you change to straight line, you cannot change back to the declining balance method or to any other method for a period of 10 years without written permission from the IRS. 1040x processing time Changes that require permission. 1040x processing time   For most other changes in method of depreciation, you must get permission from the IRS. 1040x processing time To request a change in method of depreciation, file Form 3115. 1040x processing time File the application within the first 180 days of the tax year the change is to become effective. 1040x processing time In most cases, there is a user fee that must accompany Form 3115. 1040x processing time See the instructions for Form 3115 to determine if a fee is required. 1040x processing time Changes granted automatically. 1040x processing time   The IRS automatically approves certain changes of a method of depreciation. 1040x processing time But, you must file Form 3115 for these automatic changes. 1040x processing time   However, IRS can deny permission if Form 3115 is not filed on time. 1040x processing time For more information on automatic changes, see Revenue Procedure 74-11, 1974-1 C. 1040x processing time B. 1040x processing time 420. 1040x processing time Changes for which approval is not automatic. 1040x processing time   The automatic change procedures do not apply to: Property or an account where you made a change in depreciation within the last 10 tax years (unless the change was made under the Class Life System), Class Life Asset Depreciation Range System, and Public utility property. 1040x processing time   You must request and receive permission for these changes. 1040x processing time To make the request, file Form 3115 during the first 180 days of the tax year for which you want the change to be effective. 1040x processing time Change from an improper method. 1040x processing time   If the IRS disallows the method you are using, you do not need permission to change to a proper method. 1040x processing time You can adopt the straight line method, or any other method that would have been permitted if you had used it from the beginning. 1040x processing time If you file your tax return using an improper method, but later file an amended return, you can use a proper method on the amended return without getting IRS permission. 1040x processing time However, you must file the amended return before the filing date for the next tax year. 1040x processing time Dispositions Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. 1040x processing time You can do this by selling, exchanging, or abandoning the item of property. 1040x processing time You can also withdraw it from use without disposing of it. 1040x processing time For example, you could place it in a supplies or scrap account. 1040x processing time Retirements can be either normal or abnormal depending on all facts and circumstances. 1040x processing time The rules discussed next do not apply to MACRS and ACRS property. 1040x processing time Normal retirement. 1040x processing time   A normal retirement is a permanent withdrawal of depreciable property from use if the following apply: The retirement is made within the useful life you estimated originally, and The property has reached a condition at which you customarily retire or would retire similar property from use. 1040x processing time A retirement is generally considered normal unless you can show that you retired the property because of a reason you did not consider when you originally estimated the useful life of the property. 1040x processing time Abnormal retirement. 1040x processing time   A retirement can be abnormal if you withdraw the property early or under other circumstances. 1040x processing time For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless. 1040x processing time Gain or loss on retirement. 1040x processing time   There are special rules for figuring the gain or loss on retirement of property. 1040x processing time The gain or loss will depend on several factors. 1040x processing time These include the type of withdrawal, if the withdrawal was from a single property or multiple property account, and if the retirement was normal or abnormal. 1040x processing time A single property account contains only one item of property. 1040x processing time A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account. 1040x processing time Sale or exchange. 1040x processing time   If property is retired by sale or exchange, you figure gain or loss by the usual rules that apply to sales or other dispositions of property. 1040x processing time See Publication 544. 1040x processing time Property not disposed of or abandoned. 1040x processing time   If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. 1040x processing time You are allowed a loss in such a case, but only if the retirement is: An abnormal retirement, A normal retirement from a single property account in which you determined the life of each item of property separately, or A normal retirement from a multiple property account in which the depreciation rate is based on the maximum expected life of the longest lived item of property and the loss occurs before the expiration of the full useful life. 1040x processing time However, you are not allowed a loss if the depreciation rate is based on the average useful life of the items of property in the account. 1040x processing time   To figure your loss, subtract the estimated salvage or fair market value of the property at the date of retirement, whichever is more, from its adjusted basis. 1040x processing time Special rule for normal retirements from item accounts. 1040x processing time   You can generally deduct losses upon retirement of a few depreciable items of property with similar useful lives, if: You account for each one in a separate account, and You use the average useful life to figure depreciation. 1040x processing time However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives. 1040x processing time   If you have a large number of depreciable property items and use average useful lives to figure depreciation, you cannot deduct the losses upon normal retirements from these accounts. 1040x processing time Abandoned property. 1040x processing time   If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. 1040x processing time However, your intent must be to discard the property so that you will not use it again or retrieve it for sale, exchange, or other disposition. 1040x processing time Basis of property retired. 1040x processing time   The basis for figuring gain or loss on the retirement of property is its adjusted basis at the time of retirement, as determined in the following discussions. 1040x processing time Single item accounts. 1040x processing time   If an item of property is accounted for in a single item account, the adjusted basis is the basis you would use to figure gain or loss for a sale or exchange of the property. 1040x processing time This is generally the cost or other basis of the item of property less depreciation. 1040x processing time See Publication 551. 1040x processing time Multiple property account. 1040x processing time   For a normal retirement from a multiple property account, if you figured depreciation using the average expected useful life, the adjusted basis is the salvage value estimated for the item of property when it was originally acquired. 1040x processing time If you figured depreciation using the maximum expected useful life of the longest lived item of property in the account, you must use the depreciation method used for the multiple property account and a rate based on the maximum expected useful life of the item of property retired. 1040x processing time   You make the adjustment for depreciation for an abnormal retirement from a multiple property account at the rate that would be proper if the item of property was depreciated in a single property account. 1040x processing time The method of depreciation used for the multiple property account is used. 1040x processing time You base the rate on either the average expected useful life or the maximum expected useful life of the retired item of property, depending on the method used to determine the depreciation rate for the multiple property account. 1040x processing time Prev  Up  Next   Home   More Online Publications