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

1044ez

Taxslayer 2011 Tax ReturnIrs Amendment FormIrs Vita SitesHow To Fill Out 1040x Step By StepFile State TaxTurbotax Premier 20121040 Ez Tax Table2010 Tax Forms 1040 EzIrs Tax Forms For 2011Www Irs Gov VitaFile My State Taxes Online FreeTax Forms For StudentsHow To Amend My 2012 Tax ReturnIrs 2012 Tax Forms 1040How Do I Amend My 2012 Tax ReturnFederal Form 1040xIrs Efile 2012Income Tax For Students1040ez Tax Form 20102010 1040ez InstructionsFile AmendmentFiling ExtensionIrs 1040x 2011E File State Taxes OnlyFile Free State Tax ReturnEztaxform104ezFree 1040ez 2013Do I File Taxes Past YearsHow Do You Amend A Tax ReturnSelf Employed TaxesWww Irs Gov EitcH & R Block FreeHelp Filling Out 1040xFree Irs Efile1040ez Forms 2014Do Military Pay TaxesH And R Block OnlineTax AmendmentsTax Return Amendment

1044ez

1044ez Publication 561 - Introductory Material Table of Contents IntroductionOrdering forms and publications. 1044ez Tax questions. 1044ez Useful Items - You may want to see: Introduction This publication is designed to help donors and appraisers determine the value of property (other than cash) that is given to qualified organizations. 1044ez It also explains what kind of information you must have to support the charitable contribution deduction you claim on your return. 1044ez This publication does not discuss how to figure the amount of your deduction for charitable contributions or written records and substantiation required. 1044ez See Publication 526, Charitable Contributions, for this information. 1044ez Comments and suggestions. 1044ez   We welcome your comments about this publication and your suggestions for future editions. 1044ez   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. 1044ez NW, IR-6406 Washington, DC 20224   We respond to many letters by telephone. 1044ez Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 1044ez   You can email us at *taxforms@irs. 1044ez gov. 1044ez (The asterisk must be included in the address. 1044ez ) Please put “Publications Comment” on the subject line. 1044ez Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products. 1044ez Ordering forms and publications. 1044ez   Visit www. 1044ez irs. 1044ez gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 business days after your request is received. 1044ez National Distribution Center P. 1044ez O. 1044ez Box 8903 Bloomington, IL 61702-8903 Tax questions. 1044ez   If you have a tax question, visit www. 1044ez irs. 1044ez gov or call 1-800-829-1040. 1044ez We cannot answer tax questions sent to either of the above addresses. 1044ez Useful Items - You may want to see: Publication 526 Charitable Contributions Form (and Instructions) 8282Donee Information Return 8283Noncash Charitable Contributions 8283-VPayment Voucher for Filing Fee Under Section 170(f)(13) See How To Get Tax Help, near the end of this publication, for information about getting these publications and forms. 1044ez Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Procurement Contracts

Federally Funded Research and Development Center (FFRDC) - contract is available for task order issuance for all Treasury Bureaus as well as other Government Agencies (upon approval by the IRS Contracting Officer). The focus of this technical support is for Total Enterprise Modernization in the areas of: 1) Strategic Management, 2) Procurement (Support & Evaluation), 3) Program and Project Management, 4) Technical Management, and 5) Evaluation and Audit (includes IV&V).

Land Mobile Radio (LMR) Subscriber Unit - contracts provide standards-based and standards-compliant LMR equipment to enable communications interoperability with similarly configured equipment. The TIA/EIA-102 suite of standards, also know as Project 25, provides the basis for the required LMR technical specifications.

Prime Modernization (TIRNO-99-D-00001) - This is an indefinite Delivery/Indefinite Quantity (IDIQ) type contract under which Cost Reimbursement, Time and Materials (T&M), Fixed Price, and Performance Based Task Orders may be issued.

Prime Contract Outreach Information - IRS Small Business Program Office from time to time hosts a Prime Contract Network Opportunity Session. The purpose of these events are to assist small businesses in meeting with the IRS Prime and Alliance partners to discuss potential subcontracting opportunities available under the IRS Prime Systems Integration Contract.

Treasury Commercial Vehicles (TCV) - Blanket Purchase Agreements are a series of acquisition vehicles structured to provide commercial-off-the shelf products for the IRS and Treasury bureaus. Six (6) BPA's were established to better serve our customers. TCV is available for use by any employee of the Treasury Department or any of its bureaus. The BPA's are very flexible with items regularly added to meet specific needs.

Total Information Processing Support Services (TIPSS-4) - Discover more about the wide spectrum of Information Technology services that TIPSS-4 offers. Included you will find guidance, and useful information to help you acquire the right services to support your program goals and objectives.


Questions about the Procurement information on this site, please contact the webmaster. Contact the Office of Procurement for other Procurement related questions.

Page Last Reviewed or Updated: 09-Sep-2013

The 1044ez

1044ez 7. 1044ez   Depreciation, Depletion, and Amortization Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Overview of DepreciationWhat Property Can Be Depreciated? What Property Cannot Be Depreciated? When Does Depreciation Begin and End? Can You Use MACRS To Depreciate Your Property? What Is the Basis of Your Depreciable Property? How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions? Section 179 Expense DeductionWhat Property Qualifies? What Property Does Not Qualify? How Much Can You Deduct? How Do You Elect the Deduction? When Must You Recapture the Deduction? Claiming the Special Depreciation AllowanceWhat is Qualified Property? How Can You Elect Not To Claim the Allowance? When Must You Recapture an Allowance Figuring Depreciation Under MACRSWhich Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS? What Is the Placed-in-Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies? Which Convention Applies? Which Depreciation Method Applies? How Is the Depreciation Deduction Figured? How Do You Use General Asset Accounts? When Do You Recapture MACRS Depreciation? Additional Rules for Listed PropertyWhat Is Listed Property? What Is the Business-Use Requirement? Do the Passenger Automobile Limits Apply? Depletion Who Can Claim Depletion? Figuring Depletion AmortizationBusiness Start-Up Costs Reforestation Costs Section 197 Intangibles What's New for 2013 Increased section 179 expense deduction dollar limits. 1044ez  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. 1044ez This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. 1044ez See Dollar Limits under Section 179 Expense Deduction , later. 1044ez Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. 1044ez . 1044ez  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. 1044ez See Claiming the Special Depreciation Allowance , later. 1044ez Expiration of the 3- year recovery period for certain race horses. 1044ez  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. 1044ez Introduction If you buy or make improvements to farm property such as machinery, equipment, livestock, or a structure with a useful life of more than a year, you generally cannot deduct its entire cost in one year. 1044ez Instead, you must spread the cost over the time you use the property and deduct part of it each year. 1044ez For most types of property, this is called depreciation. 1044ez This chapter gives information on depreciation methods that generally apply to property placed in service after 1986. 1044ez For information on depreciating pre-1987 property, see Publication 534, Depreciating Property Placed in Service Before 1987. 1044ez Topics - This chapter discusses: Overview of depreciation Section 179 expense deduction Special depreciation allowance Modified Accelerated Cost Recovery System (MACRS) Listed property Basic information on cost depletion (including timber depletion) and percentage depletion Amortization of the costs of going into business, reforestation costs, the costs of pollution control facilities, and the costs of section 197 intangibles Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) T (Timber), Forest Activities Schedule 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. 1044ez It is important to keep good records for property you depreciate. 1044ez Do not file these records with your return. 1044ez Instead, you should keep them as part of the permanent records of the depreciated property. 1044ez They will help you verify the accuracy of the depreciation of assets placed in service in the current and previous tax years. 1044ez For general information on recordkeeping, see Publication 583, Starting a Business and Keeping Records. 1044ez For specific information on keeping records for section 179 property and listed property, see Publication 946, How To Depreciate Property. 1044ez Overview of Depreciation This overview discusses basic information on the following. 1044ez What property can be depreciated. 1044ez What property cannot be depreciated. 1044ez When depreciation begins and ends. 1044ez Whether MACRS can be used to figure depreciation. 1044ez What is the basis of your depreciable property. 1044ez How to treat repairs and improvements. 1044ez When you must file Form 4562. 1044ez How you can correct depreciation claimed incorrectly. 1044ez What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, equipment, vehicles, certain livestock, and furniture. 1044ez You can also depreciate certain intangible property, such as copyrights, patents, and computer software. 1044ez To be depreciable, the property must meet all the following requirements. 1044ez It must be property you own. 1044ez It must be used in your business or income-producing activity. 1044ez It must have a determinable useful life. 1044ez It must have a useful life that extends substantially beyond the year you place it in service. 1044ez Property You Own To claim depreciation, you usually must be the owner of the property. 1044ez You are considered as owning property even if it is subject to a debt. 1044ez Leased property. 1044ez   You can depreciate leased property only if you retain the incidents of ownership in the property. 1044ez This means you bear the burden of exhaustion of the capital investment in the property. 1044ez Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. 1044ez You can, however, depreciate any capital improvements you make to the leased property. 1044ez See Additions and Improvements under Which Recovery Period Applies in chapter 4 of Publication 946. 1044ez   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. 1044ez However, you cannot depreciate the cost of the property if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased. 1044ez Life tenant. 1044ez   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. 1044ez See Certain term interests in property , later, for an exception. 1044ez Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. 1044ez If you use property to produce income (investment use), the income must be taxable. 1044ez You cannot depreciate property that you use solely for personal activities. 1044ez However, if you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the percentage of business or investment use. 1044ez Example 1. 1044ez   If you use your car for farm business, you can deduct depreciation based on its percentage of use in farming. 1044ez If you also use it for investment purposes, you can depreciate it based on its percentage of investment use. 1044ez Example 2. 1044ez   If you use part of your home for business, you may be able to deduct depreciation on that part based on its business use. 1044ez For more information, see Business Use of Your Home in chapter 4. 1044ez Inventory. 1044ez   You can never depreciate inventory because it is not held for use in your business. 1044ez Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. 1044ez Livestock. 1044ez   Livestock purchased for draft, breeding, or dairy purposes can be depreciated only if they are not kept in an inventory account. 1044ez Livestock you raise usually has no depreciable basis because the costs of raising them are deducted and not added to their basis. 1044ez However, see Immature livestock under When Does Depreciation Begin and End , later, for a special rule. 1044ez Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. 1044ez This means it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 1044ez Irrigation systems and water wells. 1044ez   Irrigation systems and wells used in a trade or business can be depreciated if their useful life can be determined. 1044ez You can depreciate irrigation systems and wells composed of masonry, concrete, tile, metal, or wood. 1044ez In addition, you can depreciate costs for moving dirt to construct irrigation systems and water wells composed of these materials. 1044ez However, land preparation costs for center pivot irrigation systems are not depreciable. 1044ez Dams, ponds, and terraces. 1044ez   In general, you cannot depreciate earthen dams, ponds, and terraces unless the structures have a determinable useful life. 1044ez What Property Cannot Be Depreciated? Certain property cannot be depreciated, even if the requirements explained earlier are met. 1044ez This includes the following. 1044ez Land. 1044ez You can never depreciate the cost of land because land does not wear out, become obsolete, or get used up. 1044ez The cost of land generally includes the cost of clearing, grading, planting, and landscaping. 1044ez Although you cannot depreciate land, you can depreciate certain costs incurred in preparing land for business use. 1044ez See chapter 1 of Publication 946. 1044ez Property placed in service and disposed of in the same year. 1044ez Determining when property is placed in service is explained later. 1044ez Equipment used to build capital improvements. 1044ez You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. 1044ez Intangible property such as section 197 intangibles. 1044ez This property does not have a determinable useful life and generally cannot be depreciated. 1044ez However, see Amortization , later. 1044ez Special rules apply to computer software (discussed below). 1044ez Certain term interests (discussed below). 1044ez Computer software. 1044ez   Computer software is generally not a section 197 intangible even if acquired in connection with the acquisition of a business, if it meets all of the following tests. 1044ez It is readily available for purchase by the general public. 1044ez It is subject to a nonexclusive license. 1044ez It has not been substantially modified. 1044ez   If the software meets the tests above, it can be depreciated and may qualify for the section 179 expense deduction and the special depreciation allowance (if applicable), discussed later. 1044ez Certain term interests in property. 1044ez   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. 1044ez This rule does not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. 1044ez For more information, see chapter 1 of Publication 946. 1044ez When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. 1044ez You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. 1044ez Placed in Service Property is placed in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. 1044ez Even if you are not using the property, it is in service when it is ready and available for its specific use. 1044ez Example. 1044ez You bought a planter for use in your farm business. 1044ez The planter was delivered in December 2012 after harvest was over. 1044ez You begin to depreciate the planter for 2012 because it was ready and available for its specific use in 2012, even though it will not be used until the spring of 2013. 1044ez If your planter comes unassembled in December 2012 and is put together in February 2013, it is not placed in service until 2013. 1044ez You begin to depreciate it in 2013. 1044ez If your planter was delivered and assembled in February 2013 but not used until April 2013, it is placed in service in February 2013, because this is when the planter was ready for its specified use. 1044ez You begin to depreciate it in 2013. 1044ez Fruit or nut trees and vines. 1044ez   If you acquire an orchard, grove, or vineyard before the trees or vines have reached the income-producing stage, and they have a preproductive period of more than 2 years, you must capitalize the preproductive-period costs under the uniform capitalization rules (unless you elect not to use these rules). 1044ez See chapter 6 for information about the uniform capitalization rules. 1044ez Your depreciation begins when the trees and vines reach the income-producing stage (that is, when they bear fruit, nuts, or grapes in quantities sufficient to commercially warrant harvesting). 1044ez Immature livestock. 1044ez   Depreciation for livestock begins when the livestock reaches the age of maturity. 1044ez If you bought immature livestock for drafting purposes, depreciation begins when they can be worked. 1044ez If you bought immature livestock for dairy purposes, depreciation begins when they can be milked. 1044ez If you bought immature livestock for breeding purposes, depreciation begins when they can be bred. 1044ez Your basis for depreciation is your initial cost for the immature livestock. 1044ez Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle. 1044ez For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. 1044ez Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. 1044ez This happens when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. 1044ez Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. 1044ez You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. 1044ez You sell or exchange the property. 1044ez You convert the property to personal use. 1044ez You abandon the property. 1044ez You transfer the property to a supplies or scrap account. 1044ez The property is destroyed. 1044ez For information on abandonment of property, see chapter 8. 1044ez For information on destroyed property, see chapter 11 and Publication 547, Casualties, Disasters, and Thefts. 1044ez Can You Use MACRS To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most business and investment property placed in service after 1986. 1044ez MACRS is explained later under Figuring Depreciation Under MACRS . 1044ez You cannot use MACRS to depreciate the following property. 1044ez Property you placed in service before 1987. 1044ez Use the methods discussed in Publication 534. 1044ez Certain property owned or used in 1986. 1044ez See chapter 1 of Publication 946. 1044ez Intangible property. 1044ez Films, video tapes, and recordings. 1044ez Certain corporate or partnership property acquired in a nontaxable transfer. 1044ez Property you elected to exclude from MACRS. 1044ez For more information, see chapter 1 of Publication 946. 1044ez What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. 1044ez To determine basis, you need to know the cost or other basis of your property. 1044ez Cost or other basis. 1044ez   The basis of property you buy is usually its cost plus amounts you paid for items such as sales tax, freight charges, and installation and testing fees. 1044ez The cost includes the amount you pay in cash, debt obligations, other property, or services. 1044ez   There are times when you cannot use cost as basis. 1044ez In these situations, the fair market value (FMV) or the adjusted basis of the property may be used. 1044ez Adjusted basis. 1044ez   To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. 1044ez Basis adjustment for depreciation allowed or allowable. 1044ez   After you place your property in service, you must reduce the basis of the property by the depreciation allowed or allowable, whichever is greater. 1044ez Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). 1044ez Depreciation allowable is depreciation you are entitled to deduct. 1044ez   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. 1044ez   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). 1044ez   For more information, see chapter 6. 1044ez How Do You Treat Repairs and Improvements? You generally deduct the cost of repairing business property in the same way as any other business expense. 1044ez However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. 1044ez Treat improvements as separate depreciable property. 1044ez See chapter 1 of Publication 946 for more information. 1044ez Example. 1044ez You repair a small section on a corner of the roof of a barn that you rent to others. 1044ez You deduct the cost of the repair as a business expense. 1044ez However, if you replace the entire roof, the new roof is considered to be an improvement because it increases the value and lengthens the life for the property. 1044ez You depreciate the cost of the new roof. 1044ez Improvements to rented property. 1044ez   You can depreciate permanent improvements you make to business property you rent from someone else. 1044ez Do You Have To File Form 4562? Use Form 4562 to claim your deduction for depreciation and amortization. 1044ez You must complete and attach Form 4562 to your tax return if you are claiming any of the following. 1044ez A section 179 expense deduction for the current year or a section 179 carryover from a prior year. 1044ez Depreciation for property placed in service during the current year. 1044ez Depreciation on any vehicle or other listed property, regardless of when it was placed in service. 1044ez Amortization of costs that began in the current year. 1044ez For more information, see the Instructions for Form 4562. 1044ez How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. 1044ez You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. 1044ez You claimed the incorrect amount because of a mathematical error made in any year. 1044ez You claimed the incorrect amount because of a posting error made in any year, for example, omitting an asset from the depreciation schedule. 1044ez You have not adopted a method of accounting for the property placed in service by you in tax years ending after December 29, 2003. 1044ez You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. 1044ez Note. 1044ez You have adopted a method of accounting if you used the same incorrect method of depreciation for two or more consecutively filed returns. 1044ez If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. 1044ez See the Instructions for Form 3115. 1044ez Section 179 Expense Deduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. 1044ez This is the section 179 expense deduction. 1044ez You can elect the section 179 expense deduction instead of recovering the cost by taking depreciation deductions. 1044ez This part of the chapter explains the rules for the section 179 expense deduction. 1044ez It explains what property qualifies for the deduction, what property does not qualify for the deduction, the limits that may apply, how to elect the deduction, and when you may have to recapture the deduction. 1044ez For more information, see chapter 2 of Publication 946. 1044ez What Property Qualifies? To qualify for the section 179 expense deduction, your property must meet all the following requirements. 1044ez It must be eligible property. 1044ez It must be acquired for business use. 1044ez It must have been acquired by purchase. 1044ez Eligible Property To qualify for the section 179 expense deduction, your property must be one of the following types of depreciable property. 1044ez Tangible personal property. 1044ez Qualified real property. 1044ez (Special rules apply to qualified real property that you elect to treat as qualified section 179 real property. 1044ez For more information, see chapter 2 of Publication 946 and section 179(f) of the Internal Revenue Code. 1044ez ) Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services; A research facility used in connection with any of the activities in (a) above; or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. 1044ez Single purpose agricultural (livestock) or horticultural structures. 1044ez Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. 1044ez Off-the-shelf computer software that is readily available for purchase by the general public, is subject to a nonexclusive lease, and has not been substantially modified. 1044ez Tangible personal property. 1044ez   Tangible personal property is any tangible property that is not real property. 1044ez It includes the following property. 1044ez Machinery and equipment. 1044ez Property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment. 1044ez Gasoline storage tanks and pumps at retail service stations. 1044ez Livestock, including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals. 1044ez Facility used for the bulk storage of fungible commodities. 1044ez   A facility used for the bulk storage of fungible commodities is qualifying property for purposes of the section 179 expense deduction if it is used in connection with any of the activities listed earlier in item (3)(a). 1044ez Bulk storage means the storage of a commodity in a large mass before it is used. 1044ez Grain bins. 1044ez   A grain bin is an example of a storage facility that is qualifying section 179 property. 1044ez It is a facility used in connection with the production of grain or livestock for the bulk storage of fungible commodities. 1044ez Single purpose agricultural or horticultural structures. 1044ez   A single purpose agricultural (livestock) or horticultural structure is qualifying property for purposes of the section 179 expense deduction. 1044ez Agricultural structure. 1044ez   A single purpose agricultural (livestock) structure is any building or enclosure specifically designed, constructed, and used for both the following reasons. 1044ez To house, raise, and feed a particular type of livestock and its produce. 1044ez To house the equipment, including any replacements, needed to house, raise, or feed the livestock. 1044ez For this purpose, livestock includes poultry. 1044ez   Single purpose structures are qualifying property if used, for example, to breed chickens or hogs, produce milk from dairy cattle, or produce feeder cattle or pigs, broiler chickens, or eggs. 1044ez The facility must include, as an integral part of the structure or enclosure, equipment necessary to house, raise, and feed the livestock. 1044ez Horticultural structure. 1044ez   A single purpose horticultural structure is either of the following. 1044ez A greenhouse specifically designed, constructed, and used for the commercial production of plants. 1044ez A structure specifically designed, constructed, and used for the commercial production of mushrooms. 1044ez Use of structure. 1044ez   A structure must be used only for the purpose that qualified it. 1044ez For example, a hog barn will not be qualifying property if you use it to house poultry. 1044ez Similarly, using part of your greenhouse to sell plants will make the greenhouse nonqualifying property. 1044ez   If a structure includes work space, the work space can be used only for the following activities. 1044ez Stocking, caring for, or collecting livestock or plants or their produce. 1044ez Maintaining the enclosure or structure. 1044ez Maintaining or replacing the equipment or stock enclosed or housed in the structure. 1044ez Property Acquired by Purchase To qualify for the section 179 expense deduction, your property must have been acquired by purchase. 1044ez For example, property acquired by gift or inheritance does not qualify. 1044ez Property acquired from a related person (that is, your spouse, ancestors, or lineal descendants) is not considered acquired by purchase. 1044ez Example. 1044ez Ken is a farmer. 1044ez He purchased two tractors, one from his brother and one from his father. 1044ez He placed both tractors in service in the same year he bought them. 1044ez The tractor purchased from his father does not qualify for the section 179 expense deduction because he is a related person (as defined above). 1044ez The tractor purchased from his brother does qualify for the deduction because Ken is not a related person (as defined above). 1044ez What Property Does Not Qualify? Land and improvements. 1044ez   Land and land improvements, do not qualify as section 179 property. 1044ez Land improvements include nonagricultural fences, swimming pools, paved parking areas, wharves, docks, bridges, and fences. 1044ez However, agricultural fences do qualify as section 179 property. 1044ez Similarly, field drainage tile also qualifies as section 179 property. 1044ez Excepted property. 1044ez   Even if the requirements explained in the preceding discussions are met, farmers cannot elect the section 179 expense deduction for the following property. 1044ez Certain property you lease to others (if you are a noncorporate lessor). 1044ez Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. 1044ez Property used by a tax-exempt organization (other than a tax-exempt farmers' cooperative) unless the property is used mainly in a taxable unrelated trade or business. 1044ez Property used by governmental units or foreign persons or entities (except property used under a lease with a term of less than 6 months). 1044ez How Much Can You Deduct? Your section 179 expense deduction is generally the cost of the qualifying property. 1044ez However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. 1044ez These limits apply to each taxpayer, not to each business. 1044ez However, see Married individuals under Dollar Limits , later. 1044ez See also the special rules for applying the limits for partnerships and S corporations under Partnerships and S Corporations , later. 1044ez If you deduct only part of the cost of qualifying property as a section 179 expense deduction, you can generally depreciate the cost you do not deduct. 1044ez Use Part I of Form 4562 to figure your section 179 expense deduction. 1044ez Partial business use. 1044ez   When you use property for business and nonbusiness purposes, you can elect the section 179 expense deduction only if you use it more than 50% for business in the year you place it in service. 1044ez If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. 1044ez Use the resulting business cost to figure your section 179 expense deduction. 1044ez Trade-in of other property. 1044ez   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 expense deduction includes only the cash you paid. 1044ez For example, if you buy (for cash and a trade-in) a new tractor for use in your business, your cost for the section 179 expense deduction is the cash you paid. 1044ez It does not include the adjusted basis of the old tractor you trade for the new tractor. 1044ez Example. 1044ez J-Bar Farms traded two cultivators having a total adjusted basis of $6,800 for a new cultivator costing $13,200. 1044ez They received an $8,000 trade-in allowance for the old cultivators and paid $5,200 cash for the new cultivator. 1044ez J-Bar also traded a used pickup truck with an adjusted basis of $8,000 for a new pickup truck costing $35,000. 1044ez They received a $5,000 trade-in allowance and paid $30,000 cash for the new pickup truck. 1044ez Only the cash paid by J-Bar qualifies for the section 179 expense deduction. 1044ez J-Bar's business costs that qualify for a section 179 expense deduction are $35,200 ($5,200 + $30,000). 1044ez Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 is $500,000. 1044ez If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 expense deduction among the items in any way, as long as the total deduction is not more than $500,000. 1044ez Qualified real property that you elect to treat as section 179 property is limited to $250,000 of the maximum section 179 deduction of $500,000 for 2013. 1044ez You do not have to claim the full $500,000. 1044ez For specific information on the section 179 dollar limits, see chapter 2 of Publication 946. 1044ez Reduced dollar limit for cost exceeding $2 million. 1044ez   If the cost of your qualifying section 179 property placed in service in 2013 is over $2 million, you must reduce the dollar limit (but not below zero) by the amount of cost over $2 million. 1044ez If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 expense deduction and you cannot carry over the cost that is more than $2,500,000. 1044ez Example. 1044ez This year, James Smith placed in service machinery costing $2,050,000. 1044ez Because this cost is $50,000 more than $2 million, he must reduce his dollar limit to $450,000 ($500,000 − $50,000). 1044ez Limits for sport utility vehicles. 1044ez   The total amount you can elect to deduct for certain sport utility vehicles and certain other vehicles placed in service in 2013 is $25,000. 1044ez This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, and highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. 1044ez   For more information, see chapter 2 of Publication 946. 1044ez Limits for passenger automobiles. 1044ez   For a passenger automobile that is placed in service in 2013, the total section 179 and depreciation deduction is limited. 1044ez See Do the Passenger Automobile Limits Apply , later. 1044ez Married individuals. 1044ez   If you are married, how you figure your section 179 expense deduction depends on whether you file jointly or separately. 1044ez If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. 1044ez If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2 million. 1044ez You must allocate the dollar limit (after any reduction) equally between you, unless you both elect a different allocation. 1044ez If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. 1044ez Joint return after separate returns. 1044ez   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. 1044ez The dollar limit (after reduction for any cost of section 179 property over $2 million). 1044ez The total cost of section 179 property you and your spouse elected to expense on your separate returns. 1044ez Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. 1044ez Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. 1044ez Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. 1044ez See Carryover of disallowed deduction , later. 1044ez Taxable income. 1044ez   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. 1044ez In addition to net income or loss from a sole proprietorship, partnership, or S corporation, net income or loss derived from a trade or business also includes the following items. 1044ez Section 1231 gains (or losses) as discussed in chapter 9. 1044ez Interest from working capital of your trade or business. 1044ez Wages, salaries, tips, or other pay earned by you (or your spouse if you file a joint return) as an employee of any employer. 1044ez   In addition, figure taxable income without regard to any of the following. 1044ez The section 179 expense deduction. 1044ez The self-employment tax deduction. 1044ez Any net operating loss carryback or carryforward. 1044ez Any unreimbursed employee business expenses. 1044ez Two different taxable income limits. 1044ez   In addition to the business income limit for your section 179 expense deduction, you may have a taxable income limit for some other deduction (for example, charitable contributions). 1044ez You may have to figure the limit for this other deduction taking into account the section 179 expense deduction. 1044ez If so, complete the following steps. 1044ez Step Action 1 Figure taxable income without the section 179 expense deduction or the other deduction. 1044ez 2 Figure a hypothetical section 179 expense deduction using the taxable income figured in Step 1. 1044ez 3 Subtract the hypothetical section 179 expense deduction figured in Step 2 from the taxable income figured in Step 1. 1044ez 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. 1044ez 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in  Step 1. 1044ez 6 Figure your actual section 179 expense deduction using the taxable income figured in Step 5. 1044ez 7 Subtract your actual section 179 expense deduction figured in Step 6 from the taxable income figured in Step 1. 1044ez 8 Figure your actual other deduction using the taxable income figured in Step 7. 1044ez Example. 1044ez On February 1, 2013, the XYZ farm corporation purchased and placed in service qualifying section 179 property that cost $500,000. 1044ez It elects to expense the entire $500,000 cost under section 179. 1044ez In June, the corporation gave a charitable contribution of $10,000. 1044ez A corporation's limit on charitable contributions is figured after subtracting any section 179 expense deduction. 1044ez The business income limit for the section 179 expense deduction is figured after subtracting any allowable charitable contributions. 1044ez XYZ's taxable income figured without the section 179 expense deduction or the deduction for charitable contributions is $520,000. 1044ez XYZ figures its section 179 expense deduction and its deduction for charitable contributions as follows. 1044ez Step 1. 1044ez Taxable income figured without either deduction is $520,000. 1044ez Step 2. 1044ez Using $520,000 as taxable income, XYZ's hypothetical section 179 expense deduction is $500,000. 1044ez Step 3. 1044ez $20,000 ($520,000 − $500,000). 1044ez Step 4. 1044ez Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. 1044ez Step 5. 1044ez $518,000 ($520,000 − $2,000). 1044ez Step 6. 1044ez Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 expense deduction. 1044ez Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 expense deduction. 1044ez Step 7. 1044ez $20,000 ($520,000 − $500,000). 1044ez Step 8. 1044ez Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. 1044ez Carryover of disallowed deduction. 1044ez   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. 1044ez   The amount you carry over is used in determining your section 179 expense deduction in the next year. 1044ez However, it is subject to the limits in that year. 1044ez If you place more than one property in service in a year, you can select the properties for which all or a part of the cost will be carried forward. 1044ez Your selections must be shown in your books and records. 1044ez Example. 1044ez Last year, Joyce Jones placed in service a machine that cost $8,000 and elected to deduct all $8,000 under section 179. 1044ez The taxable income from her business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) was $6,000. 1044ez Her section 179 expense deduction was limited to $6,000. 1044ez The $2,000 cost that was not allowed as a section 179 expense deduction (because of the business income limit) is carried to this year. 1044ez This year, Joyce placed another machine in service that cost $9,000. 1044ez Her taxable income from business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) is $10,000. 1044ez Joyce can deduct the full cost of the machine ($9,000) but only $1,000 of the carryover from last year because of the business income limit. 1044ez She can carry over the balance of $1,000 to next year. 1044ez Partnerships and S Corporations The section 179 expense deduction limits apply both to the partnership or S corporation and to each partner or shareholder. 1044ez The partnership or S corporation determines its section 179 expense deduction subject to the limits. 1044ez It then allocates the deduction among its partners or shareholders. 1044ez If you are a partner in a partnership or shareholder of an S corporation, you add the amount allocated from the partnership or S corporation to any section 179 costs not related to the partnership or S corporation and then apply the dollar limit to this total. 1044ez To determine any reduction in the dollar limit for costs over $560,000, you do not include any of the cost of section 179 property placed in service by the partnership or S corporation. 1044ez After you apply the dollar limit, you apply the business income limit to any remaining section 179 costs. 1044ez For more information, see chapter 2 of Publication 946. 1044ez Example. 1044ez In 2013, Partnership P placed in service section 179 property with a total cost of $2,160,000. 1044ez P must reduce its dollar limit by $160,000 ($2,160,000 − $2,000,000). 1044ez Its maximum section 179 expense deduction is $340,000 ($500,000 − $160,000), and it elects to expense that amount. 1044ez Because P's taxable income from the active conduct of all its trades or businesses for the year was $400,000, it can deduct the full $340,000. 1044ez P allocates $100,000 of its section 179 expense deduction and $110,000 of its taxable income to John, one of its partners. 1044ez John also conducts a business as a sole proprietor and in 2013, placed in service in that business, section 179 property costing $28,000. 1044ez John's taxable income from that business was $10,000. 1044ez In addition to the $100,000 allocated from P, he elects to expense the $28,000 of his sole proprietorship's section 179 costs. 1044ez However, John's deduction is limited to his business taxable income of $120,000 ($110,000 from P plus $10,000 from his sole proprietorship). 1044ez He carries over $8,000 ($128,000 − $120,000) of the elected section 179 costs to 2014. 1044ez How Do You Elect the Deduction? You elect to take the section 179 expense deduction by completing Part I of Form 4562. 1044ez If you elect the deduction for listed property, complete Part V of  Form 4562 before completing Part I. 1044ez   File Form 4562 with either of the following: Your original tax return (whether or not you filed it timely), or An amended return filed within the time prescribed by law. 1044ez An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. 1044ez The amended return must also include any resulting adjustments to taxable income. 1044ez Revoking an election. 1044ez   An election (or any specification made in the election) to take a section 179 expense deduction for 2013 can be revoked without IRS approval by filing an amended return. 1044ez The amended return must be filed within the time prescribed by law. 1044ez The amended return must also include any resulting adjustments to taxable income (for example, allowable depreciation in that tax year for the item of section 179 property for which the election pertains. 1044ez ) Once made, the revocation is irrevocable. 1044ez When Must You Recapture the Deduction? You may have to recapture the section 179 expense deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. 1044ez In the year the business use drops to 50% or less, you include the recapture amount as ordinary income. 1044ez You also increase the basis of the property by the recapture amount. 1044ez Recovery periods for property are discussed later. 1044ez If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. 1044ez Instead, use the rules for recapturing depreciation explained in  chapter 9 under Section 1245 Property. 1044ez   If the property is listed property, do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. 1044ez Instead, use the rules for recapturing depreciation explained in chapter 5 of Publication 946 under Recapture of Excess Depreciation. 1044ez Figuring the recapture amount. 1044ez   To figure the amount to recapture, take the following steps. 1044ez Figure the allowable depreciation for the section 179 expense deduction you claimed. 1044ez Begin with the year you placed the property in service and include the year of recapture. 1044ez Subtract the depreciation figured in (1) from the section 179 expense deduction you actually claimed. 1044ez The result is the amount you must recapture. 1044ez Example. 1044ez In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. 1044ez The property is not listed property. 1044ez He elected a $5,000 section 179 expense deduction for the property and also elected not to claim a special depreciation allowance. 1044ez He used the property only for business in 2011 and 2012. 1044ez During 2013, he used the property 40% for business and 60% for personal use. 1044ez He figures his recapture amount as follows. 1044ez Section 179 expense deduction claimed (2011) $5,000 Minus: Allowable depreciation (instead of section 179 expense deduction):   2011 $1,250   2012 1,875   2013 ($1,250 × 40% (business)) 500 3,625 2013 — Recapture amount $1,375     Paul must include $1,375 in income for 2013. 1044ez Where to report recapture. 1044ez   Report any recapture of the section 179 expense deduction as ordinary income in Part IV of Form 4797 and include it in income on Schedule F (Form 1040). 1044ez Recapture for qualified section 179 GO Zone property. 1044ez   If any qualified section 179 GO Zone property ceases to be used in the GO Zone in a later year, you must recapture the benefit of the increased section 179 expense deduction as “other income. 1044ez ” Claiming the Special Depreciation Allowance For qualified property (defined below) placed in service in 2013, you can take an additional 50% special depreciation allowance. 1044ez The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS. 1044ez Figure the special depreciation allowance by multiplying the depreciable basis of the qualified property by 50%. 1044ez What is Qualified Property? For farmers, qualified property generally is certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. 1044ez Certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. 1044ez   Certain qualified property (defined below) acquired after December 31, 2007, and before January 1, 2014, is eligible for a 50% special depreciation allowance. 1044ez   Qualified property includes the following: Tangible property depreciated under the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less. 1044ez Water utility property. 1044ez Off-the-shelf computer software. 1044ez Qualified leasehold improvement property. 1044ez   Qualified property must also meet all of the following tests: You must have acquired qualified property by purchase after December 31, 2007. 1044ez If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. 1044ez Qualified property must be placed in service after December 31, 2007 and placed in service before January 1, 2014 (before January 1, 2015 for certain property with a long production period and for certain aircraft). 1044ez The original use of the property must begin with you after December 31, 2007. 1044ez For more information, see chapter 3 of Publication 946. 1044ez How Can You Elect Not To Claim the Allowance? You can elect, for any class of property, not to deduct the special depreciation allowance for all property in such class placed in service during the tax year. 1044ez To make the election, attach a statement to your return indicating the class of property for which you are making the election. 1044ez Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. 1044ez However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). 1044ez Attach the election statement to the amended return. 1044ez On the amended return, write “Filed pursuant to section 301. 1044ez 9100-2. 1044ez ” Once made, the election may not be revoked without IRS consent. 1044ez If you elect not to have the special depreciation allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. 1044ez When Must You Recapture an Allowance When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. 1044ez For more information, see chapter 3 of Publication 946. 1044ez Figuring Depreciation Under MACRS The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. 1044ez MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). 1044ez Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. 1044ez To be sure you can use MACRS to figure depreciation for your property, see Can You Use MACRS To Depreciate Your Property, earlier. 1044ez This part explains how to determine which MACRS depreciation system applies to your property. 1044ez It also discusses the following information that you need to know before you can figure depreciation under MACRS. 1044ez Property's recovery class. 1044ez Placed-in-service date. 1044ez Basis for depreciation. 1044ez Recovery period. 1044ez Convention. 1044ez Depreciation method. 1044ez Finally, this part explains how to use this information to figure your depreciation deduction. 1044ez Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. 1044ez You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. 1044ez Required use of ADS. 1044ez   You must use ADS for the following property. 1044ez All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. 1044ez Listed property used 50% or less in a qualified business use. 1044ez See Additional Rules for Listed Property , later. 1044ez Any tax-exempt use property. 1044ez Any tax-exempt bond-financed property. 1044ez Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. 1044ez Any tangible property used predominantly outside the United States during the year. 1044ez If you are required to use ADS to depreciate your property, you cannot claim the special depreciation allowance. 1044ez Electing ADS. 1044ez   Although your property may qualify for GDS, you can elect to use ADS. 1044ez The election generally must cover all property in the same property class you placed in service during the year. 1044ez However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. 1044ez Once you make this election, you can never revoke it. 1044ez   You make the election by completing line 20 in Part III of Form 4562. 1044ez Which Property Class Applies Under GDS? The following is a list of the nine property classes under GDS. 1044ez 3-year property. 1044ez 5-year property. 1044ez 7-year property. 1044ez 10-year property. 1044ez 15-year property. 1044ez 20-year property. 1044ez 25-year property. 1044ez Residential rental property. 1044ez Nonresidential real property. 1044ez See Which Property Class Applies Under GDS in chapter 4 of Publication 946 for examples of the types of property included in each class. 1044ez What Is the Placed-in-Service Date? You begin to claim depreciation when your property is placed in service for use either in a trade or business or for the production of income. 1044ez The placed-in-service date for your property is the date the property is ready and available for a specific use. 1044ez It is therefore not necessarily the date it is first used. 1044ez If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. 1044ez See Placed in Service under When Does Depreciation Begin and End , earlier, for examples illustrating when property is placed in service. 1044ez What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. 1044ez Reduce that amount by any credits and deductions allocable to the property. 1044ez The following are examples of some of the credits and deductions that reduce basis. 1044ez Any deduction for section 179 property. 1044ez Any deduction for removal of barriers to the disabled and the elderly. 1044ez Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. 1044ez Any special depreciation allowance. 1044ez Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. 1044ez For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property , earlier. 1044ez Also, see chapter 6. 1044ez For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. 1044ez Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. 1044ez It is determined based on the depreciation system (GDS or ADS) used. 1044ez See Table 7-1 for recovery periods under both GDS and ADS for some commonly used assets. 1044ez For a complete list of recovery periods, see the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. 1044ez House trailers for farm laborers. 1044ez   To depreciate a house trailer you supply as housing for those who work on your farm, use one of the following recovery periods if the house trailer is mobile (it has wheels and a history of movement). 1044ez A 7-year recovery period under GDS. 1044ez A 10-year recovery period under ADS. 1044ez   However, if the house trailer is not mobile (its wheels have been removed and permanent utilities and pipes attached to it), use one of the following recovery periods. 1044ez A 20-year recovery period under GDS. 1044ez A 25-year recovery period under ADS. 1044ez Water wells. 1044ez   Water wells used to provide water for raising poultry and livestock are land improvements. 1044ez If they are depreciable, use one of the following recovery periods. 1044ez A 15-year recovery period under GDS. 1044ez A 20-year recovery period under ADS. 1044ez   The types of water wells that can be depreciated were discussed earlier in Irrigation systems and water wells under Property Having a Determinable Useful Life . 1044ez Table 7-1. 1044ez Farm Property Recovery Periods   Recovery Period in Years Assets GDS ADS Agricultural structures (single purpose) 10 15 Automobiles 5 5 Calculators and copiers 5 6 Cattle (dairy or breeding) 5 7 Communication equipment1 7 10 Computer and peripheral equipment 5 5 Drainage facilities 15 20 Farm buildings2 20 25 Farm machinery and equipment 7 10 Fences (agricultural) 7 10 Goats and sheep (breeding) 5 5 Grain bin 7 10 Hogs (breeding) 3 3 Horses (age when placed in service)     Breeding and working (12 years or less) 7 10 Breeding and working (more than 12 years) 3 10 Racing horses 3 12 Horticultural structures (single purpose) 10 15 Logging machinery and equipment3 5 6 Nonresidential real property 394 40 Office furniture, fixtures, and equipment (not calculators, copiers, or typewriters) 7 10 Paved lots 15 20 Residential rental property 27. 1044ez 5 40 Tractor units (over-the-road) 3 4 Trees or vines bearing fruit or nuts 10 20 Truck (heavy duty, unloaded weight 13,000 lbs. 1044ez or more) 5 6 Truck (actual weight less than 13,000 lbs) 5 5 Water wells 15 20 1 Not including communication equipment listed in other classes. 1044ez 2 Not including single purpose agricultural or horticultural structures. 1044ez 3 Used by logging and sawmill operators for cutting of timber. 1044ez 4 For property placed in service after May 12, 1993; for property placed in service before May 13, 1993,  the recovery period is 31. 1044ez 5 years. 1044ez Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. 1044ez The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. 1044ez Use one of the following conventions. 1044ez The half-year convention. 1044ez The mid-month convention. 1044ez The mid-quarter convention. 1044ez For a detailed explanation of each convention, see Which Convention Applies in chapter 4 of Publication 946. 1044ez Also, see the Instructions for Form 4562. 1044ez Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. 1044ez The 200% declining balance method over a GDS recovery period. 1044ez The 150% declining balance method over a GDS recovery period. 1044ez The straight line method over a GDS recovery period. 1044ez The straight line method over an ADS recovery period. 1044ez Depreciation Table. 1044ez   The following table lists the types of property you can depreciate under each method. 1044ez The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. 1044ez Depreciation Table System/Method   Type of Property GDS using  150% DB • All property used in a farming business (except real property)   • All 15- and 20-year property   • Nonfarm 3-, 5-, 7-, and 10-year property1 GDS using SL • Nonresidential real property   • Residential rental property   • Trees or vines bearing fruit or nuts   • All 3-, 5-, 7-, 10-, 15-, and 20-year property1 ADS using SL • Property used predomi- nantly outside the United States   • Farm property used when an election not to apply the uniform capitalization rules is in effect   • Tax-exempt property   • Tax-exempt bond-financed property   • Imported property2   • Any property for which you elect to use this method1 GDS using  200% DB • Nonfarm 3-, 5-, 7-, and 10-year property 1Elective method 2See section 168(g)(6) of the Internal Revenue  Code Property used in farming business. 1044ez   For personal property placed in service after 1988 in a farming business, you must use the 150% declining balance method over a GDS recovery period or you can elect one of the following methods. 1044ez The straight line method over a GDS recovery period. 1044ez The straight line method over an ADS recovery period. 1044ez For property placed in service before 1999, you could have elected to use the 150% declining balance method using the ADS recovery periods for certain property classes. 1044ez If you made this election, continue to use the same method and recovery period for that property. 1044ez Real property. 1044ez   You can depreciate real property using the straight line method under either GDS or ADS. 1044ez Switching to straight line. 1044ez   If you use a declining balance method, you switch to the straight line method in the year it provides an equal or greater deduction. 1044ez If you use the MACRS percentage tables, discussed later under How Is the Depreciation Deduction Figured , you do not need to determine in which year your deduction is greater using the straight line method. 1044ez The tables have the switch to the straight line method built into their rates. 1044ez Fruit or nut trees and vines. 1044ez   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a 10-year recovery period. 1044ez ADS required for some farmers. 1044ez   If you elect not to apply the uniform capitalization rules to any plant shown in Table 6-1 of chapter 6 and produced in your farming business, you must use ADS for all property you place in service in any year the election is in effect. 1044ez See chapter 6 for a discussion of the application of the uniform capitalization rules to farm property. 1044ez Electing a different method. 1044ez   As shown in the Depreciation Table , you can elect a different method for depreciation for certain types of property. 1044ez You must make the election by the due date of the return (including extensions) for the year you placed the property in service. 1044ez However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). 1044ez Attach the election to the amended return and write “Filed pursuant to section 301. 1044ez 9100-2” on the election statement. 1044ez File the amended return at the same address you filed the original return. 1044ez Once you make the election, you cannot change it. 1044ez    If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. 1044ez However, you can make the election on a property-by-property basis for residential rental and nonresidential real property. 1044ez Straight line election. 1044ez   Instead of using the declining balance method, you can elect to use the straight line method over the GDS recovery period. 1044ez Make the election by entering “S/L” under column (f) in Part III of Form 4562. 1044ez ADS election. 1044ez   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. 1044ez ADS uses the straight line method of depreciation over the ADS recovery periods, which are generally longer than the GDS recovery periods. 1044ez The ADS recovery periods for many assets used in the business of farming are listed in Table 7–1. 1044ez Additional ADS recovery periods for other classes of property may be found in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. 1044ez How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed-in-service date, basis amount, recovery period, convention, and depreciation method that applies to your property. 1044ez Then you are ready to figure your depreciation deduction. 1044ez You can figure it in one of two ways. 1044ez You can use the percentage tables provided by the IRS. 1044ez You can figure your own deduction without using the tables. 1044ez Figuring your own MACRS deduction will generally result in a slightly different amount than using the tables. 1044ez Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. 1044ez These percentage tables are in Appendix A of Publication 946. 1044ez Rules for using the tables. 1044ez   The following rules cover the use of the percentage tables. 1044ez You must apply the rates in the percentage tables to your property's unadjusted basis. 1044ez Unadjusted basis is the same basis amount you would use to figure gain on a sale but figured without reducing your original basis by any MACRS depreciation taken in earlier years. 1044ez You cannot use the percentage tables for a short tax year. 1044ez See chapter 4 of Publication 946 for information on how to figure the deduction for a short tax year. 1044ez You generally must continue to use them for the entire recovery period of the property. 1044ez You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to the property, which is depreciated as a separate property. 1044ez Basis adjustment due to casualty loss. 1044ez   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. 1044ez For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. 1044ez See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. 1044ez Figuring depreciation using the 150% DB method and half-year convention. 1044ez    Table 7-2 has the percentages for 3-, 5-, 7-, and 20-year property. 1044ez The percentages are based on the 150% declining balance method with a change to the straight line method. 1044ez This table covers only the half-year convention and the first 8 years for 20-year property. 1044ez See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. 1044ez   The following examples show how to figure depreciation under MACRS using the percentages in Table 7-2 . 1044ez Example 1. 1044ez During the year, you bought an item of 7-year property for $10,000 and placed it in service. 1044ez You do not elect a section 179 expense deduction for this property. 1044ez In addition, the property is not qualified property for purposes of the special depreciation allowance. 1044ez The unadjusted basis of the property is $10,000. 1044ez You use the percentages in Table 7-2 to figure your deduction. 1044ez Since this is 7-year property, you multiply $10,000 by 10. 1044ez 71% to get this year's depreciation of $1,071. 1044ez For next year, your depreciation will be $1,913 ($10,000 × 19. 1044ez 13%). 1044ez Example 2. 1044ez You had a barn constructed on your farm at a cost of $20,000. 1044ez You placed the barn in service this year. 1044ez You elect not to claim the special depreciation allowance. 1044ez The barn is 20-year property and you use the table percentages to figure your deduction. 1044ez You figure this year's depreciation by multiplying $20,000 (unadjusted basis) by 3. 1044ez 75% to get $750. 1044ez For next year, your depreciation will be $1,443. 1044ez 80 ($20,000 × 7. 1044ez 219%). 1044ez Table 7-2. 1044ez 150% Declining Balance Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 25. 1044ez 0 % 15. 1044ez 00 % 10. 1044ez 71 % 3. 1044ez 750 % 2 37. 1044ez 5   25. 1044ez 50   19. 1044ez 13   7. 1044ez 219   3 25. 1044ez 0   17. 1044ez 85   15. 1044ez 03   6. 1044ez 677   4 12. 1044ez 5   16. 1044ez 66   12. 1044ez 25   6. 1044ez 177   5     16. 1044ez 66   12. 1044ez 25   5. 1044ez 713   6     8. 1044ez 33   12. 1044ez 25   5. 1044ez 285   7         12. 1044ez 25   4. 1044ez 888   8         6. 1044ez 13   4. 1044ez 522   Figuring depreciation using the straight line method and half-year convention. 1044ez   The following table has the straight line percentages for 3-, 5-, 7-, and 20-year property using the half-year convention. 1044ez The table covers only the first 8 years for 20-year property. 1044ez See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. 1044ez Table 7-3. 1044ez Straight Line Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 16. 1044ez 67 % 10 % 7. 1044ez 14 % 2. 1044ez 5 % 2 33. 1044ez 33   20   14. 1044ez 29   5. 1044ez 0   3 33. 1044ez 33   20   14. 1044ez 29   5. 1044ez 0   4 16. 1044ez 67   20   14. 1044ez 28   5. 1044ez 0   5     20   14. 1044ez 29   5. 1044ez 0   6     10   14. 1044ez 28   5. 1044ez 0   7         14. 1044ez 29   5. 1044ez 0   8         7. 1044ez 14   5. 1044ez 0