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2012 Tax Forms Irs

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2012 Tax Forms Irs

2012 tax forms irs 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. 2012 tax forms irs Property not disposed of or abandoned. 2012 tax forms irs Special rule for normal retirements from item accounts. 2012 tax forms irs Abandoned property. 2012 tax forms irs Single item accounts. 2012 tax forms irs Multiple property account. 2012 tax forms irs 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. 2012 tax forms irs If your property qualified for MACRS, you must depreciate it under MACRS. 2012 tax forms irs See Publication 946. 2012 tax forms irs However, you cannot use MACRS for certain property because of special rules that exclude it from MACRS. 2012 tax forms irs Also, you can elect to exclude certain property from being depreciated under MACRS. 2012 tax forms irs 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. 2012 tax forms irs Intangible property. 2012 tax forms irs   You cannot depreciate intangible property under ACRS or MACRS. 2012 tax forms irs You depreciate intangible property using any other reasonable method, usually, the straight line method. 2012 tax forms irs Note. 2012 tax forms irs The cost of certain intangible property that you acquire after August 10, 1993, must be amortized over a 15-year period. 2012 tax forms irs For more information, see chapter 12 of Publication 535. 2012 tax forms irs Public utility property. 2012 tax forms irs   The law excludes from MACRS any public utility property for which the taxpayer does not use a normalization method of accounting. 2012 tax forms irs This type of property is subject to depreciation under a special rule. 2012 tax forms irs Videocassettes. 2012 tax forms irs   If you are in the videocassette rental business, you can depreciate those videocassettes purchased for rental. 2012 tax forms irs 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. 2012 tax forms irs The straight line method, salvage value, and useful life are discussed later under Methods To Use. 2012 tax forms irs 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. 2012 tax forms irs How To Figure the Deduction Two other reasonable methods can be used to figure your deduction for property not covered under ACRS or MACRS. 2012 tax forms irs These methods are straight line and declining balance. 2012 tax forms irs To figure depreciation using these methods, you must generally determine three things about the property you intend to depreciate. 2012 tax forms irs They are: The basis, The useful life, and The estimated salvage value at the end of its useful life. 2012 tax forms irs The amount of the deduction in any year also depends on which method of depreciation you choose. 2012 tax forms irs Basis To deduct the proper amount of depreciation each year, first determine your basis in the property you intend to depreciate. 2012 tax forms irs The basis used for figuring depreciation is the same as the basis that would be used for figuring the gain on a sale. 2012 tax forms irs Your original basis is usually the purchase price. 2012 tax forms irs 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. 2012 tax forms irs Adjusted basis. 2012 tax forms irs   Events will often change the basis of property. 2012 tax forms irs When this occurs, the changed basis is called the adjusted basis. 2012 tax forms irs Some events, such as improvements you make, increase basis. 2012 tax forms irs Events such as deducting casualty losses and depreciation decrease basis. 2012 tax forms irs 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. 2012 tax forms irs   Publication 551 explains how to figure basis for property acquired in different ways. 2012 tax forms irs 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. 2012 tax forms irs 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. 2012 tax forms irs It is the length of time over which you will make yearly depreciation deductions of your basis in the property. 2012 tax forms irs It is how long it will continue to be useful to you, not how long the property will last. 2012 tax forms irs Many things affect the useful life of property, such as: Frequency of use, Age when acquired, Your repair policy, and Environmental conditions. 2012 tax forms irs 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. 2012 tax forms irs Consider all these factors before you arrive at a useful life for your property. 2012 tax forms irs The useful life of the same type of property varies from user to user. 2012 tax forms irs When you determine the useful life of your property, keep in mind your own experience with similar property. 2012 tax forms irs 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. 2012 tax forms irs Change in useful life. 2012 tax forms irs   You base your estimate of useful life on certain facts. 2012 tax forms irs If these facts change significantly, you can adjust your estimate of the remaining useful life. 2012 tax forms irs However, you redetermine the estimated useful life only when the change is substantial and there is a clear reason for making the change. 2012 tax forms irs Salvage Value It is important for you to accurately determine the correct salvage value of the property you want to depreciate. 2012 tax forms irs You generally cannot depreciate property below a reasonable salvage value. 2012 tax forms irs Determining salvage value. 2012 tax forms irs   Salvage value is the estimated value of property at the end of its useful life. 2012 tax forms irs It is what you expect to get for the property if you sell it after you can no longer use it productively. 2012 tax forms irs You must estimate the salvage value of a piece of property when you first acquire it. 2012 tax forms irs   Salvage value is affected both by how you use the property and how long you use it. 2012 tax forms irs If it is your policy to dispose of property that is still in good operating condition, the salvage value can be relatively large. 2012 tax forms irs However, if your policy is to use property until it is no longer usable, its salvage value can be its junk value. 2012 tax forms irs Changing salvage value. 2012 tax forms irs   Once you determine the salvage value for property, you should not change it merely because prices have changed. 2012 tax forms irs However, if you redetermine the useful life of property, as discussed earlier under Change in useful life, you can also redetermine the salvage value. 2012 tax forms irs When you redetermine the salvage value, take into account the facts that exist at the time. 2012 tax forms irs Net salvage. 2012 tax forms irs   Net salvage is the salvage value of property minus what it costs to remove it when you dispose of it. 2012 tax forms irs You can choose either salvage value or net salvage when you figure depreciation. 2012 tax forms irs You must consistently use the one you choose and the treatment of the costs of removal must be consistent with the practice adopted. 2012 tax forms irs However, if the cost to remove the property is more than the estimated salvage value, then net salvage is zero. 2012 tax forms irs Your salvage value can never be less than zero. 2012 tax forms irs Ten percent rule. 2012 tax forms irs   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. 2012 tax forms irs You can subtract from your estimate of salvage value an amount equal to 10% of your basis in the property. 2012 tax forms irs If salvage value is less than 10% of basis, you can ignore salvage value when you figure depreciation. 2012 tax forms irs Methods To Use Two methods of depreciation are the straight line and declining balance methods. 2012 tax forms irs If ACRS or MACRS does not apply, you can use one of these methods. 2012 tax forms irs 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. 2012 tax forms irs Straight Line Method Before 1981, you could use any reasonable method for every kind of depreciable property. 2012 tax forms irs One of these methods was the straight line method. 2012 tax forms irs This method was also used for intangible property. 2012 tax forms irs It lets you deduct the same amount of depreciation each year. 2012 tax forms irs To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. 2012 tax forms irs Subtract the salvage value, if any, from the adjusted basis. 2012 tax forms irs The balance is the total amount of depreciation you can take over the useful life of the property. 2012 tax forms irs Divide the balance by the number of years remaining in the useful life. 2012 tax forms irs This gives you the amount of your yearly depreciation deduction. 2012 tax forms irs 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. 2012 tax forms irs 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. 2012 tax forms irs Example. 2012 tax forms irs In April 1994, Frank bought a franchise for $5,600. 2012 tax forms irs It expires in 10 years. 2012 tax forms irs This property is intangible property that cannot be depreciated under MACRS. 2012 tax forms irs Frank depreciates the franchise under the straight line method, using a 10-year useful life and no salvage value. 2012 tax forms irs He takes the $5,600 basis and divides that amount by 10 years ($5,600 ÷ 10 = $560, a full year's use). 2012 tax forms irs He must prorate the $560 for his 9 months of use in 1994. 2012 tax forms irs This gives him a deduction of $420 ($560 ÷ 9/12). 2012 tax forms irs In 1995, Frank can deduct $560 for the full year. 2012 tax forms irs 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. 2012 tax forms irs The rate cannot be more than twice the straight line rate. 2012 tax forms irs Rate of depreciation. 2012 tax forms irs   Under this method, you must determine your declining balance rate of depreciation. 2012 tax forms irs The initial step is to: Divide the number 1 by the useful life of your property to get a straight line rate. 2012 tax forms irs (For example, if property has a useful life of 5 years, its normal straight line rate of depreciation is ⅕, or 20%. 2012 tax forms irs ) Multiply this straight line rate by a number that is more than 1 but not more than 2 to determine the declining balance rate. 2012 tax forms irs Unless there is a change in the useful life during the time you depreciate the property, the rate of depreciation generally will not change. 2012 tax forms irs Depreciation deductions. 2012 tax forms irs   After you determine the rate of depreciation, multiply the adjusted basis of the property by it. 2012 tax forms irs This gives you the amount of your deduction. 2012 tax forms irs 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%). 2012 tax forms irs 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. 2012 tax forms irs Subtract the previous year's depreciation from your basis ($10,000 - $2,000 = $8,000). 2012 tax forms irs Multiply this amount by the rate of depreciation ($8,000 ÷ 20% = $1,600). 2012 tax forms irs Your depreciation deduction for the second year is $1,600. 2012 tax forms irs   As you can see from this example, your adjusted basis in the property gets smaller each year. 2012 tax forms irs Also, under this method, deductions are larger in the earlier years and smaller in the later years. 2012 tax forms irs You can make a change to the straight line method without consent. 2012 tax forms irs Salvage value. 2012 tax forms irs   Do not subtract salvage value when you figure your yearly depreciation deductions under the declining balance method. 2012 tax forms irs However, you cannot depreciate the property below its reasonable salvage value. 2012 tax forms irs Determine salvage value using the rules discussed earlier, including the special 10% rule. 2012 tax forms irs Example. 2012 tax forms irs If your adjusted basis has been decreased to $1,000 and the rate of depreciation is 20%, your depreciation deduction should be $200. 2012 tax forms irs But if your estimate of salvage value was $900, you can only deduct $100. 2012 tax forms irs This is because $100 is the amount that would lower your adjusted basis to equal salvage value. 2012 tax forms irs Income Forecast Method The income forecast method requires income projections for each videocassette or group of videocassettes. 2012 tax forms irs You can group the videocassettes by title for making this projection. 2012 tax forms irs You determine the depreciation by applying a fraction to the cost less salvage value of the cassette. 2012 tax forms irs The numerator is the income from the videocassette for the tax year and the denominator is the total projected income for the cassette. 2012 tax forms irs For more information on the income forecast method, see Revenue Ruling 60-358 in Cumulative Bulletin 1960, Volume 2, on page 68. 2012 tax forms irs How To Change Methods In some cases, you may change your method of depreciation for property depreciated under a reasonable method. 2012 tax forms irs If you change your method of depreciation, it is generally a change in your method of accounting. 2012 tax forms irs You must get IRS consent before making the change. 2012 tax forms irs However, you do not need permission for certain changes in your method of depreciation. 2012 tax forms irs The rules discussed in this section do not apply to property depreciated under ACRS or MACRS. 2012 tax forms irs For information on ACRS elections,see Revocation of election, in chapter 1 under Alternate ACRS Method. 2012 tax forms irs Change to the straight line method. 2012 tax forms irs   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. 2012 tax forms irs However, if you have a written agreement with the IRS that prohibits a change, you must first get IRS permission. 2012 tax forms irs When the change is made, figure depreciation based on your adjusted basis in the property at that time. 2012 tax forms irs Your adjusted basis takes into account all previous depreciation deductions. 2012 tax forms irs Use the estimated remaining useful life of your property at the time of change and its estimated salvage value. 2012 tax forms irs   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. 2012 tax forms irs You cannot make the change on an amended return filed after the due date of the original return (including extensions). 2012 tax forms irs   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. 2012 tax forms irs   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. 2012 tax forms irs Changes that require permission. 2012 tax forms irs   For most other changes in method of depreciation, you must get permission from the IRS. 2012 tax forms irs To request a change in method of depreciation, file Form 3115. 2012 tax forms irs File the application within the first 180 days of the tax year the change is to become effective. 2012 tax forms irs In most cases, there is a user fee that must accompany Form 3115. 2012 tax forms irs See the instructions for Form 3115 to determine if a fee is required. 2012 tax forms irs Changes granted automatically. 2012 tax forms irs   The IRS automatically approves certain changes of a method of depreciation. 2012 tax forms irs But, you must file Form 3115 for these automatic changes. 2012 tax forms irs   However, IRS can deny permission if Form 3115 is not filed on time. 2012 tax forms irs For more information on automatic changes, see Revenue Procedure 74-11, 1974-1 C. 2012 tax forms irs B. 2012 tax forms irs 420. 2012 tax forms irs Changes for which approval is not automatic. 2012 tax forms irs   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. 2012 tax forms irs   You must request and receive permission for these changes. 2012 tax forms irs 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. 2012 tax forms irs Change from an improper method. 2012 tax forms irs   If the IRS disallows the method you are using, you do not need permission to change to a proper method. 2012 tax forms irs You can adopt the straight line method, or any other method that would have been permitted if you had used it from the beginning. 2012 tax forms irs 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. 2012 tax forms irs However, you must file the amended return before the filing date for the next tax year. 2012 tax forms irs Dispositions Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. 2012 tax forms irs You can do this by selling, exchanging, or abandoning the item of property. 2012 tax forms irs You can also withdraw it from use without disposing of it. 2012 tax forms irs For example, you could place it in a supplies or scrap account. 2012 tax forms irs Retirements can be either normal or abnormal depending on all facts and circumstances. 2012 tax forms irs The rules discussed next do not apply to MACRS and ACRS property. 2012 tax forms irs Normal retirement. 2012 tax forms irs   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. 2012 tax forms irs 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. 2012 tax forms irs Abnormal retirement. 2012 tax forms irs   A retirement can be abnormal if you withdraw the property early or under other circumstances. 2012 tax forms irs For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless. 2012 tax forms irs Gain or loss on retirement. 2012 tax forms irs   There are special rules for figuring the gain or loss on retirement of property. 2012 tax forms irs The gain or loss will depend on several factors. 2012 tax forms irs 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. 2012 tax forms irs A single property account contains only one item of property. 2012 tax forms irs A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account. 2012 tax forms irs Sale or exchange. 2012 tax forms irs   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. 2012 tax forms irs See Publication 544. 2012 tax forms irs Property not disposed of or abandoned. 2012 tax forms irs   If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. 2012 tax forms irs 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. 2012 tax forms irs 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. 2012 tax forms irs   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. 2012 tax forms irs Special rule for normal retirements from item accounts. 2012 tax forms irs   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. 2012 tax forms irs However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives. 2012 tax forms irs   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. 2012 tax forms irs Abandoned property. 2012 tax forms irs   If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. 2012 tax forms irs 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. 2012 tax forms irs Basis of property retired. 2012 tax forms irs   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. 2012 tax forms irs Single item accounts. 2012 tax forms irs   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. 2012 tax forms irs This is generally the cost or other basis of the item of property less depreciation. 2012 tax forms irs See Publication 551. 2012 tax forms irs Multiple property account. 2012 tax forms irs   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. 2012 tax forms irs 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. 2012 tax forms irs   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. 2012 tax forms irs The method of depreciation used for the multiple property account is used. 2012 tax forms irs 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. 2012 tax forms irs Prev  Up  Next   Home   More Online Publications
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IRS Letters and Visits to Return Preparers

The Internal Revenue Service sends many letters annually to federal tax return preparers. Beginning in November 2013, the agency began its fifth year of a hands-on effort to improve the accuracy and quality of filed tax returns and to heighten awareness of preparer responsibilities. Approximately 12,000 letters will be sent to tax return preparers nationwide. Types of letters sent include:

Letter 4810 - Sent in November 2013 advising the recipient that an IRS representative will contact them to schedule an educational visit to review their responsibilities in correctly preparing the Schedule C.

Letter 5105 - Sent in December 2013 recommending the recipient review all Schedule C and preparer due diligence rules, as well as pay special attention to Schedule C accuracy in 2014.

Letter 5271 - Sent in December 2013 recommending the recipient review all Additional Child Tax Credit (ACTC) and preparer due diligence rules, as well as pay special attention to ACTC accuracy in 2014.

Letter 5272 - Sent in December 2013 recommending the recipient review all Additional Child Tax Credit (ACTC) and preparer due diligence rules, as well as pay special attention to ACTC accuracy in 2014 on returns where dependents have an Individual Tax Identification Number (ITIN).

Letter 5292 - Sent in November 2013 advising the recipient that an IRS representative will contact them to schedule an educational visit to review their responsibilities in correctly following preparer tax identification number (PTIN) rules.

The IRS also regularly checks whether federal tax return preparers are compliant with their own tax filing and payment responsibilities.

Letter 4911 - Sent to notify paid tax return preparers that they are not compliant with their personal tax responsibilities and should resolve the matter to avoid affecting their status as a preparer tax identification number (PTIN) holder.

IRS Letters and Visits to Return Preparers: FAQs

 

 

Page Last Reviewed or Updated: 19-Dec-2013

The 2012 Tax Forms Irs

2012 tax forms irs Publication 550 - Additional Material Prev  Up  Next   Home   More Online Publications