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Aarp Org Taxaide

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Aarp Org Taxaide

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

Aarp org taxaide Publication 597 - Introductory Material Table of Contents Introduction Introduction This publication provides information on the income tax treaty between the United States and Canada. Aarp org taxaide It discusses a number of treaty provisions that often apply to U. Aarp org taxaide S. Aarp org taxaide citizens or residents who may be liable for Canadian tax. Aarp org taxaide Treaty provisions are generally reciprocal (the same rules apply to both treaty countries). Aarp org taxaide Therefore, a Canadian resident who receives income from the United States may refer to this publication to see if a treaty provision may affect the tax to be paid to the United States. Aarp org taxaide This publication does not deal with Canadian income tax laws; nor does it provide Canada's interpretation of treaty articles, definitions, or specific terms not defined in the treaty itself. Aarp org taxaide The United States—Canada income tax treaty was signed on September 26, 1980. Aarp org taxaide It has been amended by five protocols, the most recent of which generally became effective January 1, 2009. Aarp org taxaide In this publication, the term “article” refers to the particular article of the treaty, as amended. Aarp org taxaide Prev  Up  Next   Home   More Online Publications