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File 1040

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File 1040

File 1040 2. File 1040   Depreciation of Rental Property Table of Contents The BasicsWhat Rental Property Can Be Depreciated? When Does Depreciation Begin and End? Depreciation Methods Basis of Depreciable Property Claiming the Special Depreciation Allowance MACRS DepreciationDepreciation Systems Property Classes Under GDS Recovery Periods Under GDS Conventions Figuring Your Depreciation Deduction Figuring MACRS Depreciation Under ADS Claiming the Correct Amount of Depreciation You recover the cost of income producing property through yearly tax deductions. File 1040 You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. File 1040 Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. File 1040 You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. File 1040 You can deduct depreciation only on the part of your property used for rental purposes. File 1040 Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. File 1040 You may have to use Form 4562 to figure and report your depreciation. File 1040 See Which Forms To Use in chapter 3. File 1040 Also see Publication 946. File 1040 Section 179 deduction. File 1040   The section 179 deduction is a means of recovering part or all of the cost of certain qualifying property in the year you place the property in service. File 1040 This deduction is not allowed for property used in connection with residential rental property. File 1040 See chapter 2 of Publication 946. File 1040 Alternative minimum tax (AMT). File 1040   If you use accelerated depreciation, you may be subject to the AMT. File 1040 Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). File 1040   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. File 1040 However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). File 1040   To find out if you are subject to the AMT, see the Instructions for Form 6251. File 1040 The Basics The following section discusses the information you will need to have about the rental property and the decisions to be made before figuring your depreciation deduction. File 1040 What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. File 1040 You own the property. File 1040 You use the property in your business or income-producing activity (such as rental property). File 1040 The property has a determinable useful life. File 1040 The property is expected to last more than one year. File 1040 Property you own. File 1040   To claim depreciation, you usually must be the owner of the property. File 1040 You are considered as owning property even if it is subject to a debt. File 1040 Rented property. File 1040   Generally, if you pay rent for property, you cannot depreciate that property. File 1040 Usually, only the owner can depreciate it. File 1040 However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. File 1040 See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. File 1040 Cooperative apartments. File 1040   If you are a tenant-stockholder in a cooperative housing corporation and rent your cooperative apartment to others, you can deduct depreciation on your stock in the corporation. File 1040 See chapter 4, Special Situations. File 1040 Property having a determinable useful life. File 1040   To be depreciable, your property must have a determinable useful life. File 1040 This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. File 1040 What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. File 1040 This includes land and certain excepted property. File 1040 Land. File 1040   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. File 1040 But if it does, the loss is accounted for upon disposition. File 1040 The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. File 1040   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. File 1040 These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. File 1040 Example. File 1040 You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. File 1040 Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. File 1040 If you replace the house, you would have to destroy the bushes and trees right next to it. File 1040 These bushes and trees are closely associated with the house, so they have a determinable useful life. File 1040 Therefore, you can depreciate them. File 1040 Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. File 1040 Excepted property. File 1040   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. File 1040 Property placed in service and disposed of (or taken out of business use) in the same year. File 1040 Equipment used to build capital improvements. File 1040 You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. File 1040 For more information, see chapter 1 of Publication 946. File 1040 When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. File 1040 You stop depreciating it either when you have fully recovered your cost or other basis, or when you retire it from service, whichever happens first. File 1040 Placed in Service You place property in service in a rental activity when it is ready and available for a specific use in that activity. File 1040 Even if you are not using the property, it is in service when it is ready and available for its specific use. File 1040 Example 1. File 1040 On November 22 of last year, you purchased a dishwasher for your rental property. File 1040 The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. File 1040 Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. File 1040 If the appliance had been installed and ready for use when it was delivered in December of last year, it would have been considered placed in service in December, even if it was not actually used until this year. File 1040 Example 2. File 1040 On April 6, you purchased a house to use as residential rental property. File 1040 You made extensive repairs to the house and had it ready for rent on July 5. File 1040 You began to advertise the house for rent in July and actually rented it beginning September 1. File 1040 The house is considered placed in service in July when it was ready and available for rent. File 1040 You can begin to depreciate the house in July. File 1040 Example 3. File 1040 You moved from your home in July. File 1040 During August and September you made several repairs to the house. File 1040 On October 1, you listed the property for rent with a real estate company, which rented it on December 1. File 1040 The property is considered placed in service on October 1, the date when it was available for rent. File 1040 Conversion to business use. File 1040   If you place property in service in a personal activity, you cannot claim depreciation. File 1040 However, if you change the property's use to business or the production of income, you can begin to depreciate it at the time of the change. File 1040 You place the property in service for business or income-producing use on the date of the change. File 1040 Example. File 1040 You bought a house and used it as your personal home several years before you converted it to rental property. File 1040 Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. File 1040 You can begin to claim depreciation in the year you converted it to rental property because at that time its use changed to the production of income. File 1040 Idle Property Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). File 1040 For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent. File 1040 Cost or Other Basis Fully Recovered You must stop depreciating property when the total of your yearly depreciation deductions equals your cost or other basis of your property. File 1040 For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. File 1040 See Basis of Depreciable Property , later. File 1040 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. File 1040 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. File 1040 You sell or exchange the property. File 1040 You convert the property to personal use. File 1040 You abandon the property. File 1040 The property is destroyed. File 1040 Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. File 1040 If you placed rental property in service before 1987, you are using one of the following methods. File 1040 ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. File 1040 Straight line or declining balance method over the useful life of property placed in service before 1981. File 1040 See MACRS Depreciation , later, for more information. File 1040 Rental property placed in service before 2013. File 1040   Continue to use the same method of figuring depreciation that you used in the past. File 1040 Use of real property changed. File 1040   Generally, you must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. File 1040 This includes your residence that you changed to rental use. File 1040 See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. File 1040 Improvements made after 1986. File 1040   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. File 1040 As a result, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. File 1040 For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. File 1040 This publication discusses MACRS depreciation only. File 1040 If you need information about depreciating property placed in service before 1987, see Publication 534. File 1040 Basis of Depreciable Property The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. File 1040 This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity. File 1040 If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and credits with respect to the property. File 1040 Basis and adjusted basis are explained in the following discussions. File 1040 If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its fair market value when you change it to rental use. File 1040 See Basis of Property Changed to Rental Use in chapter 4. File 1040 Cost Basis The basis of property you buy is usually its cost. File 1040 The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. File 1040 Your cost also includes amounts you pay for: Sales tax charged on the purchase (but see Exception next), Freight charges to obtain the property, and Installation and testing charges. File 1040 Exception. File 1040   If you deducted state and local general sales taxes as an itemized deduction on Schedule A (Form 1040), do not include those sales taxes as part of your cost basis. File 1040 Such taxes were deductible before 1987 and after 2003. File 1040 Loans with low or no interest. File 1040   If you buy property on any time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, less the amount considered to be unstated interest. File 1040 See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. File 1040 Real property. File 1040   If you buy real property, such as a building and land, certain fees and other expenses you pay are part of your cost basis in the property. File 1040 Real estate taxes. File 1040   If you buy real property and agree to pay real estate taxes on it that were owed by the seller and the seller does not reimburse you, the taxes you pay are treated as part of your basis in the property. File 1040 You cannot deduct them as taxes paid. File 1040   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. File 1040 Do not include that amount in your basis in the property. File 1040 Settlement fees and other costs. File 1040   The following settlement fees and closing costs for buying the property are part of your basis in the property. File 1040 Abstract fees. File 1040 Charges for installing utility services. File 1040 Legal fees. File 1040 Recording fees. File 1040 Surveys. File 1040 Transfer taxes. File 1040 Title insurance. File 1040 Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. File 1040   The following are settlement fees and closing costs you cannot include in your basis in the property. File 1040 Fire insurance premiums. File 1040 Rent or other charges relating to occupancy of the property before closing. File 1040 Charges connected with getting or refinancing a loan, such as: Points (discount points, loan origination fees), Mortgage insurance premiums, Loan assumption fees, Cost of a credit report, and Fees for an appraisal required by a lender. File 1040   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. File 1040 Assumption of a mortgage. File 1040   If you buy property and become liable for an existing mortgage on the property, your basis is the amount you pay for the property plus the amount remaining to be paid on the mortgage. File 1040 Example. File 1040 You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. File 1040 Your basis is $300,000. File 1040 Separating cost of land and buildings. File 1040   If you buy buildings and your cost includes the cost of the land on which they stand, you must divide the cost between the land and the buildings to figure the basis for depreciation of the buildings. File 1040 The part of the cost that you allocate to each asset is the ratio of the fair market value of that asset to the fair market value of the whole property at the time you buy it. File 1040   If you are not certain of the fair market values of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes. File 1040 Example. File 1040 You buy a house and land for $200,000. File 1040 The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. File 1040 The latest real estate tax assessment on the property was based on an assessed value of $160,000, of which $136,000 was for the house and $24,000 was for the land. File 1040 You can allocate 85% ($136,000 ÷ $160,000) of the purchase price to the house and 15% ($24,000 ÷ $160,000) of the purchase price to the land. File 1040 Your basis in the house is $170,000 (85% of $200,000) and your basis in the land is $30,000 (15% of $200,000). File 1040 Basis Other Than Cost You cannot use cost as a basis for property that you received: In return for services you performed; In an exchange for other property; As a gift; From your spouse, or from your former spouse as the result of a divorce; or As an inheritance. File 1040 If you received property in one of these ways, see Publication 551 for information on how to figure your basis. File 1040 Adjusted Basis To figure 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 for business or the production of income. File 1040 The result of these adjustments to the basis is the adjusted basis. File 1040 Increases to basis. File 1040   You must increase the basis of any property by the cost of all items properly added to a capital account. File 1040 These include the following. File 1040 The cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year. File 1040 Amounts spent after a casualty to restore the damaged property. File 1040 The cost of extending utility service lines to the property. File 1040 Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. File 1040 Additions or improvements. File 1040   Add to the basis of your property the amount an addition or improvement actually cost you, including any amount you borrowed to make the addition or improvement. File 1040 This includes all direct costs, such as material and labor, but does not include your own labor. File 1040 It also includes all expenses related to the addition or improvement. File 1040   For example, if you had an architect draw up plans for remodeling your property, the architect's fee is a part of the cost of the remodeling. File 1040 Or, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. File 1040   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. File 1040 For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. File 1040    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. File 1040 However, see What Rental Property Cannot Be Depreciated, earlier. File 1040 Assessments for local improvements. File 1040   Assessments for items which tend to increase the value of property, such as streets and sidewalks, must be added to the basis of the property. File 1040 For example, if your city installs curbing on the street in front of your house, and assesses you and your neighbors for its cost, you must add the assessment to the basis of your property. File 1040 Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. File 1040 You cannot deduct these items as taxes or depreciate them. File 1040    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. File 1040 Do not add them to your basis in the property. File 1040 Deducting vs. File 1040 capitalizing costs. File 1040   Do not add to your basis costs you can deduct as current expenses. File 1040 However, there are certain costs you can choose either to deduct or to capitalize. File 1040 If you capitalize these costs, include them in your basis. File 1040 If you deduct them, do not include them in your basis. File 1040   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. File 1040   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. File 1040 Decreases to basis. File 1040   You must decrease the basis of your property by any items that represent a return of your cost. File 1040 These include the following. File 1040 Insurance or other payment you receive as the result of a casualty or theft loss. File 1040 Casualty loss not covered by insurance for which you took a deduction. File 1040 Amount(s) you receive for granting an easement. File 1040 Residential energy credits you were allowed before 1986, or after 2005, if you added the cost of the energy items to the basis of your home. File 1040 Exclusion from income of subsidies for energy conservation measures. File 1040 Special depreciation allowance claimed on qualified property. File 1040 Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. File 1040 If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. File 1040   If your rental property was previously used as your main home, you must also decrease the basis by the following. File 1040 Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. File 1040 District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. File 1040 Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. File 1040 Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. File 1040 This allowance is figured before you figure your regular depreciation deduction. File 1040 See Publication 946, chapter 3, for details. File 1040 Also see the Instructions for Form 4562, Line 14. File 1040 If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. File 1040 The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. File 1040 MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. File 1040 This section explains how to determine which MACRS depreciation system applies to your property. File 1040 It also discusses other information you need to know before you can figure depreciation under MACRS. File 1040 This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. File 1040 Depreciation Systems MACRS consists of two systems that determine how you depreciate your property—the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). File 1040 You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. File 1040 Excluded Property You cannot use MACRS for certain personal property (such as furniture or appliances) placed in service in your rental property in 2013 if it had been previously placed in service before 1987 when MACRS became effective. File 1040 In most cases, personal property is excluded from MACRS if you (or a person related to you) owned or used it in 1986 or if your tenant is a person (or someone related to the person) who owned or used it in 1986. File 1040 However, the property is not excluded if your 2013 deduction under MACRS (using a half-year convention) is less than the deduction you would have under ACRS. File 1040 For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. File 1040 Electing ADS If you choose, you can use the ADS method for most property. File 1040 Under ADS, you use the straight line method of depreciation. File 1040 The election of ADS for one item in a class of property generally applies to all property in that class that is placed in service during the tax year of the election. File 1040 However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. File 1040 If you choose to use ADS for your residential rental property, the election must be made in the first year the property is placed in service. File 1040 Once you make this election, you can never revoke it. File 1040 For property placed in service during 2013, you make the election to use ADS by entering the depreciation on Form 4562, Part III, Section C, line 20c. File 1040 Property Classes Under GDS Each item of property that can be depreciated under MACRS is assigned to a property class, determined by its class life. File 1040 The property class generally determines the depreciation method, recovery period, and convention. File 1040 The property classes under GDS are: 3-year property, 5-year property, 7-year property, 10-year property, 15-year property, 20-year property, Nonresidential real property, and Residential rental property. File 1040 Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. File 1040 5-year property. File 1040 This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. File 1040 ), automobiles, and light trucks. File 1040 This class also includes appliances, carpeting, furniture, etc. File 1040 , used in a residential rental real estate activity. File 1040 Depreciation on automobiles, other property used for transportation, computers and related peripheral equipment, and property of a type generally used for entertainment, recreation, or amusement is limited. File 1040 See chapter 5 of Publication 946. File 1040 7-year property. File 1040 This class includes office furniture and equipment (desks, file cabinets, etc. File 1040 ). File 1040 This class also includes any property that does not have a class life and that has not been designated by law as being in any other class. File 1040 15-year property. File 1040 This class includes roads, fences, and shrubbery (if depreciable). File 1040 Residential rental property. File 1040 This class includes any real property that is a rental building or structure (including a mobile home) for which 80% or more of the gross rental income for the tax year is from dwelling units. File 1040 It does not include a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis. File 1040 If you live in any part of the building or structure, the gross rental income includes the fair rental value of the part you live in. File 1040 The other property classes do not generally apply to property used in rental activities. File 1040 These classes are not discussed in this publication. File 1040 See Publication 946 for more information. File 1040 Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. File 1040 The recovery periods are generally longer under ADS than GDS. File 1040 The recovery period of property depends on its property class. File 1040 Under GDS, the recovery period of an asset is generally the same as its property class. File 1040 Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. File 1040 See Table 2-1 for recovery periods of property commonly used in residential rental activities. File 1040 Qualified Indian reservation property. File 1040   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. File 1040 For more information, see chapter 4 of Publication 946. File 1040 Additions or improvements to property. File 1040   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. File 1040   The property class and recovery period of the addition or improvement is the one that would apply to the original property if you had placed it in service at the same time as the addition or improvement. File 1040   The recovery period for an addition or improvement to property begins on the later of: The date the addition or improvement is placed in service, or The date the property to which the addition or improvement was made is placed in service. File 1040 Example. File 1040 You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. File 1040 You built an addition onto the house and placed it in service in 2013. File 1040 You must use MACRS for the addition. File 1040 Under GDS, the addition is depreciated as residential rental property over 27. File 1040 5 years. File 1040 Table 2-1. File 1040 MACRS Recovery Periods for Property Used in Rental Activities   MACRS Recovery Period   Type of Property General Depreciation System Alternative Depreciation System   Computers and their peripheral equipment 5 years 5 years   Office machinery, such as: Typewriters Calculators Copiers 5 years 6 years   Automobiles 5 years 5 years   Light trucks 5 years 5 years   Appliances, such as: Stoves Refrigerators 5 years 9 years   Carpets 5 years 9 years   Furniture used in rental property 5 years 9 years   Office furniture and equipment, such as: Desks Files 7 years 10 years   Any property that does not have a class life and that has not been designated by law as being in any other class 7 years 12 years   Roads 15 years 20 years   Shrubbery 15 years 20 years   Fences 15 years 20 years   Residential rental property (buildings or structures) and structural components such as furnaces, waterpipes, venting, etc. File 1040 27. File 1040 5 years 40 years   Additions and improvements, such as a new roof The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement. File 1040   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. File 1040 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. File 1040 Mid-month convention. File 1040    A mid-month convention is used for all residential rental property and nonresidential real property. File 1040 Under this convention, you treat all property placed in service, or disposed of, during any month as placed in service, or disposed of, at the midpoint of that month. File 1040 Mid-quarter convention. File 1040   A mid-quarter convention must be used if the mid-month convention does not apply and the total depreciable basis of MACRS property placed in service in the last 3 months of a tax year (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) is more than 40% of the total basis of all such property you place in service during the year. File 1040   Under this convention, you treat all property placed in service, or disposed of, during any quarter of a tax year as placed in service, or disposed of, at the midpoint of the quarter. File 1040 Example. File 1040 During the tax year, Tom Martin purchased the following items to use in his rental property. File 1040 He elects not to claim the special depreciation allowance discussed earlier. File 1040 A dishwasher for $400 that he placed in service in January. File 1040 Used furniture for $100 that he placed in service in September. File 1040 A refrigerator for $800 that he placed in service in October. File 1040 Tom uses the calendar year as his tax year. File 1040 The total basis of all property placed in service that year is $1,300. File 1040 The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). File 1040 Tom must use the mid-quarter convention instead of the half-year convention for all three items. File 1040 Half-year convention. File 1040    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. File 1040 Under this convention, you treat all property placed in service, or disposed of, during a tax year as placed in service, or disposed of, at the midpoint of that tax year. File 1040   If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. File 1040 You deduct a full year of depreciation for any other year during the recovery period. File 1040 Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. File 1040 The deduction is substantially the same both ways. File 1040 You can either: Actually compute the deduction using the depreciation method and convention that apply over the recovery period of the property, or Use the percentage from the MACRS percentage tables. File 1040 In this publication we will use the percentage tables. File 1040 For instructions on how to compute the deduction, see chapter 4 of Publication 946. File 1040 Residential rental property. File 1040   You must use the straight line method and a mid-month convention for residential rental property. File 1040 In the first year that you claim depreciation for residential rental property, you can claim depreciation only for the number of months the property is in use, and you must use the mid-month convention (explained under Conventions , earlier). File 1040 5-, 7-, or 15-year property. File 1040   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. File 1040 However, in limited cases you must use the mid-quarter convention, if it applies. File 1040 For property in the 15-year class, use the 150% declining balance method and a half-year convention. File 1040   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. File 1040 The choice to use the 150% method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. File 1040 You make this election on Form 4562. File 1040 In Part III, column (f), enter “150 DB. File 1040 ” Once you make this election, you cannot change to another method. File 1040   If you use either the 200% or 150% declining balance method, you figure your deduction using the straight line method in the first tax year that the straight line method gives you an equal or larger deduction. File 1040   You can also choose to use the straight line method with a half-year or mid-quarter convention for 5-, 7-, or 15-year property. File 1040 The choice to use the straight line method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. File 1040 You elect the straight line method on Form 4562. File 1040 In Part III, column (f), enter “S/L. File 1040 ” Once you make this election, you cannot change to another method. File 1040 MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. File 1040 The tables show the percentages for the first few years or until the change to the straight line method is made. File 1040 See Appendix A of Publication 946 for complete tables. File 1040 The percentages in Tables 2-2a, 2-2b, and 2-2c make the change from declining balance to straight line in the year that straight line will give a larger deduction. File 1040 If you elect to use the straight line method for 5-, 7-, or 15-year property, or the 150% declining balance method for 5- or 7-year property, use the tables in Appendix A of Publication 946. File 1040 How to use the percentage tables. File 1040   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. File 1040   Once you begin using a percentage table to figure depreciation, you must continue to use it for the entire recovery period unless there is an adjustment to the basis of your property for a reason other than: Depreciation allowed or allowable, or An addition or improvement that is depreciated as a separate item of property. File 1040   If there is an adjustment for any reason other than (1) or (2), for example, because of a deductible casualty loss, you can no longer use the table. File 1040 For the year of the adjustment and for the remaining recovery period, figure depreciation using the property's adjusted basis at the end of the year and the appropriate depreciation method, as explained earlier under Figuring Your Depreciation Deduction . File 1040 See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. File 1040 Unadjusted basis. File 1040   This is the same basis you would use to figure gain on a sale (see Basis of Depreciable Property , earlier), but without reducing your original basis by any MACRS depreciation taken in earlier years. File 1040   However, you do reduce your original basis by other amounts claimed on the property, including: Any amortization, Any section 179 deduction, and Any special depreciation allowance. File 1040 For more information, see chapter 4 of Publication 946. File 1040 Please click here for the text description of the image. File 1040 Table 2-2 Tables 2-2a, 2-2b, and 2-2c. File 1040   The percentages in these tables take into account the half-year and mid-quarter conventions. File 1040 Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. File 1040 Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). File 1040 If you must use the mid-quarter convention, use the column that corresponds to the calendar year quarter in which you placed the property in service. File 1040 Example 1. File 1040 You purchased a stove and refrigerator and placed them in service in June. File 1040 Your basis in the stove is $600 and your basis in the refrigerator is $1,000. File 1040 Both are 5-year property. File 1040 Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. File 1040 For that year your depreciation deduction is $120 ($600 × . File 1040 20) for the stove and $200 ($1,000 × . File 1040 20) for the refrigerator. File 1040 For Year 2, the depreciation percentage is 32%. File 1040 That year's depreciation deduction will be $192 ($600 × . File 1040 32) for the stove and $320 ($1,000 × . File 1040 32) for the refrigerator. File 1040 Example 2. File 1040 Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. File 1040 Since the refrigerator was placed in service in the last 3 months of the tax year, and its basis ($1,000) is more than 40% of the total basis of all property placed in service during the year ($1,600 × . File 1040 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. File 1040 Because you placed the refrigerator in service in October, you use the fourth quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 5%. File 1040 Your depreciation deduction for the refrigerator is $50 ($1,000 x . File 1040 05). File 1040 Because you placed the stove in service in June, you use the second quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 25%. File 1040 For that year, your depreciation deduction for the stove is $150 ($600 x . File 1040 25). File 1040 Table 2-2d. File 1040    Use this table when you are using the GDS 27. File 1040 5 year option for residential rental property. File 1040 Find the row for the month that you placed the property in service. File 1040 Use the percentages listed for that month to figure your depreciation deduction. File 1040 The mid-month convention is taken into account in the percentages shown in the table. File 1040 Continue to use the same row (month) under the column for the appropriate year. File 1040 Example. File 1040 You purchased a single family rental house for $185,000 and placed it in service on February 8. File 1040 The sales contract showed that the building cost $160,000 and the land cost $25,000. File 1040 Your basis for depreciation is its original cost, $160,000. File 1040 This is the first year of service for your residential rental property and you decide to use GDS which has a recovery period of 27. File 1040 5 years. File 1040 Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. File 1040 182%. File 1040 That year's depreciation deduction is $5,091 ($160,000 x . File 1040 03182). File 1040 Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. File 1040 See Appendix B in Publication 946 for other property. File 1040 If your property is not listed in Appendix B, it is considered to have no class life. File 1040 Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. File 1040 Use the mid-month convention for residential rental property and nonresidential real property. File 1040 For all other property, use the half-year or mid-quarter convention, as appropriate. File 1040 See Publication 946 for ADS depreciation tables. File 1040 Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. File 1040 If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. File 1040 For more information, see Depreciation under Decreases to Basis in Publication 551. File 1040 If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. File 1040 S. File 1040 Individual Income Tax Return. File 1040 If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. File 1040 Filing an amended return. File 1040   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. File 1040 You claimed the incorrect amount because of a mathematical error made in any year. File 1040 You claimed the incorrect amount because of a posting error made in any year. File 1040 You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. File 1040 You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. File 1040   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return for the property used in your rental activity. File 1040 This also occurs when you use the same impermissible method of determining depreciation (for example, using the wrong MACRS recovery period) in two or more consecutively filed tax returns. File 1040   If an amended return is allowed, you must file it by the later of the following dates. File 1040 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. File 1040 A return filed before an unextended due date is considered filed on that due date. File 1040 2 years from the time you paid your tax for that year. File 1040 Changing your accounting method. File 1040   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. File 1040 In some instances, that consent is automatic. File 1040 For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. File 1040 Prev  Up  Next   Home   More Online Publications
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SOI Tax Stats - Exempt Organizations' Unrelated Business Income (UBI) Tax Statistics

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Snapshot of Unrelated Business Income Tax Statistics

Because tax-exempt organizations generally operate for charitable or other beneficial purposes, most income that they receive is exempt from tax under the Internal Revenue Code. Tax-exempt organizations are permitted to engage in income-producing activities that are considered to be unrelated to their exempt purposes. However, income from these activities may be taxable. This study measures income, deductions, and tax imposed on tax-exempt corporate and trust entities' unrelated business income. Data are compiled from Form 990-T, Exempt Organization Business Income Tax Return.

Statistical Tables    Publications and Papers    Other IRS Data
 

For information about selected terms and concepts, a description of the data sources and limitations, and links to recent revisions of Form 990-T, please visit the Exempt Organizations' Unrelated Business Income (UBI) Tax Metadata page.


Statistical Tables

The following are available as Microsoft Excel® files. A free Excel viewer is available for download, if needed.

All Organizations:
Number of Returns, Gross UBI, Total Deductions, and Tax Items
 
Classified by: Internal Revenue Code Section
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Classified by: Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Classified by: Size of Unrelated Business Taxable Income or Deficit
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Classified by: Primary Unrelated Business Activity or Industrial Grouping
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Sources of Gross UBI
Classified by: Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Types of Deductions
Classified by: Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992

 
Organizations with Positive Unrelated Business Taxable Income:
Number of Returns, Gross UBI, Total Deductions, and Tax Items
Classified by: Type of Entity and Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992

 
Section 501(c)(3) Organizations Only:
Classified by: Primary Unrelated Business Activity or Industrial Grouping
Tax Years: 2009  2008  2007  2006

 
Historical Table:
Table 16: Nonprofit Charitable Organization and Domestic Private Foundation Information Returns, and Exempt Organization Business Income Tax Returns: Selected Financial Data, Expanded
Published as: SOI Bulletin Historical Table 16


Projections
For selected tax returns, including the Form 990-T, IRS's Office of Research produces annual forecasts of the number of returns that will be filed in future years.
      Projections of Returns to be Filed in Future Calendar Years

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Publications and Papers

The following are available as PDF files. A free Adobe® reader is available for download, if needed.

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Other IRS Data and Related Links

For tax administration data on this topic, as well as other types of taxes, choose from the links below.

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Page Last Reviewed or Updated: 27-Feb-2014

The File 1040

File 1040 Index Symbols 403(b) plans, 403(b) Plans A Accounting methods, Nonaccrual-Experience Method Acquisition date: Special depreciation allowance, Acquisition date test. File 1040 Special Liberty Zone depreciation allowance, Acquisition date test. File 1040 Annuities, tax-sheltered 403(b) plans, 403(b) Plans Assistance (see Tax help) Automobile (see Passenger automobile) B Bonds: New York Liberty, Tax Incentives for New York Liberty Zone Qualified zone academy, Issuance of Qualified Zone Academy Bonds C Car (see Passenger automobile) Car expenses, Car Expenses Catch-up contributions, 403(b), 403(b) Plans Child and dependent care, Child and Dependent Care Expenses Church employees and ministers, Years of service for church employees and ministers. File 1040 Clean-fuel vehicle, Electric and Clean-Fuel Vehicles Comments, Comments and suggestions. File 1040 Credit: Child and dependent care, Child and Dependent Care Expenses Credit for pension plan startup, Credit For Pension Plan Startup Costs Electric vehicles, Electric and Clean-Fuel Vehicles Indian employment, Indian Employment Credit Extended Renewable electricity production, Renewable Electricity Production Credit Welfare-to-work, Welfare-to-Work Credit Extended Work opportunity, Work Opportunity Credit Expanded in New York Liberty Zone , Work Opportunity Credit Extended D Deduction limit, automobile, Passenger Automobiles Deemed IRAs, Deemed IRAs Depletion, Depletion Depreciation: New property, Special Depreciation Allowance Property on reservations, Depreciation of Property Used on Indian Reservations Special depreciation allowance, Special Depreciation Allowance Special Liberty Zone depreciation allowance, Special Liberty Zone Depreciation Allowance Supplement to Publication 946, Depreciation E Election: Deemed not to claim special allowance, Deemed election. File 1040 Not to claim special allowance, Election Not To Claim the Allowance Not to claim special Liberty Zone allowance, Election Not To Claim the Liberty Zone Allowance Electric vehicle, Electric and Clean-Fuel Vehicles Eligible educator, Deduction for Educator Expenses Estimated tax payments, Adjusting your withholding or estimated tax payments for 2002. File 1040 Excepted property: Special depreciation allowance, Excepted Property Special Liberty Zone depreciation allowance, Excepted property. File 1040 F Foreign missionaries, Foreign missionaries. File 1040 Form 1099, Electronic Form 1099 Free tax services, How To Get Tax Help H Help (see Tax help) I Indian employment credit, Indian Employment Credit Extended Indian reservations, depreciation rules, Depreciation of Property Used on Indian Reservations IRAs, Deemed IRAs L Leasehold improvement property, defined, Qualified leasehold improvement property. File 1040 Liberty Zone leasehold improvement property: Defined, Qualified New York Liberty Zone leasehold improvement property. File 1040 Depreciated as 5-year property, Liberty Zone Leasehold Improvement Property Returns filed before June 1, 2002, Returns Filed Before June 1, 2002 Liberty Zone property: Increased section 179 dollar limit, Increased Dollar Limit Reduced section 179 dollar limit, Reduced Dollar Limit M Marginal production, Depletion More information (see Tax help) N Net operating losses, New 5-Year Carryback Rule for Net Operating Losses (NOLs), New 5-Year Carryback Rule for Net Operating Losses (NOLs) New York Liberty Zone: Area defined, New York Liberty Zone Benefits Leasehold improvement property, Liberty Zone Leasehold Improvement Property Section 179 deduction, Increased Section 179 Deduction Special depreciation, Special Liberty Zone Depreciation Allowance Tax incentives, Tax Incentives for New York Liberty Zone Work opportunity credit, Work Opportunity Credit Expanded in New York Liberty Zone NOLs, New 5-Year Carryback Rule for Net Operating Losses (NOLs), New 5-Year Carryback Rule for Net Operating Losses (NOLs) Nonaccrual-experience method, Nonaccrual-Experience Method Nonresidential real property, Nonresidential real property and residential rental property. File 1040 P Passenger automobile, limit on, Passenger Automobiles Pension plan startup costs, Credit For Pension Plan Startup Costs Placed in service date, Placed in service date test. File 1040 , Placed in service date test. File 1040 Plans, tax-sheltered annuities, 403(b) plans, 403(b) Plans Publications (see Tax help) Q Qualified leasehold improvement property, defined, Qualified leasehold improvement property. File 1040 Qualified Liberty Zone leasehold improvement property, Qualified New York Liberty Zone leasehold improvement property. File 1040 Qualified property: Increased section 179 deduction, Qualified property. File 1040 Special depreciation allowance, Qualified Property Special Liberty Zone depreciation allowance, Qualified Liberty Zone Property Qualified zone academy bonds, Issuance of Qualified Zone Academy Bonds R Recapture, section 179 deduction, Recapture Rules Renewable electricity, Renewable Electricity Production Credit Residential rental property, Nonresidential real property and residential rental property. File 1040 Rollovers, 403(b) plans, Rollovers to and from 403(b) plans. File 1040 S Section 1256 contracts, Wash Sale Rules Do Not Apply to Section 1256 Contracts Section 179 deduction: Increased dollar limit for Liberty Zone property, Increased Dollar Limit Reduced dollar limit for Liberty Zone property, Reduced Dollar Limit Returns filed before June 1, 2002, Returns Filed Before June 1, 2002 Simplified employee pensions (SEPs), Simplified Employee Pensions (SEPs) Special depreciation allowance: Election not to claim, Election Not To Claim the Allowance Excepted property, Excepted Property Qualified property, Qualified Property Requirements for claiming, Qualified Property Returns filed before June 1, 2002, Rules for Returns Filed Before June 1, 2002 Tests for qualification, Tests To Be Met Special Liberty Zone depreciation allowance: Election not to claim, Election Not To Claim the Liberty Zone Allowance Excepted property, Excepted property. File 1040 Qualified property, Qualified Liberty Zone Property Requirements for claiming, Qualified Liberty Zone Property Returns filed before June 1, 2002, Returns filed before June 1, 2002. File 1040 Tests for qualification, Tests to be met. File 1040 Substantial use, special Liberty Zone depreciation allowance, Substantial use test. File 1040 Suggestions, Comments and suggestions. File 1040 T Tax help, How To Get Tax Help Tax-sheltered annuity plans, 403(b) plans, 403(b) Plans Taxpayer Advocate, Contacting your Taxpayer Advocate. File 1040 Teachers, classroom materials, Deduction for Educator Expenses Tests for qualification, Tests To Be Met, Tests to be met. File 1040 TTY/TDD information, How To Get Tax Help W Wash sale rules, Wash Sale Rules Do Not Apply to Section 1256 Contracts Welfare-to-work credit, Welfare-to-Work Credit Extended Withholding, Adjusting your withholding or estimated tax payments for 2002. File 1040 Work opportunity credit, Work Opportunity Credit Expanded in New York Liberty Zone , Work Opportunity Credit Extended Y Years of service, church employees and ministers, Years of service for church employees and ministers. File 1040 Prev  Up     Home   More Online Publications