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File 1040ez online free 4. File 1040ez online free   How Income of Aliens Is Taxed Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident Aliens Nonresident AliensTrade or Business in the United States Effectively Connected Income The 30% Tax Income From Real Property Transportation Tax Interrupted Period of Residence Expatriation TaxExpatriation Before June 4, 2004 Expatriation After June 3, 2004, and Before June 17, 2008 Expatriation After June 16, 2008 Introduction Resident and nonresident aliens are taxed in different ways. File 1040ez online free Resident aliens are generally taxed in the same way as U. File 1040ez online free S. File 1040ez online free citizens. File 1040ez online free Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free The following discussions will help you determine if income you receive during the tax year is effectively connected with a U. File 1040ez online free S. File 1040ez online free trade or business and how it is taxed. File 1040ez online free Topics - This chapter discusses: Income that is effectively connected with a U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free Income that is not effectively connected with a U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free Interrupted period of residence. File 1040ez online free Expatriation tax. File 1040ez online free Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 1212 List of Original Issue Discount Instruments Form (and Instructions) 6251 Alternative Minimum Tax—Individuals Schedule D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting these publications and forms. File 1040ez online free Resident Aliens Resident aliens are generally taxed in the same way as U. File 1040ez online free S. File 1040ez online free citizens. File 1040ez online free This means that their worldwide income is subject to U. File 1040ez online free S. File 1040ez online free tax and must be reported on their U. File 1040ez online free S. File 1040ez online free tax return. File 1040ez online free Income of resident aliens is subject to the graduated tax rates that apply to U. File 1040ez online free S. File 1040ez online free citizens. File 1040ez online free Resident aliens use the Tax Table or Tax Computation Worksheets located in the Form 1040 instructions, which apply to U. File 1040ez online free S. File 1040ez online free citizens. File 1040ez online free Nonresident Aliens A nonresident alien's income that is subject to U. File 1040ez online free S. File 1040ez online free income tax must be divided into two categories: Income that is effectively connected with a trade or business in the United States, and Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later). File 1040ez online free The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. File 1040ez online free These are the same rates that apply to U. File 1040ez online free S. File 1040ez online free citizens and residents. File 1040ez online free Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate. File 1040ez online free If you were formerly a U. File 1040ez online free S. File 1040ez online free citizen or resident alien, these rules may not apply. File 1040ez online free See Expatriation Tax, later, in this chapter. File 1040ez online free Trade or Business in the United States Generally, you must be engaged in a trade or business during the tax year to be able to treat income received in that year as effectively connected with that trade or business. File 1040ez online free Whether you are engaged in a trade or business in the United States depends on the nature of your activities. File 1040ez online free The discussions that follow will help you determine whether you are engaged in a trade or business in the United States. File 1040ez online free Personal Services If you perform personal services in the United States at any time during the tax year, you usually are considered engaged in a trade or business in the United States. File 1040ez online free Certain compensation paid to a nonresident alien by a foreign employer is not included in gross income. File 1040ez online free For more information, see Services Performed for Foreign Employer in chapter 3. File 1040ez online free Other Trade or Business Activities Other examples of being engaged in a trade or business in the United States follow. File 1040ez online free Students and trainees. File 1040ez online free   You are considered engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant under an “F,” “J,” “M,” or “Q” visa. File 1040ez online free A nonresident alien temporarily present in the United States under a “J” visa includes a nonresident alien individual admitted to the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. File 1040ez online free The taxable part of any scholarship or fellowship grant that is U. File 1040ez online free S. File 1040ez online free source income is treated as effectively connected with a trade or business in the United States. File 1040ez online free Business operations. File 1040ez online free   If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. File 1040ez online free Partnerships. File 1040ez online free   If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States. File 1040ez online free Beneficiary of an estate or trust. File 1040ez online free   If you are the beneficiary of an estate or trust that is engaged in a trade or business in the United States, you are treated as being engaged in the same trade or business. File 1040ez online free Trading in stocks, securities, and commodities. File 1040ez online free   If your only U. File 1040ez online free S. File 1040ez online free business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U. File 1040ez online free S. File 1040ez online free resident broker or other agent, you are not engaged in a trade or business in the United States. File 1040ez online free   For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities. File 1040ez online free   For transactions in commodities, this applies to commodities that are usually traded on an organized commodity exchange and to transactions that are usually carried out at such an exchange. File 1040ez online free   This discussion does not apply if you have a U. File 1040ez online free S. File 1040ez online free office or other fixed place of business at any time during the tax year through which, or by the direction of which, you carry out your transactions in stocks, securities, or commodities. File 1040ez online free Trading for a nonresident alien's own account. File 1040ez online free   You are not engaged in a trade or business in the United States if trading for your own account in stocks, securities, or commodities is your only U. File 1040ez online free S. File 1040ez online free business activity. File 1040ez online free This applies even if the trading takes place while you are present in the United States or is done by your employee or your broker or other agent. File 1040ez online free   This does not apply to trading for your own account if you are a dealer in stocks, securities, or commodities. File 1040ez online free This does not necessarily mean, however, that as a dealer you are considered to be engaged in a trade or business in the United States. File 1040ez online free Determine that based on the facts and circumstances in each case or under the rules given above in Trading in stocks, securities, and commodities . File 1040ez online free Effectively Connected Income If you are engaged in a U. File 1040ez online free S. File 1040ez online free trade or business, all income, gain, or loss for the tax year that you get from sources within the United States (other than certain investment income) is treated as effectively connected income. File 1040ez online free This applies whether or not there is any connection between the income and the trade or business being carried on in the United States during the tax year. File 1040ez online free Two tests, described next under Investment Income, determine whether certain items of investment income (such as interest, dividends, and royalties) are treated as effectively connected with that business. File 1040ez online free In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. File 1040ez online free For a discussion of these rules, see Foreign Income , later. File 1040ez online free Investment Income Investment income from U. File 1040ez online free S. File 1040ez online free sources that may or may not be treated as effectively connected with a U. File 1040ez online free S. File 1040ez online free trade or business generally falls into the following three categories. File 1040ez online free Fixed or determinable income (interest, dividends, rents, royalties, premiums, annuities, etc. File 1040ez online free ). File 1040ez online free Gains (some of which are considered capital gains) from the sale or exchange of the following types of property. File 1040ez online free Timber, coal, or domestic iron ore with a retained economic interest. File 1040ez online free Patents, copyrights, and similar property on which you receive contingent payments after October 4, 1966. File 1040ez online free Patents transferred before October 5, 1966. File 1040ez online free Original issue discount obligations. File 1040ez online free Capital gains (and losses). File 1040ez online free Use the two tests, described next, to determine whether an item of U. File 1040ez online free S. File 1040ez online free source income falling in one of the three categories above and received during the tax year is effectively connected with your U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free If the tests indicate that the item of income is effectively connected, you must include it with your other effectively connected income. File 1040ez online free If the item of income is not effectively connected, include it with all other income discussed under The 30% Tax later, in this chapter. File 1040ez online free Asset-use test. File 1040ez online free   This test usually applies to income that is not directly produced by trade or business activities. File 1040ez online free Under this test, if an item of income is from assets (property) used in, or held for use in, the trade or business in the United States, it is considered effectively connected. File 1040ez online free   An asset is used in, or held for use in, the trade or business in the United States if the asset is: Held for the principal purpose of promoting the conduct of a trade or business in the United States, Acquired and held in the ordinary course of the trade or business conducted in the United States (for example, an account receivable or note receivable arising from that trade or business), or Otherwise held to meet the present needs of the trade or business in the United States and not its anticipated future needs. File 1040ez online free Generally, stock of a corporation is not treated as an asset used in, or held for use in, a trade or business in the United States. File 1040ez online free Business-activities test. File 1040ez online free   This test usually applies when income, gain, or loss comes directly from the active conduct of the trade or business. File 1040ez online free The business-activities test is most important when: Dividends or interest are received by a dealer in stocks or securities, Royalties are received in the trade or business of licensing patents or similar property, or Service fees are earned by a servicing business. File 1040ez online free Under this test, if the conduct of the U. File 1040ez online free S. File 1040ez online free trade or business was a material factor in producing the income, the income is considered effectively connected. File 1040ez online free Personal Service Income You usually are engaged in a U. File 1040ez online free S. File 1040ez online free trade or business when you perform personal services in the United States. File 1040ez online free Personal service income you receive in a tax year in which you are engaged in a U. File 1040ez online free S. File 1040ez online free trade or business is effectively connected with a U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free Income received in a year other than the year you performed the services is also effectively connected if it would have been effectively connected if received in the year you performed the services. File 1040ez online free Personal service income includes wages, salaries, commissions, fees, per diem allowances, and employee allowances and bonuses. File 1040ez online free The income may be paid to you in the form of cash, services, or property. File 1040ez online free If you are engaged in a U. File 1040ez online free S. File 1040ez online free trade or business only because you perform personal services in the United States during the tax year, income and gains from assets, and gains and losses from the sale or exchange of capital assets are generally not effectively connected with your trade or business. File 1040ez online free However, if there is a direct economic relationship between your holding of the asset and your trade or business of performing personal services, the income, gain, or loss is effectively connected. File 1040ez online free Pensions. File 1040ez online free   If you were a nonresident alien engaged in a U. File 1040ez online free S. File 1040ez online free trade or business after 1986 because you performed personal services in the United States, and you later receive a pension or retirement pay attributable to these services, such payments are effectively connected income in each year you receive them. File 1040ez online free This is true whether or not you are engaged in a U. File 1040ez online free S. File 1040ez online free trade or business in the year you receive the retirement pay. File 1040ez online free Transportation Income Transportation income (defined in chapter 2) is effectively connected if you meet both of the following conditions. File 1040ez online free You had a fixed place of business in the United States involved in earning the income. File 1040ez online free At least 90% of your U. File 1040ez online free S. File 1040ez online free source transportation income is attributable to regularly scheduled transportation. File 1040ez online free “Fixed place of business” generally means a place, site, structure, or other similar facility through which you engage in a trade or business. File 1040ez online free “Regularly scheduled transportation” means that a ship or aircraft follows a published schedule with repeated sailings or flights at regular intervals between the same points for voyages or flights that begin or end in the United States. File 1040ez online free This definition applies to both scheduled and chartered air transportation. File 1040ez online free If you do not meet the two conditions above, the income is not effectively connected and is taxed at a 4% rate. File 1040ez online free See Transportation Tax, later, in this chapter. File 1040ez online free Business Profits and Losses and Sales Transactions All profits or losses from U. File 1040ez online free S. File 1040ez online free sources that are from the operation of a business in the United States are effectively connected with a trade or business in the United States. File 1040ez online free For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income. File 1040ez online free A share of U. File 1040ez online free S. File 1040ez online free source profits or losses of a partnership that is engaged in a trade or business in the United States is also effectively connected with a trade or business in the United States. File 1040ez online free Real Property Gain or Loss Gains and losses from the sale or exchange of U. File 1040ez online free S. File 1040ez online free real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. File 1040ez online free You must treat the gain or loss as effectively connected with that trade or business. File 1040ez online free U. File 1040ez online free S. File 1040ez online free real property interest. File 1040ez online free   This is any interest in real property located in the United States or the U. File 1040ez online free S. File 1040ez online free Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U. File 1040ez online free S. File 1040ez online free real property holding corporation. File 1040ez online free Real property includes the following. File 1040ez online free Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits. File 1040ez online free Improvements on land, including buildings, other permanent structures, and their structural components. File 1040ez online free Personal property associated with the use of real property, such as equipment used in farming, mining, forestry, or construction or property used in lodging facilities or rented office space, unless the personal property is: Disposed of more than one year before or after the disposition of the real property, or Separately sold to persons unrelated either to the seller or to the buyer of the real property. File 1040ez online free U. File 1040ez online free S. File 1040ez online free real property holding corporation. File 1040ez online free   A corporation is a U. File 1040ez online free S. File 1040ez online free real property holding corporation if the fair market value of the corporation's U. File 1040ez online free S. File 1040ez online free real property interests are at least 50% of the total fair market value of: The corporation's U. File 1040ez online free S. File 1040ez online free real property interests, plus The corporation's interests in real property located outside the United States, plus The corporation's other assets that are used in, or held for use in, a trade or business. File 1040ez online free   Gain or loss on the sale of the stock in any domestic corporation is taxed as if you are engaged in a U. File 1040ez online free S. File 1040ez online free trade or business unless you establish that the corporation is not a U. File 1040ez online free S. File 1040ez online free real property holding corporation. File 1040ez online free   A U. File 1040ez online free S. File 1040ez online free real property interest does not include a class of stock of a corporation that is regularly traded on an established securities market, unless you hold more than 5% of the fair market value of that class of stock. File 1040ez online free An interest in a foreign corporation owning U. File 1040ez online free S. File 1040ez online free real property generally is not a U. File 1040ez online free S. File 1040ez online free real property interest unless the corporation chooses to be treated as a domestic corporation. File 1040ez online free Qualified investment entities. File 1040ez online free   Special rules apply to qualified investment entities (QIEs). File 1040ez online free A QIE is any real estate investment trust (REIT) or any regulated investment company (RIC) that is a U. File 1040ez online free S. File 1040ez online free real property holding corporation. File 1040ez online free    Generally, any distribution from a QIE to a shareholder that is attributable to gain from the sale or exchange of a U. File 1040ez online free S. File 1040ez online free real property interest is treated as a U. File 1040ez online free S. File 1040ez online free real property gain by the shareholder receiving the distribution. File 1040ez online free A distribution by a QIE on stock regularly traded on an established securities market in the United States is not treated as gain from the sale or exchange of a U. File 1040ez online free S. File 1040ez online free real property interest if you did not own more than 5% of that stock at any time during the 1-year period ending on the date of the distribution. File 1040ez online free A distribution that you do not treat as gain from the sale or exchange of a U. File 1040ez online free S. File 1040ez online free real property interest is included in your gross income as a regular dividend. File 1040ez online free Note. File 1040ez online free Beginning January 1, 2014 (unless extended by legislation), a RIC that is a U. File 1040ez online free S. File 1040ez online free real property holding corporation will only be treated as a QIE for certain distributions from the RIC that are directly or indirectly attributable to distributions received by the RIC from a REIT. File 1040ez online free Domestically controlled QIE. File 1040ez online free   The sale of an interest in a domestically controlled QIE is not the sale of a U. File 1040ez online free S. File 1040ez online free real property interest. File 1040ez online free The entity is domestically controlled if at all times during the testing period less than 50% in value of its stock was held, directly or indirectly, by foreign persons. File 1040ez online free The testing period is the shorter of (a) the 5-year period ending on the date of disposition, or (b) the period during which the entity was in existence. File 1040ez online free Wash sale. File 1040ez online free    If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. File 1040ez online free An applicable wash sale transaction is one in which you: Dispose of an interest in the domestically controlled QIE during the 30-day period before the ex-dividend date of a distribution that you would (but for the disposition) have treated as gain from the sale or exchange of a U. File 1040ez online free S. File 1040ez online free real property interest, and Acquire, or enter into a contract or option to acquire, a substantially identical interest in that entity during the 61-day period that began on the first day of the 30-day period. File 1040ez online free If this occurs, you are treated as having gain from the sale or exchange of a U. File 1040ez online free S. File 1040ez online free real property interest in an amount equal to the distribution made after June 15, 2006, that would have been treated as such gain. File 1040ez online free This also applies to any substitute dividend payment. File 1040ez online free   A transaction is not treated as an applicable wash sale transaction if: You actually receive the distribution from the domestically controlled QIE related to the interest disposed of, or acquired, in the transaction, or You dispose of any class of stock in a QIE that is regularly traded on an established securities market in the United States but only if you did not own more than 5% of that class of stock at any time during the 1-year period ending on the date of the distribution. File 1040ez online free Alternative minimum tax. File 1040ez online free   There may be a minimum tax on your net gain from the disposition of U. File 1040ez online free S. File 1040ez online free real property interests. File 1040ez online free Figure the amount of this tax, if any, on Form 6251. File 1040ez online free Withholding of tax. File 1040ez online free   If you dispose of a U. File 1040ez online free S. File 1040ez online free real property interest, the buyer may have to withhold tax. File 1040ez online free See the discussion of Tax Withheld on Real Property Sales in chapter 8. File 1040ez online free Foreign Income You must treat three kinds of foreign source income as effectively connected with a trade or business in the United States if: You have an office or other fixed place of business in the United States to which the income can be attributed, That office or place of business is a material factor in producing the income, and The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. File 1040ez online free An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. File 1040ez online free The three kinds of foreign source income are listed below. File 1040ez online free Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the United States or from any interest in such property. File 1040ez online free Included are rents or royalties for the use, or for the privilege of using, outside the United States, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the United States. File 1040ez online free Dividends, interest, or amounts received for the provision of a guarantee of indebtedness issued after September 27, 2010, from the active conduct of a banking, financing, or similar business in the United States. File 1040ez online free A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. File 1040ez online free Income, gain, or loss from the sale outside the United States, through the U. File 1040ez online free S. File 1040ez online free office or other fixed place of business, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. File 1040ez online free Item (3) will not apply if you sold the property for use, consumption, or disposition outside the United States and an office or other fixed place of business in a foreign country was a material factor in the sale. File 1040ez online free Any foreign source income that is equivalent to any item of income described above is treated as effectively connected with a U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free For example, foreign source interest and dividend equivalents are treated as U. File 1040ez online free S. File 1040ez online free effectively connected income if the income is derived by a foreign person in the active conduct of a banking, financing, or similar business within the United States. File 1040ez online free Tax on Effectively Connected Income Income you receive during the tax year that is effectively connected with your trade or business in the United States is, after allowable deductions, taxed at the rates that apply to U. File 1040ez online free S. File 1040ez online free citizens and residents. File 1040ez online free Generally, you can receive effectively connected income only if you are a nonresident alien engaged in trade or business in the United States during the tax year. File 1040ez online free However, income you receive from the sale or exchange of property, the performance of services, or any other transaction in another tax year is treated as effectively connected in that year if it would have been effectively connected in the year the transaction took place or you performed the services. File 1040ez online free Example. File 1040ez online free Ted Richards, a nonresident alien, entered the United States in August 2012, to perform personal services in the U. File 1040ez online free S. File 1040ez online free office of his overseas employer. File 1040ez online free He worked in the U. File 1040ez online free S. File 1040ez online free office until December 25, 2012, but did not leave this country until January 11, 2013. File 1040ez online free On January 8, 2013, he received his final paycheck for services performed in the United States during 2012. File 1040ez online free All of Ted's income during his stay here is U. File 1040ez online free S. File 1040ez online free source income. File 1040ez online free During 2012, Ted was engaged in the trade or business of performing personal services in the United States. File 1040ez online free Therefore, all amounts paid to him in 2012 for services performed in the United States during 2012 are effectively connected with that trade or business during 2012. File 1040ez online free The salary payment Ted received in January 2013 is U. File 1040ez online free S. File 1040ez online free source income to him in 2013. File 1040ez online free It is effectively connected with a trade or business in the United States because he was engaged in a trade or business in the United States during 2012 when he performed the services that earned the income. File 1040ez online free Real property income. File 1040ez online free   You may be able to choose to treat all income from real property as effectively connected. File 1040ez online free See Income From Real Property , later, in this chapter. File 1040ez online free The 30% Tax Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U. File 1040ez online free S. File 1040ez online free sources but only if the items are not effectively connected with your U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free Fixed or Determinable Income The 30% (or lower treaty) rate applies to the gross amount of U. File 1040ez online free S. File 1040ez online free source fixed or determinable annual or periodic gains, profits, or income. File 1040ez online free Income is fixed when it is paid in amounts known ahead of time. File 1040ez online free Income is determinable whenever there is a basis for figuring the amount to be paid. File 1040ez online free Income can be periodic if it is paid from time to time. File 1040ez online free It does not have to be paid annually or at regular intervals. File 1040ez online free Income can be determinable or periodic even if the length of time during which the payments are made is increased or decreased. File 1040ez online free Items specifically included as fixed or determinable income are interest (other than original issue discount), dividends, dividend equivalent payments (defined in chapter 2), rents, premiums, annuities, salaries, wages, and other compensation. File 1040ez online free A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. File 1040ez online free Other items of income, such as royalties, also may be subject to the 30% tax. File 1040ez online free Some fixed or determinable income may be exempt from U. File 1040ez online free S. File 1040ez online free tax. File 1040ez online free See chapter 3 if you are not sure whether the income is taxable. File 1040ez online free Original issue discount (OID). File 1040ez online free   If you sold, exchanged, or received a payment on a bond or other debt instrument that was issued at a discount after March 31, 1972, all or part of the original issue discount (OID) (other than portfolio interest) may be subject to the 30% tax. File 1040ez online free The amount of OID is the difference between the stated redemption price at maturity and the issue price of the debt instrument. File 1040ez online free The 30% tax applies in the following circumstances. File 1040ez online free You received a payment on a debt instrument. File 1040ez online free In this case, the amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the OID previously taken into account. File 1040ez online free But the tax on the OID cannot be more than the payment minus the tax on the interest payment on the debt instrument. File 1040ez online free You sold or exchanged the debt instrument. File 1040ez online free The amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the amount already taxed in (1) above. File 1040ez online free   Report on your return the amount of OID shown on Form 1042-S, Foreign Person's U. File 1040ez online free S. File 1040ez online free Source Income Subject to Withholding, if you bought the debt instrument at original issue. File 1040ez online free However, you must recompute your proper share of OID shown on Form 1042-S if any of the following apply. File 1040ez online free You bought the debt instrument at a premium or paid an acquisition premium. File 1040ez online free The debt instrument is a stripped bond or a stripped coupon (including zero coupon instruments backed by U. File 1040ez online free S. File 1040ez online free Treasury securities). File 1040ez online free The debt instrument is a contingent payment or inflation-indexed debt instrument. File 1040ez online free For the definition of premium and acquisition premium and instructions on how to recompute OID, get Publication 1212. File 1040ez online free   If you held a bond or other debt instrument that was issued at a discount before April 1, 1972, contact the IRS for further information. File 1040ez online free See chapter 12. File 1040ez online free Gambling Winnings In general, nonresident aliens are subject to the 30% tax on the gross proceeds from gambling won in the United States if that income is not effectively connected with a U. File 1040ez online free S. File 1040ez online free trade or business and is not exempted by treaty. File 1040ez online free However, no tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States. File 1040ez online free Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free Social Security Benefits A nonresident alien must include 85% of any U. File 1040ez online free S. File 1040ez online free social security benefit (and the social security equivalent part of a tier 1 railroad retirement benefit) in U. File 1040ez online free S. File 1040ez online free source fixed or determinable annual or periodic income. File 1040ez online free Social security benefits include monthly retirement, survivor, and disability benefits. File 1040ez online free This income is exempt under some tax treaties. File 1040ez online free See Table 1 in Publication 901, U. File 1040ez online free S. File 1040ez online free Tax Treaties, for a list of tax treaties that exempt U. File 1040ez online free S. File 1040ez online free social security benefits from U. File 1040ez online free S. File 1040ez online free tax. File 1040ez online free Sales or Exchanges of Capital Assets These rules apply only to those capital gains and losses from sources in the United States that are not effectively connected with a trade or business in the United States. File 1040ez online free They apply even if you are engaged in a trade or business in the United States. File 1040ez online free These rules do not apply to the sale or exchange of a U. File 1040ez online free S. File 1040ez online free real property interest or to the sale of any property that is effectively connected with a trade or business in the United States. File 1040ez online free See Real Property Gain or Loss , earlier, under Effectively Connected Income. File 1040ez online free A capital asset is everything you own except: Inventory. File 1040ez online free Business accounts or notes receivable. File 1040ez online free Depreciable property used in a trade or business. File 1040ez online free Real property used in a trade or business. File 1040ez online free Supplies regularly used in a trade or business. File 1040ez online free Certain copyrights, literary or musical or artistic compositions, letters or memoranda, or similar property. File 1040ez online free Certain U. File 1040ez online free S. File 1040ez online free government publications. File 1040ez online free Certain commodities derivative financial instruments held by a commodities derivatives dealer. File 1040ez online free Hedging transactions. File 1040ez online free A capital gain is a gain on the sale or exchange of a capital asset. File 1040ez online free A capital loss is a loss on the sale or exchange of a capital asset. File 1040ez online free If the sale is in foreign currency, for the purpose of determining gain, the cost and selling price of the property should be expressed in U. File 1040ez online free S. File 1040ez online free currency at the rate of exchange prevailing as of the date of the purchase and date of the sale, respectively. File 1040ez online free You may want to read Publication 544. File 1040ez online free However, use Publication 544 only to determine what is a sale or exchange of a capital asset, or what is treated as such. File 1040ez online free Specific tax treatment that applies to U. File 1040ez online free S. File 1040ez online free citizens or residents generally does not apply to you. File 1040ez online free The following gains are subject to the 30% (or lower treaty) rate without regard to the 183-day rule, discussed later. File 1040ez online free Gains on the disposal of timber, coal, or domestic iron ore with a retained economic interest. File 1040ez online free Gains on contingent payments received from the sale or exchange of patents, copyrights, and similar property after October 4, 1966. File 1040ez online free Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966. File 1040ez online free Gains on the sale or exchange of original issue discount obligations. File 1040ez online free Gains in (1) are not subject to the 30% (or lower treaty) rate if you choose to treat the gains as effectively connected with a U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free See Income From Real Property , later. File 1040ez online free 183-day rule. File 1040ez online free   If you were in the United States for 183 days or more during the tax year, your net gain from sales or exchanges of capital assets is taxed at a 30% (or lower treaty) rate. File 1040ez online free For purposes of the 30% (or lower treaty) rate, net gain is the excess of your capital gains from U. File 1040ez online free S. File 1040ez online free sources over your capital losses from U. File 1040ez online free S. File 1040ez online free sources. File 1040ez online free This rule applies even if any of the transactions occurred while you were not in the United States. File 1040ez online free   To determine your net gain, consider the amount of your gains and losses that would be recognized and taken into account only if, and to the extent that, they would be recognized and taken into account if you were in a U. File 1040ez online free S. File 1040ez online free trade or business during the year and the gains and losses were effectively connected with that trade or business during the tax year. File 1040ez online free   In arriving at your net gain, do not take the following into consideration. File 1040ez online free The four types of gains listed earlier. File 1040ez online free The deduction for a capital loss carryover. File 1040ez online free Capital losses in excess of capital gains. File 1040ez online free Exclusion for gain from the sale or exchange of qualified small business stock (section 1202 exclusion). File 1040ez online free Losses from the sale or exchange of property held for personal use. File 1040ez online free However, losses resulting from casualties or thefts may be deductible on Schedule A (Form 1040NR). File 1040ez online free See Itemized Deductions in chapter 5. File 1040ez online free   If you are not engaged in a trade or business in the United States and have not established a tax year for a prior period, your tax year will be the calendar year for purposes of the 183-day rule. File 1040ez online free Also, you must file your tax return on a calendar-year basis. File 1040ez online free   If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax exempt unless they are effectively connected with a trade or business in the United States during your tax year. File 1040ez online free Reporting. File 1040ez online free   Report your gains and losses from the sales or exchanges of capital assets that are not effectively connected with a trade or business in the United States on page 4 of Form 1040NR. File 1040ez online free Report gains and losses from sales or exchanges of capital assets (including real property) that are effectively connected with a trade or business in the United States on a separate Schedule D (Form 1040), Form 4797, or both. File 1040ez online free Attach them to Form 1040NR. File 1040ez online free Income From Real Property If you have income from real property located in the United States that you own or have an interest in and hold for the production of income, you can choose to treat all income from that property as income effectively connected with a trade or business in the United States. File 1040ez online free The choice applies to all income from real property located in the United States and held for the production of income and to all income from any interest in such property. File 1040ez online free This includes income from rents, royalties from mines, oil or gas wells, or other natural resources. File 1040ez online free It also includes gains from the sale or exchange of timber, coal, or domestic iron ore with a retained economic interest. File 1040ez online free You can make this choice only for real property income that is not otherwise effectively connected with your U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free If you make the choice, you can claim deductions attributable to the real property income and only your net income from real property is taxed. File 1040ez online free This choice does not treat a nonresident alien, who is not otherwise engaged in a U. File 1040ez online free S. File 1040ez online free trade or business, as being engaged in a trade or business in the United States during the year. File 1040ez online free Example. File 1040ez online free You are a nonresident alien and are not engaged in a U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free You own a single-family house in the United States that you rent out. File 1040ez online free Your rental income for the year is $10,000. File 1040ez online free This is your only U. File 1040ez online free S. File 1040ez online free source income. File 1040ez online free As discussed earlier under The 30% Tax, the rental income is subject to a tax at a 30% (or lower treaty) rate. File 1040ez online free You received a Form 1042-S showing that your tenants properly withheld this tax from the rental income. File 1040ez online free You do not have to file a U. File 1040ez online free S. File 1040ez online free tax return (Form 1040NR) because your U. File 1040ez online free S. File 1040ez online free tax liability is satisfied by the withholding of tax. File 1040ez online free If you make the choice discussed earlier, you can offset the $10,000 income by certain rental expenses. File 1040ez online free (See Publication 527, Residential Rental Property, for information on rental expenses. File 1040ez online free ) Any resulting net income is taxed at graduated rates. File 1040ez online free If you make this choice, report the rental income and expenses on Schedule E (Form 1040) and attach the schedule to Form 1040NR. File 1040ez online free For the first year you make the choice, also attach the statement discussed next. File 1040ez online free Making the choice. File 1040ez online free   Make the initial choice by attaching a statement to your return, or amended return, for the year of the choice. File 1040ez online free Include the following in your statement. File 1040ez online free That you are making the choice. File 1040ez online free Whether the choice is under Internal Revenue Code section 871(d) (explained earlier) or a tax treaty. File 1040ez online free A complete list of all your real property, or any interest in real property, located in the United States. File 1040ez online free Give the legal identification of U. File 1040ez online free S. File 1040ez online free timber, coal, or iron ore in which you have an interest. File 1040ez online free The extent of your ownership in the property. File 1040ez online free The location of the property. File 1040ez online free A description of any major improvements to the property. File 1040ez online free The dates you owned the property. File 1040ez online free Your income from the property. File 1040ez online free Details of any previous choices and revocations of the real property income choice. File 1040ez online free   This choice stays in effect for all later tax years unless you revoke it. File 1040ez online free Revoking the choice. File 1040ez online free   You can revoke the choice without IRS approval by filing Form 1040X, Amended U. File 1040ez online free S. File 1040ez online free Individual Income Tax Return, for the year you made the choice and for later tax years. File 1040ez online free You must file Form 1040X within 3 years from the date your return was filed or 2 years from the time the tax was paid, whichever is later. File 1040ez online free If this time period has expired for the year of choice, you cannot revoke the choice for that year. File 1040ez online free However, you may revoke the choice for later tax years only if you have IRS approval. File 1040ez online free For information on how to get IRS approval, see Regulation section 1. File 1040ez online free 871-10(d)(2). File 1040ez online free Transportation Tax A 4% tax rate applies to transportation income that is not effectively connected because it does not meet the two conditions listed earlier under Transportation Income . File 1040ez online free If you receive transportation income subject to the 4% tax, you should figure the tax and show it on line 57 of Form 1040NR. File 1040ez online free Attach a statement to your return that includes the following information (if applicable). File 1040ez online free Your name, taxpayer identification number, and tax year. File 1040ez online free A description of the types of services performed (whether on or off board). File 1040ez online free Names of vessels or registration numbers of aircraft on which you performed the services. File 1040ez online free Amount of U. File 1040ez online free S. File 1040ez online free source transportation income derived from each type of service for each vessel or aircraft for the calendar year. File 1040ez online free Total amount of U. File 1040ez online free S. File 1040ez online free source transportation income derived from all types of services for the calendar year. File 1040ez online free This 4% tax applies to your U. File 1040ez online free S. File 1040ez online free source gross transportation income. File 1040ez online free This only includes transportation income that is treated as derived from sources in the United States if the transportation begins or ends in the United States. File 1040ez online free For transportation income from personal services, the transportation must be between the United States and a U. File 1040ez online free S. File 1040ez online free possession. File 1040ez online free For personal services of a nonresident alien, this only applies to income derived from, or in connection with, an aircraft. File 1040ez online free Interrupted Period of Residence You are subject to tax under a special rule if you interrupt your period of U. File 1040ez online free S. File 1040ez online free residence with a period of nonresidence. File 1040ez online free The special rule applies if you meet all of the following conditions. File 1040ez online free You were a U. File 1040ez online free S. File 1040ez online free resident for a period that includes at least 3 consecutive calendar years. File 1040ez online free You were a U. File 1040ez online free S. File 1040ez online free resident for at least 183 days in each of those years. File 1040ez online free You ceased to be treated as a U. File 1040ez online free S. File 1040ez online free resident. File 1040ez online free You then again became a U. File 1040ez online free S. File 1040ez online free resident before the end of the third calendar year after the end of the period described in (1) above. File 1040ez online free Under this special rule, you are subject to tax on your U. File 1040ez online free S. File 1040ez online free source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) for the period you were a nonresident alien, unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free For information on how to figure the special tax, see How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) under Expatriation Tax , below. File 1040ez online free Example. File 1040ez online free John Willow, a citizen of New Zealand, entered the United States on April 1, 2008, as a lawful permanent resident. File 1040ez online free On August 1, 2010, John ceased to be a lawful permanent resident and returned to New Zealand. File 1040ez online free During his period of residence, he was present in the United States for at least 183 days in each of three consecutive years (2008, 2009, and 2010). File 1040ez online free He returned to the United States on October 5, 2013, as a lawful permanent resident. File 1040ez online free He became a resident before the close of the third calendar year (2013) beginning after the end of his first period of residence (August 1, 2010). File 1040ez online free Therefore, he is subject to tax under the special rule for the period of nonresidence (August 2, 2010, through October 4, 2013) if it is more than the tax that would normally apply to him as a nonresident alien. File 1040ez online free Reporting requirements. File 1040ez online free   If you are subject to this tax for any year in the period you were a nonresident alien, you must file Form 1040NR for that year. File 1040ez online free The return is due by the due date (including extensions) for filing your U. File 1040ez online free S. File 1040ez online free income tax return for the year that you again become a U. File 1040ez online free S. File 1040ez online free resident. File 1040ez online free If you already filed returns for that period, you must file amended returns. File 1040ez online free You must attach a statement to your return that identifies the source of all of your U. File 1040ez online free S. File 1040ez online free and foreign gross income and the items of income subject to this special rule. File 1040ez online free Expatriation Tax The expatriation tax provisions apply to U. File 1040ez online free S. File 1040ez online free citizens who have renounced their citizenship and long-term residents who have ended their residency. File 1040ez online free The rules that apply are based on the dates of expatriation, which are described in the following sections. File 1040ez online free Expatriation Before June 4, 2004. File 1040ez online free Expatriation After June 3, 2004, and Before June 17, 2008. File 1040ez online free Expatriation After June 16, 2008. File 1040ez online free Long-term resident defined. File 1040ez online free   You are a long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. File 1040ez online free In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits. File 1040ez online free Expatriation Before June 4, 2004 If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U. File 1040ez online free S. File 1040ez online free taxes. File 1040ez online free Unless you received a ruling from the IRS that you did not expatriate to avoid U. File 1040ez online free S. File 1040ez online free taxes, you are presumed to have tax avoidance as a principal purpose if: Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or Your net worth on the date of your action was $500,000 or more. File 1040ez online free The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1). File 1040ez online free Table 4-1. File 1040ez online free Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004 IF you expatriated during . File 1040ez online free . File 1040ez online free . File 1040ez online free   THEN the rules outlined on this page apply if . File 1040ez online free . File 1040ez online free . File 1040ez online free     Your 5-year average annual net income tax was more than . File 1040ez online free . File 1040ez online free . File 1040ez online free OR Your net worth equaled or exceeded . File 1040ez online free . File 1040ez online free . File 1040ez online free 1999   110,000   552,000 2000   112,000   562,000 2001   116,000   580,000 2002   120,000   599,000 2003   122,000   608,000 2004 (before June 4)*   124,000   622,000 *If you expatriated after June 3, 2004, see Expatriation After June 3, 2004, and Before June 17, 2008 or Expatriation After June 16, 2008. File 1040ez online free Reporting requirements. File 1040ez online free   If you lost your U. File 1040ez online free S. File 1040ez online free citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. File 1040ez online free If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended. File 1040ez online free   Your U. File 1040ez online free S. File 1040ez online free residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits. File 1040ez online free Penalties. File 1040ez online free   If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. File 1040ez online free The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. File 1040ez online free The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect. File 1040ez online free Expatriation tax. File 1040ez online free   The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. File 1040ez online free It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. File 1040ez online free See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section. File 1040ez online free Expatriation After June 3, 2004, and Before June 17, 2008 If you expatriated after June 3, 2004, and before June 17, 2008, the expatriation rules apply to you if any of the following statements apply. File 1040ez online free Your average annual net income tax for the 5 tax years ending before the date of expatriation or termination of residency is more than: $124,000 if you expatriated or terminated residency in 2004. File 1040ez online free $127,000 if you expatriated or terminated residency in 2005. File 1040ez online free $131,000 if you expatriated or terminated residency in 2006. File 1040ez online free $136,000 if you expatriated or terminated residency in 2007. File 1040ez online free $139,000 if you expatriated or terminated residency in 2008. File 1040ez online free Your net worth is $2 million or more on the date of your expatriation or termination of residency. File 1040ez online free You fail to certify on Form 8854 that you have complied with all U. File 1040ez online free S. File 1040ez online free federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency. File 1040ez online free Exception for dual-citizens and certain minors. File 1040ez online free   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. File 1040ez online free However, they still must provide the certification required in (3). File 1040ez online free Certain dual-citizens. File 1040ez online free   You may qualify for the exception described above if all of the following apply. File 1040ez online free You became at birth a U. File 1040ez online free S. File 1040ez online free citizen and a citizen of another country and you continue to be a citizen of that other country. File 1040ez online free You were never a resident alien of the United States (as defined in chapter 1). File 1040ez online free You never held a U. File 1040ez online free S. File 1040ez online free passport. File 1040ez online free You were present in the United States for no more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your loss of U. File 1040ez online free S. File 1040ez online free citizenship. File 1040ez online free Certain minors. File 1040ez online free   You may qualify for the exception described above if you meet all of the following requirements. File 1040ez online free You became a U. File 1040ez online free S. File 1040ez online free citizen at birth. File 1040ez online free Neither of your parents was a U. File 1040ez online free S. File 1040ez online free citizen at the time of your birth. File 1040ez online free You expatriated before you were 18½. File 1040ez online free You were present in the United States for not more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your expatriation. File 1040ez online free Tax consequences of presence in the United States. File 1040ez online free   The following rules apply if you do not meet the exception above for dual-citizens and certain minors and the expatriation rules would otherwise apply to you. File 1040ez online free   The expatriation tax does not apply to any tax year during the 10-year period if you are physically present in the United States for more than 30 days during the calendar year ending in that year. File 1040ez online free Instead, you are treated as a U. File 1040ez online free S. File 1040ez online free citizen or resident and taxed on your worldwide income for that tax year. File 1040ez online free You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms. File 1040ez online free   When counting the number of days of presence during a calendar year, count any day you were physically present in the United States at any time during the day. File 1040ez online free However, do not count any days (up to a limit of 30 days) on which you performed personal services in the United States for an employer who is not related to you if either of the following apply. File 1040ez online free You have ties with other countries. File 1040ez online free You have ties with other countries if: You became (within a reasonable period after your expatriation or termination of residency) a citizen or resident of the country in which you, your spouse, or either of your parents were born, and You became fully liable for income tax in that country. File 1040ez online free You were physically present in the United States for 30 days or less during each year in the 10-year period ending on the date of expatriation or termination of residency. File 1040ez online free Do not count any day you were an exempt individual or were unable to leave the United States because of a medical condition that arose while you were in the United States. File 1040ez online free See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843. File 1040ez online free Related employer. File 1040ez online free   If your employer in the United States is any of the following, then your employer is related to you. File 1040ez online free You must count any days you performed services in the United States for that employer as days of presence in the United States. File 1040ez online free Members of your family. File 1040ez online free This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. File 1040ez online free ), and lineal descendants (children, grandchildren, etc. File 1040ez online free ). File 1040ez online free A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. File 1040ez online free A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. File 1040ez online free (See Publication 550, chapter 4, Constructive ownership of stock, for how to determine whether you directly or indirectly own outstanding stock. File 1040ez online free ) A tax-exempt charitable or educational organization that is directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. File 1040ez online free Date of tax expatriation. File 1040ez online free   For purposes of U. File 1040ez online free S. File 1040ez online free tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions. File 1040ez online free You notify either the Department of State or the Department of Homeland Security (whichever is appropriate) of your expatriating act or termination of residency. File 1040ez online free You file Form 8854 in accordance with the form instructions. File 1040ez online free Annual return. File 1040ez online free   If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. File 1040ez online free You must file this form even if you owe no U. File 1040ez online free S. File 1040ez online free tax. File 1040ez online free Penalty. File 1040ez online free   If you fail to file Form 8854 for any tax year, fail to include all information required to be shown on the form, or include incorrect information, you may have to pay a penalty of $10,000. File 1040ez online free You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect. File 1040ez online free How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) If the expatriation tax applies to you, you are generally subject to tax on your U. File 1040ez online free S. File 1040ez online free source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. File 1040ez online free S. File 1040ez online free trade or business. File 1040ez online free For this purpose, U. File 1040ez online free S. File 1040ez online free source gross income (defined in chapter 2) includes gains from the sale or exchange of: Property (other than stock or debt obligations) located in the United States, Stock issued by a U. File 1040ez online free S. File 1040ez online free domestic corporation, and Debt obligations of U. File 1040ez online free S. File 1040ez online free persons or of the United States, a state or political subdivision thereof, or the District of Columbia. File 1040ez online free U. File 1040ez online free S. File 1040ez online free source income also includes any income or gain derived from stock in certain controlled foreign corporations if you owned, or were considered to own, at any time during the 2-year period ending on the date of expatriation, more than 50% of: The total combined voting power of all classes of that corporation's stock, or The total value of the stock. File 1040ez online free The income or gain is considered U. File 1040ez online free S. File 1040ez online free source income only to the extent of your share of earnings and profits earned or accumulated before the date of expatriation and during the periods you met the ownership requirements discussed above. File 1040ez online free Any exchange of property is treated as a sale of the property at its fair market value on the date of the exchange and any gain is treated as U. File 1040ez online free S. File 1040ez online free source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19. File 1040ez online free Other information. File 1040ez online free   For more information on the expatriation tax provisions, including exceptions to the tax and special U. File 1040ez online free S. File 1040ez online free source rules, see section 877 of the Internal Revenue Code. File 1040ez online free Expatriation Tax Return If you expatriated or terminated your U. File 1040ez online free S. File 1040ez online free residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. File 1040ez online free Attach it to Form 1040NR if you are required to file that form. File 1040ez online free If you are present in the United States following your expatriation and are subject to tax as a U. File 1040ez online free S. File 1040ez online free citizen or resident, file Form 8854 with Form 1040. File 1040ez online free Expatriation After June 16, 2008 If you expatriated after June 16, 2008, the expatriation rules apply to you if you meet any of the following conditions. File 1040ez online free Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than: $139,000 if you expatriated or terminated residency in 2008. File 1040ez online free $145,000 if you expatriated or terminated residency in 2009 or 2010. File 1040ez online free $147,000 if you expatriated or terminated residency in 2011. File 1040ez online free $151,000 if you expatriated or terminated residency in 2012. File 1040ez online free $155,000 if you expatriated or terminated residency in 2013. File 1040ez online free Your net worth is $2 million or more on the date of your expatriation or termination of residency. File 1040ez online free You fail to certify on Form 8854 that you have complied with all U. File 1040ez online free S. File 1040ez online free federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency. File 1040ez online free Exception for dual-citizens and certain minors. File 1040ez online free   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. File 1040ez online free However, they still must provide the certification required in (3) above. File 1040ez online free Certain dual-citizens. File 1040ez online free   You may qualify for the exception described above if both of the following apply. File 1040ez online free You became at birth a U. File 1040ez online free S. File 1040ez online free citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country. File 1040ez online free You have been a resident of the United States for not more than 10 years during the 15-year tax period ending with the tax year during which the expatriation occurs. File 1040ez online free For the purpose of determining U. File 1040ez online free S. File 1040ez online free residency, use the substantial presence test described in chapter 1. File 1040ez online free Certain minors. File 1040ez online free   You may qualify for the exception described earlier if you meet both of the following requirements. File 1040ez online free You expatriated before you were 18½. File 1040ez online free You have been a resident of the United States for not more than 10 tax years before the expatriation occurs. File 1040ez online free For the purpose of determining U. File 1040ez online free S. File 1040ez online free residency, use the substantial presence test described in chapter 1. File 1040ez online free Expatriation date. File 1040ez online free   Your expatriation date is the date you relinquish U. File 1040ez online free S. File 1040ez online free citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U. File 1040ez online free S. File 1040ez online free resident). File 1040ez online free Former U. File 1040ez online free S. File 1040ez online free citizen. File 1040ez online free   You are considered to have relinquished your U. File 1040ez online free S. File 1040ez online free citizenship on the earliest of the following dates. File 1040ez online free The date you renounced U. File 1040ez online free S. File 1040ez online free citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality). File 1040ez online free The date you furnished to the State Department a signed statement of voluntary relinquishment of U. File 1040ez online free S. File 1040ez online free nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality). File 1040ez online free The date the State Department issued a certificate of loss of nationality. File 1040ez online free The date that a U. File 1040ez online free S. File 1040ez online free court canceled your certificate of naturalization. File 1040ez online free Former long-term resident. File 1040ez online free   You are considered to have terminated your long-term residency on the earliest of the following dates. File 1040ez online free The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U. File 1040ez online free S. File 1040ez online free consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status. File 1040ez online free The date you became subject to a final administrative order for your removal from the United States under the Immigration and Nationality Act and you actually left the United States as a result of that order. File 1040ez online free If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date you began to be treated as a resident of that country and you determined that, for purposes of the treaty, you are a resident of the treaty country and notify the IRS of that treatment on Forms 8833 and 8854. File 1040ez online free See Effect of Tax Treaties in chapter 1 for more information about dual residents. File 1040ez online free How To Figure the Expatriation Tax (If You Expatriate After June 16, 2008) In the year you expatriate, you are subject to income tax on the net unrealized gain (or loss) in your property as if the property had been sold for its fair market value on the day before your expatriation date (“mark-to-market tax”). File 1040ez online free This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. File 1040ez online free But see Exceptions , later. File 1040ez online free Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U. File 1040ez online free S. File 1040ez online free internal revenue laws. File 1040ez online free Losses from deemed sales must be taken into account to the extent otherwise provided under U. File 1040ez online free S. File 1040ez online free internal revenue laws. File 1040ez online free However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. File 1040ez online free The net gain that you otherwise must include in your income is reduced (but not below zero) by: $600,000 if you expatriated or terminated residency before January 1, 2009. File 1040ez online free $626,000 if you expatriated or terminated residency in 2009. File 1040ez online free $627,000 if you expatriated or terminated residency in 2010. File 1040ez online free $636,000 if you expatriated or terminated residency in 2011. File 1040ez online free $651,000 if you expatriated or terminated residency in 2012. File 1040ez online free $668,000 if you expatriated or terminated residency in 2013. File 1040ez online free Exceptions. File 1040ez online free   The mark-to-market tax does not apply to the following. File 1040ez online free Eligible deferred compensation items. File 1040ez online free Ineligible deferred compensation items. File 1040ez online free Interests in nongrantor trusts. File 1040ez online free Specified tax deferred accounts. File 1040ez online free Instead, items (1) and (3) may be subject to withholding at source. File 1040ez online free In the case of item (2), you are treated as receiving the present value of your accrued benefit as of the day before the expatriation date. File 1040ez online free In the case of item (4), you are treated as receiving a distribution of your entire interest in the account on the day before your expatriation date. File 1040ez online free See paragraphs (d), (e), and (f) of section 877A for more information. File 1040ez online free Expatriation Tax Return If you expatriated or terminated your U. File 1040ez online free S. File 1040ez online free residency, or you are subject to the expatriation rules (as discussed earlier in the first paragraph under Expatriation After June 16, 2008), you must file Form 8854. File 1040ez online free Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms. File 1040ez online free Deferral of payment of mark-to-market tax. File 1040ez online free   You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. File 1040ez online free If you make this election, the following rules apply. File 1040ez online free You can make the election on a property-by-property basis. File 1040ez online free The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property. File 1040ez online free Interest is charged for the period the tax is deferred. File 1040ez online free The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates. File 1040ez online free The due date of the return required for the year of death. File 1040ez online free The time that the security provided for the property fails to be adequate. File 1040ez online free See item (6) below. File 1040ez online free You make the election on Form 8854. File 1040ez online free You must provide adequate security (such as a bond). File 1040ez online free You must make an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of the mark-to-market tax. File 1040ez online free   For more information about the deferral of payment, see the Instructions for Form 8854. File 1040ez online free Prev  Up  Next   Home   More Online Publications
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Understanding your CP259F Notice

We're sending you this notice because our records indicate you did not file a required Form 5227, Split-Interest Trust information Return.

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Answers to Common Questions

Which organizations must file a Form 5227?
Form 5227 must be filed by all charitable remainder trusts described in section 664; all pooled income funds described in section 642(c)(5); and all other trusts such as charitable lead trusts that meet the definition of a split-interest trust under section 4947(a)(2), unless certain exceptions apply (see General Instructions of the Form 5227 Instructions).

When is Form 5227 due?
Form 5227 is due by April 15 of each year. If the due date falls on a Saturday, Sunday, or legal holiday, the organization can file the return on the next business day. More information can be found at the Form 5227 Instructions.

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If you have questions and/or need help completing the form, please call 1-877-829-5500. Personal assistance is available Monday through Friday, 7:00 a.m. to 7:00 p.m. CT.

Where can I go for more information about tax-exempt organizations?
For more information on tax-exempt organizations see Tax Information for Charities & Other Non-Profits.


Tips for next year

Review the tax-exempt organization resources at Form 990 Resources and Tools for Exempt Organizations.


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Page Last Reviewed or Updated: 29-Mar-2014

The File 1040ez Online Free

File 1040ez online free 4. File 1040ez online free   Figuring Depreciation Under MACRS Table of Contents Introduction Useful Items - You may want to see: Which Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS?Rent-to-own dealer. File 1040ez online free Rent-to-own contract. File 1040ez online free What Is the Placed in Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies?Recovery Periods Under GDS Recovery Periods Under ADS Additions and Improvements Which Convention Applies? Which Depreciation Method Applies?Depreciation Methods for Farm Property Electing a Different Method How Is the Depreciation Deduction Figured?Using the MACRS Percentage Tables Figuring the Deduction Without Using the Tables Figuring the Deduction for Property Acquired in a Nontaxable Exchange Figuring the Deduction for a Short Tax Year How Do You Use General Asset Accounts?Grouping Property Figuring Depreciation for a GAA Disposing of GAA Property Terminating GAA Treatment Electing To Use a GAA When Do You Recapture MACRS Depreciation? Introduction The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. File 1040ez online free MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). File 1040ez online free Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. File 1040ez online free To be sure you can use MACRS to figure depreciation for your property, see What Method Can You Use To Depreciate Your Property in chapter 1. File 1040ez online free This chapter explains how to determine which MACRS depreciation system applies to your property. File 1040ez online free It also discusses other information you need to know before you can figure depreciation under MACRS. File 1040ez online free This information includes the property's recovery class, placed in service date, and basis, as well as the applicable recovery period, convention, and depreciation method. File 1040ez online free It explains how to use this information to figure your depreciation deduction and how to use a general asset account to depreciate a group of properties. File 1040ez online free Finally, it explains when and how to recapture MACRS depreciation. File 1040ez online free Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 463 Travel, Entertainment, Gift, and Car  Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. File 1040ez online free Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. File 1040ez online free You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. File 1040ez online free If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. File 1040ez online free Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. File 1040ez online free If you placed your property in service before 2013 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III. File 1040ez online free Required use of ADS. File 1040ez online free   You must use ADS for the following property. File 1040ez online free Listed property used 50% or less in a qualified business use. File 1040ez online free See chapter 5 for information on listed property. File 1040ez online free Any tangible property used predominantly outside the United States during the year. File 1040ez online free Any tax-exempt use property. File 1040ez online free Any tax-exempt bond-financed property. File 1040ez online free All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. File 1040ez online free Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. File 1040ez online free If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3) for the property. File 1040ez online free Electing ADS. File 1040ez online free   Although your property may qualify for GDS, you can elect to use ADS. File 1040ez online free The election generally must cover all property in the same property class that you placed in service during the year. File 1040ez online free However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. File 1040ez online free Once you make this election, you can never revoke it. File 1040ez online free   You make the election by completing line 20 in Part III of Form 4562. File 1040ez online free Which Property Class Applies Under GDS? The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. File 1040ez online free These property classes are also listed under column (a) in section B, Part III, of Form 4562. File 1040ez online free For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. File 1040ez online free 3-year property. File 1040ez online free Tractor units for over-the-road use. File 1040ez online free Any race horse over 2 years old when placed in service. File 1040ez online free (All race horses placed in service after December 31, 2008, and before January 1, 2014, are deemed to be 3-year property, regardless of age. File 1040ez online free ) Any other horse (other than a race horse) over 12 years old when placed in service. File 1040ez online free Qualified rent-to-own property (defined later). File 1040ez online free 5-year property. File 1040ez online free Automobiles, taxis, buses, and trucks. File 1040ez online free Computers and peripheral equipment. File 1040ez online free Office machinery (such as typewriters, calculators, and copiers). File 1040ez online free Any property used in research and experimentation. File 1040ez online free Breeding cattle and dairy cattle. File 1040ez online free Appliances, carpets, furniture, etc. File 1040ez online free , used in a residential rental real estate activity. File 1040ez online free Certain geothermal, solar, and wind energy property. File 1040ez online free 7-year property. File 1040ez online free Office furniture and fixtures (such as desks, files, and safes). File 1040ez online free Agricultural machinery and equipment. File 1040ez online free Any property that does not have a class life and has not been designated by law as being in any other class. File 1040ez online free Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. File 1040ez online free Any natural gas gathering line placed in service after April 11, 2005. File 1040ez online free See Natural gas gathering line and electric transmission property , later. File 1040ez online free 10-year property. File 1040ez online free Vessels, barges, tugs, and similar water transportation equipment. File 1040ez online free Any single purpose agricultural or horticultural structure. File 1040ez online free Any tree or vine bearing fruits or nuts. File 1040ez online free Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. File 1040ez online free 15-year property. File 1040ez online free Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). File 1040ez online free Any retail motor fuels outlet (defined later), such as a convenience store. File 1040ez online free Any municipal wastewater treatment plant. File 1040ez online free Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. File 1040ez online free Any qualified restaurant property (defined later) placed in service before January 1, 2014. File 1040ez online free Initial clearing and grading land improvements for gas utility property. File 1040ez online free Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005. File 1040ez online free See Natural gas gathering line and electric transmission property , later. File 1040ez online free Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. File 1040ez online free Any qualified retail improvement property placed in service before January 1, 2014. File 1040ez online free 20-year property. File 1040ez online free Farm buildings (other than single purpose agricultural or horticultural structures). File 1040ez online free Municipal sewers not classified as 25-year property. File 1040ez online free Initial clearing and grading land improvements for electric utility transmission and distribution plants. File 1040ez online free 25-year property. File 1040ez online free This class is water utility property, which is either of the following. File 1040ez online free Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property. File 1040ez online free Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. File 1040ez online free Residential rental property. File 1040ez online free This is any building or structure, such as a rental home (including a mobile home), if 80% or more of its gross rental income for the tax year is from dwelling units. File 1040ez online free A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. File 1040ez online free It does not include a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis. File 1040ez online free If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy. File 1040ez online free Nonresidential real property. File 1040ez online free This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27. File 1040ez online free 5 years. File 1040ez online free Qualified rent-to-own property. File 1040ez online free   Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. File 1040ez online free It is tangible personal property generally used in the home for personal use. File 1040ez online free It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. File 1040ez online free Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. File 1040ez online free   If some of the property you rent to others under a rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you still can treat this property as qualified property as long as it does not represent a significant portion of your leasing property. File 1040ez online free However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property. File 1040ez online free Rent-to-own dealer. File 1040ez online free   You are a rent-to-own dealer if you meet all the following requirements. File 1040ez online free You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. File 1040ez online free A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. File 1040ez online free The property is tangible personal property of a type generally used within the home for personal use. File 1040ez online free Rent-to-own contract. File 1040ez online free   This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which— Is titled “Rent-to-Own Agreement,” “Lease Agreement with Ownership Option,” or other similar language. File 1040ez online free Provides a beginning date and a maximum period of time, not to exceed 156 weeks or 36 months from the beginning date, for which the contract can be in effect (including renewals or options to extend). File 1040ez online free Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. File 1040ez online free If the payments are decreasing, no payment can be less than 40% of the largest payment. File 1040ez online free Provides for total payments that generally exceed the normal retail price of the property plus interest. File 1040ez online free Provides for total payments that do not exceed $10,000 for each item of property. File 1040ez online free Provides that the customer has no legal obligation to make all payments outlined in the contract and that, at the end of each weekly or monthly payment period, the customer can either continue to use the property by making the next payment or return the property in good working order with no further obligations and no entitlement to a return of any prior payments. File 1040ez online free Provides that legal title to the property remains with the rent-to-own dealer until the customer makes either all the required payments or the early purchase payments required under the contract to acquire legal title. File 1040ez online free Provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, or otherwise dispose of the property until all contract payments have been made. File 1040ez online free Motorsports entertainment complex. File 1040ez online free   This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. File 1040ez online free The events must be open to the public for the price of admission. File 1040ez online free Qualified smart electric grid system. File 1040ez online free   A qualified smart electric grid system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. File 1040ez online free Smart grid property includes electronics and related equipment that is capable of: Sensing, collecting, and monitoring data of or from all portions of a utility's electric distribution grid, Providing real-time, two-way communications to monitor or to manage the grid, and Providing real-time analysis of an event prediction based on collected data that can be used to provide electric distribution system reliability, quality, and performance. File 1040ez online free Retail motor fuels outlet. File 1040ez online free   Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests. File 1040ez online free It is not larger than 1,400 square feet. File 1040ez online free 50% or more of the gross revenues generated from the property are derived from petroleum sales. File 1040ez online free 50% or more of the floor space in the property is devoted to petroleum marketing sales. File 1040ez online free A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. File 1040ez online free Qualified leasehold improvement property. File 1040ez online free    Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. File 1040ez online free   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions. File 1040ez online free A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or reacquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. File 1040ez online free Examples include the following. File 1040ez online free A complete liquidation of a subsidiary. File 1040ez online free A transfer to a corporation controlled by the transferor. File 1040ez online free An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. File 1040ez online free Qualified restaurant property. File 1040ez online free   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. File 1040ez online free Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premises consumption of prepared meals. File 1040ez online free Qualified smart electric meter. File 1040ez online free   A qualified smart electric meter is any time-based meter and related communication equipment which is placed in service by a supplier of electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that: Measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day; Provides for the exchange of information between the supplier or provider and the customer's smart electric meter in support of time-based rates or other forms of demand response; Provides data to the supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and Provides all commercial and residential customers of such supplier or provider with net metering. File 1040ez online free Net metering means allowing a customer a credit, if any, as complies with applicable federal and state laws and regulations for providing electricity to the supplier or provider. File 1040ez online free Natural gas gathering line and electric transmission property. File 1040ez online free   Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met. File 1040ez online free The original use of the property must have begun with you after April 11, 2005. File 1040ez online free Original use means the first use to which the property is put, whether or not by you. File 1040ez online free Therefore, property used by any person before April 12, 2005, is not original use. File 1040ez online free Original use includes additional capital expenditures you incurred to recondition or rebuild your property. File 1040ez online free However, original use does not include the cost of reconditioned or rebuilt property you acquired. File 1040ez online free Property containing used parts will not be treated as reconditioned or rebuilt if the cost of the used parts is not more than 20% of the total cost of the property. File 1040ez online free The property must not be placed in service under a binding contract in effect before April 12, 2005. File 1040ez online free The property must not be self-constructed property (property you manufacture, construct, or produce for your own use), if you began the manufacture, construction, or production of the property before April 12, 2005. File 1040ez online free Property that is manufactured, constructed, or produced for your use by another person under a written binding contract entered into by you or a related party before the manufacture, construction, or production of the property is considered to be manufactured, constructed, or produced by you. File 1040ez online free What Is the Placed in Service Date? You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. File 1040ez online free The placed in service date for your property is the date the property is ready and available for a specific use. File 1040ez online free It is therefore not necessarily the date it is first used. File 1040ez online free If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. File 1040ez online free See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. File 1040ez online free What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. File 1040ez online free For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . File 1040ez online free Reduce that amount by any credits and deductions allocable to the property. File 1040ez online free The following are examples of some credits and deductions that reduce basis. File 1040ez online free Any deduction for section 179 property. File 1040ez online free Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. File 1040ez online free Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005, and before January 1, 2014. File 1040ez online free Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005, and before January 1, 2014. File 1040ez online free Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006, and before January 1, 2014 . File 1040ez online free Any deduction for removal of barriers to the disabled and the elderly. File 1040ez online free Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. File 1040ez online free Any special depreciation allowance. File 1040ez online free Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. File 1040ez online free For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. File 1040ez online free Enter the basis for depreciation under column (c) in Part III of Form 4562. File 1040ez online free For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . File 1040ez online free Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. File 1040ez online free It is determined based on the depreciation system (GDS or ADS) used. File 1040ez online free Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. File 1040ez online free Property Class Recovery Period 3-year property   3 years 1   5-year property   5 years     7-year property   7 years     10-year property   10 years     15-year property   15 years 2   20-year property   20 years     25-year property   25 years 3   Residential rental property   27. File 1040ez online free 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. File 1040ez online free 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. File 1040ez online free 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. File 1040ez online free 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. File 1040ez online free 431. File 1040ez online free 5 years for property placed in service before May 13, 1993 (or before January 1, 1994, if the purchase or construction of the property is under a binding contract in effect before May 13, 1993, or if construction began before May 13, 1993). File 1040ez online free The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. File 1040ez online free Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. File 1040ez online free Enter the appropriate recovery period on Form 4562 under column (d) in section B of Part III, unless already shown (for 25-year property, residential rental property, and nonresidential real property). File 1040ez online free Office in the home. File 1040ez online free   If your home is a personal-use single family residence and you begin to use part of your home as an office, depreciate that part of your home as nonresidential real property over 39 years (31. File 1040ez online free 5 years if you began using it for business before May 13, 1993). File 1040ez online free However, if your home is an apartment in an apartment building that you own and the building is residential rental property as defined earlier under Which Depreciation System (GDS or ADS) Applies , depreciate the part used as an office as residential rental property over 27. File 1040ez online free 5 years. File 1040ez online free See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. File 1040ez online free Home changed to rental use. File 1040ez online free   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. File 1040ez online free 5 years. File 1040ez online free Indian Reservation Property The recovery periods for qualified property you placed in service on an Indian reservation after 1993 and before 2014 are shorter than those listed earlier. File 1040ez online free The following table shows these shorter recovery periods. File 1040ez online free Property Class Recovery  Period 3-year property 2 years 5-year property 3 years 7-year property 4 years 10-year property 6 years 15-year property 9 years 20-year property 12 years Nonresidential real property 22 years Nonresidential real property is defined earlier under Which Property Class Applies Under GDS . File 1040ez online free Use this chart to find the correct percentage table to use for qualified Indian reservation property. File 1040ez online free IF your recovery period is: THEN use the following table in Appendix A: 2 years A-21 3 years A-1, A-2, A-3, A-4, or A-5 4 years A-22 6 years A-23 9 years A-14, A-15, A-16, A-17, or A-18 12 years A-14, A-15, A-16, A-17, or A-18 22 years A-24 Qualified property. File 1040ez online free   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. File 1040ez online free You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. File 1040ez online free The rental of real property that is located on an Indian reservation is treated as the active conduct of a trade or business within an Indian reservation. File 1040ez online free   The following property is not qualified property. File 1040ez online free Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. File 1040ez online free Property acquired directly or indirectly from a related person. File 1040ez online free Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. File 1040ez online free These activities are defined in section 4 of the Indian Regulatory Act (25 U. File 1040ez online free S. File 1040ez online free C. File 1040ez online free 2703). File 1040ez online free Any property you must depreciate under ADS. File 1040ez online free Determine whether property is qualified without regard to the election to use ADS and after applying the special rules for listed property not used predominantly for qualified business use (discussed in chapter 5). File 1040ez online free Qualified infrastructure property. File 1040ez online free   Item (1) above does not apply to qualified infrastructure property located outside the reservation that is used to connect with qualified infrastructure property within the reservation. File 1040ez online free Qualified infrastructure property is property that meets all the following rules. File 1040ez online free It is qualified property, as defined earlier, except that it is outside the reservation. File 1040ez online free It benefits the tribal infrastructure. File 1040ez online free It is available to the general public. File 1040ez online free It is placed in service in connection with the active conduct of a trade or business within a reservation. File 1040ez online free Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. File 1040ez online free Related person. File 1040ez online free   For purposes of item (2) above, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 for a description of related persons. File 1040ez online free Indian reservation. File 1040ez online free   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. File 1040ez online free S. File 1040ez online free C. File 1040ez online free 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. File 1040ez online free S. File 1040ez online free C. File 1040ez online free 1903(10)). File 1040ez online free Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. File 1040ez online free For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. File 1040ez online free Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. File 1040ez online free The following table shows some of the ADS recovery periods. File 1040ez online free Property Recovery  Period Rent-to-own property 4 years Automobiles and light duty trucks 5 years Computers and peripheral equipment 5 years High technology telephone station equipment installed on customer premises 5 years High technology medical equipment 5 years Personal property with no class life 12 years Natural gas gathering lines 14 years Single purpose agricultural and horticultural structures 15 years Any tree or vine bearing fruit or nuts 20 years Initial clearing and grading land  improvements for gas utility property 20 years Initial clearing and grading land  improvements for electric utility  transmission and distribution plants 25 years Electric transmission property used in the transmission at 69 or more kilovolts of electricity 30 years Natural gas distribution lines 35 years Any qualified leasehold improvement property 39 years Any qualified restaurant property 39 years Nonresidential real property 40 years Residential rental property 40 years Section 1245 real property not listed in Appendix B 40 years Railroad grading and tunnel bore 50 years The ADS recovery periods for property not listed above can be found in the tables in Appendix B. File 1040ez online free Rent-to-own property, qualified leasehold improvement property, qualified restaurant property, residential rental property, and nonresidential real property are defined earlier under Which Property Class Applies Under GDS . File 1040ez online free Tax-exempt use property subject to a lease. File 1040ez online free   The ADS recovery period for any property leased under a lease agreement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership) cannot be less than 125% of the lease term. File 1040ez online free Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. File 1040ez online free See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. File 1040ez online free Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. File 1040ez online free The recovery period begins on the later of the following dates. File 1040ez online free The date you place the addition or improvement in service. File 1040ez online free The date you place in service the property to which you made the addition or improvement. File 1040ez online free If the improvement you make is qualified leasehold improvement property, qualified restaurant property, or qualified retail improvement property, the GDS recovery period is 15 years (39 years under ADS). File 1040ez online free Example. File 1040ez online free You own a rental home that you have been renting out since 1981. File 1040ez online free If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. File 1040ez online free Under GDS, the property class for the addition is residential rental property and its recovery period is 27. File 1040ez online free 5 years because the home to which the addition is made would be residential rental property if you had placed it in service this year. File 1040ez online free Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. File 1040ez online free 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 1040ez online free The mid-month convention. File 1040ez online free   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. File 1040ez online free   Under this convention, you treat all property placed in service or disposed of during a month as placed in service or disposed of at the midpoint of the month. File 1040ez online free This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. File 1040ez online free   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. File 1040ez online free The mid-quarter convention. File 1040ez online free   Use this convention if the mid-month convention does not apply and the total depreciable bases of MACRS property you placed in service during the last 3 months of the tax year (excluding nonresidential real property, residential rental property, any railroad grading or tunnel bore, property placed in service and disposed of in the same year, and property that is being depreciated under a method other than MACRS) are more than 40% of the total depreciable bases of all MACRS property you placed in service during the entire year. File 1040ez online free   Under this convention, you treat all property placed in service or disposed of during any quarter of the tax year as placed in service or disposed of at the midpoint of that quarter. File 1040ez online free This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. File 1040ez online free   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. File 1040ez online free    For purposes of determining whether the mid-quarter convention applies, the depreciable basis of property you placed in service during the tax year reflects the reduction in basis for amounts expensed under section 179 and the part of the basis of property attributable to personal use. File 1040ez online free However, it does not reflect any reduction in basis for any special depreciation allowance. File 1040ez online free The half-year convention. File 1040ez online free   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. File 1040ez online free   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 the year. File 1040ez online free This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. File 1040ez online free   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. File 1040ez online free Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. File 1040ez online free The 200% declining balance method over a GDS recovery period. File 1040ez online free The 150% declining balance method over a GDS recovery period. File 1040ez online free The straight line method over a GDS recovery period. File 1040ez online free The straight line method over an ADS recovery period. File 1040ez online free For property placed in service before 1999, you could have elected the 150% declining balance method using the ADS recovery periods for certain property classes. File 1040ez online free If you made this election, continue to use the same method and recovery period for that property. File 1040ez online free Table 4–1 lists the types of property you can depreciate under each method. File 1040ez online free It also gives a brief explanation of the method, including any benefits that may apply. File 1040ez online free Depreciation Methods for Farm Property If you place personal property in service in a farming business after 1988, you generally must depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under GDS or ADS using the straight line method. File 1040ez online free You can depreciate real property using the straight line method under either GDS or ADS. File 1040ez online free Fruit or nut trees and vines. File 1040ez online free   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. File 1040ez online free ADS required for some farmers. File 1040ez online free   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. File 1040ez online free You must use ADS for all property you place in service in any year the election is in effect. File 1040ez online free See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. File 1040ez online free Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. File 1040ez online free You must make the election by the due date of the return (including extensions) for the year you placed the property in service. File 1040ez online free However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). File 1040ez online free Attach the election to the amended return and write “Filed pursuant to section 301. File 1040ez online free 9100-2” on the election statement. File 1040ez online free File the amended return at the same address you filed the original return. File 1040ez online free Once you make the election, you cannot change it. File 1040ez online free If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. File 1040ez online free However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. File 1040ez online free 150% election. File 1040ez online free   Instead of using the 200% declining balance method over the GDS recovery period for nonfarm property in the 3-, 5-, 7-, and 10-year property classes, you can elect to use the 150% declining balance method. File 1040ez online free Make the election by entering “150 DB” under column (f) in Part III of Form 4562. File 1040ez online free Straight line election. File 1040ez online free   Instead of using either the 200% or 150% declining balance methods over the GDS recovery period, you can elect to use the straight line method over the GDS recovery period. File 1040ez online free Make the election by entering  “S/L” under column (f) in Part III of Form 4562. File 1040ez online free Election of ADS. File 1040ez online free   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. File 1040ez online free ADS uses the straight line method of depreciation over fixed ADS recovery periods. File 1040ez online free Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. File 1040ez online free   Make the election by completing line 20 in Part III of Form 4562. File 1040ez online free Farm property. File 1040ez online free   Instead of using the 150% declining balance method over a GDS recovery period for property you use in a farming business (other than real property), you can elect to depreciate it using either of the following methods. File 1040ez online free The straight line method over a GDS recovery period. File 1040ez online free The straight line method over an ADS recovery period. File 1040ez online free Table 4-1. File 1040ez online free Depreciation Methods Note. File 1040ez online free The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. File 1040ez online free Method Type of Property Benefit GDS using 200% DB • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction GDS using 150% DB • All farm property (except real property) • All 15- and 20-year property (except qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service before January 1, 2014) • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction1 GDS using SL • Nonresidential real property • Qualified leasehold improvement property placed in service before January 1, 2014 • Qualified restaurant property placed in service before January 1, 2014 • Qualified retail improvement property placed in service before January 1, 2014 • Residential rental property • Trees or vines bearing fruit or nuts • Water utility property • All 3-, 5-, 7-, 10-, 15-, and 20-year property2 • Property for which you elected section 168(k)(4) • Provides for equal yearly deductions (except for the first and last years) ADS using SL • Listed property used 50% or less for business • Property used predominantly outside the U. File 1040ez online free S. File 1040ez online free  • Tax-exempt property • Tax-exempt bond-financed property • Farm property used when an election not to apply the uniform capitalization rules is in effect • Imported property3 • Any property for which you elect to use this method4 • Provides for equal yearly deductions (except for the first and last years) 1The MACRS percentage tables in Appendix A have the switch to the straight line method built into their rates 2See section 168(b)(5) of the Internal Revenue Code. File 1040ez online free 3See section 168(g)(6) of the Internal Revenue Code 4See section 168(g)(7) of the Internal Revenue Code How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that applies to your property. File 1040ez online free Then, you are ready to figure your depreciation deduction. File 1040ez online free You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. File 1040ez online free Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. File 1040ez online free These percentage tables are in Appendix A near the end of this publication. File 1040ez online free Which table to use. File 1040ez online free    Appendix A contains the MACRS Percentage Table Guide, which is designed to help you locate the correct percentage table to use for depreciating your property. File 1040ez online free The percentage tables immediately follow the guide. File 1040ez online free Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. File 1040ez online free You must apply the rates in the percentage tables to your property's unadjusted basis. File 1040ez online free You cannot use the percentage tables for a short tax year. File 1040ez online free See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. File 1040ez online free Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the property. File 1040ez online free You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to that property that is depreciated as a separate item of property. File 1040ez online free Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss. File 1040ez online free Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. File 1040ez online free   If you increase the basis of your property because of the recapture of part or all of a deduction for clean-fuel vehicles or the credit for clean-fuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. File 1040ez online free For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. File 1040ez online free See Figuring the Deduction Without Using the Tables, later. File 1040ez online free Basis adjustment due to casualty loss. File 1040ez online free   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. File 1040ez online free For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. File 1040ez online free See Figuring the Deduction Without Using the Tables, later. File 1040ez online free Example. File 1040ez online free On October 26, 2012, Sandra Elm, a calendar year taxpayer, bought and placed in service in her business a new item of 7-year property. File 1040ez online free It cost $39,000 and she elected a section 179 deduction of $24,000. File 1040ez online free She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. File 1040ez online free Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). File 1040ez online free She figured her MACRS depreciation deduction using the percentage tables. File 1040ez online free For 2012, her MACRS depreciation deduction was $268. File 1040ez online free In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. File 1040ez online free She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. File 1040ez online free Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. File 1040ez online free She figures that amount by subtracting the 2012 MACRS depreciation of $268 and the casualty loss of $3,000 from the unadjusted basis of $7,500. File 1040ez online free She must now figure her depreciation for 2013 without using the percentage tables. File 1040ez online free Figuring the Unadjusted Basis of Your Property You must apply the table rates to your property's unadjusted basis each year of the recovery period. File 1040ez online free Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. File 1040ez online free However, you do reduce your original basis by other amounts, including the following. File 1040ez online free Any amortization taken on the property. File 1040ez online free Any section 179 deduction claimed. File 1040ez online free Any special depreciation allowance taken on the property. File 1040ez online free For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. File 1040ez online free If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments. File 1040ez online free MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. File 1040ez online free Use a separate worksheet for each item of property. File 1040ez online free Then, use the information from this worksheet to prepare Form 4562. File 1040ez online free Do not use this worksheet for automobiles. File 1040ez online free Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. File 1040ez online free MACRS Worksheet Part I   1. File 1040ez online free MACRS system (GDS or ADS)   2. File 1040ez online free Property class   3. File 1040ez online free Date placed in service   4. File 1040ez online free Recovery period   5. File 1040ez online free Method and convention   6. File 1040ez online free Depreciation rate (from tables)   Part II   7. File 1040ez online free Cost or other basis* $     8. File 1040ez online free Business/investment use   %   9. File 1040ez online free Multiply line 7 by line 8   $ 10. File 1040ez online free Total claimed for section 179 deduction and other items   $ 11. File 1040ez online free Subtract line 10 from line 9. File 1040ez online free This is your tentative basis for depreciation   $ 12. File 1040ez online free Multiply line 11 by . File 1040ez online free 50 if the 50% special depreciation allowance applies. File 1040ez online free This is your special depreciation allowance. File 1040ez online free Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   $ 13. File 1040ez online free Subtract line 12 from line 11. File 1040ez online free This is your basis for depreciation     14. File 1040ez online free Depreciation rate (from line 6)     15. File 1040ez online free Multiply line 13 by line 14. File 1040ez online free This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. File 1040ez online free The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. File 1040ez online free Example. File 1040ez online free You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. File 1040ez online free You use the furniture only for business. File 1040ez online free This is the only property you placed in service this year. File 1040ez online free You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance so your property's unadjusted basis is its cost, $10,000. File 1040ez online free You use GDS and the half-year convention to figure your depreciation. File 1040ez online free You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. File 1040ez online free Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. File 1040ez online free You figure your depreciation deduction using the MACRS worksheet as follows. File 1040ez online free MACRS Worksheet Part I 1. File 1040ez online free MACRS system (GDS or ADS) GDS 2. File 1040ez online free Property class 7-year 3. File 1040ez online free Date placed in service 8/11/13 4. File 1040ez online free Recovery period 7-Year 5. File 1040ez online free Method and convention 200%DB/Half-Year 6. File 1040ez online free Depreciation rate (from tables) . File 1040ez online free 1429 Part II 7. File 1040ez online free Cost or other basis* $10,000     8. File 1040ez online free Business/investment use 100 %   9. File 1040ez online free Multiply line 7 by line 8   $10,000 10. File 1040ez online free Total claimed for section 179 deduction and other items   -0- 11. File 1040ez online free Subtract line 10 from line 9. File 1040ez online free This is your tentative basis for depreciation   $10,000 12. File 1040ez online free Multiply line 11 by . File 1040ez online free 50 if the 50% special depreciation allowance applies. File 1040ez online free This is your special depreciation allowance. File 1040ez online free Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   -0- 13. File 1040ez online free Subtract line 12 from line 11. File 1040ez online free This is your basis for depreciation   $10,000 14. File 1040ez online free Depreciation rate (from line 6)   . File 1040ez online free 1429 15. File 1040ez online free Multiply line 13 by line 14. File 1040ez online free This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. File 1040ez online free If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows. File 1040ez online free Year   Basis Percentage Deduction 2014 $ 10,000 24. File 1040ez online free 49%   $2,449   2015   10,000 17. File 1040ez online free 49   1,749   2016   10,000 12. File 1040ez online free 49   1,249   2017   10,000 8. File 1040ez online free 93   893   2018   10,000 8. File 1040ez online free 92   892   2019   10,000 8. File 1040ez online free 93   893   2020   10,000 4. File 1040ez online free 46   446   Examples The following examples are provided to show you how to use the percentage tables. File 1040ez online free In both examples, assume the following. File 1040ez online free You use the property only for business. File 1040ez online free You use the calendar year as your tax year. File 1040ez online free You use GDS for all the properties. File 1040ez online free Example 1. File 1040ez online free You bought a building and land for $120,000 and placed it in service on March 8. File 1040ez online free The sales contract showed that the building cost $100,000 and the land cost $20,000. File 1040ez online free It is nonresidential real property. File 1040ez online free The building's unadjusted basis is its original cost, $100,000. File 1040ez online free You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. File 1040ez online free March is the third month of your tax year, so multiply the building's unadjusted basis, $100,000, by the percentages for the third month in Table A-7a. File 1040ez online free Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. File 1040ez online free 033%   $2,033   2nd   100,000 2. File 1040ez online free 564   2,564   3rd   100,000 2. File 1040ez online free 564   2,564   Example 2. File 1040ez online free During the year, you bought a machine (7-year property) for $4,000, office furniture (7-year property) for $1,000, and a computer (5-year property) for $5,000. File 1040ez online free You placed the machine in service in January, the furniture in September, and the computer in October. File 1040ez online free You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. File 1040ez online free You placed property in service during the last 3 months of the year, so you must first determine if you have to use the mid-quarter convention. File 1040ez online free The total bases of all property you placed in service during the year is $10,000. File 1040ez online free The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. File 1040ez online free Therefore, you must use the mid-quarter convention for all three items. File 1040ez online free You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. File 1040ez online free The machine is 7-year property placed in service in the first quarter, so you use Table A-2. File 1040ez online free The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. File 1040ez online free Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. File 1040ez online free Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. File 1040ez online free Year Property Basis Percentage Deduction 1st Machine $4,000 25. File 1040ez online free 00 $1,000   2nd Machine 4,000 21. File 1040ez online free 43 857   1st Furniture 1,000 10. File 1040ez online free 71 107   2nd Furniture 1,000 25. File 1040ez online free 51 255   1st Computer 5,000 5. File 1040ez online free 00 250   2nd Computer 5,000 38. File 1040ez online free 00 1,900   Sale or Other Disposition Before the Recovery Period Ends If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. File 1040ez online free You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. File 1040ez online free After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. File 1040ez online free Half-year convention used. File 1040ez online free   For property for which you used a half-year convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year. File 1040ez online free Mid-quarter convention used. File 1040ez online free   For property for which you used the mid-quarter convention, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter in which you disposed of the property. File 1040ez online free Quarter Percentage First 12. File 1040ez online free 5% Second 37. File 1040ez online free 5 Third 62. File 1040ez online free 5 Fourth 87. File 1040ez online free 5 Example. File 1040ez online free On December 2, 2010, you placed in service an item of 5-year property costing $10,000. File 1040ez online free You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. File 1040ez online free Your unadjusted basis for the property was $10,000. File 1040ez online free You used the mid-quarter convention because this was the only item of business property you placed in service in 2010 and it was placed in service during the last 3 months of your tax year. File 1040ez online free Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. File 1040ez online free Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. File 1040ez online free 80% of $10,000). File 1040ez online free You disposed of the property on April 6, 2013. File 1040ez online free To determine your depreciation deduction for 2013, first figure the deduction for the full year. File 1040ez online free This is $1,368 (13. File 1040ez online free 68% of $10,000). File 1040ez online free April is in the second quarter of the year, so you multiply $1,368 by 37. File 1040ez online free 5% to get your depreciation deduction of $513 for 2013. File 1040ez online free Mid-month convention used. File 1040ez online free   If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. File 1040ez online free The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. File 1040ez online free The denominator is 12. File 1040ez online free Example. File 1040ez online free On July 2, 2011, you purchased and placed in service residential rental property. File 1040ez online free The property cost $100,000, not including the cost of land. File 1040ez online free You used Table A-6 to figure your MACRS depreciation for this property. File 1040ez online free You sold the property on March 2, 2013. File 1040ez online free You file your tax return based on the calendar year. File 1040ez online free A full year of depreciation for 2013 is $3,636. File 1040ez online free This is $100,000 multiplied by . File 1040ez online free 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . File 1040ez online free You then apply the mid-month convention for the 2½ months of use in 2013. File 1040ez online free Treat the month of disposition as one-half month of use. File 1040ez online free Multiply $3,636 by the fraction, 2. File 1040ez online free 5 over 12, to get your 2013 depreciation deduction of $757. File 1040ez online free 50. File 1040ez online free Figuring the Deduction Without Using the Tables Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. File 1040ez online free Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. File 1040ez online free Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. File 1040ez online free Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. File 1040ez online free You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. File 1040ez online free The straight line method is explained later. File 1040ez online free You figure depreciation for the year you place property in service as follows. File 1040ez online free Multiply your adjusted basis in the property by the declining balance rate. File 1040ez online free Apply the applicable convention. File 1040ez online free You figure depreciation for all other years (before the year you switch to the straight line method) as follows. File 1040ez online free Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. File 1040ez online free Multiply this new adjusted basis by the same declining balance rate used in earlier years. File 1040ez online free If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it. File 1040ez online free Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. File 1040ez online free Declining balance rate. File 1040ez online free   You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. File 1040ez online free For example, for 3-year property depreciated using the 200% declining balance method, divide 2. File 1040ez online free 00 (200%) by 3 to get 0. File 1040ez online free 6667, or a 66. File 1040ez online free 67% declining balance rate. File 1040ez online free For 15-year property depreciated using the 150% declining balance method, divide 1. File 1040ez online free 50 (150%) by 15 to get 0. File 1040ez online free 10, or a 10% declining balance rate. File 1040ez online free   The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction. File 1040ez online free Property Class Method Declining Balance Rate Year 3-year 200% DB 66. File 1040ez online free 667% 3rd 5-year 200% DB 40. File 1040ez online free 0 4th 7-year 200% DB 28. File 1040ez online free 571 5th 10-year 200% DB 20. File 1040ez online free 0 7th 15-year 150% DB 10. File 1040ez online free 0 7th 20-year 150% DB 7. File 1040ez online free 5 9th Straight Line Method When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. File 1040ez online free You must use the applicable convention in the year you place the property in service and the year you dispose of the property. File 1040ez online free You figure depreciation for the year you place property in service as follows. File 1040ez online free Multiply your adjusted basis in the property by the straight line rate. File 1040ez online free Apply the applicable convention. File 1040ez online free You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. File 1040ez online free Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). File 1040ez online free Determine the depreciation rate for the year. File 1040ez online free Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). File 1040ez online free If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it. File 1040ez online free Straight line rate. File 1040ez online free   You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. File 1040ez online free When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. File 1040ez online free If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. File 1040ez online free 0 (100%). File 1040ez online free Using the Applicable Convention The applicable convention (discussed earlier under Which Convention Applies ) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. File 1040ez online free It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. File 1040ez online free See Straight line rate in the previous discussion. File 1040ez online free Use the applicable convention as explained in the following discussions. File 1040ez online free Half-year convention. File 1040ez online free   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 1040ez online free You deduct a full year of depreciation for any other year during the recovery period. File 1040ez online free   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. File 1040ez online free If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. File 1040ez online free If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property. File 1040ez online free Mid-quarter convention. File 1040ez online free   If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service. File 1040ez online free   A quarter of a full 12-month tax year is a period of 3 months. File 1040ez online free The first quarter in a year begins on the first day of the tax year. File 1040ez online free The second quarter begins on the first day of the fourth month of the tax year. File 1040ez online free The third quarter begins on the first day of the seventh month of the tax year. File 1040ez online free The fourth quarter begins on the first day of the tenth month of the tax year. File 1040ez online free A calendar year is divided into the following quarters. File 1040ez online free Quarter Months First January, February, March Second April, May, June Third July, August, September Fourth October, November, December   Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service. File 1040ez online free Quarter Percentage First 87. File 1040ez online free 5% Second 62. File 1040ez online free 5 Third 37. File 1040ez online free 5 Fourth 12. File 1040ez online free 5   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property. File 1040ez online free Quarter Percentage First 12. File 1040ez online free 5% Second 37. File 1040ez online free 5 Third 62. File 1040ez online free 5 Fourth 87. File 1040ez online free 5   If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property. File 1040ez online free Mid-month convention. File 1040ez online free   If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. File 1040ez online free Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. File 1040ez online free The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. File 1040ez online free 5). File 1040ez online free The denominator is 12. File 1040ez online free   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. File 1040ez online free If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property. File 1040ez online free Example. File 1040ez online free You use the calendar year and place nonresidential real property in service in August. File 1040ez online free The property is in service 4 full months (September, October, November, and December). File 1040ez online free Your numerator is 4. File 1040ez online free 5 (4 full months plus 0. File 1040ez online free 5). File 1040ez online free You multiply the depreciation for a full year by 4. File 1040ez online free 5/12, or 0. File 1040ez online free 375. File 1040ez online free Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. File 1040ez online free Figures are rounded for purposes of the examples. File 1040ez online free Assume for all the examples that you use a calendar year as your tax year. File 1040ez online free Example 1—200% DB method and half-year convention. File 1040ez online free In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. File 1040ez online free You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. File 1040ez online free You use GDS and the 200% declining balance (DB) method to figure your depreciation. File 1040ez online free When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. File 1040ez online free You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. File 1040ez online free First year. File 1040ez online free You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). File 1040ez online free The result is 40%. File 1040ez online free You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. File 1040ez online free You apply the half-year convention by dividing the result ($400) by 2. File 1040ez online free Depreciation for the first year under the 200% DB method is $200. File 1040ez online free You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. File 1040ez online free The result is 20%. File 1040ez online free You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. File 1040ez online free You apply the half-year convention by dividing the result ($200) by 2. File 1040ez online free Depreciation for the first year under the SL method is $100. File 1040ez online free The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. File 1040ez online free Second year. File 1040ez online free You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). File 1040ez online free You multiply the result ($800) by the DB rate (40%). File 1040ez online free Depreciation for the second year under the 200% DB method is $320. File 1040ez online free You figure the SL depreciation rate by dividing 1 by 4. File 1040ez online free 5, the number of years remaining in the recovery period. File 1040ez online free (Based on the half-year convention, you used only half a year of the recovery period in the first year. File 1040ez online free ) You multiply the reduced adjusted basis ($800) by the result (22. File 1040ez online free 22%). File 1040ez online free Depreciation under the SL method for the second year is $178. File 1040ez online free The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. File 1040ez online free Third year. File 1040ez online free You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). File 1040ez online free You multiply the result ($480) by the DB rate (40%). File 1040ez online free Depreciation for the third year under the 200% DB method is $192. File 1040ez online free You figure the SL depreciation rate by dividing 1 by 3. File 1040ez online free 5. File 1040ez online free You multiply the reduced adjusted basis ($480) by the result (28. File 1040ez online free 57%). File 1040ez online free Depreciation under the SL method for the third year is $137. File 1040ez online free The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. File 1040ez online free Fourth year. File 1040ez online free You reduce the adjusted basis ($480) by the de