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File Corporate Tax Extension Online

File corporate tax extension online Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. File corporate tax extension online Employee-owners. File corporate tax extension online Other rules. File corporate tax extension online Other rules. File corporate tax extension online Property Exchanged for StockNonqualified preferred stock. File corporate tax extension online Liabilities. File corporate tax extension online Election to reduce basis. File corporate tax extension online Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. File corporate tax extension online S. File corporate tax extension online Real Property Interest Accounting MethodsSection 481(a) adjustment. File corporate tax extension online Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. File corporate tax extension online Business formed before 1997. File corporate tax extension online   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. File corporate tax extension online Business formed after 1996. File corporate tax extension online   The following businesses formed after 1996 are taxed as corporations. File corporate tax extension online A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. File corporate tax extension online A business formed under a state law that refers to it as a joint-stock company or joint-stock association. File corporate tax extension online An insurance company. File corporate tax extension online Certain banks. File corporate tax extension online A business wholly owned by a state or local government. File corporate tax extension online A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). File corporate tax extension online Certain foreign businesses. File corporate tax extension online Any other business that elects to be taxed as a corporation. File corporate tax extension online For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. File corporate tax extension online For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. File corporate tax extension online S corporations. File corporate tax extension online   Some corporations may meet the qualifications for electing to be S corporations. File corporate tax extension online For information on S corporations, see the instructions for Form 1120S, U. File corporate tax extension online S. File corporate tax extension online Income Tax Return for an S Corporation. File corporate tax extension online Personal service corporations. File corporate tax extension online   A corporation is a personal service corporation if it meets all of the following requirements. File corporate tax extension online Its principal activity during the “testing period” is performing personal services (defined later). File corporate tax extension online Generally, the testing period for any tax year is the prior tax year. File corporate tax extension online If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. File corporate tax extension online Its employee-owners substantially perform the services in (1), above. File corporate tax extension online This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. File corporate tax extension online Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. File corporate tax extension online Personal services. File corporate tax extension online   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. File corporate tax extension online Employee-owners. File corporate tax extension online   A person is an employee-owner of a personal service corporation if both of the following apply. File corporate tax extension online He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. File corporate tax extension online He or she owns any stock in the corporation at any time during the testing period. File corporate tax extension online Other rules. File corporate tax extension online   For other rules that apply to personal service corporations see Accounting Periods, later. File corporate tax extension online Closely held corporations. File corporate tax extension online   A corporation is closely held if all of the following apply. File corporate tax extension online It is not a personal service corporation. File corporate tax extension online At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. File corporate tax extension online “Individual” includes certain trusts and private foundations. File corporate tax extension online Other rules. File corporate tax extension online   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. File corporate tax extension online Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. File corporate tax extension online This rule applies both to individuals and to groups who transfer property to a corporation. File corporate tax extension online It also applies whether the corporation is being formed or is already operating. File corporate tax extension online It does not apply in the following situations. File corporate tax extension online The corporation is an investment company. File corporate tax extension online You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. File corporate tax extension online The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. File corporate tax extension online Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. File corporate tax extension online For more information, see section 1. File corporate tax extension online 351-3 of the Regulations. File corporate tax extension online Control of a corporation. File corporate tax extension online   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. File corporate tax extension online Example 1. File corporate tax extension online You and Bill Jones buy property for $100,000. File corporate tax extension online You both organize a corporation when the property has a fair market value of $300,000. File corporate tax extension online You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. File corporate tax extension online No gain is recognized by you, Bill, or the corporation. File corporate tax extension online Example 2. File corporate tax extension online You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. File corporate tax extension online This represents only 75% of each class of stock of the corporation. File corporate tax extension online The other 25% was already issued to someone else. File corporate tax extension online You and Bill recognize a taxable gain of $200,000 on the transaction. File corporate tax extension online Services rendered. File corporate tax extension online   The term property does not include services rendered or to be rendered to the issuing corporation. File corporate tax extension online The value of stock received for services is income to the recipient. File corporate tax extension online Example. File corporate tax extension online You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. File corporate tax extension online Right after the exchange, you own 85% of the outstanding stock. File corporate tax extension online No gain is recognized on the exchange of property. File corporate tax extension online However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. File corporate tax extension online Property of relatively small value. File corporate tax extension online   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. File corporate tax extension online   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. File corporate tax extension online Stock received in disproportion to property transferred. File corporate tax extension online   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. File corporate tax extension online If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. File corporate tax extension online It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. File corporate tax extension online Money or other property received. File corporate tax extension online   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. File corporate tax extension online You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. File corporate tax extension online The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. File corporate tax extension online If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. File corporate tax extension online See chapter 3 of Publication 544. File corporate tax extension online No loss is recognized. File corporate tax extension online Nonqualified preferred stock. File corporate tax extension online   Nonqualified preferred stock is treated as property other than stock. File corporate tax extension online Generally, it is preferred stock with any of the following features. File corporate tax extension online The holder has the right to require the issuer or a related person to redeem or buy the stock. File corporate tax extension online The issuer or a related person is required to redeem or buy the stock. File corporate tax extension online The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. File corporate tax extension online The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. File corporate tax extension online For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. File corporate tax extension online Liabilities. File corporate tax extension online   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. File corporate tax extension online There are two exceptions to this treatment. File corporate tax extension online If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. File corporate tax extension online However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. File corporate tax extension online If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. File corporate tax extension online For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. File corporate tax extension online Example. File corporate tax extension online You transfer property to a corporation for stock. File corporate tax extension online Immediately after the transfer, you control the corporation. File corporate tax extension online You also receive $10,000 in the exchange. File corporate tax extension online Your adjusted basis in the transferred property is $20,000. File corporate tax extension online The stock you receive has a fair market value (FMV) of $16,000. File corporate tax extension online The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. File corporate tax extension online Gain is realized as follows. File corporate tax extension online FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. File corporate tax extension online The recognized gain is limited to $10,000, the cash received. File corporate tax extension online Loss on exchange. File corporate tax extension online   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. File corporate tax extension online For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. File corporate tax extension online Basis of stock or other property received. File corporate tax extension online   The basis of the stock you receive is generally the adjusted basis of the property you transfer. File corporate tax extension online Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. File corporate tax extension online Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. File corporate tax extension online Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. File corporate tax extension online    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. File corporate tax extension online This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. File corporate tax extension online The basis of any other property you receive is its fair market value on the date of the trade. File corporate tax extension online Basis of property transferred. File corporate tax extension online   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. File corporate tax extension online However, the increase for the gain recognized may be limited. File corporate tax extension online For more information, see section 362 of the Internal Revenue Code. File corporate tax extension online Election to reduce basis. File corporate tax extension online   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. File corporate tax extension online The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. File corporate tax extension online However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. File corporate tax extension online R. File corporate tax extension online B. File corporate tax extension online 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. File corporate tax extension online    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. File corporate tax extension online Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. File corporate tax extension online Paid-in capital. File corporate tax extension online   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. File corporate tax extension online These contributions are not taxable to the corporation. File corporate tax extension online Basis. File corporate tax extension online   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. File corporate tax extension online However, the increase for the gain recognized may be limited. File corporate tax extension online For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. File corporate tax extension online   The basis of property contributed to capital by a person other than a shareholder is zero. File corporate tax extension online   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. File corporate tax extension online If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. File corporate tax extension online Depreciable property. File corporate tax extension online Amortizable property. File corporate tax extension online Property subject to cost depletion but not to percentage depletion. File corporate tax extension online All other remaining properties. File corporate tax extension online   Reduce the basis of property in each category to zero before going on to the next category. File corporate tax extension online   There may be more than one piece of property in each category. File corporate tax extension online Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. File corporate tax extension online The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. File corporate tax extension online Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. File corporate tax extension online A corporation generally must make estimated tax payments as it earns or receives income during its tax year. File corporate tax extension online After the end of the year, the corporation must file an income tax return. File corporate tax extension online This section will help you determine when and how to pay and file corporate income taxes. File corporate tax extension online For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. File corporate tax extension online The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. File corporate tax extension online For more information, visit www. File corporate tax extension online irs. File corporate tax extension online gov/newsroom/article/0,,id=108362. File corporate tax extension online 00. File corporate tax extension online Income Tax Return This section will help you determine when and how to report a corporation's income tax. File corporate tax extension online Who must file. File corporate tax extension online   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. File corporate tax extension online Which form to file. File corporate tax extension online   A corporation generally must file Form 1120, U. File corporate tax extension online S. File corporate tax extension online Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. File corporate tax extension online Certain organizations and entities must file special returns. File corporate tax extension online For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. File corporate tax extension online Electronic filing. File corporate tax extension online   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. File corporate tax extension online Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. File corporate tax extension online However, in certain instances, these corporations can request a waiver. File corporate tax extension online For more information regarding electronic filing, visit www. File corporate tax extension online irs. File corporate tax extension online gov/efile. File corporate tax extension online When to file. File corporate tax extension online   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. File corporate tax extension online A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. File corporate tax extension online A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. File corporate tax extension online Example 1. File corporate tax extension online A corporation's tax year ends December 31. File corporate tax extension online It must file its income tax return by March 15th. File corporate tax extension online Example 2. File corporate tax extension online A corporation's tax year ends June 30. File corporate tax extension online It must file its income tax return by September 15th. File corporate tax extension online   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. File corporate tax extension online Extension of time to file. File corporate tax extension online   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. File corporate tax extension online The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. File corporate tax extension online   Form 7004 does not extend the time for paying the tax due on the return. File corporate tax extension online Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. File corporate tax extension online The interest is figured from the original due date of the return to the date of payment. File corporate tax extension online   For more information, see the instructions for Form 7004. File corporate tax extension online How to pay your taxes. File corporate tax extension online   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. File corporate tax extension online Electronic Federal Tax Payment System (EFTPS). File corporate tax extension online   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). File corporate tax extension online For more information on EFTPS and enrollment, visit www. File corporate tax extension online eftps. File corporate tax extension online gov or call 1-800-555-4477. File corporate tax extension online Also see Publication 966, The Secure Way to Pay Your Federal Taxes. File corporate tax extension online Note. File corporate tax extension online Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. File corporate tax extension online Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. File corporate tax extension online Do not attach an explanation when the corporation's return is filed. File corporate tax extension online See the instructions for your income tax return. File corporate tax extension online Late filing of return. File corporate tax extension online    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. File corporate tax extension online If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. File corporate tax extension online The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. File corporate tax extension online The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. File corporate tax extension online Late payment of tax. File corporate tax extension online    A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. File corporate tax extension online The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. File corporate tax extension online Trust fund recovery penalty. File corporate tax extension online   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. File corporate tax extension online The penalty is the full amount of the unpaid trust fund tax. File corporate tax extension online This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. File corporate tax extension online   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. File corporate tax extension online   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. File corporate tax extension online A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. File corporate tax extension online   Willfully means voluntarily, consciously, and intentionally. File corporate tax extension online A responsible person acts willfully if the person knows the required actions are not taking place. File corporate tax extension online   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. File corporate tax extension online Other penalties. File corporate tax extension online   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. File corporate tax extension online See sections 6662, 6662A, and 6663 of the Internal Revenue Code. File corporate tax extension online Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. File corporate tax extension online If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. File corporate tax extension online This section will explain how to avoid this penalty. File corporate tax extension online When to pay estimated tax. File corporate tax extension online   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. File corporate tax extension online Example 1. File corporate tax extension online Your corporation's tax year ends December 31. File corporate tax extension online Installment payments are due on April 15, June 15, September 15, and December 15. File corporate tax extension online Example 2. File corporate tax extension online Your corporation's tax year ends June 30. File corporate tax extension online Installment payments are due on October 15, December 15, March 15, and June 15. File corporate tax extension online   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. File corporate tax extension online How to figure each required installment. File corporate tax extension online   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. File corporate tax extension online You will generally use one of the following two methods to figure each required installment. File corporate tax extension online You should use the method that yields the smallest installment payments. File corporate tax extension online Note. File corporate tax extension online In these discussions, “return” generally refers to the corporation's original return. File corporate tax extension online However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. File corporate tax extension online Method 1. File corporate tax extension online   Each required installment is 25% of the income tax the corporation will show on its return for the current year. File corporate tax extension online Method 2. File corporate tax extension online   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. File corporate tax extension online   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). File corporate tax extension online Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. File corporate tax extension online   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. File corporate tax extension online Other methods. File corporate tax extension online   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. File corporate tax extension online The annualized income installment method. File corporate tax extension online The adjusted seasonal installment method. File corporate tax extension online Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. File corporate tax extension online Refiguring required installments. File corporate tax extension online   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. File corporate tax extension online An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. File corporate tax extension online Underpayment penalty. File corporate tax extension online   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. File corporate tax extension online The penalty is figured separately for each installment due date. File corporate tax extension online The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. File corporate tax extension online This is true even if the corporation is due a refund when its return is filed. File corporate tax extension online Form 2220. File corporate tax extension online   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. File corporate tax extension online   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. File corporate tax extension online The amount of the underpayment. File corporate tax extension online The period during which the underpayment was due and unpaid. File corporate tax extension online The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. File corporate tax extension online   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. File corporate tax extension online However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. File corporate tax extension online The annualized income installment method was used to figure any required installment. File corporate tax extension online The adjusted seasonal installment method was used to figure any required installment. File corporate tax extension online The corporation is a large corporation figuring its first required installment based on the prior year's tax. File corporate tax extension online How to pay estimated tax. File corporate tax extension online   A corporation is generally required to use EFTPS to pay its taxes. File corporate tax extension online See Electronic Federal Tax Payment System (EFTPS), earlier. File corporate tax extension online Also see the Instructions for Form 1120-W. File corporate tax extension online Quick refund of overpayments. File corporate tax extension online   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. File corporate tax extension online Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. File corporate tax extension online A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. File corporate tax extension online Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. File corporate tax extension online File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. File corporate tax extension online Do not file Form 4466 before the end of the corporation's tax year. File corporate tax extension online An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. File corporate tax extension online The IRS will act on the form within 45 days from the date you file it. File corporate tax extension online U. File corporate tax extension online S. File corporate tax extension online Real Property Interest If a domestic corporation acquires a U. File corporate tax extension online S. File corporate tax extension online real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. File corporate tax extension online The amount paid includes cash, the fair market value of other property, and any assumed liability. File corporate tax extension online If a domestic corporation distributes a U. File corporate tax extension online S. File corporate tax extension online real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. File corporate tax extension online A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. File corporate tax extension online For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. File corporate tax extension online S. File corporate tax extension online Withholding Tax Return for Dispositions by Foreign Persons of U. File corporate tax extension online S. File corporate tax extension online Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. File corporate tax extension online S. File corporate tax extension online Real Property Interests. File corporate tax extension online Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. File corporate tax extension online Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. File corporate tax extension online In all cases, the method used must clearly show taxable income. File corporate tax extension online Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. File corporate tax extension online Accrual method. File corporate tax extension online   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. File corporate tax extension online A corporation engaged in farming operations also must use the accrual method. File corporate tax extension online   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. File corporate tax extension online However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. File corporate tax extension online   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. File corporate tax extension online   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. File corporate tax extension online   There are exceptions to the economic performance rule for certain items, including recurring expenses. File corporate tax extension online See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. File corporate tax extension online Nonaccrual experience method. File corporate tax extension online   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. File corporate tax extension online   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. File corporate tax extension online Percentage of completion method. File corporate tax extension online   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. File corporate tax extension online Mark-to-market accounting method. File corporate tax extension online   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. File corporate tax extension online Under this method any security held by a dealer as inventory must be included in inventory at its FMV. File corporate tax extension online Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. File corporate tax extension online Any gain or loss must be taken into account in determining gross income. File corporate tax extension online The gain or loss taken into account is treated as ordinary gain or loss. File corporate tax extension online   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. File corporate tax extension online Change in accounting method. File corporate tax extension online   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). File corporate tax extension online The corporation must file Form 3115, Application for Change in Accounting Method. File corporate tax extension online For more information, see Form 3115 and Publication 538. File corporate tax extension online Section 481(a) adjustment. File corporate tax extension online   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. File corporate tax extension online The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. File corporate tax extension online However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. File corporate tax extension online The corporation must complete the appropriate lines of Form 3115 to make the election. File corporate tax extension online See the Instructions for Form 3115. File corporate tax extension online Accounting Periods A corporation must figure its taxable income on the basis of a tax year. File corporate tax extension online A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. File corporate tax extension online Generally, corporations can use either a calendar year or a fiscal year as its tax year. File corporate tax extension online Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. File corporate tax extension online For more information, see Publication 538. File corporate tax extension online Personal service corporation. File corporate tax extension online   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. File corporate tax extension online See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. File corporate tax extension online Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. File corporate tax extension online   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. File corporate tax extension online See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. File corporate tax extension online Change of tax year. File corporate tax extension online   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. File corporate tax extension online However, under certain conditions, a corporation can change its tax year without getting the consent. File corporate tax extension online For more information, see Form 1128 and Publication 538. File corporate tax extension online Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. File corporate tax extension online Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. File corporate tax extension online Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. File corporate tax extension online The corporation should keep copies of all filed returns. File corporate tax extension online They help in preparing future and amended returns and in the calculation of earnings and profits. File corporate tax extension online Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. File corporate tax extension online However, the following special provisions apply only to corporations. File corporate tax extension online Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. File corporate tax extension online However, a corporation can elect to deduct a limited amount of start-up or organizational costs. File corporate tax extension online Any costs not deducted can be amortized. File corporate tax extension online Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. File corporate tax extension online Organizational costs are the direct costs of creating the corporation. File corporate tax extension online For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. File corporate tax extension online Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. File corporate tax extension online Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. File corporate tax extension online Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. File corporate tax extension online If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. File corporate tax extension online These rules also deny the deduction of losses on the sale or exchange of property between related persons. File corporate tax extension online Related persons. File corporate tax extension online   For purposes of this rule, the following persons are related to a corporation. File corporate tax extension online Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). File corporate tax extension online An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. File corporate tax extension online A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. File corporate tax extension online An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. File corporate tax extension online A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. File corporate tax extension online Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. File corporate tax extension online Ownership of stock. File corporate tax extension online   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. File corporate tax extension online Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. File corporate tax extension online An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. File corporate tax extension online Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. File corporate tax extension online Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. File corporate tax extension online To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. File corporate tax extension online But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. File corporate tax extension online Reallocation of income and deductions. File corporate tax extension online   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. File corporate tax extension online Complete liquidations. File corporate tax extension online   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. File corporate tax extension online More information. File corporate tax extension online   For more information about the related person rules, see Publication 544. File corporate tax extension online Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. File corporate tax extension online If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. File corporate tax extension online Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. File corporate tax extension online A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. File corporate tax extension online A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. File corporate tax extension online For more information regarding the election, see Form 8902. File corporate tax extension online Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. File corporate tax extension online The deduction is allowed for the year in which the property is placed in service. File corporate tax extension online A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. File corporate tax extension online For more information, see section 179C of the Internal Revenue Code and the related Regulations. File corporate tax extension online Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). File corporate tax extension online A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. File corporate tax extension online For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. File corporate tax extension online Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. File corporate tax extension online In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. File corporate tax extension online 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. File corporate tax extension online The deduction is limited to $1. File corporate tax extension online 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. File corporate tax extension online Other rules and limitations apply. File corporate tax extension online The corporation must reduce the basis of any property by any deduction taken. File corporate tax extension online The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. File corporate tax extension online For more information, see section 179D of the Internal Revenue Code. File corporate tax extension online Also see Notice 2006-52, 2006-26 I. File corporate tax extension online R. File corporate tax extension online B. File corporate tax extension online 1175, clarified and amplified by Notice 2008-40, 2008-14 I. File corporate tax extension online R. File corporate tax extension online B. File corporate tax extension online 725, and any successor. File corporate tax extension online Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. File corporate tax extension online These items are known as corporate preference items and they include the following. File corporate tax extension online Gain on the disposition of section 1250 property. File corporate tax extension online For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. File corporate tax extension online Percentage depletion for iron ore and coal (including lignite). File corporate tax extension online For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. File corporate tax extension online Amortization of pollution control facilities. File corporate tax extension online For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. File corporate tax extension online Mineral exploration and development costs. File corporate tax extension online For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. File corporate tax extension online For more information on corporate preference items, see section 291 of the Internal Revenue Code. File corporate tax extension online Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. File corporate tax extension online This section discusses the general rules that apply. File corporate tax extension online The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. File corporate tax extension online For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. File corporate tax extension online Dividends from domestic corporations. File corporate tax extension online   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. File corporate tax extension online If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. File corporate tax extension online Ownership. File corporate tax extension online   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. File corporate tax extension online Small business investment companies. File corporate tax extension online   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. File corporate tax extension online Dividends from regulated investment companies. File corporate tax extension online   Regulated investment company dividends received are subject to certain limits. File corporate tax extension online Capital gain dividends received from a regulated investment company do not qualify for the deduction. File corporate tax extension online For more information, see section 854 of the Internal Revenue Code. File corporate tax extension online No deduction allowed for certain dividends. File corporate tax extension online   Corporations cannot take a deduction for dividends received from the following entities. File corporate tax extension online A real estate investment trust (REIT). File corporate tax extension online A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. File corporate tax extension online A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. File corporate tax extension online Ex-dividend means the holder has no rights to the dividend. File corporate tax extension online A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. File corporate tax extension online Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. File corporate tax extension online Dividends on deposits. File corporate tax extension online   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. File corporate tax extension online They do not qualify for this deduction. File corporate tax extension online Limit on deduction for dividends. File corporate tax extension online   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). File corporate tax extension online Figuring the limit. File corporate tax extension online   In figuring the limit, determine taxable income without the following items. File corporate tax extension online The net operating loss deduction. File corporate tax extension online The domestic production activities deduction. File corporate tax extension online The deduction for dividends received. File corporate tax extension online Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). File corporate tax extension online Any capital loss carryback to the tax year. File corporate tax extension online Effect of net operating loss. File corporate tax extension online   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. File corporate tax extension online To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. File corporate tax extension online Example 1. File corporate tax extension online A corporation loses $25,000 from operations. File corporate tax extension online It receives $100,000 in dividends from a 20%-owned corporation. File corporate tax extension online Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. File corporate tax extension online If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). File corporate tax extension online Therefore, the 80% of taxable income limit does not apply. File corporate tax extension online The corporation can deduct the full $80,000. File corporate tax extension online Example 2. File corporate tax extension online Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. File corporate tax extension online Its taxable income is $85,000 before the deduction for dividends received. File corporate tax extension online After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. File corporate tax extension online Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). File corporate tax extension online Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. File corporate tax extension online The nontaxed part is any dividends-received deduction allowable for the dividends. File corporate tax extension online Extraordinary dividend. File corporate tax extension online   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. File corporate tax extension online The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. File corporate tax extension online Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. File corporate tax extension online Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. File corporate tax extension online Disqualified preferred stock. File corporate tax extension online   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. File corporate tax extension online   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. File corporate tax extension online The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. File corporate tax extension online The issue price of the stock exceeds its liquidation rights or stated redemption price. File corporate tax extension online The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. File corporate tax extension online   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. File corporate tax extension online More information. File corporate tax extension online   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. File corporate tax extension online Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. File corporate tax extension online A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. File corporate tax extension online A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. File corporate tax extension online Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. File corporate tax extension online Foregone interest. File corporate tax extension online   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. File corporate tax extension online See Below-market loans, in chapter 4 of Publication 535 for more information. File corporate tax extension online Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. File corporate tax extension online The contribution is deductible if made to, or for the use of, a qualified organization. File corporate tax extension online For more information on qualified organizations, see Publication 526, Charitable Contributions. File corporate tax extension online Also see, Exempt Organizations Select Check (EO Select Check) at www. File corporate tax extension online irs. File corporate tax extension online gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. File corporate tax extension online Note. File corporate tax extension online You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. File corporate tax extension online Cash method corporation. File corporate tax extension online   A corporation using the cash method of accounting deducts contributions in the tax year paid. File corporate tax extension online Accrual method corporation. File corporate tax extension online   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. File corporate tax extension online Make the choice by reporting the contribution on the corporation's return for the tax year. File corporate tax extension online A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. File corporate tax extension online The declaration must include the date the resolution was adopted. File corporate tax extension online Limitations on deduction. File corporate tax extension online   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. File corporate tax extension online Figure taxable income for this purpose without the following. File corporate tax extension online The deduction for charitable contributions. File corporate tax extension online The dividends-received deduction. File corporate tax extension online The deduction allowed under section 249 of the Internal Revenue Code. File corporate tax extension online The domestic production activities deduction. File corporate tax extension online Any net operating loss carryback to the tax year. File corporate tax extension online Any capital loss carryback to the tax year. File corporate tax extension online Farmers and ranchers. File corporate tax extension online    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. File corporate tax extension online Carryover of excess contributions. File corporate tax extension online   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. File corporate tax extension online You lose any excess not used within that period. File corporate tax extension online For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. File corporate tax extension online Any excess not used in 2015 is lost. File corporate tax extension online Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). File corporate tax extension online You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. File corporate tax extension online Cash contributions. File corporate tax extension online   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. File corporate tax extension online The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. File corporate tax extension online Keep the record of the contribution with the other corporate records. File corporate tax extension online Do not attach the records to the corporation's return. File corporate tax extension online For more information on cash contributions, see Publication 526. File corporate tax extension online Gifts of $250 or more. File corporate tax extension online   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. File corporate tax extension online The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. File corporate tax extension online The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. File corporate tax extension online Keep the acknowledgement with other corporate records. File corporate tax extension online Do not attach the acknowledgement to the return. File corporate tax extension online Contributions of property other than cash. File corporate tax extension online   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. File corporate tax extension online In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. File corporate tax extension online   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. File corporate tax extension online For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. File corporate tax extension online   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. File corporate tax extension online A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. File corporate tax extension online The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. File corporate tax extension online   See Form 8283 for more information. File corporate tax extension online Qualified conservation contributions. File corporate tax extension online   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. File corporate tax extension online For more information, see section 170(h) of the Internal Revenue Code. File corporate tax extension online Contributions of used vehicles. File corporate tax extension online   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. File corporate tax extension online The deduction is limited, and other special rules apply. File corporate tax extension online For more information, see Publication 526. File corporate tax extension online Reduction for contributions of certain property. File corporate tax extension online   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. File corporate tax extension online   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. File corporate tax extension online Larger deduction. File corporate tax extension online   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. File corporate tax extension online This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. File corporate tax extension online Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. File corporate tax extension online The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. File corporate tax extension online Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. File corporate tax extension online Contributions to organizations conducting lobbying activities. File corporate tax extension online   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. File corporate tax extension online More information. File corporate tax extension online   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. File corporate tax extension online Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. File corporate tax extension online In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. File corporate tax extension online Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. File corporate tax extension online A capital loss is carried to other years in the following order. File corporate tax extension online 3 years prior to the loss year. File corporate tax extension online 2 years prior to the loss year. File corporate tax extension online 1 year prior to the loss year. File corporate tax extension online Any loss remaining is carried forward for 5 years. File corporate tax extension online When you carry a net capital loss to another tax year, treat it as a short-term loss. File corporate tax extension online It does not retain its original identity as long term or short term. File corporate tax extension online Example. File corporate tax extension online A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. File corporate tax extension online The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. File corporate tax extension online The corporation treats this $6,000 as a short-term loss when carried back or forward. File corporate tax extension online The corporation carries the $6,000 short-term loss back 3 years. File corporate tax extension online In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. File corporate tax extension online It subtracts the $6,000 short-term loss first from the net short-term gain. File corporate tax extension online This results in a net capital gain for year 1 of $7,000. File corporate tax extension online This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. File corporate tax extension online S corporation status. File corporate tax extension online   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. File corporate tax extension online Rules for carryover and carryback. File corporate tax extension online   When carrying a capital loss from one year to another, the following rules apply. File corporate tax extension online When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. File corporate tax extension online In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. File corporate tax extension online If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. File corporate tax extension online You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. File corporate tax extension online Refunds. File corporate tax extension online   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. File corporate tax extension online If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. File corporate tax extension online S. File corporate tax extension online Corporation Income Tax Return, to apply for a refund. File corporate tax extension online Form 1139. File corporate tax extension online    A corporation can get a refund faster by using Form 1139. File corporate tax extension online It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. File corporate tax extension online Form 1120X. File corporate tax extension online   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. File corporate tax extension online The corporation must file the Form 1120X within 3 years of the due date, includin
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Tax Relief for Victims of Earthquake in Virginia

Updated 2/2/2012 to include Albemarle and King George Counties
Updated 1/3/2012 to include Culpeper, Fluvanna, Goochland, Orange and Spotsylvania Counties and the City of Fredericksburg.

VA-2011-22, Nov. 7, 2011

BALTIMORE — Victims of the earthquake that took place on Aug. 23, 2011 in parts of Virginia may qualify for tax relief from the Internal Revenue Service.

The President has declared Albemarle, Culpeper, Fluvanna, Goochland, King George, Louisa, Orange and Spotsylvania Counties and the City of Fredericksburg a federal disaster area. Individuals who reside or have a business in this county may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 23, and on or before Oct. 31, have been postponed to Oct. 31, 2011. This includes previously obtained extensions to file 2010 returns and the estimated tax payment for the third quarter, normally due Sept. 15.  

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Aug. 23, and on or before Sept. 7, as long as the deposits are made by Sept. 7, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The county listed above constitutes a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Oct. 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Aug. 23 and on or before Oct. 31.

The IRS also gives affected taxpayers until Oct. 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Aug. 23 and on or before Oct. 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Aug. 23 and on or before Sept. 7 provided the taxpayer makes these deposits by Sept. 7.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Virginia/Earthquake” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

Page Last Reviewed or Updated: 05-Dec-2013

The File Corporate Tax Extension Online

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