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Free h&r block efile 3. Free h&r block efile   Ordinary or Capital Gain or Loss for Business Property Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. Free h&r block efile Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sales Gifts Transfers at Death Like-Kind Exchanges and Involuntary Conversions Multiple Properties Introduction When you dispose of business property, your taxable gain or loss is usually a section 1231 gain or loss. Free h&r block efile Its treatment as ordinary or capital is determined under rules for section 1231 transactions. Free h&r block efile When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. Free h&r block efile Any remaining gain is a section 1231 gain. Free h&r block efile Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 537 Installment Sales 547 Casualties, Disasters and Thefts 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) 4797 Sales of Business Property See chapter 5 for information about getting publications and forms. Free h&r block efile Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (discussed below). Free h&r block efile Their treatment as ordinary or capital depends on whether you have a net gain or a net loss from all your section 1231 transactions. Free h&r block efile If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). Free h&r block efile Do not take that gain into account as section 1231 gain. Free h&r block efile Section 1231 transactions. Free h&r block efile   The following transactions result in gain or loss subject to section 1231 treatment. Free h&r block efile Sales or exchanges of real property or depreciable personal property. Free h&r block efile This property must be used in a trade or business and held longer than 1 year. Free h&r block efile Generally, property held for the production of rents or royalties is considered to be used in a trade or business. Free h&r block efile Depreciable personal property includes amortizable section 197 intangibles (described in chapter 2 under Other Dispositions). Free h&r block efile Sales or exchanges of leaseholds. Free h&r block efile The leasehold must be used in a trade or business and held longer than 1 year. Free h&r block efile Sales or exchanges of cattle and horses. Free h&r block efile The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 2 years or longer. Free h&r block efile Sales or exchanges of other livestock. Free h&r block efile This livestock does not include poultry. Free h&r block efile It must be held for draft, breeding, dairy, or sporting purposes and held for 1 year or longer. Free h&r block efile Sales or exchanges of unharvested crops. Free h&r block efile The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person and the land must be held longer than 1 year. Free h&r block efile You cannot keep any right or option to directly or indirectly reacquire the land (other than a right customarily incident to a mortgage or other security transaction). Free h&r block efile Growing crops sold with a lease on the land, though sold to the same person in the same transaction, are not included. Free h&r block efile Cutting of timber or disposal of timber, coal, or iron ore. Free h&r block efile The cutting or disposal must be treated as a sale, as described in chapter 2 under Timber and Coal and Iron Ore. Free h&r block efile Condemnations. Free h&r block efile The condemned property must have been held longer than 1 year. Free h&r block efile It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. Free h&r block efile It cannot be property held for personal use. Free h&r block efile Casualties and thefts. Free h&r block efile The casualty or theft must have affected business property, property held for the production of rents and royalties, or investment property (such as notes and bonds). Free h&r block efile You must have held the property longer than 1 year. Free h&r block efile However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. Free h&r block efile For more information on casualties and thefts, see Publication 547. Free h&r block efile Property for sale to customers. Free h&r block efile   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. Free h&r block efile If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. Free h&r block efile Example. Free h&r block efile You manufacture and sell steel cable, which you deliver on returnable reels that are depreciable property. Free h&r block efile Customers make deposits on the reels, which you refund if the reels are returned within a year. Free h&r block efile If they are not returned, you keep each deposit as the agreed-upon sales price. Free h&r block efile Most reels are returned within the 1-year period. Free h&r block efile You keep adequate records showing depreciation and other charges to the capitalized cost of the reels. Free h&r block efile Under these conditions, the reels are not property held for sale to customers in the ordinary course of your business. Free h&r block efile Any gain or loss resulting from their not being returned may be capital or ordinary, depending on your section 1231 transactions. Free h&r block efile Copyrights. Free h&r block efile    The sale of a copyright, a literary, musical, or artistic composition, or similar property is not a section 1231 transaction if your personal efforts created the property, or if you acquired the property in a way that entitled you to the basis of the previous owner whose personal efforts created it (for example, if you receive the property as a gift). Free h&r block efile The sale of such property results in ordinary income and generally is reported in Part II of Form 4797. Free h&r block efile Treatment as ordinary or capital. Free h&r block efile   To determine the treatment of section 1231 gains and losses, combine all your section 1231 gains and losses for the year. Free h&r block efile If you have a net section 1231 loss, it is ordinary loss. Free h&r block efile If you have a net section 1231 gain, it is ordinary income up to the amount of your nonrecaptured section 1231 losses from previous years. Free h&r block efile The rest, if any, is long-term capital gain. Free h&r block efile Nonrecaptured section 1231 losses. Free h&r block efile   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain. Free h&r block efile Therefore, if in any of your five preceding tax years you had section 1231 losses, a net gain for the current year from the sale of section 1231 assets is ordinary gain to the extent of your prior losses. Free h&r block efile These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Free h&r block efile Example. Free h&r block efile In 2013, Ben has a $2,000 net section 1231 gain. Free h&r block efile To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. Free h&r block efile From 2008 through 2012 he had the following section 1231 gains and losses. Free h&r block efile Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800 Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. Free h&r block efile 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if otherwise nontaxable) as ordinary income. Free h&r block efile To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. Free h&r block efile This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis. Free h&r block efile On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information. Free h&r block efile Whether the adjusted basis was figured using depreciation or amortization you claimed on other property. Free h&r block efile Whether the adjusted basis was figured using depreciation or amortization another person claimed. Free h&r block efile Corporate distributions. Free h&r block efile   For information on property distributed by corporations, see Distributions to Shareholders in Publication 542, Corporations. Free h&r block efile General asset accounts. Free h&r block efile   Different rules apply to dispositions of property you depreciated using a general asset account. Free h&r block efile For information on these rules, see Publication 946. Free h&r block efile Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable on the property. Free h&r block efile See Gain Treated as Ordinary Income, later. Free h&r block efile Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain. Free h&r block efile See Treatment as ordinary or capital under Section 1231 Gains and Losses, earlier. Free h&r block efile Section 1245 property defined. Free h&r block efile   Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. Free h&r block efile Personal property (either tangible or intangible). Free h&r block efile Other tangible property (except buildings and their structural components) used as any of the following. Free h&r block efile See Buildings and structural components below. Free h&r block efile An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services. Free h&r block efile A research facility in any of the activities in (a). Free h&r block efile A facility in any of the activities in (a) for the bulk storage of fungible commodities (discussed on the next page). Free h&r block efile That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. Free h&r block efile Amortization of certified pollution control facilities. Free h&r block efile The section 179 expense deduction. Free h&r block efile Deduction for clean-fuel vehicles and certain refueling property. Free h&r block efile Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations. Free h&r block efile Deduction for certain qualified refinery property. Free h&r block efile Deduction for qualified energy efficient commercial building property. Free h&r block efile Amortization of railroad grading and tunnel bores, if in effect before the repeal by the Revenue Reconciliation Act of 1990. Free h&r block efile (Repealed by Public Law 99-514, Tax Reform Act of 1986, section 242(a). Free h&r block efile ) Certain expenditures for child care facilities if in effect before repeal by Public Law 101-58, Omnibus Budget Reconciliation Act of 1990, section 11801(a)(13) (except with regards to deductions made prior to November 5, 1990). Free h&r block efile Expenditures to remove architectural and transportation barriers to the handicapped and elderly. Free h&r block efile Deduction for qualified tertiary injectant expenses. Free h&r block efile Certain reforestation expenditures. Free h&r block efile Deduction for election to expense qualified advanced mine safety equipment property. Free h&r block efile Single purpose agricultural (livestock) or horticultural structures. Free h&r block efile Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. Free h&r block efile Any railroad grading or tunnel bore. Free h&r block efile Buildings and structural components. Free h&r block efile   Section 1245 property does not include buildings and structural components. Free h&r block efile The term building includes a house, barn, warehouse, or garage. Free h&r block efile The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. Free h&r block efile   Do not treat a structure that is essentially machinery or equipment as a building or structural component. Free h&r block efile Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. Free h&r block efile   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. Free h&r block efile Structures such as oil and gas storage tanks, grain storage bins, silos, fractionating towers, blast furnaces, basic oxygen furnaces, coke ovens, brick kilns, and coal tipples are not treated as buildings, but as section 1245 property. Free h&r block efile Facility for bulk storage of fungible commodities. Free h&r block efile   This term includes oil or gas storage tanks and grain storage bins. Free h&r block efile Bulk storage means the storage of a commodity in a large mass before it is used. Free h&r block efile For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. Free h&r block efile To be fungible, a commodity must be such that one part may be used in place of another. Free h&r block efile   Stored materials that vary in composition, size, and weight are not fungible. Free h&r block efile Materials are not fungible if one part cannot be used in place of another part and the materials cannot be estimated and replaced by simple reference to weight, measure, and number. Free h&r block efile For example, the storage of different grades and forms of aluminum scrap is not storage of fungible commodities. Free h&r block efile Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. Free h&r block efile The depreciation and amortization allowed or allowable on the property. Free h&r block efile The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). Free h&r block efile A limit on this amount for gain on like-kind exchanges and involuntary conversions is explained later. Free h&r block efile For any other disposition of section 1245 property, ordinary income is the lesser of (1) earlier or the amount by which its fair market value is more than its adjusted basis. Free h&r block efile See Gifts and Transfers at Death, later. Free h&r block efile Use Part III of Form 4797 to figure the ordinary income part of the gain. Free h&r block efile Depreciation taken on other property or taken by other taxpayers. Free h&r block efile   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. Free h&r block efile Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. Free h&r block efile Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift). Free h&r block efile Depreciation and amortization. Free h&r block efile   Depreciation and amortization that must be recaptured as ordinary income include (but are not limited to) the following items. Free h&r block efile Ordinary depreciation deductions. Free h&r block efile Any special depreciation allowance you claimed. Free h&r block efile Amortization deductions for all the following costs. Free h&r block efile Acquiring a lease. Free h&r block efile Lessee improvements. Free h&r block efile Certified pollution control facilities. Free h&r block efile Certain reforestation expenses. Free h&r block efile Section 197 intangibles. Free h&r block efile Childcare facility expenses made before 1982, if in effect before the repeal of IRC 188. Free h&r block efile Franchises, trademarks, and trade names acquired before August 11, 1993. Free h&r block efile The section 179 deduction. Free h&r block efile Deductions for all the following costs. Free h&r block efile Removing barriers to the disabled and the elderly. Free h&r block efile Tertiary injectant expenses. Free h&r block efile Depreciable clean-fuel vehicles and refueling property (minus the amount of any recaptured deduction). Free h&r block efile Environmental cleanup costs. Free h&r block efile Certain reforestation expenses. Free h&r block efile Qualified disaster expenses. Free h&r block efile Any basis reduction for the investment credit (minus any basis increase for credit recapture). Free h&r block efile Any basis reduction for the qualified electric vehicle credit (minus any basis increase for credit recapture). Free h&r block efile Example. Free h&r block efile You file your returns on a calendar year basis. Free h&r block efile In February 2011, you bought and placed in service for 100% use in your business a light-duty truck (5-year property) that cost $10,000. Free h&r block efile You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2011 and $3,200 in 2012. Free h&r block efile You did not take the section 179 deduction. Free h&r block efile You sold the truck in May 2013 for $7,000. Free h&r block efile The MACRS deduction in 2013, the year of sale, is $960 (½ of $1,920). Free h&r block efile Figure the gain treated as ordinary income as follows. Free h&r block efile 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $2,000 + $3,200 + $960) 6,160   4) Adjusted basis (subtract line 3 from line 2) $3,840 5) Gain realized (subtract line 4 from line 1) $3,160 6) Gain treated as ordinary income (lesser of line 3 or line 5) $3,160 Depreciation on other tangible property. Free h&r block efile   You must take into account depreciation during periods when the property was not used as an integral part of an activity or did not constitute a research or storage facility, as described earlier under Section 1245 property. Free h&r block efile   For example, if depreciation deductions taken on certain storage facilities amounted to $10,000, of which $6,000 is from the periods before their use in a prescribed business activity, you must use the entire $10,000 in determining ordinary income from depreciation. Free h&r block efile Depreciation allowed or allowable. Free h&r block efile   The greater of the depreciation allowed or allowable is generally the amount to use in figuring the part of gain to report as ordinary income. Free h&r block efile However, if in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. Free h&r block efile If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. Free h&r block efile   This treatment applies only when figuring what part of gain is treated as ordinary income under the rules for section 1245 depreciation recapture. Free h&r block efile Multiple asset accounts. Free h&r block efile   In figuring ordinary income from depreciation, you can treat any number of units of section 1245 property in a single depreciation account as one item if the total ordinary income from depreciation figured by using this method is not less than it would be if depreciation on each unit were figured separately. Free h&r block efile Example. Free h&r block efile In one transaction you sold 50 machines, 25 trucks, and certain other property that is not section 1245 property. Free h&r block efile All of the depreciation was recorded in a single depreciation account. Free h&r block efile After dividing the total received among the various assets sold, you figured that each unit of section 1245 property was sold at a gain. Free h&r block efile You can figure the ordinary income from depreciation as if the 50 machines and 25 trucks were one item. Free h&r block efile However, if five of the trucks had been sold at a loss, only the 50 machines and 20 of the trucks could be treated as one item in determining the ordinary income from depreciation. Free h&r block efile Normal retirement. Free h&r block efile   The normal retirement of section 1245 property in multiple asset accounts does not require recognition of gain as ordinary income from depreciation if your method of accounting for asset retirements does not require recognition of that gain. Free h&r block efile Section 1250 Property Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable on the property. Free h&r block efile To determine the additional depreciation on section 1250 property, see Additional Depreciation, below. Free h&r block efile Section 1250 property defined. Free h&r block efile   This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. Free h&r block efile It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. Free h&r block efile A fee simple interest in land is not included because it is not depreciable. Free h&r block efile   If your section 1250 property becomes section 1245 property because you change its use, you can never again treat it as section 1250 property. Free h&r block efile Additional Depreciation If you hold section 1250 property longer than 1 year, the additional depreciation is the actual depreciation adjustments that are more than the depreciation figured using the straight line method. Free h&r block efile For a list of items treated as depreciation adjustments, see Depreciation and amortization under Gain Treated as Ordinary Income, earlier. Free h&r block efile For the treatment of unrecaptured section 1250 gain, see Capital Gains Tax Rate, later. Free h&r block efile If you hold section 1250 property for 1 year or less, all the depreciation is additional depreciation. Free h&r block efile You will not have additional depreciation if any of the following conditions apply to the property disposed of. Free h&r block efile You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method; you held the property longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Free h&r block efile In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction for property placed in service before January 1, 2010. Free h&r block efile The property was residential low-income rental property you held for 162/3 years or longer. Free h&r block efile For low-income rental housing on which the special 60-month depreciation for rehabilitation expenses was allowed, the 162/3 years start when the rehabilitated property is placed in service. Free h&r block efile You chose the alternate ACRS method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. Free h&r block efile The property was residential rental property or nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made); you held it longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Free h&r block efile These properties are depreciated using the straight line method. Free h&r block efile In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction. Free h&r block efile Depreciation taken by other taxpayers or on other property. Free h&r block efile   Additional depreciation includes all depreciation adjustments to the basis of section 1250 property whether allowed to you or another person (as carryover basis property). Free h&r block efile Example. Free h&r block efile Larry Johnson gives his son section 1250 property on which he took $2,000 in depreciation deductions, of which $500 is additional depreciation. Free h&r block efile Immediately after the gift, the son's adjusted basis in the property is the same as his father's and reflects the $500 additional depreciation. Free h&r block efile On January 1 of the next year, after taking depreciation deductions of $1,000 on the property, of which $200 is additional depreciation, the son sells the property. Free h&r block efile At the time of sale, the additional depreciation is $700 ($500 allowed the father plus $200 allowed the son). Free h&r block efile Depreciation allowed or allowable. Free h&r block efile   The greater of depreciation allowed or allowable (to any person who held the property if the depreciation was used in figuring its adjusted basis in your hands) generally is the amount to use in figuring the part of the gain to be reported as ordinary income. Free h&r block efile If you can show that the deduction allowed for any tax year was less than the amount allowable, the lesser figure will be the depreciation adjustment for figuring additional depreciation. Free h&r block efile Retired or demolished property. Free h&r block efile   The adjustments reflected in adjusted basis generally do not include deductions for depreciation on retired or demolished parts of section 1250 property unless these deductions are reflected in the basis of replacement property that is section 1250 property. Free h&r block efile Example. Free h&r block efile A wing of your building is totally destroyed by fire. Free h&r block efile The depreciation adjustments figured in the adjusted basis of the building after the wing is destroyed do not include any deductions for depreciation on the destroyed wing unless it is replaced and the adjustments for depreciation on it are reflected in the basis of the replacement property. Free h&r block efile Figuring straight line depreciation. Free h&r block efile   The useful life and salvage value you would have used to figure straight line depreciation are the same as those used under the depreciation method you actually used. Free h&r block efile If you did not use a useful life under the depreciation method actually used (such as with the units-of-production method) or if you did not take salvage value into account (such as with the declining balance method), the useful life or salvage value for figuring what would have been the straight line depreciation is the useful life and salvage value you would have used under the straight line method. Free h&r block efile   Salvage value and useful life are not used for the ACRS method of depreciation. Free h&r block efile Figure straight line depreciation for ACRS real property by using its 15-, 18-, or 19-year recovery period as the property's useful life. Free h&r block efile   The straight line method is applied without any basis reduction for the investment credit. Free h&r block efile Property held by lessee. Free h&r block efile   If a lessee makes a leasehold improvement, the lease period for figuring what would have been the straight line depreciation adjustments includes all renewal periods. Free h&r block efile This inclusion of the renewal periods cannot extend the lease period taken into account to a period that is longer than the remaining useful life of the improvement. Free h&r block efile The same rule applies to the cost of acquiring a lease. Free h&r block efile   The term renewal period means any period for which the lease may be renewed, extended, or continued under an option exercisable by the lessee. Free h&r block efile However, the inclusion of renewal periods cannot extend the lease by more than two-thirds of the period that was the basis on which the actual depreciation adjustments were allowed. Free h&r block efile Applicable Percentage The applicable percentage used to figure the ordinary income because of additional depreciation depends on whether the real property you disposed of is nonresidential real property, residential rental property, or low-income housing. Free h&r block efile The percentages for these types of real property are as follows. Free h&r block efile Nonresidential real property. Free h&r block efile   For real property that is not residential rental property, the applicable percentage for periods after 1969 is 100%. Free h&r block efile For periods before 1970, the percentage is zero and no ordinary income because of additional depreciation before 1970 will result from its disposition. Free h&r block efile Residential rental property. Free h&r block efile   For residential rental property (80% or more of the gross income is from dwelling units) other than low-income housing, the applicable percentage for periods after 1975 is 100%. Free h&r block efile The percentage for periods before 1976 is zero. Free h&r block efile Therefore, no ordinary income because of additional depreciation before 1976 will result from a disposition of residential rental property. Free h&r block efile Low-income housing. Free h&r block efile    Low-income housing includes all the following types of residential rental property. Free h&r block efile Federally assisted housing projects if the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. Free h&r block efile Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed. Free h&r block efile Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under provisions of state or local laws that authorize similar subsidies for low-income families. Free h&r block efile Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Free h&r block efile   The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. Free h&r block efile If you have held low-income housing at least 16 years and 8 months, the percentage is zero and no ordinary income will result from its disposition. Free h&r block efile Foreclosure. Free h&r block efile   If low-income housing is disposed of because of foreclosure or similar proceedings, the monthly applicable percentage reduction is figured as if you disposed of the property on the starting date of the proceedings. Free h&r block efile Example. Free h&r block efile On June 1, 2001, you acquired low-income housing property. Free h&r block efile On April 3, 2012 (130 months after the property was acquired), foreclosure proceedings were started on the property and on December 3, 2013 (150 months after the property was acquired), the property was disposed of as a result of the foreclosure proceedings. Free h&r block efile The property qualifies for a reduced applicable percentage because it was held more than 100 full months. Free h&r block efile The applicable percentage reduction is 30% (130 months minus 100 months) rather than 50% (150 months minus 100 months) because it does not apply after April 3, 2012, the starting date of the foreclosure proceedings. Free h&r block efile Therefore, 70% of the additional depreciation is treated as ordinary income. Free h&r block efile Holding period. Free h&r block efile   The holding period used to figure the applicable percentage for low-income housing generally starts on the day after you acquired it. Free h&r block efile For example, if you bought low-income housing on January 1, 1997, the holding period starts on January 2, 1997. Free h&r block efile If you sold it on January 2, 2013, the holding period is exactly 192 full months. Free h&r block efile The applicable percentage for additional depreciation is 8%, or 100% minus 1% for each full month the property was held over 100 full months. Free h&r block efile Holding period for constructed, reconstructed, or erected property. Free h&r block efile   The holding period used to figure the applicable percentage for low-income housing you constructed, reconstructed, or erected starts on the first day of the month it is placed in service in a trade or business, in an activity for the production of income, or in a personal activity. Free h&r block efile Property acquired by gift or received in a tax-free transfer. Free h&r block efile   For low-income housing you acquired by gift or in a tax-free transfer the basis of which is figured by reference to the basis in the hands of the transferor, the holding period for the applicable percentage includes the holding period of the transferor. Free h&r block efile   If the adjusted basis of the property in your hands just after acquiring it is more than its adjusted basis to the transferor just before transferring it, the holding period of the difference is figured as if it were a separate improvement. Free h&r block efile See Low-Income Housing With Two or More Elements, next. Free h&r block efile Low-Income Housing With Two or More Elements If you dispose of low-income housing property that has two or more separate elements, the applicable percentage used to figure ordinary income because of additional depreciation may be different for each element. Free h&r block efile The gain to be reported as ordinary income is the sum of the ordinary income figured for each element. Free h&r block efile The following are the types of separate elements. Free h&r block efile A separate improvement (defined below). Free h&r block efile The basic section 1250 property plus improvements not qualifying as separate improvements. Free h&r block efile The units placed in service at different times before all the section 1250 property is finished. Free h&r block efile For example, this happens when a taxpayer builds an apartment building of 100 units and places 30 units in service (available for renting) on January 4, 2011, 50 on July 18, 2011, and the remaining 20 on January 18, 2012. Free h&r block efile As a result, the apartment house consists of three separate elements. Free h&r block efile The 36-month test for separate improvements. Free h&r block efile   A separate improvement is any improvement (qualifying under The 1-year test, below) added to the capital account of the property, but only if the total of the improvements during the 36-month period ending on the last day of any tax year is more than the greatest of the following amounts. Free h&r block efile Twenty-five percent of the adjusted basis of the property at the start of the first day of the 36-month period, or the first day of the holding period of the property, whichever is later. Free h&r block efile Ten percent of the unadjusted basis (adjusted basis plus depreciation and amortization adjustments) of the property at the start of the period determined in (1). Free h&r block efile $5,000. Free h&r block efile The 1-year test. Free h&r block efile   An addition to the capital account for any tax year (including a short tax year) is treated as an improvement only if the sum of all additions for the year is more than the greater of $2,000 or 1% of the unadjusted basis of the property. Free h&r block efile The unadjusted basis is figured as of the start of that tax year or the holding period of the property, whichever is later. Free h&r block efile In applying the 36-month test, improvements in any one of the 3 years are omitted entirely if the total improvements in that year do not qualify under the 1-year test. Free h&r block efile Example. Free h&r block efile The unadjusted basis of a calendar year taxpayer's property was $300,000 on January 1 of this year. Free h&r block efile During the year, the taxpayer made improvements A, B, and C, which cost $1,000, $600, and $700, respectively. Free h&r block efile The sum of the improvements, $2,300, is less than 1% of the unadjusted basis ($3,000), so the improvements do not satisfy the 1-year test and are not treated as improvements for the 36-month test. Free h&r block efile However, if improvement C had cost $1,500, the sum of these improvements would have been $3,100. Free h&r block efile Then, it would be necessary to apply the 36-month test to figure if the improvements must be treated as separate improvements. Free h&r block efile Addition to the capital account. Free h&r block efile   Any addition to the capital account made after the initial acquisition or completion of the property by you or any person who held the property during a period included in your holding period is to be considered when figuring the total amount of separate improvements. Free h&r block efile   The addition to the capital account of depreciable real property is the gross addition not reduced by amounts attributable to replaced property. Free h&r block efile For example, if a roof with an adjusted basis of $20,000 is replaced by a new roof costing $50,000, the improvement is the gross addition to the account, $50,000, and not the net addition of $30,000. Free h&r block efile The $20,000 adjusted basis of the old roof is no longer reflected in the basis of the property. Free h&r block efile The status of an addition to the capital account is not affected by whether it is treated as a separate property for determining depreciation deductions. Free h&r block efile   Whether an expense is treated as an addition to the capital account may depend on the final disposition of the entire property. Free h&r block efile If the expense item property and the basic property are sold in two separate transactions, the entire section 1250 property is treated as consisting of two distinct properties. Free h&r block efile Unadjusted basis. Free h&r block efile   In figuring the unadjusted basis as of a certain date, include the actual cost of all previous additions to the capital account plus those that did not qualify as separate improvements. Free h&r block efile However, the cost of components retired before that date is not included in the unadjusted basis. Free h&r block efile Holding period. Free h&r block efile   Use the following guidelines for figuring the applicable percentage for property with two or more elements. Free h&r block efile The holding period of a separate element placed in service before the entire section 1250 property is finished starts on the first day of the month that the separate element is placed in service. Free h&r block efile The holding period for each separate improvement qualifying as a separate element starts on the day after the improvement is acquired or, for improvements constructed, reconstructed, or erected, the first day of the month that the improvement is placed in service. Free h&r block efile The holding period for each improvement not qualifying as a separate element takes the holding period of the basic property. Free h&r block efile   If an improvement by itself does not meet the 1-year test (greater of $2,000 or 1% of the unadjusted basis), but it does qualify as a separate improvement that is a separate element (when grouped with other improvements made during the tax year), determine the start of its holding period as follows. Free h&r block efile Use the first day of a calendar month that is closest to the middle of the tax year. Free h&r block efile If there are two first days of a month that are equally close to the middle of the year, use the earlier date. Free h&r block efile Figuring ordinary income attributable to each separate element. Free h&r block efile   Figure ordinary income attributable to each separate element as follows. Free h&r block efile   Step 1. Free h&r block efile Divide the element's additional depreciation after 1975 by the sum of all the elements' additional depreciation after 1975 to determine the percentage used in Step 2. Free h&r block efile   Step 2. Free h&r block efile Multiply the percentage figured in Step 1 by the lesser of the additional depreciation after 1975 for the entire property or the gain from disposition of the entire property (the difference between the fair market value or amount realized and the adjusted basis). Free h&r block efile   Step 3. Free h&r block efile Multiply the result in Step 2 by the applicable percentage for the element. Free h&r block efile Example. Free h&r block efile You sold at a gain of $25,000 low-income housing property subject to the ordinary income rules of section 1250. Free h&r block efile The property consisted of four elements (W, X, Y, and Z). Free h&r block efile Step 1. Free h&r block efile The additional depreciation for each element is: W-$12,000; X-None; Y-$6,000; and Z-$6,000. Free h&r block efile The sum of the additional depreciation for all the elements is $24,000. Free h&r block efile Step 2. Free h&r block efile The depreciation deducted on element X was $4,000 less than it would have been under the straight line method. Free h&r block efile Additional depreciation on the property as a whole is $20,000 ($24,000 − $4,000). Free h&r block efile $20,000 is lower than the $25,000 gain on the sale, so $20,000 is used in Step 2. Free h&r block efile Step 3. Free h&r block efile The applicable percentages to be used in Step 3 for the elements are: W-68%; X-85%; Y-92%; and Z-100%. Free h&r block efile From these facts, the sum of the ordinary income for each element is figured as follows. Free h&r block efile   Step 1 Step 2 Step 3 Ordinary Income W . Free h&r block efile 50 $10,000 68% $ 6,800 X -0- -0- 85% -0- Y . Free h&r block efile 25 5,000 92% 4,600 Z . Free h&r block efile 25 5,000 100% 5,000 Sum of ordinary income of separate elements $16,400 Gain Treated as Ordinary Income To find what part of the gain from the disposition of section 1250 property is treated as ordinary income, follow these steps. Free h&r block efile In a sale, exchange, or involuntary conversion of the property, figure the amount realized that is more than the adjusted basis of the property. Free h&r block efile In any other disposition of the property, figure the fair market value that is more than the adjusted basis. Free h&r block efile Figure the additional depreciation for the periods after 1975. Free h&r block efile Multiply the lesser of (1) or (2) by the applicable percentage, discussed earlier under Applicable Percentage. Free h&r block efile Stop here if this is residential rental property or if (2) is equal to or more than (1). Free h&r block efile This is the gain treated as ordinary income because of additional depreciation. Free h&r block efile Subtract (2) from (1). Free h&r block efile Figure the additional depreciation for periods after 1969 but before 1976. Free h&r block efile Add the lesser of (4) or (5) to the result in (3). Free h&r block efile This is the gain treated as ordinary income because of additional depreciation. Free h&r block efile A limit on the amount treated as ordinary income for gain on like-kind exchanges and involuntary conversions is explained later. Free h&r block efile Use Form 4797, Part III, to figure the ordinary income part of the gain. Free h&r block efile Corporations. Free h&r block efile   Corporations, other than S corporations, must recognize an additional amount as ordinary income on the sale or other disposition of section 1250 property. Free h&r block efile The additional amount treated as ordinary income is 20% of the excess of the amount that would have been ordinary income if the property were section 1245 property over the amount treated as ordinary income under section 1250. Free h&r block efile Report this additional ordinary income on Form 4797, Part III, line 26 (f). Free h&r block efile Installment Sales If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. Free h&r block efile This applies even if no payments are received in that year. Free h&r block efile If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. Free h&r block efile For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. Free h&r block efile If you dispose of more than one asset in a single transaction, you must figure the gain on each asset separately so that it may be properly reported. Free h&r block efile To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Free h&r block efile Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. Free h&r block efile For a detailed discussion of installment sales, see Publication 537. Free h&r block efile Gifts If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. Free h&r block efile However, if the person who receives it (donee) sells or otherwise disposes of the property in a disposition subject to recapture, the donee must take into account the depreciation you deducted in figuring the gain to be reported as ordinary income. Free h&r block efile For low-income housing, the donee must take into account the donor's holding period to figure the applicable percentage. Free h&r block efile See Applicable Percentage and its discussion Holding period under Section 1250 Property, earlier. Free h&r block efile Part gift and part sale or exchange. Free h&r block efile   If you transfer depreciable personal property or real property for less than its fair market value in a transaction considered to be partly a gift and partly a sale or exchange and you have a gain because the amount realized is more than your adjusted basis, you must report ordinary income (up to the amount of gain) to recapture depreciation. Free h&r block efile If the depreciation (additional depreciation, if section 1250 property) is more than the gain, the balance is carried over to the transferee to be taken into account on any later disposition of the property. Free h&r block efile However, see Bargain sale to charity, later. Free h&r block efile Example. Free h&r block efile You transferred depreciable personal property to your son for $20,000. Free h&r block efile When transferred, the property had an adjusted basis to you of $10,000 and a fair market value of $40,000. Free h&r block efile You took depreciation of $30,000. Free h&r block efile You are considered to have made a gift of $20,000, the difference between the $40,000 fair market value and the $20,000 sale price to your son. Free h&r block efile You have a taxable gain on the transfer of $10,000 ($20,000 sale price minus $10,000 adjusted basis) that must be reported as ordinary income from depreciation. Free h&r block efile You report $10,000 of your $30,000 depreciation as ordinary income on the transfer of the property, so the remaining $20,000 depreciation is carried over to your son for him to take into account on any later disposition of the property. Free h&r block efile Gift to charitable organization. Free h&r block efile   If you give property to a charitable organization, you figure your deduction for your charitable contribution by reducing the fair market value of the property by the ordinary income and short-term capital gain that would have resulted had you sold the property at its fair market value at the time of the contribution. Free h&r block efile Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation. Free h&r block efile   You also may have to reduce the fair market value of the contributed property by the long-term capital gain (including any section 1231 gain) that would have resulted had the property been sold. Free h&r block efile For more information, see Giving Property That Has Increased in Value in Publication 526. Free h&r block efile Bargain sale to charity. Free h&r block efile   If you transfer section 1245 or section 1250 property to a charitable organization for less than its fair market value and a deduction for the contribution part of the transfer is allowable, your ordinary income from depreciation is figured under different rules. Free h&r block efile First, figure the ordinary income as if you had sold the property at its fair market value. Free h&r block efile Then, allocate that amount between the sale and the contribution parts of the transfer in the same proportion that you allocated your adjusted basis in the property to figure your gain. Free h&r block efile See Bargain Sale under Gain or Loss From Sales and Exchanges in chapter 1. Free h&r block efile Report as ordinary income the lesser of the ordinary income allocated to the sale or your gain from the sale. Free h&r block efile Example. Free h&r block efile You sold section 1245 property in a bargain sale to a charitable organization and are allowed a deduction for your contribution. Free h&r block efile Your gain on the sale was $1,200, figured by allocating 20% of your adjusted basis in the property to the part sold. Free h&r block efile If you had sold the property at its fair market value, your ordinary income would have been $5,000. Free h&r block efile Your ordinary income is $1,000 ($5,000 × 20%) and your section 1231 gain is $200 ($1,200 – $1,000). Free h&r block efile Transfers at Death When a taxpayer dies, no gain is reported on depreciable personal property or real property transferred to his or her estate or beneficiary. Free h&r block efile For information on the tax liability of a decedent, see Publication 559, Survivors, Executors, and Administrators. Free h&r block efile However, if the decedent disposed of the property while alive and, because of his or her method of accounting or for any other reason, the gain from the disposition is reportable by the estate or beneficiary, it must be reported in the same way the decedent would have had to report it if he or she were still alive. Free h&r block efile Ordinary income due to depreciation must be reported on a transfer from an executor, administrator, or trustee to an heir, beneficiary, or other individual if the transfer is a sale or exchange on which gain is realized. Free h&r block efile Example 1. Free h&r block efile Janet Smith owned depreciable property that, upon her death, was inherited by her son. Free h&r block efile No ordinary income from depreciation is reportable on the transfer, even though the value used for estate tax purposes is more than the adjusted basis of the property to Janet when she died. Free h&r block efile However, if she sold the property before her death and realized a gain and if, because of her method of accounting, the proceeds from the sale are income in respect of a decedent reportable by her son, he must report ordinary income from depreciation. Free h&r block efile Example 2. Free h&r block efile The trustee of a trust created by a will transfers depreciable property to a beneficiary in satisfaction of a specific bequest of $10,000. Free h&r block efile If the property had a value of $9,000 at the date used for estate tax valuation purposes, the $1,000 increase in value to the date of distribution is a gain realized by the trust. Free h&r block efile Ordinary income from depreciation must be reported by the trust on the transfer. Free h&r block efile Like-Kind Exchanges and Involuntary Conversions A like-kind exchange of your depreciable property or an involuntary conversion of the property into similar or related property will not result in your having to report ordinary income from depreciation unless money or property other than like-kind, similar, or related property is also received in the transaction. Free h&r block efile For information on like-kind exchanges and involuntary conversions, see chapter 1. Free h&r block efile Depreciable personal property. Free h&r block efile   If you have a gain from either a like-kind exchange or an involuntary conversion of your depreciable personal property, the amount to be reported as ordinary income from depreciation is the amount figured under the rules explained earlier (see Section 1245 Property), limited to the sum of the following amounts. Free h&r block efile The gain that must be included in income under the rules for like-kind exchanges or involuntary conversions. Free h&r block efile The fair market value of the like-kind, similar, or related property other than depreciable personal property acquired in the transaction. Free h&r block efile Example 1. Free h&r block efile You bought a new machine for $4,300 cash plus your old machine for which you were allowed a $1,360 trade-in. Free h&r block efile The old machine cost you $5,000 two years ago. Free h&r block efile You took depreciation deductions of $3,950. Free h&r block efile Even though you deducted depreciation of $3,950, the $310 gain ($1,360 trade-in allowance minus $1,050 adjusted basis) is not reported because it is postponed under the rules for like-kind exchanges and you received only depreciable personal property in the exchange. Free h&r block efile Example 2. Free h&r block efile You bought office machinery for $1,500 two years ago and deducted $780 depreciation. Free h&r block efile This year a fire destroyed the machinery and you received $1,200 from your fire insurance, realizing a gain of $480 ($1,200 − $720 adjusted basis). Free h&r block efile You choose to postpone reporting gain, but replacement machinery cost you only $1,000. Free h&r block efile Your taxable gain under the rules for involuntary conversions is limited to the remaining $200 insurance payment. Free h&r block efile All your replacement property is depreciable personal property, so your ordinary income from depreciation is limited to $200. Free h&r block efile Example 3. Free h&r block efile A fire destroyed office machinery you bought for $116,000. Free h&r block efile The depreciation deductions were $91,640 and the machinery had an adjusted basis of $24,360. Free h&r block efile You received a $117,000 insurance payment, realizing a gain of $92,640. Free h&r block efile You immediately spent $105,000 of the insurance payment for replacement machinery and $9,000 for stock that qualifies as replacement property and you choose to postpone reporting the gain. Free h&r block efile $114,000 of the $117,000 insurance payment was used to buy replacement property, so the gain that must be included in income under the rules for involuntary conversions is the part not spent, or $3,000. Free h&r block efile The part of the insurance payment ($9,000) used to buy the nondepreciable property (the stock) also must be included in figuring the gain from depreciation. Free h&r block efile The amount you must report as ordinary income on the transaction is $12,000, figured as follows. Free h&r block efile 1) Gain realized on the transaction ($92,640) limited to depreciation ($91,640) $91,640 2) Gain includible in income (amount not spent) 3,000     Plus: fair market value of property other than depreciable personal property (the stock) 9,000 12,000 Amount reportable as ordinary income (lesser of (1) or (2)) $12,000   If, instead of buying $9,000 in stock, you bought $9,000 worth of depreciable personal property similar or related in use to the destroyed property, you would only report $3,000 as ordinary income. Free h&r block efile Depreciable real property. Free h&r block efile   If you have a gain from either a like-kind exchange or involuntary conversion of your depreciable real property, ordinary income from additional depreciation is figured under the rules explained earlier (see Section 1250 Property), limited to the greater of the following amounts. Free h&r block efile The gain that must be reported under the rules for like-kind exchanges or involuntary conversions plus the fair market value of stock bought as replacement property in acquiring control of a corporation. Free h&r block efile The gain you would have had to report as ordinary income from additional depreciation had the transaction been a cash sale minus the cost (or fair market value in an exchange) of the depreciable real property acquired. Free h&r block efile   The ordinary income not reported for the year of the disposition is carried over to the depreciable real property acquired in the like-kind exchange or involuntary conversion as additional depreciation from the property disposed of. Free h&r block efile Further, to figure the applicable percentage of additional depreciation to be treated as ordinary income, the holding period starts over for the new property. Free h&r block efile Example. Free h&r block efile The state paid you $116,000 when it condemned your depreciable real property for public use. Free h&r block efile You bought other real property similar in use to the property condemned for $110,000 ($15,000 for depreciable real property and $95,000 for land). Free h&r block efile You also bought stock for $5,000 to get control of a corporation owning property similar in use to the property condemned. Free h&r block efile You choose to postpone reporting the gain. Free h&r block efile If the transaction had been a sale for cash only, under the rules described earlier, $20,000 would have been reportable as ordinary income because of additional depreciation. Free h&r block efile The ordinary income to be reported is $6,000, which is the greater of the following amounts. Free h&r block efile The gain that must be reported under the rules for involuntary conversions, $1,000 ($116,000 − $115,000) plus the fair market value of stock bought as qualified replacement property, $5,000, for a total of $6,000. Free h&r block efile The gain you would have had to report as ordinary income from additional depreciation ($20,000) had this transaction been a cash sale minus the cost of the depreciable real property bought ($15,000), or $5,000. Free h&r block efile   The ordinary income not reported, $14,000 ($20,000 − $6,000), is carried over to the depreciable real property you bought as additional depreciation. Free h&r block efile Basis of property acquired. Free h&r block efile   If the ordinary income you have to report because of additional depreciation is limited, the total basis of the property you acquired is its fair market value (its cost, if bought to replace property involuntarily converted into money) minus the gain postponed. Free h&r block efile   If you acquired more than one item of property, allocate the total basis among the properties in proportion to their fair market value (their cost, in an involuntary conversion into money). Free h&r block efile However, if you acquired both depreciable real property and other property, allocate the total basis as follows. Free h&r block efile Subtract the ordinary income because of additional depreciation that you do not have to report from the fair market value (or cost) of the depreciable real property acquired. Free h&r block efile Add the fair market value (or cost) of the other property acquired to the result in (1). Free h&r block efile Divide the result in (1) by the result in (2). Free h&r block efile Multiply the total basis by the result in (3). Free h&r block efile This is the basis of the depreciable real property acquired. Free h&r block efile If you acquired more than one item of depreciable real property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Free h&r block efile Subtract the result in (4) from the total basis. Free h&r block efile This is the basis of the other property acquired. Free h&r block efile If you acquired more than one item of other property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Free h&r block efile Example 1. Free h&r block efile In 1988, low-income housing property that you acquired and placed in service in 1983 was destroyed by fire and you received a $90,000 insurance payment. Free h&r block efile The property's adjusted basis was $38,400, with additional depreciation of $14,932. Free h&r block efile On December 1, 1988, you used the insurance payment to acquire and place in service replacement low-income housing property. Free h&r block efile Your realized gain from the involuntary conversion was $51,600 ($90,000 − $38,400). Free h&r block efile You chose to postpone reporting the gain under the involuntary conversion rules. Free h&r block efile Under the rules for depreciation recapture on real property, the ordinary gain was $14,932, but you did not have to report any of it because of the limit for involuntary conversions. Free h&r block efile The basis of the replacement low-income housing property was its $90,000 cost minus the $51,600 gain you postponed, or $38,400. Free h&r block efile The $14,932 ordinary gain you did not report is treated as additional depreciation on the replacement property. Free h&r block efile If you sold the property in 2013, your holding period for figuring the applicable percentage of additional depreciation to report as ordinary income will have begun December 2, 1988, the day after you acquired the property. Free h&r block efile Example 2. Free h&r block efile John Adams received a $90,000 fire insurance payment for depreciable real property (office building) with an adjusted basis of $30,000. Free h&r block efile He uses the whole payment to buy property similar in use, spending $42,000 for depreciable real property and $48,000 for land. Free h&r block efile He chooses to postpone reporting the $60,000 gain realized on the involuntary conversion. Free h&r block efile Of this gain, $10,000 is ordinary income from additional depreciation but is not reported because of the limit for involuntary conversions of depreciable real property. Free h&r block efile The basis of the property bought is $30,000 ($90,000 − $60,000), allocated as follows. Free h&r block efile The $42,000 cost of depreciable real property minus $10,000 ordinary income not reported is $32,000. Free h&r block efile The $48,000 cost of other property (land) plus the $32,000 figured in (1) is $80,000. Free h&r block efile The $32,000 figured in (1) divided by the $80,000 figured in (2) is 0. Free h&r block efile 4. Free h&r block efile The basis of the depreciable real property is $12,000. Free h&r block efile This is the $30,000 total basis multiplied by the 0. Free h&r block efile 4 figured in (3). Free h&r block efile The basis of the other property (land) is $18,000. Free h&r block efile This is the $30,000 total basis minus the $12,000 figured in (4). Free h&r block efile The ordinary income that is not reported ($10,000) is carried over as additional depreciation to the depreciable real property that was bought and may be taxed as ordinary income on a later disposition. Free h&r block efile Multiple Properties If you dispose of depreciable property and other property in one transaction and realize a gain, you must allocate the amount realized between the two types of property in proportion to their respective fair market values to figure the part of your gain to be reported as ordinary income from depreciation. Free h&r block efile Different rules may apply to the allocation of the amount realized on the sale of a business that includes a group of assets. Free h&r block efile See chapter 2. Free h&r block efile In general, if a buyer and seller have adverse interests as to the allocation of the amount realized between the depreciable property and other property, any arm's length agreement between them will establish the allocation. Free h&r block efile In the absence of an agreement, the allocation should be made by taking into account the appropriate facts and circumstances. Free h&r block efile These include, but are not limited to, a comparison between the depreciable property and all the other property being disposed of in the transaction. Free h&r block efile The comparison should take into account all the following facts and circumstances. Free h&r block efile The original cost and reproduction cost of construction, erection, or production. Free h&r block efile The remaining economic useful life. Free h&r block efile The state of obsolescence. Free h&r block efile The anticipated expenditures required to maintain, renovate, or modernize the properties. Free h&r block efile Like-kind exchanges and involuntary conversions. Free h&r block efile   If you dispose of and acquire depreciable personal property and other property (other than depreciable real property) in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Free h&r block efile The amount allocated to the depreciable personal property disposed of is treated as consisting of, first, the fair market value of the depreciable personal property acquired and, second (to the extent of any remaining balance), the fair market value of the other property acquired. Free h&r block efile The amount allocated to the other property disposed of is treated as consisting of the fair market value of all property acquired that has not already been taken into account. Free h&r block efile   If you dispose of and acquire depreciable real property and other property in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Free h&r block efile The amount allocated to each of the three types of property (depreciable real property, depreciable personal property, or other property) disposed of is treated as consisting of, first, the fair market value of that type of property acquired and, second (to the extent of any remaining balance), any excess fair market value of the other types of property acquired. Free h&r block efile If the excess fair market value is more than the remaining balance of the amount realized and is from both of the other two types of property, you can apply the unallocated amount in any manner you choose. Free h&r block efile Example. Free h&r block efile A fire destroyed your property with a total fair market value of $50,000. Free h&r block efile It consisted of machinery worth $30,000 and nondepreciable property worth $20,000. Free h&r block efile You received an insurance payment of $40,000 and immediately used it with $10,000 of your own funds (for a total of $50,000) to buy machinery with a fair market value of $15,000 and nondepreciable property with a fair market value of $35,000. Free h&r block efile The adjusted basis of the destroyed machinery was $5,000 and your depreciation on it was $35,000. Free h&r block efile You choose to postpone reporting your gain from the involuntary conversion. Free h&r block efile You must report $9,000 as ordinary income from depreciation arising from this transaction, figured as follows. Free h&r block efile The $40,000 insurance payment must be allocated between the machinery and the other property destroyed in proportion to the fair market value of each. Free h&r block efile The amount allocated to the machinery is 30,000/50,000 × $40,000, or $24,000. Free h&r block efile The amount allocated to the other property is 20,000/50,000 × $40,000, or $16,000. Free h&r block efile Your gain on the involuntary conversion of the machinery is $24,000 minus $5,000 adjusted basis, or $19,000. Free h&r block efile The $24,000 allocated to the machinery disposed of is treated as consisting of the $15,000 fair market value of the replacement machinery bought and $9,000 of the fair market value of other property bought in the transaction. Free h&r block efile All $16,000 allocated to the other property disposed of is treated as consisting of the fair market value of the other property that was bought. Free h&r block efile Your potential ordinary income from depreciation is $19,000, the gain on the machinery, because it is less than the $35,000 depreciation. Free h&r block efile However, the amount you must report as ordinary income is limited to the $9,000 included in the amount realized for the machinery that represents the fair market value of property other than the depreciable property you bought. 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Free h&r block efile Publication 526 - Main Content Table of Contents Organizations That Qualify To Receive Deductible ContributionsTypes of Qualified Organizations Contributions You Can DeductContributions From Which You Benefit Expenses Paid for Student Living With You Out-of-Pocket Expenses in Giving Services Expenses of Whaling Captains Contributions You Cannot DeductContributions to Individuals Contributions to Nonqualified Organizations Contributions From Which You Benefit Value of Time or Services Personal Expenses Appraisal Fees Contributions to Donor-Advised Funds Partial Interest in Property Contributions of PropertyContributions Subject to Special Rules Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value Penalty When To DeductChecks. Free h&r block efile Text message. Free h&r block efile Credit card. Free h&r block efile Pay-by-phone account. Free h&r block efile Stock certificate. Free h&r block efile Promissory note. Free h&r block efile Option. Free h&r block efile Borrowed funds. Free h&r block efile Conditional gift. Free h&r block efile Limits on Deductions50% Limit 30% Limit Special 30% Limit for Capital Gain Property 20% Limit Special 50% Limit for Qualified Conservation Contributions How To Figure Your Deduction When Limits Apply Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To ReportReporting expenses for student living with you. Free h&r block efile Total deduction over $500. Free h&r block efile Deduction over $5,000 for one item. Free h&r block efile Vehicle donations. Free h&r block efile Clothing and household items not in good used condition. Free h&r block efile Easement on building in historic district. Free h&r block efile Deduction over $500,000. Free h&r block efile How To Get Tax HelpLow Income Taxpayer Clinics Organizations That Qualify To Receive Deductible Contributions You can deduct your contributions only if you make them to a qualified organization. Free h&r block efile Most organizations, other than churches and governments, must apply to the IRS to become a qualified organization. Free h&r block efile How to check whether an organization can receive deductible charitable contributions. Free h&r block efile   You can ask any organization whether it is a qualified organization, and most will be able to tell you. Free h&r block efile Or go to IRS. Free h&r block efile gov. Free h&r block efile Click on “Tools” and then on “Exempt Organizations Select Check” (www. Free h&r block efile irs. Free h&r block efile gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check). Free h&r block efile This online tool will enable you to search for qualified organizations. Free h&r block efile You can also call the IRS to find out if an organization is qualified. Free h&r block efile Call 1-877-829-5500. Free h&r block efile People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment can call 1-800-829-4059. Free h&r block efile Deaf or hard of hearing individuals can also contact the IRS through relay services such as the Federal Relay Service at www. Free h&r block efile gsa. Free h&r block efile gov/fedrelay. Free h&r block efile Types of Qualified Organizations Generally, only the following types of organizations can be qualified organizations. Free h&r block efile A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). Free h&r block efile It must, however, be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Free h&r block efile Certain organizations that foster national or international amateur sports competition also qualify. Free h&r block efile War veterans' organizations, including posts, auxiliaries, trusts, or foundations, organized in the United States or any of its possessions (including Puerto Rico). Free h&r block efile Domestic fraternal societies, orders, and associations operating under the lodge system. Free h&r block efile (Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Free h&r block efile ) Certain nonprofit cemetery companies or corporations. Free h&r block efile (Your contribution to this type of organization is not deductible if it can be used for the care of a specific lot or mausoleum crypt. Free h&r block efile ) The United States or any state, the District of Columbia, a U. Free h&r block efile S. Free h&r block efile possession (including Puerto Rico), a political subdivision of a state or U. Free h&r block efile S. Free h&r block efile possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. Free h&r block efile (Your contribution to this type of organization is deductible only if it is to be used solely for public purposes. Free h&r block efile ) Example 1. Free h&r block efile You contribute cash to your city's police department to be used as a reward for information about a crime. Free h&r block efile The city police department is a qualified organization, and your contribution is for a public purpose. Free h&r block efile You can deduct your contribution. Free h&r block efile Example 2. Free h&r block efile You make a voluntary contribution to the social security trust fund, not earmarked for a specific account. Free h&r block efile Because the trust fund is part of the U. Free h&r block efile S. Free h&r block efile Government, you contributed to a qualified organization. Free h&r block efile You can deduct your contribution. Free h&r block efile Examples. Free h&r block efile   The following list gives some examples of qualified organizations. Free h&r block efile Churches, a convention or association of churches, temples, synagogues, mosques, and other religious organizations. Free h&r block efile Most nonprofit charitable organizations such as the American Red Cross and the United Way. Free h&r block efile Most nonprofit educational organizations, including the Boy Scouts of America, Girl Scouts of America, colleges, and museums. Free h&r block efile This also includes nonprofit daycare centers that provide childcare to the general public if substantially all the childcare is provided to enable parents and guardians to be gainfully employed. Free h&r block efile However, if your contribution is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution, as explained later under Contributions You Cannot Deduct . Free h&r block efile Nonprofit hospitals and medical research organizations. Free h&r block efile Utility company emergency energy programs, if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs. Free h&r block efile Nonprofit volunteer fire companies. Free h&r block efile Nonprofit organizations that develop and maintain public parks and recreation facilities. Free h&r block efile Civil defense organizations. Free h&r block efile Canadian charities. Free h&r block efile   You may be able to deduct contributions to certain Canadian charitable organizations covered under an income tax treaty with Canada. Free h&r block efile To deduct your contribution to a Canadian charity, you generally must have income from sources in Canada. Free h&r block efile See Publication 597, Information on the United States-Canada Income Tax Treaty, for information on how to figure your deduction. Free h&r block efile Mexican charities. Free h&r block efile   Under the U. Free h&r block efile S. Free h&r block efile -Mexico income tax treaty, a contribution to a Mexican charitable organization may be deductible, but only if and to the extent the contribution would have been treated as a charitable contribution to a public charity created or organized under U. Free h&r block efile S. Free h&r block efile law. Free h&r block efile To deduct your contribution to a Mexican charity, you must have income from sources in Mexico. Free h&r block efile The limits described in Limits on Deductions , later, apply and are figured using your income from Mexican sources. Free h&r block efile Israeli charities. Free h&r block efile   Under the U. Free h&r block efile S. Free h&r block efile -Israel income tax treaty, a contribution to an Israeli charitable organization is deductible if and to the extent the contribution would have been treated as a charitable contribution if the organization had been created or organized under U. Free h&r block efile S. Free h&r block efile law. Free h&r block efile To deduct your contribution to an Israeli charity, you must have income from sources in Israel. Free h&r block efile The limits described in Limits on Deductions , later, apply. Free h&r block efile The deduction is also limited to 25% of your adjusted gross income from Israeli sources. Free h&r block efile Contributions You Can Deduct Generally, you can deduct contributions of money or property you make to, or for the use of, a qualified organization. Free h&r block efile A contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. Free h&r block efile The contributions must be made to a qualified organization and not set aside for use by a specific person. Free h&r block efile If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution. Free h&r block efile See Contributions of Property , later. Free h&r block efile Your deduction for charitable contributions generally cannot be more than 50% of your adjusted gross income (AGI), but in some cases 20% and 30% limits may apply. Free h&r block efile In addition, the total of your charitable contributions deduction and certain other itemized deductions may be limited. Free h&r block efile See Limits on Deductions , later. Free h&r block efile Table 1 in this publication gives examples of contributions you can and cannot deduct. Free h&r block efile Contributions From Which You Benefit If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. Free h&r block efile Also see Contributions From Which You Benefit under Contributions You Cannot Deduct, later. Free h&r block efile If you pay more than fair market value to a qualified organization for goods or services, the excess may be a charitable contribution. Free h&r block efile For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. Free h&r block efile Example 1. Free h&r block efile You pay $65 for a ticket to a dinner-dance at a church. Free h&r block efile Your entire $65 payment goes to the church. Free h&r block efile The ticket to the dinner-dance has a fair market value of $25. Free h&r block efile When you buy your ticket, you know its value is less than your payment. Free h&r block efile To figure the amount of your charitable contribution, subtract the value of the benefit you receive ($25) from your total payment ($65). Free h&r block efile You can deduct $40 as a charitable contribution to the church. Free h&r block efile Example 2. Free h&r block efile At a fundraising auction conducted by a charity, you pay $600 for a week's stay at a beach house. Free h&r block efile The amount you pay is no more than the fair rental value. Free h&r block efile You have not made a deductible charitable contribution. Free h&r block efile Athletic events. Free h&r block efile   If you make a payment to, or for the benefit of, a college or university and, as a result, you receive the right to buy tickets to an athletic event in the athletic stadium of the college or university, you can deduct 80% of the payment as a charitable contribution. Free h&r block efile   If any part of your payment is for tickets (rather than the right to buy tickets), that part is not deductible. Free h&r block efile Subtract the price of the tickets from your payment. Free h&r block efile You can deduct 80% of the remaining amount as a charitable contribution. Free h&r block efile Example 1. Free h&r block efile You pay $300 a year for membership in a university's athletic scholarship program. Free h&r block efile The only benefit of membership is that you have the right to buy one season ticket for a seat in a designated area of the stadium at the university's home football games. Free h&r block efile You can deduct $240 (80% of $300) as a charitable contribution. Free h&r block efile Example 2. Free h&r block efile The facts are the same as in Example 1 except your $300 payment includes the purchase of one season ticket for the stated ticket price of $120. Free h&r block efile You must subtract the usual price of a ticket ($120) from your $300 payment. Free h&r block efile The result is $180. Free h&r block efile Your deductible charitable contribution is $144 (80% of $180). Free h&r block efile Charity benefit events. Free h&r block efile   If you pay a qualified organization more than fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, you can deduct only the amount that is more than the value of the privileges or other benefits you receive. Free h&r block efile   If there is an established charge for the event, that charge is the value of your benefit. Free h&r block efile If there is no established charge, the reasonable value of the right to attend the event is the value of your benefit. Free h&r block efile Whether you use the tickets or other privileges has no effect on the amount you can deduct. Free h&r block efile However, if you return the ticket to the qualified organization for resale, you can deduct the entire amount you paid for the ticket. Free h&r block efile    Even if the ticket or other evidence of payment indicates that the payment is a “contribution,” this does not mean you can deduct the entire amount. Free h&r block efile If the ticket shows the price of admission and the amount of the contribution, you can deduct the contribution amount. Free h&r block efile Example. Free h&r block efile You pay $40 to see a special showing of a movie for the benefit of a qualified organization. Free h&r block efile Printed on the ticket is “Contribution–$40. Free h&r block efile ” If the regular price for the movie is $8, your contribution is $32 ($40 payment − $8 regular price). Free h&r block efile Membership fees or dues. Free h&r block efile   You may be able to deduct membership fees or dues you pay to a qualified organization. Free h&r block efile However, you can deduct only the amount that is more than the value of the benefits you receive. Free h&r block efile   You cannot deduct dues, fees, or assessments paid to country clubs and other social organizations. Free h&r block efile They are not qualified organizations. Free h&r block efile Certain membership benefits can be disregarded. Free h&r block efile   Both you and the organization can disregard the following membership benefits if you get them in return for an annual payment of $75 or less. Free h&r block efile Any rights or privileges, other than those discussed under Athletic events , earlier, that you can use frequently while you are a member, such as: Free or discounted admission to the organization's facilities or events, Free or discounted parking, Preferred access to goods or services, and Discounts on the purchase of goods and services. Free h&r block efile Admission, while you are a member, to events open only to members of the organization if the organization reasonably projects that the cost per person (excluding any allocated overhead) is not more than $10. Free h&r block efile 20. Free h&r block efile Token items. Free h&r block efile   You do not have to reduce your contribution by the value of any benefit you receive if both of the following are true. Free h&r block efile You receive only a small item or other benefit of token value. Free h&r block efile The qualified organization correctly determines that the value of the item or benefit you received is not substantial and informs you that you can deduct your payment in full. Free h&r block efile The organization determines whether the value of an item or benefit is substantial by using Revenue Procedures 90-12 and 92-49 and the inflation adjustment in Revenue Procedure 2012–41. Free h&r block efile Written statement. Free h&r block efile   A qualified organization must give you a written statement if you make a payment of more than $75 that is partly a contribution and partly for goods or services. Free h&r block efile The statement must say you can deduct only the amount of your payment that is more than the value of the goods or services you received. Free h&r block efile It must also give you a good faith estimate of the value of those goods or services. Free h&r block efile   The organization can give you the statement either when it solicits or when it receives the payment from you. Free h&r block efile Exception. Free h&r block efile   An organization will not have to give you this statement if one of the following is true. Free h&r block efile The organization is: A governmental organization described in (5) under Types of Qualified Organizations , earlier, or An organization formed only for religious purposes, and the only benefit you receive is an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in commercial transactions outside the donative context. Free h&r block efile You receive only items whose value is not substantial as described under Token items , earlier. Free h&r block efile You receive only membership benefits that can be disregarded, as described under Membership fees or dues , earlier. Free h&r block efile Expenses Paid for Student Living With You You may be able to deduct some expenses of having a student live with you. Free h&r block efile You can deduct qualifying expenses for a foreign or American student who: Lives in your home under a written agreement between you and a qualified organization (defined later) as part of a program of the organization to provide educational opportunities for the student, Is not your relative (defined later) or dependent (also defined later), and Is a full-time student in the twelfth or any lower grade at a school in the United States. Free h&r block efile You can deduct up to $50 a month for each full calendar month the student lives with you. Free h&r block efile Any month when conditions (1) through (3) above are met for 15 or more days counts as a full month. Free h&r block efile Qualified organization. Free h&r block efile   For these purposes, a qualified organization can be any of the organizations described earlier under Types of Qualified Organizations , except those in (4) and (5). Free h&r block efile For example, if you are providing a home for a student as part of a state or local government program, you cannot deduct your expenses as charitable contributions. Free h&r block efile But see Foster parents under Out-of-Pocket Expenses in Giving Services, later, if you provide the home as a foster parent. Free h&r block efile Relative. Free h&r block efile   The term “relative” means any of the following persons. Free h&r block efile Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). Free h&r block efile A legally adopted child is considered your child. Free h&r block efile Your brother, sister, half brother, half sister, stepbrother, or stepsister. Free h&r block efile Your father, mother, grandparent, or other direct ancestor. Free h&r block efile Your stepfather or stepmother. Free h&r block efile A son or daughter of your brother or sister. Free h&r block efile A brother or sister of your father or mother. Free h&r block efile Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Free h&r block efile Dependent. Free h&r block efile   For this purpose, the term “dependent” means: A person you can claim as a dependent, or A person you could have claimed as a dependent except that: He or she received gross income of $3,900 or more, He or she filed a joint return, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Free h&r block efile    Foreign students brought to this country under a qualified international education exchange program and placed in American homes for a temporary period generally are not U. Free h&r block efile S. Free h&r block efile residents and cannot be claimed as dependents. Free h&r block efile Qualifying expenses. Free h&r block efile   You may be able to deduct the cost of books, tuition, food, clothing, transportation, medical and dental care, entertainment, and other amounts you actually spend for the well-being of the student. Free h&r block efile Expenses that do not qualify. Free h&r block efile   You cannot deduct depreciation on your home, the fair market value of lodging, and similar items not considered amounts actually spent by you. Free h&r block efile Nor can you deduct general household expenses, such as taxes, insurance, and repairs. Free h&r block efile Reimbursed expenses. Free h&r block efile   In most cases, you cannot claim a charitable contribution deduction if you are compensated or reimbursed for any part of the costs of having a student live with you. Free h&r block efile However, you may be able to claim a charitable contribution deduction for the unreimbursed portion of your expenses if you are reimbursed only for an extraordinary or one-time item, such as a hospital bill or vacation trip, you paid in advance at the request of the student's parents or the sponsoring organization. Free h&r block efile Mutual exchange program. Free h&r block efile   You cannot deduct the costs of a foreign student living in your home under a mutual exchange program through which your child will live with a family in a foreign country. Free h&r block efile Reporting expenses. Free h&r block efile   For a list of what you must file with your return if you deduct expenses for a student living with you, see Reporting expenses for student living with you under How To Report, later. Free h&r block efile Out-of-Pocket Expenses in Giving Services Table 2. Free h&r block efile Volunteers' Questions and Answers If you volunteer for a qualified organization, the following questions and answers may apply to you. Free h&r block efile All of the rules explained in this publication also apply. Free h&r block efile See, in particular, Out-of-Pocket Expenses in Giving Services . Free h&r block efile Question Answer I volunteer 6 hours a week in the office of a qualified organization. Free h&r block efile The receptionist is paid $10 an hour for the same work. Free h&r block efile Can I deduct $60 a week for my time? No, you cannot deduct the value of your time or services. Free h&r block efile  The office is 30 miles from my home. Free h&r block efile Can I deduct any of my car expenses for these trips? Yes, you can deduct the costs of gas and oil that are directly related to getting to and from the place where you volunteer. Free h&r block efile If you do not want to figure your actual costs, you can deduct 14 cents for each mile. Free h&r block efile I volunteer as a Red Cross nurse's aide at a hospital. Free h&r block efile Can I deduct the cost of the uniforms I must wear? Yes, you can deduct the cost of buying and cleaning your uniforms if the hospital is a qualified organization, the uniforms are not suitable for everyday use, and you must wear them when volunteering. Free h&r block efile I pay a babysitter to watch my children while I volunteer for a qualified organization. Free h&r block efile Can I deduct these costs? No, you cannot deduct payments for childcare expenses as a charitable contribution, even if you would be unable to volunteer without childcare. Free h&r block efile (If you have childcare expenses so you can work for pay, see Publication 503, Child and Dependent Care Expenses. Free h&r block efile ) Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. Free h&r block efile The amounts must be: Unreimbursed, Directly connected with the services, Expenses you had only because of the services you gave, and Not personal, living, or family expenses. Free h&r block efile Table 2 contains questions and answers that apply to some individuals who volunteer their services. Free h&r block efile Underprivileged youths selected by charity. Free h&r block efile   You can deduct reasonable unreimbursed out-of-pocket expenses you pay to allow underprivileged youths to attend athletic events, movies, or dinners. Free h&r block efile The youths must be selected by a charitable organization whose goal is to reduce juvenile delinquency. Free h&r block efile Your own similar expenses in accompanying the youths are not deductible. Free h&r block efile Conventions. Free h&r block efile   If a qualified organization selects you to attend a convention as its representative, you can deduct your unreimbursed expenses for travel, including reasonable amounts for meals and lodging, while away from home overnight for the convention. Free h&r block efile However, see Travel , later. Free h&r block efile   You cannot deduct personal expenses for sightseeing, fishing parties, theater tickets, or nightclubs. Free h&r block efile You also cannot deduct travel, meals and lodging, and other expenses for your spouse or children. Free h&r block efile   You cannot deduct your travel expenses in attending a church convention if you go only as a member of your church rather than as a chosen representative. Free h&r block efile You can, however, deduct unreimbursed expenses that are directly connected with giving services for your church during the convention. Free h&r block efile Uniforms. Free h&r block efile   You can deduct the cost and upkeep of uniforms that are not suitable for everyday use and that you must wear while performing donated services for a charitable organization. Free h&r block efile Foster parents. Free h&r block efile   You may be able to deduct as a charitable contribution some of the costs of being a foster parent (foster care provider) if you have no profit motive in providing the foster care and are not, in fact, making a profit. Free h&r block efile A qualified organization must select the individuals you take into your home for foster care. Free h&r block efile   You can deduct expenses that meet both of the following requirements. Free h&r block efile They are unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child. Free h&r block efile They are incurred primarily to benefit the qualified organization. Free h&r block efile   Unreimbursed expenses that you cannot deduct as charitable contributions may be considered support provided by you in determining whether you can claim the foster child as a dependent. Free h&r block efile For details, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Free h&r block efile Example. Free h&r block efile You cared for a foster child because you wanted to adopt her, not to benefit the agency that placed her in your home. Free h&r block efile Your unreimbursed expenses are not deductible as charitable contributions. Free h&r block efile Church deacon. Free h&r block efile   You can deduct as a charitable contribution any unreimbursed expenses you have while in a permanent diaconate program established by your church. Free h&r block efile These expenses include the cost of vestments, books, and transportation required in order to serve in the program as either a deacon candidate or an ordained deacon. Free h&r block efile Car expenses. Free h&r block efile   You can deduct as a charitable contribution any unreimbursed out-of-pocket expenses, such as the cost of gas and oil, directly related to the use of your car in giving services to a charitable organization. Free h&r block efile You cannot deduct general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. Free h&r block efile   If you do not want to deduct your actual expenses, you can use a standard mileage rate of 14 cents a mile to figure your contribution. Free h&r block efile   You can deduct parking fees and tolls whether you use your actual expenses or the standard mileage rate. Free h&r block efile   You must keep reliable written records of your car expenses. Free h&r block efile For more information, see Car expenses under Records To Keep, later. Free h&r block efile Travel. Free h&r block efile   Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. Free h&r block efile This applies whether you pay the expenses directly or indirectly. Free h&r block efile You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses. Free h&r block efile   The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization. Free h&r block efile Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. Free h&r block efile However, if you have only nominal duties, or if for significant parts of the trip you do not have any duties, you cannot deduct your travel expenses. Free h&r block efile Example 1. Free h&r block efile You are a troop leader for a tax-exempt youth group and you take the group on a camping trip. Free h&r block efile You are responsible for overseeing the setup of the camp and for providing adult supervision for other activities during the entire trip. Free h&r block efile You participate in the activities of the group and enjoy your time with them. Free h&r block efile You oversee the breaking of camp and you transport the group home. Free h&r block efile You can deduct your travel expenses. Free h&r block efile Example 2. Free h&r block efile You sail from one island to another and spend 8 hours a day counting whales and other forms of marine life. Free h&r block efile The project is sponsored by a charitable organization. Free h&r block efile In most circumstances, you cannot deduct your expenses. Free h&r block efile Example 3. Free h&r block efile You work for several hours each morning on an archeological dig sponsored by a charitable organization. Free h&r block efile The rest of the day is free for recreation and sightseeing. Free h&r block efile You cannot take a charitable contribution deduction even though you work very hard during those few hours. Free h&r block efile Example 4. Free h&r block efile You spend the entire day attending a charitable organization's regional meeting as a chosen representative. Free h&r block efile In the evening you go to the theater. Free h&r block efile You can claim your travel expenses as charitable contributions, but you cannot claim the cost of your evening at the theater. Free h&r block efile Daily allowance (per diem). Free h&r block efile   If you provide services for a charitable organization and receive a daily allowance to cover reasonable travel expenses, including meals and lodging while away from home overnight, you must include in income any part of the allowance that is more than your deductible travel expenses. Free h&r block efile You may be able to deduct any necessary travel expenses that are more than the allowance. Free h&r block efile Deductible travel expenses. Free h&r block efile   These include: Air, rail, and bus transportation, Out-of-pocket expenses for your car, Taxi fares or other costs of transportation between the airport or station and your hotel, Lodging costs, and The cost of meals. Free h&r block efile Because these travel expenses are not business-related, they are not subject to the same limits as business related expenses. Free h&r block efile For information on business travel expenses, see Travel in Publication 463, Travel, Entertainment, Gift, and Car Expenses. Free h&r block efile Expenses of Whaling Captains You may be able to deduct as a charitable contribution any reasonable and necessary whaling expenses you pay during the year to carry out sanctioned whaling activities. Free h&r block efile The deduction is limited to $10,000 a year. Free h&r block efile To claim the deduction, you must be recognized by the Alaska Eskimo Whaling Commission as a whaling captain charged with the responsibility of maintaining and carrying out sanctioned whaling activities. Free h&r block efile Sanctioned whaling activities are subsistence bowhead whale hunting activities conducted under the management plan of the Alaska Eskimo Whaling Commission. Free h&r block efile Whaling expenses include expenses for: Acquiring and maintaining whaling boats, weapons, and gear used in sanctioned whaling activities, Supplying food for the crew and other provisions for carrying out these activities, and Storing and distributing the catch from these activities. Free h&r block efile You must keep records showing the time, place, date, amount, and nature of the expenses. Free h&r block efile For details, see Revenue Procedure 2006-50, which is on page 944 of Internal Revenue Bulletin 2006-47 at www. Free h&r block efile irs. Free h&r block efile gov/pub/irs-irbs/irb06-47. Free h&r block efile pdf. Free h&r block efile Contributions You Cannot Deduct There are some contributions you cannot deduct and others you can deduct only in part. Free h&r block efile You cannot deduct as a charitable contribution: A contribution to a specific individual, A contribution to a nonqualified organization, The part of a contribution from which you receive or expect to receive a benefit, The value of your time or services, Your personal expenses, A qualified charitable distribution from an individual retirement arrangement (IRA), Appraisal fees, Certain contributions to donor-advised funds, or Certain contributions of partial interests in property. Free h&r block efile Detailed discussions of these items follow. Free h&r block efile Contributions to Individuals You cannot deduct contributions to specific individuals, including the following. Free h&r block efile Contributions to fraternal societies made for the purpose of paying medical or burial expenses of members. Free h&r block efile Contributions to individuals who are needy or worthy. Free h&r block efile You cannot deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. Free h&r block efile But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you do not indicate that your contribution is for a specific person. Free h&r block efile Example. Free h&r block efile You can deduct contributions to a qualified organization for flood relief, hurricane relief, or other disaster relief. Free h&r block efile However, you cannot deduct contributions earmarked for relief of a particular individual or family. Free h&r block efile Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses. Free h&r block efile Expenses you paid for another person who provided services to a qualified organization. Free h&r block efile Example. Free h&r block efile Your son does missionary work. Free h&r block efile You pay his expenses. Free h&r block efile You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services. Free h&r block efile Payments to a hospital that are for a specific patient's care or for services for a specific patient. Free h&r block efile You cannot deduct these payments even if the hospital is operated by a city, state, or other qualified organization. Free h&r block efile Contributions to Nonqualified Organizations You cannot deduct contributions to organizations that are not qualified to receive tax-deductible contributions, including the following. Free h&r block efile Certain state bar associations if: The bar is not a political subdivision of a state, The bar has private, as well as public, purposes, such as promoting the professional interests of members, and Your contribution is unrestricted and can be used for private purposes. Free h&r block efile Chambers of commerce and other business leagues or organizations. Free h&r block efile Civic leagues and associations. Free h&r block efile Communist organizations. Free h&r block efile Country clubs and other social clubs. Free h&r block efile Foreign organizations other than certain Canadian, Israeli, or Mexican charitable organizations. Free h&r block efile (See Canadian charities , Mexican charities , and Israeli charities under Organizations That Qualify To Receive Deductible Contributions, earlier. Free h&r block efile ) Also, you cannot deduct a contribution you made to any qualifying organization if the contribution is earmarked to go to a foreign organization. Free h&r block efile However, certain contributions to a qualified organization for use in a program conducted by a foreign charity may be deductible as long as they are not earmarked to go to the foreign charity. Free h&r block efile For the contribution to be deductible, the qualified organization must approve the program as furthering its own exempt purposes and must keep control over the use of the contributed funds. Free h&r block efile The contribution is also deductible if the foreign charity is only an administrative arm of the qualified organization. Free h&r block efile Homeowners' associations. Free h&r block efile Labor unions. Free h&r block efile But you may be able to deduct union dues as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit, on Schedule A (Form 1040). Free h&r block efile See Publication 529, Miscellaneous Deductions. Free h&r block efile Political organizations and candidates. Free h&r block efile Contributions From Which You Benefit If you receive or expect to receive a financial or economic benefit as a result of making a contribution to a qualified organization, you cannot deduct the part of the contribution that represents the value of the benefit you receive. Free h&r block efile See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. Free h&r block efile These contributions include the following. Free h&r block efile Contributions for lobbying. Free h&r block efile This includes amounts you earmark for use in, or in connection with, influencing specific legislation. Free h&r block efile Contributions to a retirement home for room, board, maintenance, or admittance. Free h&r block efile Also, if the amount of your contribution depends on the type or size of apartment you will occupy, it is not a charitable contribution. Free h&r block efile Costs of raffles, bingo, lottery, etc. Free h&r block efile You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other games of chance. Free h&r block efile For information on how to report gambling winnings and losses, see Deductions Not Subject to the 2% Limit in Publication 529. Free h&r block efile Dues to fraternal orders and similar groups. Free h&r block efile However, see Membership fees or dues under Contributions From Which You Benefit, earlier. Free h&r block efile Tuition, or amounts you pay instead of tuition. Free h&r block efile You cannot deduct as a charitable contribution amounts you pay as tuition even if you pay them for children to attend parochial schools or qualifying nonprofit daycare centers. Free h&r block efile You also cannot deduct any fixed amount you must pay in addition to, or instead of, tuition to enroll in a private school, even if it is designated as a “donation. Free h&r block efile ” Contributions connected with split-dollar insurance arrangements. Free h&r block efile You cannot deduct any part of a contribution to a charitable organization if, in connection with the contribution, the organization directly or indirectly pays, has paid, or is expected to pay any premium on any life insurance, annuity, or endowment contract for which you, any member of your family, or any other person chosen by you (other than a qualified charitable organization) is a beneficiary. Free h&r block efile Example. Free h&r block efile You donate money to a charitable organization. Free h&r block efile The charity uses the money to purchase a cash value life insurance policy. Free h&r block efile The beneficiaries under the insurance policy include members of your family. Free h&r block efile Even though the charity may eventually get some benefit out of the insurance policy, you cannot deduct any part of the donation. Free h&r block efile Qualified Charitable Distributions A qualified charitable distribution (QCD) is a distribution made directly by the trustee of your individual retirement arrangement (IRA), other than a SEP or SIMPLE IRA, to certain qualified organizations. Free h&r block efile You must have been at least age 70½ when the distribution was made. Free h&r block efile Your total QCDs for the year cannot be more than $100,000. Free h&r block efile If all the requirements are met, a QCD is nontaxable, but you cannot claim a charitable contribution deduction for a QCD. Free h&r block efile See Publication 590, Individual Retirement Arrangements (IRAs), for more information about QCDs. Free h&r block efile Value of Time or Services You cannot deduct the value of your time or services, including: Blood donations to the American Red Cross or to blood banks, and The value of income lost while you work as an unpaid volunteer for a qualified organization. Free h&r block efile Personal Expenses You cannot deduct personal, living, or family expenses, such as the following items. Free h&r block efile The cost of meals you eat while you perform services for a qualified organization, unless it is necessary for you to be away from home overnight while performing the services. Free h&r block efile Adoption expenses, including fees paid to an adoption agency and the costs of keeping a child in your home before adoption is final. Free h&r block efile However, you may be able to claim a tax credit for these expenses. Free h&r block efile Also, you may be able to exclude from your gross income amounts paid or reimbursed by your employer for your adoption expenses. Free h&r block efile See Form 8839, Qualified Adoption Expenses, and its instructions, for more information. Free h&r block efile You also may be able to claim an exemption for the child. Free h&r block efile See Exemptions for Dependents in Publication 501 for more information. Free h&r block efile Appraisal Fees You cannot deduct as a charitable contribution any fees you pay to find the fair market value of donated property. Free h&r block efile But you can claim them, subject to the 2%-of-adjusted-gross-income limit, as a miscellaneous itemized deduction on Schedule A (Form 1040). Free h&r block efile See Deductions Subject to the 2% Limit in Publication 529 for more information. Free h&r block efile Contributions to Donor-Advised Funds You cannot deduct a contribution to a donor-advised fund if: The qualified organization that sponsors the fund is a war veterans' organization, a fraternal society, or a nonprofit cemetery company, or You do not have an acknowledgment from that sponsoring organization that it has exclusive legal control over the assets contributed. Free h&r block efile There are also other circumstances in which you cannot deduct your contribution to a donor-advised fund. Free h&r block efile Generally, a donor-advised fund is a fund or account in which a donor can, because of being a donor, advise the fund how to distribute or invest amounts held in the fund. Free h&r block efile For details, see Internal Revenue Code section 170(f)(18). Free h&r block efile Partial Interest in Property Generally, you cannot deduct a contribution of less than your entire interest in property. Free h&r block efile For details, see Partial Interest in Property under Contributions of Property, later. Free h&r block efile Contributions of Property If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. Free h&r block efile However, if the property has increased in value, you may have to make some adjustments to the amount of your deduction. Free h&r block efile See Giving Property That Has Increased in Value , later. Free h&r block efile For information about the records you must keep and the information you must furnish with your return if you donate property, see Records To Keep and How To Report , later. Free h&r block efile Contributions Subject to Special Rules Special rules apply if you contribute: Clothing or household items, A car, boat, or airplane, Taxidermy property, Property subject to a debt, A partial interest in property, A fractional interest in tangible personal property, A qualified conservation contribution, A future interest in tangible personal property, Inventory from your business, or A patent or other intellectual property. Free h&r block efile These special rules are described next. Free h&r block efile Clothing and Household Items You cannot take a deduction for clothing or household items you donate unless the clothing or household items are in good used condition or better. Free h&r block efile Exception. Free h&r block efile   You can take a deduction for a contribution of an item of clothing or a household item that is not in good used condition or better if you deduct more than $500 for it and include a qualified appraisal of it with your return. Free h&r block efile Household items. Free h&r block efile   Household items include: Furniture and furnishings, Electronics, Appliances, Linens, and Other similar items. Free h&r block efile   Household items do not include: Food, Paintings, antiques, and other objects of art, Jewelry and gems, and Collections. Free h&r block efile Fair market value. Free h&r block efile   To determine the fair market value of these items, use the rules under Determining Fair Market Value , later. Free h&r block efile Cars, Boats, and Airplanes The following rules apply to any donation of a qualified vehicle. Free h&r block efile A qualified vehicle is: A car or any motor vehicle manufactured mainly for use on public streets, roads, and highways, A boat, or An airplane. Free h&r block efile Deduction more than $500. Free h&r block efile   If you donate a qualified vehicle with a claimed fair market value of more than $500, you can deduct the smaller of: The gross proceeds from the sale of the vehicle by the organization, or The vehicle's fair market value on the date of the contribution. Free h&r block efile If the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to figure the deductible amount, as described under Giving Property That Has Increased in Value , later. Free h&r block efile Form 1098-C. Free h&r block efile   You must attach to your return Copy B of the Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, (or other statement containing the same information as Form 1098-C) you received from the organization. Free h&r block efile The Form 1098-C (or other statement) will show the gross proceeds from the sale of the vehicle. Free h&r block efile   If you e-file your return, you must: Attach Copy B of Form 1098-C to Form 8453, U. Free h&r block efile S. Free h&r block efile Individual Income Tax Transmittal for an IRS e-file Return, and mail the forms to the IRS, or Include Copy B of Form 1098-C as a pdf attachment if your software program allows it. Free h&r block efile   If you do not attach Form 1098-C (or other statement), you cannot deduct your contribution. Free h&r block efile    You must get Form 1098-C (or other statement) within 30 days of the sale of the vehicle. Free h&r block efile But if exception 1 or 2 (described later) applies, you must get Form 1098-C (or other statement) within 30 days of your donation. Free h&r block efile Filing deadline approaching and still no Form 1098-C. Free h&r block efile   If the filing deadline is approaching and you still do not have a Form 1098-C, you have two choices. Free h&r block efile Request an automatic 6-month extension of time to file your return. Free h&r block efile You can get this extension by filing Form 4868, Application for Automatic Extension of Time To File U. Free h&r block efile S. Free h&r block efile Individual Income Tax Return. Free h&r block efile For more information, see the instructions for Form 4868. Free h&r block efile File the return on time without claiming the deduction for the qualified vehicle. Free h&r block efile After receiving the Form 1098-C, file an amended return, Form 1040X, Amended U. Free h&r block efile S. Free h&r block efile Individual Income Tax Return, claiming the deduction. Free h&r block efile Attach Copy B of Form 1098-C (or other statement) to the amended return. Free h&r block efile Exceptions. Free h&r block efile   There are two exceptions to the rules just described for deductions of more than $500. Free h&r block efile Exception 1—vehicle used or improved by organization. Free h&r block efile   If the qualified organization makes a significant intervening use of or material improvement to the vehicle before transferring it, you generally can deduct the vehicle's fair market value at the time of the contribution. Free h&r block efile But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Free h&r block efile The Form 1098-C (or other statement) will show whether this exception applies. Free h&r block efile    Exception 2—vehicle given or sold to needy individual. Free h&r block efile   If the qualified organization will give the vehicle, or sell it for a price well below fair market value, to a needy individual to further the organization's charitable purpose, you generally can deduct the vehicle's fair market value at the time of the contribution. Free h&r block efile But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Free h&r block efile The Form 1098-C (or other statement) will show whether this exception applies. Free h&r block efile   This exception does not apply if the organization sells the vehicle at auction. Free h&r block efile In that case, you cannot deduct the vehicle's fair market value. Free h&r block efile Example. Free h&r block efile Anita donates a used car to a qualified organization. Free h&r block efile She bought it 3 years ago for $9,000. Free h&r block efile A used car guide shows the fair market value for this type of car is $6,000. Free h&r block efile However, Anita gets a Form 1098-C from the organization showing the car was sold for $2,900. Free h&r block efile Neither exception 1 nor exception 2 applies. Free h&r block efile If Anita itemizes her deductions, she can deduct $2,900 for her donation. Free h&r block efile She must attach Form 1098-C and Form 8283 to her return. Free h&r block efile Deduction $500 or less. Free h&r block efile   If the qualified organization sells the vehicle for $500 or less and exceptions 1 and 2 do not apply, you can deduct the smaller of: $500, or The vehicle's fair market value on the date of the contribution. Free h&r block efile But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Free h&r block efile   If the vehicle's fair market value is at least $250 but not more than $500, you must have a written statement from the qualified organization acknowledging your donation. Free h&r block efile The statement must contain the information and meet the tests for an acknowledgment described under Contributions of $250 or More under Records To Keep, later. Free h&r block efile Fair market value. Free h&r block efile   To determine a vehicle's fair market value, use the rules described under Determining Fair Market Value , later. Free h&r block efile Donations of inventory. Free h&r block efile   The vehicle donation rules just described do not apply to donations of inventory. Free h&r block efile For example, these rules do not apply if you are a car dealer who donates a car you had been holding for sale to customers. Free h&r block efile See Inventory , later. Free h&r block efile Taxidermy Property If you donate taxidermy property to a qualified organization, your deduction is limited to your basis in the property or its fair market value, whichever is less. Free h&r block efile This applies if you prepared, stuffed, or mounted the property or paid or incurred the cost of preparing, stuffing, or mounting the property. Free h&r block efile Your basis for this purpose includes only the cost of preparing, stuffing, and mounting the property. Free h&r block efile Your basis does not include transportation or travel costs. Free h&r block efile It also does not include the direct or indirect costs for hunting or killing an animal, such as equipment costs. Free h&r block efile In addition, it does not include the value of your time. Free h&r block efile Taxidermy property means any work of art that: Is the reproduction or preservation of an animal, in whole or in part, Is prepared, stuffed, or mounted to recreate one or more characteristics of the animal, and Contains a part of the body of the dead animal. Free h&r block efile Property Subject to a Debt If you contribute property subject to a debt (such as a mortgage), you must reduce the fair market value of the property by: Any allowable deduction for interest you paid (or will pay) that is attributable to any period after the contribution, and If the property is a bond, the lesser of: Any allowable deduction for interest you paid (or will pay) to buy or carry the bond that is attributable to any period before the contribution, or The interest, including bond discount, receivable on the bond that is attributable to any period before the contribution, and that is not includible in your income due to your accounting method. Free h&r block efile This prevents you from deducting the same amount as both investment interest and a charitable contribution. Free h&r block efile If the recipient (or another person) assumes the debt, you must also reduce the fair market value of the property by the amount of the outstanding debt assumed. Free h&r block efile The amount of the debt is also treated as an amount realized on the sale or exchange of property for purposes of figuring your taxable gain (if any). Free h&r block efile For more information, see Bargain Sales under Giving Property That Has Increased in Value, later. Free h&r block efile Partial Interest in Property Generally, you cannot deduct a charitable contribution of less than your entire interest in property. Free h&r block efile Right to use property. Free h&r block efile   A contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible. Free h&r block efile Example 1. Free h&r block efile You own a 10-story office building and donate rent-free use of the top floor to a charitable organization. Free h&r block efile Because you still own the building, you have contributed a partial interest in the property and cannot take a deduction for the contribution. Free h&r block efile Example 2. Free h&r block efile Mandy White owns a vacation home at the beach that she sometimes rents to others. Free h&r block efile For a fund-raising auction at her church, she donated the right to use the vacation home for 1 week. Free h&r block efile At the auction, the church received and accepted a bid from Lauren Green equal to the fair rental value of the home for 1 week. Free h&r block efile Mandy cannot claim a deduction because of the partial interest rule. Free h&r block efile Lauren cannot claim a deduction either, because she received a benefit equal to the amount of her payment. Free h&r block efile See Contributions From Which You Benefit , earlier. Free h&r block efile Exceptions. Free h&r block efile   You can deduct a charitable contribution of a partial interest in property only if that interest represents one of the following items. Free h&r block efile A remainder interest in your personal home or farm. Free h&r block efile A remainder interest is one that passes to a beneficiary after the end of an earlier interest in the property. Free h&r block efile Example. Free h&r block efile You keep the right to live in your home during your lifetime and give your church a remainder interest that begins upon your death. Free h&r block efile You can deduct the value of the remainder interest. Free h&r block efile An undivided part of your entire interest. Free h&r block efile This must consist of a part of every substantial interest or right you own in the property and must last as long as your interest in the property lasts. Free h&r block efile But see Fractional Interest in Tangible Personal Property , later. Free h&r block efile Example. Free h&r block efile You contribute voting stock to a qualified organization but keep the right to vote the stock. Free h&r block efile The right to vote is a substantial right in the stock. Free h&r block efile You have not contributed an undivided part of your entire interest and cannot deduct your contribution. Free h&r block efile A partial interest that would be deductible if transferred to certain types of trusts. Free h&r block efile A qualified conservation contribution (defined later). Free h&r block efile For information about how to figure the value of a contribution of a partial interest in property, see Partial Interest in Property Not in Trust in Publication 561. Free h&r block efile Fractional Interest in Tangible Personal Property You cannot deduct a charitable contribution of a fractional interest in tangible personal property unless all interests in the property are held immediately before the contribution by: You, or You and the qualifying organization receiving the contribution. Free h&r block efile If you make an additional contribution later, the fair market value of that contribution will be determined by using the smaller of: The fair market value of the property at the time of the initial contribution, or The fair market value of the property at the time of the additional contribution. Free h&r block efile Tangible personal property is defined later under Future Interest in Tangible Personal Property . Free h&r block efile A fractional interest in property is an undivided portion of your entire interest in the property. Free h&r block efile Example. Free h&r block efile An undivided one-quarter interest in a painting that entitles an art museum to possession of the painting for 3 months of each year is a fractional interest in the property. Free h&r block efile Recapture of deduction. Free h&r block efile   You must recapture your charitable contribution deduction by including it in your income if both of the following statements are true. Free h&r block efile You contributed a fractional interest in tangible personal property after August 17, 2006. Free h&r block efile You do not contribute the rest of your interests in the property to the original recipient or, if it no longer exists, another qualified organization on or before the earlier of: The date that is 10 years after the date of the initial contribution, or The date of your death. Free h&r block efile   Recapture is also required if the qualified organization has not taken substantial physical possession of the property and used it in a way related to the organization's purpose during the period beginning on the date of the initial contribution and ending on the earlier of: The date that is 10 years after the date of the initial contribution, or The date of your death. Free h&r block efile Additional tax. Free h&r block efile   If you must recapture your deduction, you must also pay interest and an additional tax equal to 10% of the amount recaptured. Free h&r block efile Qualified Conservation Contribution A qualified conservation contribution is a contribution of a qualified real property interest to a qualified organization to be used only for conservation purposes. Free h&r block efile Qualified organization. Free h&r block efile   For purposes of a qualified conservation contribution, a qualified organization is: A governmental unit, A publicly supported charity, or An organization controlled by, and operated for the exclusive benefit of, a governmental unit or a publicly supported charity. Free h&r block efile The organization also must have a commitment to protect the conservation purposes of the donation and must have the resources to enforce the restrictions. Free h&r block efile   A publicly supported charity is an organization of the type described in (1) under Types of Qualified Organizations , earlier, that normally receives a substantial part of its support, other than income from its exempt activities, from direct or indirect contributions from the general public or from governmental units. Free h&r block efile Qualified real property interest. Free h&r block efile   This is any of the following interests in real property. Free h&r block efile Your entire interest in real estate other than a mineral interest (subsurface oil, gas, or other minerals, and the right of access to these minerals). Free h&r block efile A remainder interest. Free h&r block efile A restriction (granted in perpetuity) on the use that may be made of the real property. Free h&r block efile Conservation purposes. Free h&r block efile   Your contribution must be made only for one of the following conservation purposes. Free h&r block efile Preserving land areas for outdoor recreation by, or for the education of, the general public. Free h&r block efile Protecting a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem. Free h&r block efile Preserving open space, including farmland and forest land, if it yields a significant public benefit. Free h&r block efile The open space must be preserved either for the scenic enjoyment of the general public or under a clearly defined federal, state, or local governmental conservation policy. Free h&r block efile Preserving a historically important land area or a certified historic structure. Free h&r block efile Building in registered historic district. Free h&r block efile   If a building in a registered historic district is a certified historic structure, a contribution of a qualified real property interest that is an easement or other restriction on the exterior of the building is deductible only if it meets all of the following conditions. Free h&r block efile The restriction must preserve the entire exterior of the building (including its front, sides, rear, and height) and must prohibit any change to the exterior of the building that is inconsistent with its historical character. Free h&r block efile You and the organization receiving the contribution must enter into a written agreement certifying, under penalty of perjury, that the organization: Is a qualified organization with a purpose of environmental protection, land conservation, open space preservation, or historic preservation, and Has the resources to manage and enforce the restriction and a commitment to do so. Free h&r block efile You must include with your return: A qualified appraisal, Photographs of the building's entire exterior, and A description of all restrictions on development of the building, such as zoning laws and restrictive covenants. Free h&r block efile   If you claimed the rehabilitation credit for the building for any of the 5 years before the year of the contribution, your charitable deduction is reduced. Free h&r block efile For more information, see Form 3468, Investment Credit, and Internal Revenue Code section 170(f)(14). Free h&r block efile   If you claim a deduction of more than $10,000, your deduction will not be allowed unless you pay a $500 filing fee. Free h&r block efile See Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13), and its instructions. Free h&r block efile You may be able to deduct the filing fee as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit, on Schedule A (Form 1040). Free h&r block efile See Deductions Subject to the 2% Limit in Publication 529 for more information. Free h&r block efile More information. Free h&r block efile   For information about determining the fair market value of qualified conservation contributions, see Publication 561. Free h&r block efile For information about the limits that apply to deductions for this type of contribution, see Limits on Deductions , later. Free h&r block efile For more information about qualified conservation contributions, see Regulations section 1. Free h&r block efile 170A-14. Free h&r block efile Future Interest in Tangible Personal Property You cannot deduct the value of a charitable contribution of a future interest in tangible personal property until all intervening interests in and rights to the actual possession or enjoyment of the property have either expired or been turned over to someone other than yourself, a related person, or a related organization. Free h&r block efile But see Fractional Interest in Tangible Personal Property , earlier, and Tangible personal property put to unrelated use , later. Free h&r block efile Related persons include your spouse, children, grandchildren, brothers, sisters, and parents. Free h&r block efile Related organizations may include a partnership or corporation in which you have an interest, or an estate or trust with which you have a connection. Free h&r block efile Tangible personal property. Free h&r block efile   This is any property, other than land or buildings, that can be seen or touched. Free h&r block efile It includes furniture, books, jewelry, paintings, and cars. Free h&r block efile Future interest. Free h&r block efile   This is any interest that is to begin at some future time, regardless of whether it is designated as a future interest under state law. Free h&r block efile Example. Free h&r block efile You own an antique car that you contribute to a museum. Free h&r block efile You give up ownership, but retain the right to keep the car in your garage with your personal collection. Free h&r block efile Because you keep an interest in the property, you cannot deduct the contribution. Free h&r block efile If you turn the car over to the museum in a later year, giving up all rights to its use, possession, and enjoyment, you can take a deduction for the contribution in that later year. Free h&r block efile Inventory If you contribute inventory (property you sell in the course of your business), the amount you can deduct is the smaller of its fair market value on the day you contributed it or its basis. Free h&r block efile The basis of contributed inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. Free h&r block efile You must remove the amount of your charitable contribution deduction from your opening inventory. Free h&r block efile It is not part of the cost of goods sold. Free h&r block efile If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you cannot claim a charitable contribution deduction. Free h&r block efile Treat the inventory's cost as you would ordinarily treat it under your method of accounting. Free h&r block efile For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year. Free h&r block efile A special rule applies to certain donations of food inventory. Free h&r block efile See Food Inventory, later. Free h&r block efile Patents and Other Intellectual Property If you donate intellectual property to a qualified organization, your deduction is limited to the basis of the property or the fair market value of the property, whichever is smaller. Free h&r block efile Intellectual property means any of the following: Patents. Free h&r block efile Copyrights (other than a copyright described in Internal Revenue Code sections 1221(a)(3) or 1231(b)(1)(C)). Free h&r block efile Trademarks. Free h&r block efile Trade names. Free h&r block efile Trade secrets. Free h&r block efile Know-how. Free h&r block efile Software (other than software described in Internal Revenue Code section 197(e)(3)(A)(i)). Free h&r block efile Other similar property or applications or registrations of such property. Free h&r block efile Additional deduction based on income. Free h&r block efile   You may be able to claim additional charitable contribution deductions in the year of the contribution and years following, based on the income, if any, from the donated property. Free h&r block efile   The following table shows the percentage of income from the property that you can deduct for each of your tax years ending on or after the date of the contribution. Free h&r block efile In the table, “tax year 1,” for example, means your first tax year ending on or after the date of the contribution. Free h&r block efile However, you can take the additional deduction only to the extent the total of the amounts figured using this table is more than the amount of the deduction claimed for the original donation of the property. Free h&r block efile   After the legal life of the intellectual property ends, or after the 10th anniversary of the donation, whichever is earlier, no additional deduction is allowed. Free h&r block efile The additional deductions cannot be taken for intellectual property donated to certain private foundations. Free h&r block efile Tax year Deductible percentage 1 100% 2 100% 3 90% 4 80% 5 70% 6 60% 7 50% 8 40% 9 30% 10 20% 11 10% 12 10% Reporting requirements. Free h&r block efile   You must inform the organization at the time of the donation that you intend to treat the donation as a contribution subject to the provisions just discussed. Free h&r block efile   The organization is required to file an information return showing the income from the property, with a copy to you. Free h&r block efile This is done on Form 8899, Notice of Income From Donated Intellectual Property. Free h&r block efile Determining Fair Market Value This section discusses general guidelines for determining the fair market value of various types of donated property. Free h&r block efile Publication 561 contains a more complete discussion. Free h&r block efile Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Free h&r block efile Used clothing. Free h&r block efile   The fair market value of used clothing and other personal items is usually far less than the price you paid for them. Free h&r block efile There are no fixed formulas or methods for finding the value of items of clothing. Free h&r block efile   You should claim as the value the price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops. Free h&r block efile      Also see Clothing and Household Items , earlier. Free h&r block efile Example. Free h&r block efile    Kristin donated a coat to a thrift store operated by her church. Free h&r block efile She paid $300 for the coat 3 years ago. Free h&r block efile Similar coats in the thrift store sell for $50. Free h&r block efile The fair market value of the coat is $50. Free h&r block efile Kristin's donation is limited to $50. Free h&r block efile Household items. Free h&r block efile   The fair market value of used household items, such as furniture, appliances, and linens, is usually much lower than the price paid when new. Free h&r block efile These items may have little or no market value because they are in a worn condition, out of style, or no longer useful. Free h&r block efile For these reasons, formulas (such as using a percentage of the cost to buy a new replacement item) are not acceptable in determining value. Free h&r block efile   You should support your valuation with photographs, canceled checks, receipts from your purchase of the items, or other evidence. Free h&r block efile Magazine or newspaper articles and photographs that describe the items and statements by the recipients of the items are also useful. Free h&r block efile Do not include any of this evidence with your tax return. Free h&r block efile   If the property is valuable because it is old or unique, see the discussion under Paintings, Antiques, and Other Objects of Art in Publication 561. Free h&r block efile   Also see Clothing and Household Items , earlier. Free h&r block efile Cars, boats, and airplanes. Free h&r block efile   If you contribute a car, boat, or airplane to a charitable organization, you must determine its fair market value. Free h&r block efile Boats. Free h&r block efile   Except for small, inexpensive boats, the valuation of boats should be based on an appraisal by a marine surveyor or appraiser because the physical condition is critical to the value. Free h&r block efile Cars. Free h&r block efile   Certain commercial firms and trade organizations publish used car pricing guides, commonly called “blue books,” containing complete dealer sale prices or dealer average prices for recent model years. Free h&r block efile The guides may be published monthly or seasonally, and for different regions of the country. Free h&r block efile These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. Free h&r block efile The prices are not “official” and these publications are not considered an appraisal of any specific donated property. Free h&r block efile But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. Free h&r block efile   These publications are sometimes available from public libraries, or from the loan officer at a bank, credit union, or finance company. Free h&r block efile You can also find used car pricing information on the Internet. Free h&r block efile   To find the fair market value of a donated car, use the price listed in a used car guide for a private party sale, not the dealer retail value. Free h&r block efile However, the fair market value may be less if the car has engine trouble, body damage, high mileage, or any type of excessive wear. Free h&r block efile The fair market value of a donated car is the same as the price listed in a used car guide for a private party sale only if the guide lists a sales price for a car that is the same make, model, and year, sold in the same area, in the same condition, with the same or similar options or accessories, and with the same or similar warranties as the donated car. Free h&r block efile Example. Free h&r block efile You donate a used car in poor condition to a local high school for use by students studying car repair. Free h&r block efile A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. Free h&r block efile However, the guide shows the price for a private party sale of the car is only $750. Free h&r block efile The fair market value of the car is considered to be $750. Free h&r block efile Large quantities. Free h&r block efile   If you contribute a large number of the same item, fair market value is the price at which comparable numbers of the item are being sold. Free h&r block efile Example. Free h&r block efile You purchase 500 bibles for $1,000. Free h&r block efile The person who sells them to you says the retail value of these bibles is $3,000. Free h&r block efile If you contribute the bibles to a qualified organization, you can claim a deduction only for the price at which similar numbers of the same bible are currently being sold. Free h&r block efile Your charitable contribution is $1,000, unless you can show that similar numbers of that bible wer