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Www H&rblock2012 Tax Return Online FreeAmended Tax ReturnsTax Easy FormHow To File Tax ExtensionWhat Is A 1040xFill Out 1040ez OnlineWww Hrblock ComFile 1040nr Online FreeTax Software 2011Vita Tax Program 2012 Locations1040ez OnlineNeed Amend My 2009 TaxesState Tax Preparation Free1040x Online FreeFiling Back Taxes Online FreeFiling An Amended Tax ReturnFree Tax 2011Free Turbo Tax 2013H&r Block MilitaryDeadline For Filing 2010 TaxesIrs Amended Tax FormsHow To Do 1040xTelefileFree State Taxes FilingHow Do I File Taxes For 2010Irs Form1040Tax Forms For College Students1040ez2013Can I File My 2012 Taxes NowWhere File 1040xHow To Do An Amended Return2014 1040ezHow To File 2009 Taxes1040ez 2010 InstructionsFile 2011 Taxes Online TurbotaxTaxes Free OnlineIrs Free FileHow To File A 1040xFederal Tax Forms 2010

Free Online State Tax Filing Only

Free online state tax filing only Index A Acknowledgment, Acknowledgment. Free online state tax filing only Adoption expenses, Personal Expenses Airplanes, donations of, Cars, Boats, and Airplanes Appraisal fees, Appraisal Fees Assistance (see Tax help) Athletic events, Athletic events. Free online state tax filing only B Bargain sales, Bargain Sales Blood donated, Value of Time or Services Boats, donations of, Cars, Boats, and Airplanes Boats, fair market value, Cars, boats, and airplanes. Free online state tax filing only C Canadian charity, Canadian charities. Free online state tax filing only Capital gain property, Capital Gain Property Car expenses, Car expenses. Free online state tax filing only , Car expenses. Free online state tax filing only Carryovers, Carryovers Cars, donations of, Cars, Boats, and Airplanes Cash contributions, records to keep, Cash Contributions Charity benefit events, Charity benefit events. Free online state tax filing only Church deacon, Church deacon. Free online state tax filing only Clothing Fair market value of, Used clothing. Free online state tax filing only Conservation contribution, Special 50% Limit for Qualified Conservation Contributions Contributions from which you benefit, Contributions From Which You Benefit, Contributions From Which You Benefit Contributions of property, Contributions of Property Contributions subject to special rules Car, boat, or airplane, 1098–C, Contributions Subject to Special Rules Clothing, Contributions Subject to Special Rules Fractional interest in tangible personal property, Contributions Subject to Special Rules Future interest in tangible personal property, Contributions Subject to Special Rules Household items, Contributions Subject to Special Rules Inventory from your business, Contributions Subject to Special Rules Partial interest in property, Contributions Subject to Special Rules Patent or other intellectual property, Contributions Subject to Special Rules Property subject to a debt, Contributions Subject to Special Rules Qualified conservation contribution, Contributions Subject to Special Rules Taxidermy property, Contributions Subject to Special Rules Contributions to nonqualified organizations Foreign organizations, Contributions to Nonqualified Organizations Contributions you can deduct, Contributions You Can Deduct Conventions of a qualified organization, Conventions. Free online state tax filing only D Daily allowance (per diem) from a charitable organization, Daily allowance (per diem). Free online state tax filing only Deduction limits, Limits on Deductions Determining fair market value, Determining Fair Market Value Disaster relief, Reminders Donor-advised funds, Contributions to Donor-Advised Funds E Easement, Building in registered historic district. Free online state tax filing only F Farmer, Qualified farmer or rancher. Free online state tax filing only Food inventory, Food Inventory Foreign organizations Canadian, Canadian charities. Free online state tax filing only Israeli, Israeli charities. Free online state tax filing only Mexican, Mexican charities. Free online state tax filing only Form 8282, Form 8282. Free online state tax filing only 8283, Total deduction over $500. Free online state tax filing only Foster parents, Foster parents. Free online state tax filing only Free tax services, Free help with your tax return. Free online state tax filing only Future interests in property, Future Interest in Tangible Personal Property H Help (see Tax help) Historic building, Building in registered historic district. Free online state tax filing only Household items Fair market value of, Household items. Free online state tax filing only How to report, How To Report Noncash contributions, Reporting expenses for student living with you. Free online state tax filing only I Introduction, Introduction Inventory, Food Inventory Israeli charity, Israeli charities. Free online state tax filing only L Legislation, influencing, Contributions From Which You Benefit Limit on itemized deductions, What's New Limits on deductions, Limits on Deductions 20% limit, 20% Limit 30% limit, 30% Limit 50% limit, 50% Limit Calculation, How To Figure Your Deduction When Limits Apply Capital gain property, Special 30% Limit for Capital Gain Property Qualified conservation contributions, Special 50% Limit for Qualified Conservation Contributions M Meals, Personal Expenses Membership fees or dues, Membership fees or dues. Free online state tax filing only Mexican charity, Mexican charities. Free online state tax filing only Motor vehicles, donations of, Cars, Boats, and Airplanes Motor vehicles, fair market value, Cars, boats, and airplanes. Free online state tax filing only N Noncash contributions, Noncash Contributions How to report, Reporting expenses for student living with you. Free online state tax filing only Records to keep, Noncash Contributions Nondeductible contributions, Contributions You Cannot Deduct O Ordinary income property, Ordinary Income Property Out-of-pocket expenses, Out-of-pocket expenses. Free online state tax filing only Out-of-pocket expenses in giving services, Out-of-Pocket Expenses in Giving Services P Payroll deductions, Payroll deductions. Free online state tax filing only , Payroll deductions. Free online state tax filing only Penalty, valuation overstatement, Penalty Personal expenses, Personal Expenses Private foundation, 50% Limit Organizations Private nonoperating foundation, Contributions to private nonoperating foundations. Free online state tax filing only , 50% Limit Organizations Private operating foundation, 50% Limit Organizations Property Bargain sales, Bargain Sales Basis, Giving Property That Has Decreased in Value Capital gain, Capital Gain Property Capital gain election, Capital gain property election. Free online state tax filing only Decreased in value, Giving Property That Has Decreased in Value Future interests, Future Interest in Tangible Personal Property Increased in value, Giving Property That Has Increased in Value Inventory, Food Inventory Ordinary income, Ordinary Income Property Unrelated use, Tangible personal property put to unrelated use. Free online state tax filing only Publications (see Tax help) Q Qualified charitable distributions, Qualified Charitable Distributions Qualified conservation contribution, Special 50% Limit for Qualified Conservation Contributions Qualified organizations Foreign qualified organizations Canadian, Organizations That Qualify To Receive Deductible Contributions Israeli, Organizations That Qualify To Receive Deductible Contributions Mexican, Organizations That Qualify To Receive Deductible Contributions Types, Organizations That Qualify To Receive Deductible Contributions R Raffle or bingo, Contributions From Which You Benefit Recapture No exempt use, Recapture if no exempt use. Free online state tax filing only Recapture of deduction of fractional interest in tangible personal property Additional tax, Recapture of deduction. Free online state tax filing only Records to keep, Records To Keep Reminders Disaster relief, Reminders Reporting, How To Report Retirement home, Contributions From Which You Benefit S Services, value of, Value of Time or Services Split-dollar insurance arrangements, Contributions From Which You Benefit Student, Mutual exchange program. Free online state tax filing only Exchange program, Mutual exchange program. Free online state tax filing only Living with you, Student living with you. Free online state tax filing only Student living with you, Expenses Paid for Student Living With You, Reporting expenses for student living with you. Free online state tax filing only T Tangible personal property Future interest in, Future Interest in Tangible Personal Property Tax help, How To Get Tax Help Time, value of, Value of Time or Services Token items, Certain membership benefits can be disregarded. Free online state tax filing only Travel expenses, Travel. Free online state tax filing only Travel expenses for charitable services, Deductible travel expenses. Free online state tax filing only Tuition, Contributions From Which You Benefit U Underprivileged youths, Underprivileged youths selected by charity. Free online state tax filing only Uniforms, Uniforms. Free online state tax filing only Unrelated use, Unrelated use. Free online state tax filing only V Volunteers, Out-of-Pocket Expenses in Giving Services W Whaling captain, Expenses of Whaling Captains When to deduct, When To Deduct Prev  Up     Home   More Online Publications
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IRS Urges Taxpayers to Avoid Becoming Victims of Tax Scams

IR-2011-73, July 11, 2011

IRS YouTube Videos:
Tax Refund Scams :
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WASHINGTON — The Internal Revenue Service today encouraged taxpayers to guard against being misled by unscrupulous individuals trying to persuade them to file false claims for tax credits or rebates.

The IRS has noted an increase in tax-return-related scams, frequently involving unsuspecting taxpayers who normally do not have a filing requirement in the first place. These taxpayers are led to believe they should file a return with the IRS for tax credits, refunds or rebates for which they are not really entitled. Many of these recent scams have been targeted in the South and Midwest.

Most paid tax return preparers provide honest and professional service, but there are some who engage in fraud and other illegal activities.   Unscrupulous promoters deceive people into paying for advice on how to file false claims. Some promoters may charge unreasonable amounts for preparing legitimate returns that could have been prepared for free by the IRS or IRS sponsored Volunteer Income Tax Assistance partners. In other situations, identity theft is involved.

Taxpayers should be wary of any of the following:

  • Fictitious claims for refunds or rebates based on excess or withheld Social Security benefits.
  • Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS enabling a payout from the IRS.
  • Unfamiliar for-profit tax services teaming up with local churches.
  • Home-made flyers and brochures implying credits or refunds are available without proof of eligibility.
  • Offers of free money with no documentation required.
  • Promises of refunds for “Low Income – No Documents Tax Returns.”
  • Claims for the expired Economic Recovery Credit Program or Recovery Rebate Credit. 
  • Advice on claiming the Earned Income Tax Credit based on exaggerated reports of self-employment income.

In some cases non-existent Social Security refunds or rebates have been the bait used by the con artists.  In other situations, taxpayers deserve the tax credits they are promised but the preparer uses fictitious or inflated information on the return which results in a fraudulent return.

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file with little or no documentation, have been appearing in community churches around the country. Promoters are targeting church congregations, exploiting their good intentions and credibility. These schemes also often spread by word of mouth among unsuspecting and well-intentioned people telling their friends and relatives. 
Promoters of these scams often prey upon low income individuals and the elderly. 

They build false hopes and charge people good money for bad advice.  In the end, the victims discover their claims are rejected or the refund barely exceeds what they paid the promoter.  Meanwhile, their money and the promoters are long gone.

Unsuspecting individuals are most likely to get caught up in scams and the IRS is warning all taxpayers, and those that help others prepare returns, to remain vigilant. If it sounds too good to be true, it probably is.

Anyone with questions about a tax credit or program should visit www.IRS.gov, call the IRS toll-free number at 800-829-1040 or visit a local IRS Taxpayer Assistance Center.

For questions about rebates, credit and benefits from other federal agencies contact the relevant agency directly for accurate information. 

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Page Last Reviewed or Updated: 19-Mar-2014

The Free Online State Tax Filing Only

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