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Free Tax Efile

Free tax efile Index A Accrual foreign taxes, adjustments, You may have to post a bond. Free tax efile Accrual method of accounting, Accrual method of accounting. Free tax efile Allocation Carryback/carryover between spouses, Allocations Between Spouses Foreign losses, Foreign Losses Foreign taxes, Allocation of Foreign Taxes U. Free tax efile S. Free tax efile losses, U. Free tax efile S. Free tax efile Losses Alternative minimum tax, Reminders Amended return, Claim for Refund American Samoa, resident of, Possession Exclusion Assistance (see Tax help) B Bankruptcy, effect of, Effect of bankruptcy or insolvency. Free tax efile Beneficiary, Partner or S corporation shareholder. Free tax efile Bond, income tax, You may have to post a bond. Free tax efile Boycotting countries, Taxes From International Boycott Operations C Capital gains and losses, Capital Gains and Losses Carryback and carryover, Carrybacks and carryovers. Free tax efile Allocations between spouses, Allocations Between Spouses Claim for refund, Time Limit on Tax Assessment Joint return, Married Couples Joint return–deduction year, Joint Return Filed in a Deduction Year Taxes all credited or deducted, Claim for Refund Time limit on tax assessment, Time Limit on Tax Assessment Choice to take credit or deduction Changing your choice, Making or Changing Your Choice Choice applied to all qualified foreign taxes, Choice Applies to All Qualified Foreign Taxes Claim for refund, Claim for Refund Classes of gross income, Classes of gross income. Free tax efile Compensation for labor or personal services, Determining the Source of Compensation for Labor or Personal Services Geographical basis, Geographical basis. Free tax efile Comprehensive example, Comprehensive Example — Filled-In Form 1116 Controlled foreign corporation shareholder, Controlled foreign corporation shareholder. Free tax efile , Income from controlled foreign corporations. Free tax efile Covered asset acquisition, Covered Asset Acquisition Credit How to claim, How To Claim the Credit How to figure, How To Figure the Credit Limit on, Limit on the Credit Credit for taxes paid or accrued, Credit for Taxes Paid or Accrued D Deduction for foreign taxes that are not income taxes, Foreign taxes that are not income taxes. Free tax efile Distributions Lump-sum, Lump-Sum Distribution Dividends Taxes on, Taxes Imposed on Certain Dividends Dual-capacity taxpayers, Dual-capacity taxpayers. Free tax efile E Economic benefits, Specific economic benefit. Free tax efile Examples Comprehensive, Comprehensive Example — Filled-In Form 1116 Simple, Simple Example — Filled-In Form 1116 Excess limit, Carryback and Carryover Exchange rates, Foreign Currency and Exchange Rates Excluded income Foreign earned, Foreign Earned Income and Housing Exclusions Taxes on, Taxes on Excluded Income Exemption from foreign tax credit limit, Exemption from foreign tax credit limit. Free tax efile Export financing interest, Export financing interest. Free tax efile Extraterritorial income, Extraterritorial Income Exclusion F Financial services income, Financial services income. Free tax efile Foreign corporation–U. Free tax efile S. Free tax efile shareholders, filing requirements, Taxes of U. Free tax efile S. Free tax efile Persons Controlling Foreign Corporations and Partnerships Foreign country, Foreign country. Free tax efile Foreign currency and exchange rates, Foreign Currency and Exchange Rates Foreign income, translating, Translating foreign currency into U. Free tax efile S. Free tax efile dollars. Free tax efile Foreign losses Allocation of, Foreign Losses Recapture of, Recapture of Prior Year Overall Foreign Loss Accounts Foreign mineral income, taxes on, Taxes on Foreign Mineral Income Foreign oil and gas extraction income, taxes on, Taxes on Combined Foreign Oil and Gas Income Foreign partnerships–U. Free tax efile S. Free tax efile partners, filing requirement, Taxes of U. Free tax efile S. Free tax efile Persons Controlling Foreign Corporations and Partnerships Foreign tax refund, Foreign tax refund. Free tax efile , Foreign tax refund. Free tax efile Foreign tax(es) Allocation to income categories, Allocation of Foreign Taxes For which you cannot take a credit, Foreign Taxes for Which You Cannot Take a Credit Imposed on foreign refund, Foreign tax imposed on foreign refund. Free tax efile Qualifying for credit, What Foreign Taxes Qualify for the Credit? Redetermination, Foreign Tax Redetermination Refund, Foreign tax imposed on foreign refund. Free tax efile Form 1040X, Claim for Refund 1116, Form 1116, Simple Example — Filled-In Form 1116, Comprehensive Example — Filled-In Form 1116 5471, Taxes of U. Free tax efile S. Free tax efile Persons Controlling Foreign Corporations and Partnerships 5713, Form 5713 required. Free tax efile 8833, Report required. Free tax efile 8865, Taxes of U. Free tax efile S. Free tax efile Persons Controlling Foreign Corporations and Partnerships 8873, Extraterritorial Income Exclusion Free tax services, Free help with your tax return. Free tax efile Functional currency, Translating foreign currency into U. Free tax efile S. Free tax efile dollars. Free tax efile G General category income, separate limit, General Category Income H Help (see Tax help) High-taxed income, High-taxed income. Free tax efile I Income from sources in U. Free tax efile S. Free tax efile possessions, Determining the source of income from U. Free tax efile S. Free tax efile possessions. Free tax efile Income re-sourced by treaty, separate limit, Certain Income Re-Sourced By Treaty Income tax, Income Tax Income tax bond, You may have to post a bond. Free tax efile Interest, Penalties and interest. Free tax efile Interest expense, apportioning, Interest expense. Free tax efile International boycott, Taxes From International Boycott Operations Itemized deduction, Taxes for Which You Can Only Take an Itemized Deduction J Joint return Carryback and carryover, Married Couples Credit based on foreign tax of both spouses, Joint return. Free tax efile Filed in a deduction year, Joint Return Filed in a Deduction Year L Levy, Income Tax Limit on credit, Limit on the Credit Losses, foreign, Foreign Losses Allocation of, Foreign Losses Recapture of, Recapture of Prior Year Overall Foreign Loss Accounts Losses, U. Free tax efile S. Free tax efile , U. Free tax efile S. Free tax efile Losses Allocation of, U. Free tax efile S. Free tax efile Losses Lump-sum distributions, Lump-Sum Distribution M Making or changing your choice, Making or Changing Your Choice Married couples Carryback and carryover, Married Couples Joint return, Joint return. Free tax efile Mineral income, foreign,, Taxes on Foreign Mineral Income Mutual fund distributions, Mutual fund shareholder. Free tax efile , Passive income. Free tax efile Mutual fund shareholder, Mutual fund shareholder. Free tax efile N Nonresident aliens, Nonresident Aliens Notice to the IRS of change in tax, Notice to the Internal Revenue Service (IRS) of Redetermination O Overall foreign loss, Overall foreign loss. Free tax efile P Partner, Partner or S corporation shareholder. Free tax efile , Partnership distributive share. Free tax efile , Foreign Taxes From a Partnership or an S Corporation Passive category income, Passive Category Income Penalties, Failure-to-notify penalty. Free tax efile , Penalties and interest. Free tax efile Failure to file Form 5471, 8865, Penalty for not filing Form 5471 or Form 8865. Free tax efile Failure to file Form 5713, Penalty for failure to file. Free tax efile Failure to notify, foreign tax change, Failure-to-notify penalty. Free tax efile Failure to report treaty information, Report required. Free tax efile Pension, employment, and disability fund payments, Pension, unemployment, and disability fund payments. Free tax efile Personal property, sales or exchanges of, Determining the Source of Income From the Sales or Exchanges of Certain Personal Property Possession exclusion, Possession Exclusion Publications (see Tax help) Purchase or sale of oil or gas, taxes in connection with, Taxes in Connection With the Purchase or Sale of Oil or Gas Q Qualified business unit, Translating foreign currency into U. Free tax efile S. Free tax efile dollars. Free tax efile Qualified dividends, Capital Gains and Losses R Rate of exchange, Rate of exchange for foreign taxes paid. Free tax efile Recapture of foreign losses, Recapture of Prior Year Overall Foreign Loss Accounts Records to keep, Records To Keep Redetermination of foreign tax, Foreign Tax Redetermination Refund claims, time limit, Time Limit on Refund Claims Refund, foreign tax, Foreign tax refund. Free tax efile Reporting requirements (international boycott), Reporting requirements. Free tax efile Resident aliens, Resident Aliens S S corporation shareholder, Partner or S corporation shareholder. Free tax efile , Foreign Taxes From a Partnership or an S Corporation Sanctioned countries, Taxes Imposed By Sanctioned Countries (Section 901(j) Income) Section 901(j) income, Section 901(j) Income Section 901(j) sanctioned income, Taxes Imposed By Sanctioned Countries (Section 901(j) Income) Separate limit income, Separate Limit Income General category income, General Category Income Income re-sourced by treaty, Certain Income Re-Sourced By Treaty Lump-sum distribution, Lump-Sum Distribution Passive category income, Passive Category Income Section 901(j) income, Section 901(j) Income Shareholder, Mutual fund shareholder. Free tax efile Simple example, Simple Example — Filled-In Form 1116 Soak-up taxes, Soak-up taxes. Free tax efile Social security taxes, Pension, unemployment, and disability fund payments. Free tax efile Source of compensation for labor or personal services Alternative basis, Alternative basis. Free tax efile Multi-year compensation, Multi-year compensation. Free tax efile Time basis, Time basis. Free tax efile Transportation income, Transportation Income State income taxes, State income taxes. Free tax efile Subsidy, Subsidy received. Free tax efile T Tax help, How To Get Tax Help Tax treaties, Tax Treaties Taxable income from sources outside the U. Free tax efile S. Free tax efile , determination of, Determining Taxable Income From Sources Outside the United States Taxes Excluded income, Foreign Earned Income and Housing Exclusions In lieu of income taxes, Taxes in Lieu of Income Taxes On dividends, Taxes Imposed on Certain Dividends Paid or accrued, Credit for Taxes Paid or Accrued Withheld on income or gain, Taxes Withheld on Income or Gain (Other Than Dividends) Taxes related to a foreign tax credit splitting event, Taxes Related to a Foreign Tax Credit Splitting Event Time limit Refund claims, Time Limit on Refund Claims Tax assessment, Time Limit on Tax Assessment Translating foreign currency, Translating foreign currency into U. Free tax efile S. Free tax efile dollars. Free tax efile U U. Free tax efile S. Free tax efile citizens, U. Free tax efile S. Free tax efile Citizens U. Free tax efile S. Free tax efile losses Allocation of, U. Free tax efile S. Free tax efile Losses U. Free tax efile S. Free tax efile possessions, U. Free tax efile S. Free tax efile possessions. Free tax efile Unused foreign tax credits, carryback or carryover, Carrybacks and carryovers. Free tax efile , Carryback and Carryover W Wages, Wages completely excluded. Free tax efile When refunds can be claimed, Time Limit on Refund Claims When tax can be assessed, Time Limit on Tax Assessment Who can take the credit, Who Can Take the Credit? Why choose the credit, Why Choose the Credit? Prev  Up     Home   More Online Publications
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IRS Tax Volunteers

Learn to Prepare Taxes and Make a Difference at the same time.  How can you make a difference? Simple.  Help your community in preparing taxes free of charge by becoming a volunteer with the Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) Programs.

You will receive training to provide free tax help for low-to-moderate income families who need assistance preparing their tax returns. Nearly 92,000 people said yes to making a difference during the 2013 filing season and prepared over 3.3 million returns at thousands of tax sites nationwide.

How does this program work? As a committed Tax Volunteer you’ll be assigned to work with a sponsoring organization, first to receive training and then to begin volunteering at a location in your community. Training is offered both online and in the classroom. Tax sites are generally open nights and weekends and the hours are flexible. You will be sure to find a volunteer site close to you.

Interested? For more details, submit your contact information using the VITA/TCE Volunteer Sign Up - Form 14310. Also include the city and state where you want to become a volunteer. Your information will be forwarded to the sponsoring organizations in your area for further contact.

Submit your inquiry now to TaxVolunteer@irs.gov and become a VITA or TCE tax volunteer! It’s a rewarding way to give back to your community.

 

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Page Last Reviewed or Updated: 02-Dec-2013

The Free Tax Efile

Free tax efile 4. Free tax efile   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 tax efile Rent-to-own contract. Free tax efile 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 tax efile MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Free tax efile Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Free tax efile 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 tax efile This chapter explains how to determine which MACRS depreciation system applies to your property. Free tax efile It also discusses other information you need to know before you can figure depreciation under MACRS. Free tax efile 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 tax efile 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 tax efile Finally, it explains when and how to recapture MACRS depreciation. Free tax efile 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 tax efile 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 tax efile You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Free tax efile If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. Free tax efile Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. Free tax efile 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 tax efile Required use of ADS. Free tax efile   You must use ADS for the following property. Free tax efile Listed property used 50% or less in a qualified business use. Free tax efile See chapter 5 for information on listed property. Free tax efile Any tangible property used predominantly outside the United States during the year. Free tax efile Any tax-exempt use property. Free tax efile Any tax-exempt bond-financed property. Free tax efile 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 tax efile 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 tax efile 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 tax efile Electing ADS. Free tax efile   Although your property may qualify for GDS, you can elect to use ADS. Free tax efile The election generally must cover all property in the same property class that you placed in service during the year. Free tax efile However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Free tax efile Once you make this election, you can never revoke it. Free tax efile   You make the election by completing line 20 in Part III of Form 4562. Free tax efile 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 tax efile These property classes are also listed under column (a) in section B, Part III, of Form 4562. Free tax efile For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. Free tax efile 3-year property. Free tax efile Tractor units for over-the-road use. Free tax efile Any race horse over 2 years old when placed in service. Free tax efile (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 tax efile ) Any other horse (other than a race horse) over 12 years old when placed in service. Free tax efile Qualified rent-to-own property (defined later). Free tax efile 5-year property. Free tax efile Automobiles, taxis, buses, and trucks. Free tax efile Computers and peripheral equipment. Free tax efile Office machinery (such as typewriters, calculators, and copiers). Free tax efile Any property used in research and experimentation. Free tax efile Breeding cattle and dairy cattle. Free tax efile Appliances, carpets, furniture, etc. Free tax efile , used in a residential rental real estate activity. Free tax efile Certain geothermal, solar, and wind energy property. Free tax efile 7-year property. Free tax efile Office furniture and fixtures (such as desks, files, and safes). Free tax efile Agricultural machinery and equipment. Free tax efile Any property that does not have a class life and has not been designated by law as being in any other class. Free tax efile Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. Free tax efile Any natural gas gathering line placed in service after April 11, 2005. Free tax efile See Natural gas gathering line and electric transmission property , later. Free tax efile 10-year property. Free tax efile Vessels, barges, tugs, and similar water transportation equipment. Free tax efile Any single purpose agricultural or horticultural structure. Free tax efile Any tree or vine bearing fruits or nuts. Free tax efile Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. Free tax efile 15-year property. Free tax efile Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). Free tax efile Any retail motor fuels outlet (defined later), such as a convenience store. Free tax efile Any municipal wastewater treatment plant. Free tax efile Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. Free tax efile Any qualified restaurant property (defined later) placed in service before January 1, 2014. Free tax efile Initial clearing and grading land improvements for gas utility property. Free tax efile 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 tax efile See Natural gas gathering line and electric transmission property , later. Free tax efile Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. Free tax efile Any qualified retail improvement property placed in service before January 1, 2014. Free tax efile 20-year property. Free tax efile Farm buildings (other than single purpose agricultural or horticultural structures). Free tax efile Municipal sewers not classified as 25-year property. Free tax efile Initial clearing and grading land improvements for electric utility transmission and distribution plants. Free tax efile 25-year property. Free tax efile This class is water utility property, which is either of the following. Free tax efile 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 tax efile Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. Free tax efile Residential rental property. Free tax efile 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 tax efile A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. Free tax efile 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 tax efile 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 tax efile Nonresidential real property. Free tax efile 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 tax efile 5 years. Free tax efile Qualified rent-to-own property. Free tax efile   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 tax efile It is tangible personal property generally used in the home for personal use. Free tax efile 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 tax efile Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. Free tax efile   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 tax efile 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 tax efile Rent-to-own dealer. Free tax efile   You are a rent-to-own dealer if you meet all the following requirements. Free tax efile You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. Free tax efile A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. Free tax efile The property is tangible personal property of a type generally used within the home for personal use. Free tax efile Rent-to-own contract. Free tax efile   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 tax efile 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 tax efile Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. Free tax efile If the payments are decreasing, no payment can be less than 40% of the largest payment. Free tax efile Provides for total payments that generally exceed the normal retail price of the property plus interest. Free tax efile Provides for total payments that do not exceed $10,000 for each item of property. Free tax efile 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 tax efile 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 tax efile 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 tax efile Motorsports entertainment complex. Free tax efile   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 tax efile The events must be open to the public for the price of admission. Free tax efile Qualified smart electric grid system. Free tax efile   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 tax efile 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 tax efile Retail motor fuels outlet. Free tax efile   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 tax efile It is not larger than 1,400 square feet. Free tax efile 50% or more of the gross revenues generated from the property are derived from petroleum sales. Free tax efile 50% or more of the floor space in the property is devoted to petroleum marketing sales. Free tax efile A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. Free tax efile Qualified leasehold improvement property. Free tax efile    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 tax efile   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 tax efile 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 tax efile Examples include the following. Free tax efile A complete liquidation of a subsidiary. Free tax efile A transfer to a corporation controlled by the transferor. Free tax efile An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Free tax efile Qualified restaurant property. Free tax efile   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 tax efile 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 tax efile Qualified smart electric meter. Free tax efile   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 tax efile 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 tax efile Natural gas gathering line and electric transmission property. Free tax efile   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 tax efile The original use of the property must have begun with you after April 11, 2005. Free tax efile Original use means the first use to which the property is put, whether or not by you. Free tax efile Therefore, property used by any person before April 12, 2005, is not original use. Free tax efile Original use includes additional capital expenditures you incurred to recondition or rebuild your property. Free tax efile However, original use does not include the cost of reconditioned or rebuilt property you acquired. Free tax efile 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 tax efile The property must not be placed in service under a binding contract in effect before April 12, 2005. Free tax efile 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 tax efile 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 tax efile 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 tax efile The placed in service date for your property is the date the property is ready and available for a specific use. Free tax efile It is therefore not necessarily the date it is first used. Free tax efile 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 tax efile See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. Free tax efile 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 tax efile 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 tax efile Reduce that amount by any credits and deductions allocable to the property. Free tax efile The following are examples of some credits and deductions that reduce basis. Free tax efile Any deduction for section 179 property. Free tax efile Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. Free tax efile 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 tax efile 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 tax efile 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 tax efile Any deduction for removal of barriers to the disabled and the elderly. Free tax efile Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Free tax efile Any special depreciation allowance. Free tax efile Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Free tax efile For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Free tax efile Enter the basis for depreciation under column (c) in Part III of Form 4562. Free tax efile 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 tax efile Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Free tax efile It is determined based on the depreciation system (GDS or ADS) used. Free tax efile Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. Free tax efile 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 tax efile 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. Free tax efile 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. Free tax efile 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. Free tax efile 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. Free tax efile 431. Free tax efile 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 tax efile The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. Free tax efile Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. Free tax efile 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 tax efile Office in the home. Free tax efile   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 tax efile 5 years if you began using it for business before May 13, 1993). Free tax efile 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 tax efile 5 years. Free tax efile 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 tax efile Home changed to rental use. Free tax efile   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. Free tax efile 5 years. Free tax efile 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 tax efile The following table shows these shorter recovery periods. Free tax efile 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 tax efile Use this chart to find the correct percentage table to use for qualified Indian reservation property. Free tax efile 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 tax efile   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. Free tax efile You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. Free tax efile 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 tax efile   The following property is not qualified property. Free tax efile Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. Free tax efile Property acquired directly or indirectly from a related person. Free tax efile Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. Free tax efile These activities are defined in section 4 of the Indian Regulatory Act (25 U. Free tax efile S. Free tax efile C. Free tax efile 2703). Free tax efile Any property you must depreciate under ADS. Free tax efile 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 tax efile Qualified infrastructure property. Free tax efile   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 tax efile Qualified infrastructure property is property that meets all the following rules. Free tax efile It is qualified property, as defined earlier, except that it is outside the reservation. Free tax efile It benefits the tribal infrastructure. Free tax efile It is available to the general public. Free tax efile It is placed in service in connection with the active conduct of a trade or business within a reservation. Free tax efile Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. Free tax efile Related person. Free tax efile   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 tax efile Indian reservation. Free tax efile   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. Free tax efile S. Free tax efile C. Free tax efile 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. Free tax efile S. Free tax efile C. Free tax efile 1903(10)). Free tax efile Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. Free tax efile For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. Free tax efile Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. Free tax efile The following table shows some of the ADS recovery periods. Free tax efile 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 tax efile 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 tax efile Tax-exempt use property subject to a lease. Free tax efile   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 tax efile Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. Free tax efile See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. Free tax efile 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 tax efile The recovery period begins on the later of the following dates. Free tax efile The date you place the addition or improvement in service. Free tax efile The date you place in service the property to which you made the addition or improvement. Free tax efile 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 tax efile Example. Free tax efile You own a rental home that you have been renting out since 1981. Free tax efile 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 tax efile Under GDS, the property class for the addition is residential rental property and its recovery period is 27. Free tax efile 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 tax efile Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Free tax efile 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 tax efile The mid-month convention. Free tax efile   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. Free tax efile   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 tax efile This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. Free tax efile   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. Free tax efile The mid-quarter convention. Free tax efile   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 tax efile   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 tax efile This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. Free tax efile   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. Free tax efile    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 tax efile However, it does not reflect any reduction in basis for any special depreciation allowance. Free tax efile The half-year convention. Free tax efile   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. Free tax efile   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 tax efile This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. Free tax efile   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. Free tax efile Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Free tax efile The 200% declining balance method over a GDS recovery period. Free tax efile The 150% declining balance method over a GDS recovery period. Free tax efile The straight line method over a GDS recovery period. Free tax efile The straight line method over an ADS recovery period. Free tax efile 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 tax efile If you made this election, continue to use the same method and recovery period for that property. Free tax efile Table 4–1 lists the types of property you can depreciate under each method. Free tax efile It also gives a brief explanation of the method, including any benefits that may apply. Free tax efile 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 tax efile You can depreciate real property using the straight line method under either GDS or ADS. Free tax efile Fruit or nut trees and vines. Free tax efile   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. Free tax efile ADS required for some farmers. Free tax efile   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. Free tax efile You must use ADS for all property you place in service in any year the election is in effect. Free tax efile See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. Free tax efile Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. Free tax efile You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Free tax efile 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 tax efile Attach the election to the amended return and write “Filed pursuant to section 301. Free tax efile 9100-2” on the election statement. Free tax efile File the amended return at the same address you filed the original return. Free tax efile Once you make the election, you cannot change it. Free tax efile 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 tax efile However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. Free tax efile 150% election. Free tax efile   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 tax efile Make the election by entering “150 DB” under column (f) in Part III of Form 4562. Free tax efile Straight line election. Free tax efile   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 tax efile Make the election by entering  “S/L” under column (f) in Part III of Form 4562. Free tax efile Election of ADS. Free tax efile   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 tax efile ADS uses the straight line method of depreciation over fixed ADS recovery periods. Free tax efile Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. Free tax efile   Make the election by completing line 20 in Part III of Form 4562. Free tax efile Farm property. Free tax efile   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 tax efile The straight line method over a GDS recovery period. Free tax efile The straight line method over an ADS recovery period. Free tax efile Table 4-1. Free tax efile Depreciation Methods Note. Free tax efile The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Free tax efile 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 tax efile S. Free tax efile  • 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 tax efile 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 tax efile Then, you are ready to figure your depreciation deduction. Free tax efile You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. Free tax efile 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 tax efile These percentage tables are in Appendix A near the end of this publication. Free tax efile Which table to use. Free tax efile    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 tax efile The percentage tables immediately follow the guide. Free tax efile Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. Free tax efile You must apply the rates in the percentage tables to your property's unadjusted basis. Free tax efile You cannot use the percentage tables for a short tax year. Free tax efile See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. Free tax efile 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 tax efile 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 tax efile 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 tax efile Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. Free tax efile   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 tax efile 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 tax efile See Figuring the Deduction Without Using the Tables, later. Free tax efile Basis adjustment due to casualty loss. Free tax efile   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Free tax efile 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 tax efile See Figuring the Deduction Without Using the Tables, later. Free tax efile Example. Free tax efile 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 tax efile It cost $39,000 and she elected a section 179 deduction of $24,000. Free tax efile She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. Free tax efile Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). Free tax efile She figured her MACRS depreciation deduction using the percentage tables. Free tax efile For 2012, her MACRS depreciation deduction was $268. Free tax efile In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. Free tax efile She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. Free tax efile Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. Free tax efile 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 tax efile She must now figure her depreciation for 2013 without using the percentage tables. Free tax efile 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 tax efile 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 tax efile However, you do reduce your original basis by other amounts, including the following. Free tax efile Any amortization taken on the property. Free tax efile Any section 179 deduction claimed. Free tax efile Any special depreciation allowance taken on the property. Free tax efile For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. Free tax efile 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 tax efile MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Free tax efile Use a separate worksheet for each item of property. Free tax efile Then, use the information from this worksheet to prepare Form 4562. Free tax efile Do not use this worksheet for automobiles. Free tax efile Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. Free tax efile MACRS Worksheet Part I   1. Free tax efile MACRS system (GDS or ADS)   2. Free tax efile Property class   3. Free tax efile Date placed in service   4. Free tax efile Recovery period   5. Free tax efile Method and convention   6. Free tax efile Depreciation rate (from tables)   Part II   7. Free tax efile Cost or other basis* $     8. Free tax efile Business/investment use   %   9. Free tax efile Multiply line 7 by line 8   $ 10. Free tax efile Total claimed for section 179 deduction and other items   $ 11. Free tax efile Subtract line 10 from line 9. Free tax efile This is your tentative basis for depreciation   $ 12. Free tax efile Multiply line 11 by . Free tax efile 50 if the 50% special depreciation allowance applies. Free tax efile This is your special depreciation allowance. Free tax efile 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 tax efile Subtract line 12 from line 11. Free tax efile This is your basis for depreciation     14. Free tax efile Depreciation rate (from line 6)     15. Free tax efile Multiply line 13 by line 14. Free tax efile This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. Free tax efile The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. Free tax efile Example. Free tax efile You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. Free tax efile You use the furniture only for business. Free tax efile This is the only property you placed in service this year. Free tax efile 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 tax efile You use GDS and the half-year convention to figure your depreciation. Free tax efile You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. Free tax efile Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. Free tax efile You figure your depreciation deduction using the MACRS worksheet as follows. Free tax efile MACRS Worksheet Part I 1. Free tax efile MACRS system (GDS or ADS) GDS 2. Free tax efile Property class 7-year 3. Free tax efile Date placed in service 8/11/13 4. Free tax efile Recovery period 7-Year 5. Free tax efile Method and convention 200%DB/Half-Year 6. Free tax efile Depreciation rate (from tables) . Free tax efile 1429 Part II 7. Free tax efile Cost or other basis* $10,000     8. Free tax efile Business/investment use 100 %   9. Free tax efile Multiply line 7 by line 8   $10,000 10. Free tax efile Total claimed for section 179 deduction and other items   -0- 11. Free tax efile Subtract line 10 from line 9. Free tax efile This is your tentative basis for depreciation   $10,000 12. Free tax efile Multiply line 11 by . Free tax efile 50 if the 50% special depreciation allowance applies. Free tax efile This is your special depreciation allowance. Free tax efile 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 tax efile Subtract line 12 from line 11. Free tax efile This is your basis for depreciation   $10,000 14. Free tax efile Depreciation rate (from line 6)   . Free tax efile 1429 15. Free tax efile Multiply line 13 by line 14. Free tax efile This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. Free tax efile 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 tax efile Year   Basis Percentage Deduction 2014 $ 10,000 24. Free tax efile 49%   $2,449   2015   10,000 17. Free tax efile 49   1,749   2016   10,000 12. Free tax efile 49   1,249   2017   10,000 8. Free tax efile 93   893   2018   10,000 8. Free tax efile 92   892   2019   10,000 8. Free tax efile 93   893   2020   10,000 4. Free tax efile 46   446   Examples The following examples are provided to show you how to use the percentage tables. Free tax efile In both examples, assume the following. Free tax efile You use the property only for business. Free tax efile You use the calendar year as your tax year. Free tax efile You use GDS for all the properties. Free tax efile Example 1. Free tax efile You bought a building and land for $120,000 and placed it in service on March 8. Free tax efile The sales contract showed that the building cost $100,000 and the land cost $20,000. Free tax efile It is nonresidential real property. Free tax efile The building's unadjusted basis is its original cost, $100,000. Free tax efile You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. Free tax efile 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 tax efile Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. Free tax efile 033%   $2,033   2nd   100,000 2. Free tax efile 564   2,564   3rd   100,000 2. Free tax efile 564   2,564   Example 2. Free tax efile 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 tax efile You placed the machine in service in January, the furniture in September, and the computer in October. Free tax efile 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 tax efile 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 tax efile The total bases of all property you placed in service during the year is $10,000. Free tax efile 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 tax efile Therefore, you must use the mid-quarter convention for all three items. Free tax efile You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. Free tax efile The machine is 7-year property placed in service in the first quarter, so you use Table A-2. Free tax efile The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. Free tax efile Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. Free tax efile Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. Free tax efile Year Property Basis Percentage Deduction 1st Machine $4,000 25. Free tax efile 00 $1,000   2nd Machine 4,000 21. Free tax efile 43 857   1st Furniture 1,000 10. Free tax efile 71 107   2nd Furniture 1,000 25. Free tax efile 51 255   1st Computer 5,000 5. Free tax efile 00 250   2nd Computer 5,000 38. Free tax efile 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 tax efile 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 tax efile After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. Free tax efile Half-year convention used. Free tax efile   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 tax efile Mid-quarter convention used. Free tax efile   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 tax efile Quarter Percentage First 12. Free tax efile 5% Second 37. Free tax efile 5 Third 62. Free tax efile 5 Fourth 87. Free tax efile 5 Example. Free tax efile On December 2, 2010, you placed in service an item of 5-year property costing $10,000. Free tax efile You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Free tax efile Your unadjusted basis for the property was $10,000. Free tax efile 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 tax efile Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. Free tax efile Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. Free tax efile 80% of $10,000). Free tax efile You disposed of the property on April 6, 2013. Free tax efile To determine your depreciation deduction for 2013, first figure the deduction for the full year. Free tax efile This is $1,368 (13. Free tax efile 68% of $10,000). Free tax efile April is in the second quarter of the year, so you multiply $1,368 by 37. Free tax efile 5% to get your depreciation deduction of $513 for 2013. Free tax efile Mid-month convention used. Free tax efile   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 tax efile The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. Free tax efile The denominator is 12. Free tax efile Example. Free tax efile On July 2, 2011, you purchased and placed in service residential rental property. Free tax efile The property cost $100,000, not including the cost of land. Free tax efile You used Table A-6 to figure your MACRS depreciation for this property. Free tax efile You sold the property on March 2, 2013. Free tax efile You file your tax return based on the calendar year. Free tax efile A full year of depreciation for 2013 is $3,636. Free tax efile This is $100,000 multiplied by . Free tax efile 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . Free tax efile You then apply the mid-month convention for the 2½ months of use in 2013. Free tax efile Treat the month of disposition as one-half month of use. Free tax efile Multiply $3,636 by the fraction, 2. Free tax efile 5 over 12, to get your 2013 depreciation deduction of $757. Free tax efile 50. Free tax efile 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 tax efile Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. Free tax efile Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. Free tax efile 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 tax efile 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 tax efile The straight line method is explained later. Free tax efile You figure depreciation for the year you place property in service as follows. Free tax efile Multiply your adjusted basis in the property by the declining balance rate. Free tax efile Apply the applicable convention. Free tax efile You figure depreciation for all other years (before the year you switch to the straight line method) as follows. Free tax efile Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. Free tax efile Multiply this new adjusted basis by the same declining balance rate used in earlier years. Free tax efile 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 tax efile Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. Free tax efile Declining balance rate. Free tax efile   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 tax efile For example, for 3-year property depreciated using the 200% declining balance method, divide 2. Free tax efile 00 (200%) by 3 to get 0. Free tax efile 6667, or a 66. Free tax efile 67% declining balance rate. Free tax efile For 15-year property depreciated using the 150% declining balance method, divide 1. Free tax efile 50 (150%) by 15 to get 0. Free tax efile 10, or a 10% declining balance rate. Free tax efile   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 tax efile Property Class Method Declining Balance Rate Year 3-year 200% DB 66. Free tax efile 667% 3rd 5-year 200% DB 40. Free tax efile 0 4th 7-year 200% DB 28. Free tax efile 571 5th 10-year 200% DB 20. Free tax efile 0 7th 15-year 150% DB 10. Free tax efile 0 7th 20-year 150% DB 7. Free tax efile 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 tax efile You must use the applicable convention in the year you place the property in service and the year you dispose of the property. Free tax efile You figure depreciation for the year you place property in service as follows. Free tax efile Multiply your adjusted basis in the property by the straight line rate. Free tax efile Apply the applicable convention. Free tax efile 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 tax efile Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). Free tax efile Determine the depreciation rate for the year. Free tax efile Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). Free tax efile 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 tax efile Straight line rate. Free tax efile   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 tax efile 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 tax efile If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. Free tax efile 0 (100%). Free tax efile 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 tax efile 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 tax efile See Straight line rate in the previous discussion. Free tax efile Use the applicable convention as explained in the following discussions. Free tax efile Half-year convention. Free tax efile   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 tax efile You deduct a full year of depreciation for any other year during the recovery period. Free tax efile   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. Free tax efile 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 tax efile 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 tax efile Mid-quarter convention. Free tax efile   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 tax efile   A quarter of a full 12-month tax year is a period of 3 months. Free tax efile The first quarter in a year begins on the first day of the tax year. Free tax efile The second quarter begins on the first day of the fourth month of the tax year. Free tax efile The third quarter begins on the first day of the seventh month of the tax year. Free tax efile The fourth quarter begins on the first day of the tenth month of the tax year. Free tax efile A calendar year is divided into the following quarters. Free tax efile 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 tax efile Quarter Percentage First 87. Free tax efile 5% Second 62. Free tax efile 5 Third 37. Free tax efile 5 Fourth 12. Free tax efile 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 tax efile Quarter Percentage First 12. Free tax efile 5% Second 37. Free tax efile 5 Third 62. Free tax efile 5 Fourth 87. Free tax efile 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 tax efile Mid-month convention. Free tax efile   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 tax efile 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 tax efile 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 tax efile 5). Free tax efile The denominator is 12. Free tax efile   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 tax efile 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 tax efile Example. Free tax efile You use the calendar year and place nonresidential real property in service in August. Free tax efile The property is in service 4 full months (September, October, November, and December). Free tax efile Your numerator is 4. Free tax efile 5 (4 full months plus 0. Free tax efile 5). Free tax efile You multiply the depreciation for a full year by 4. Free tax efile 5/12, or 0. Free tax efile 375. Free tax efile Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. Free tax efile Figures are rounded for purposes of the examples. Free tax efile Assume for all the examples that you use a calendar year as your tax year. Free tax efile Example 1—200% DB method and half-year convention. Free tax efile In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. Free tax efile You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. Free tax efile You use GDS and the 200% declining balance (DB) method to figure your depreciation. Free tax efile When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. Free tax efile 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 tax efile First year. Free tax efile 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 tax efile The result is 40%. Free tax efile You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. Free tax efile You apply the half-year convention by dividing the result ($400) by 2. Free tax efile Depreciation for the first year under the 200% DB method is $200. Free tax efile 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 tax efile The result is 20%. Free tax efile You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. Free tax efile You apply the half-year convention by dividing the result ($200) by 2. Free tax efile Depreciation for the first year under the SL method is $100. Free tax efile The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. Free tax efile Second year. Free tax efile You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). Free tax efile You multiply the result ($800) by the DB rate (40%). Free tax efile Depreciation for the second year under the 200% DB method is $320. Free tax efile You figure the SL depreciation rate by dividing 1 by 4. Free tax efile 5, the number of years remaining in the recovery period. Free tax efile (Based on the half-year convention, you used only half a year of the recovery period in the first year. Free tax efile ) You multiply the reduced adjusted basis ($800) by the result (22. Free tax efile 22%). Free tax efile Depreciation under the SL method for the second year is $178. Free tax efile The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. Free tax efile Third year. Free tax efile You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). Free tax efile You multiply the result ($480) by the DB rate (40%). Free tax efile Depreciation for the third year under the 200% DB method is $192. Free tax efile You figure the SL depreciation rate by dividing 1 by 3. Free tax efile 5. Free tax efile You multiply the reduced adjusted basis ($480) by the result (28. Free tax efile 57%). Free tax efile Depreciation under the SL method for the third year is $137. Free tax efile The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. Free tax efile Fourth year. Free tax efile You reduce the adjusted basis ($480) by the de