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Instructions For 1040ez 2013

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Instructions For 1040ez 2013

Instructions for 1040ez 2013 20. Instructions for 1040ez 2013   Standard Deduction Table of Contents What's New Introduction Standard Deduction Amount Standard Deduction for Dependents Who Should ItemizeWhen to itemize. Instructions for 1040ez 2013 Married persons who filed separate returns. Instructions for 1040ez 2013 What's New Standard deduction increased. Instructions for 1040ez 2013  The standard deduction for some taxpayers who do not itemize their deductions on Schedule A (Form 1040) is higher for 2013 than it was for 2012. Instructions for 1040ez 2013 The amount depends on your filing status. Instructions for 1040ez 2013 You can use the 2013 Standard Deduction Tables in this chapter to figure your standard deduction. Instructions for 1040ez 2013 Introduction This chapter discusses the following topics. Instructions for 1040ez 2013 How to figure the amount of your standard deduction. Instructions for 1040ez 2013 The standard deduction for dependents. Instructions for 1040ez 2013 Who should itemize deductions. Instructions for 1040ez 2013 Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. Instructions for 1040ez 2013 If you have a choice, you can use the method that gives you the lower tax. Instructions for 1040ez 2013 The standard deduction is a dollar amount that reduces your taxable income. Instructions for 1040ez 2013 It is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, charitable contributions, and taxes, on Schedule A (Form 1040). Instructions for 1040ez 2013 The standard deduction is higher for taxpayers who: Are 65 or older, or Are blind. Instructions for 1040ez 2013 You benefit from the standard deduction if your standard deduction is more than the total of your allowable itemized deductions. Instructions for 1040ez 2013 Persons not eligible for the standard deduction. Instructions for 1040ez 2013   Your standard deduction is zero and you should itemize any deductions you have if: Your filing status is married filing separately, and your spouse itemizes deductions on his or her return, You are filing a tax return for a short tax year because of a change in your annual accounting period, or You are a nonresident or dual-status alien during the year. Instructions for 1040ez 2013 You are considered a dual-status alien if you were both a nonresident and resident alien during the year. Instructions for 1040ez 2013 Note. Instructions for 1040ez 2013 If you are a nonresident alien who is married to a U. Instructions for 1040ez 2013 S. Instructions for 1040ez 2013 citizen or resident alien at the end of the year, you can choose to be treated as a U. Instructions for 1040ez 2013 S. Instructions for 1040ez 2013 resident. Instructions for 1040ez 2013 (See Publication 519, U. Instructions for 1040ez 2013 S. Instructions for 1040ez 2013 Tax Guide for Aliens. Instructions for 1040ez 2013 ) If you make this choice, you can take the standard deduction. Instructions for 1040ez 2013 If an exemption for you can be claimed on another person's return (such as your parents' return), your standard deduction may be limited. Instructions for 1040ez 2013 See Standard Deduction for Dependents, later. Instructions for 1040ez 2013 Standard Deduction Amount The standard deduction amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer. Instructions for 1040ez 2013 Generally, the standard deduction amounts are adjusted each year for inflation. Instructions for 1040ez 2013 The standard deduction amounts for most people are shown in Table 20-1. Instructions for 1040ez 2013 Decedent's final return. Instructions for 1040ez 2013   The standard deduction for a decedent's final tax return is the same as it would have been had the decedent continued to live. Instructions for 1040ez 2013 However, if the decedent was not 65 or older at the time of death, the higher standard deduction for age cannot be claimed. Instructions for 1040ez 2013 Higher Standard Deduction for Age (65 or Older) If you are age 65 or older on the last day of the year and do not itemize deductions, you are entitled to a higher standard deduction. Instructions for 1040ez 2013 You are considered 65 on the day before your 65th birthday. Instructions for 1040ez 2013 Therefore, you can take a higher standard deduction for 2013 if you were born before January 2, 1949. Instructions for 1040ez 2013 Use Table 20-2 to figure the standard deduction amount. Instructions for 1040ez 2013 Higher Standard Deduction for Blindness If you are blind on the last day of the year and you do not itemize deductions, you are entitled to a higher standard deduction. Instructions for 1040ez 2013 Not totally blind. Instructions for 1040ez 2013   If you are not totally blind, you must get a certified statement from an eye doctor (ophthalmologist or optometrist) that: You cannot see better than 20/200 in the better eye with glasses or contact lenses, or Your field of vision is 20 degrees or less. Instructions for 1040ez 2013   If your eye condition is not likely to improve beyond these limits, the statement should include this fact. Instructions for 1040ez 2013 You must keep the statement in your records. Instructions for 1040ez 2013   If your vision can be corrected beyond these limits only by contact lenses that you can wear only briefly because of pain, infection, or ulcers, you can take the higher standard deduction for blindness if you otherwise qualify. Instructions for 1040ez 2013 Spouse 65 or Older or Blind You can take the higher standard deduction if your spouse is age 65 or older or blind and: You file a joint return, or You file a separate return and can claim an exemption for your spouse because your spouse had no gross income and cannot be claimed as a dependent by another taxpayer. Instructions for 1040ez 2013 You cannot claim the higher standard deduction for an individual other than yourself and your spouse. Instructions for 1040ez 2013 Examples The following examples illustrate how to determine your standard deduction using Tables 20-1 and 20-2. Instructions for 1040ez 2013 Example 1. Instructions for 1040ez 2013 Larry, 46, and Donna, 33, are filing a joint return for 2013. Instructions for 1040ez 2013 Neither is blind, and neither can be claimed as a dependent. Instructions for 1040ez 2013 They decide not to itemize their deductions. Instructions for 1040ez 2013 They use Table 20-1. Instructions for 1040ez 2013 Their standard deduction is $12,200. Instructions for 1040ez 2013 Example 2. Instructions for 1040ez 2013 The facts are the same as in Example 1 except that Larry is blind at the end of 2013. Instructions for 1040ez 2013 Larry and Donna use Table 20-2. Instructions for 1040ez 2013 Their standard deduction is $13,400. Instructions for 1040ez 2013 Example 3. Instructions for 1040ez 2013 Bill and Lisa are filing a joint return for 2013. Instructions for 1040ez 2013 Both are over age 65. Instructions for 1040ez 2013 Neither is blind, and neither can be claimed as a dependent. Instructions for 1040ez 2013 If they do not itemize deductions, they use Table 20-2. Instructions for 1040ez 2013 Their standard deduction is $14,600. Instructions for 1040ez 2013 Standard Deduction for Dependents The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the greater of: $1,000, or The individual's earned income for the year plus $350 (but not more than the regular standard deduction amount, generally $6,100). Instructions for 1040ez 2013 However, if the individual is 65 or older or blind, the standard deduction may be higher. Instructions for 1040ez 2013 If you (or your spouse, if filing jointly) can be claimed as a dependent on someone else's return, use Table 20-3 to determine your standard deduction. Instructions for 1040ez 2013 Earned income defined. Instructions for 1040ez 2013   Earned income is salaries, wages, tips, professional fees, and other amounts received as pay for work you actually perform. Instructions for 1040ez 2013    For purposes of the standard deduction, earned income also includes any part of a scholarship or fellowship grant that you must include in your gross income. Instructions for 1040ez 2013 See Scholarships and fellowships in chapter 12 for more information on what qualifies as a scholarship or fellowship grant. Instructions for 1040ez 2013 Example 1. Instructions for 1040ez 2013 Michael is single. Instructions for 1040ez 2013 His parents can claim an exemption for him on their 2013 tax return. Instructions for 1040ez 2013 He has interest income of $780 and wages of $150. Instructions for 1040ez 2013 He has no itemized deductions. Instructions for 1040ez 2013 Michael uses Table 20-3 to find his standard deduction. Instructions for 1040ez 2013 He enters $150 (his earned income) on line 1, $500 ($150 + $350) on line 3, $1,000 (the larger of $500 and $1,000) on line 5, and $6,100 on line 6. Instructions for 1040ez 2013 His standard deduction, on line 7a, is $1,000 (the smaller of $1,000 and $6,100). Instructions for 1040ez 2013 Example 2. Instructions for 1040ez 2013 Joe, a 22-year-old full-time college student, can be claimed as a dependent on his parents' 2013 tax return. Instructions for 1040ez 2013 Joe is married and files a separate return. Instructions for 1040ez 2013 His wife does not itemize deductions on her separate return. Instructions for 1040ez 2013 Joe has $1,500 in interest income and wages of $3,800. Instructions for 1040ez 2013 He has no itemized deductions. Instructions for 1040ez 2013 Joe finds his standard deduction by using Table 20-3. Instructions for 1040ez 2013 He enters his earned income, $3,800 on line 1. Instructions for 1040ez 2013 He adds lines 1 and 2 and enters $4,150 on line 3. Instructions for 1040ez 2013 On line 5, he enters $4,150, the larger of lines 3 and 4. Instructions for 1040ez 2013 Because Joe is married filing a separate return, he enters $6,100 on line 6. Instructions for 1040ez 2013 On line 7a he enters $4,150 as his standard deduction because it is smaller than $6,100, the amount on line 6. Instructions for 1040ez 2013 Example 3. Instructions for 1040ez 2013 Amy, who is single, can be claimed as a dependent on her parents' 2013 tax return. Instructions for 1040ez 2013 She is 18 years old and blind. Instructions for 1040ez 2013 She has interest income of $1,300 and wages of $2,900. Instructions for 1040ez 2013 She has no itemized deductions. Instructions for 1040ez 2013 Amy uses Table 20-3 to find her standard deduction. Instructions for 1040ez 2013 She enters her wages of $2,900 on line 1. Instructions for 1040ez 2013 She adds lines 1 and 2 and enters $3,250 on line 3. Instructions for 1040ez 2013 On line 5, she enters $3,250, the larger of lines 3 and 4. Instructions for 1040ez 2013 Because she is single, Amy enters $6,100 on line 6. Instructions for 1040ez 2013 She enters $3,250 on line 7a. Instructions for 1040ez 2013 This is the smaller of the amounts on lines 5 and 6. Instructions for 1040ez 2013 Because she checked one box in the top part of the worksheet, she enters $1,500 on line 7b. Instructions for 1040ez 2013 She then adds the amounts on lines 7a and 7b and enters her standard deduction of $4,750 on line 7c. Instructions for 1040ez 2013 Example 4. Instructions for 1040ez 2013 Ed is single. Instructions for 1040ez 2013 His parents can claim an exemption for him on their 2013 tax return. Instructions for 1040ez 2013 He has wages of $7,000, interest income of $500, and a business loss of $3,000. Instructions for 1040ez 2013 He has no itemized deductions. Instructions for 1040ez 2013 Ed uses Table 20-3 to figure his standard deduction. Instructions for 1040ez 2013 He enters $4,000 ($7,000 - $3,000) on line 1. Instructions for 1040ez 2013 He adds lines 1 and 2 and enters $4,350 on line 3. Instructions for 1040ez 2013 On line 5 he enters $4,350, the larger of lines 3 and 4. Instructions for 1040ez 2013 Because he is single, Ed enters $6,100 on line 6. Instructions for 1040ez 2013 On line 7a he enters $4,350 as his standard deduction because it is smaller than $6,100, the amount on line 6. Instructions for 1040ez 2013 Who Should Itemize You should itemize deductions if your total deductions are more than the standard deduction amount. Instructions for 1040ez 2013 Also, you should itemize if you do not qualify for the standard deduction, as discussed earlier under Persons not eligible for the standard deduction . Instructions for 1040ez 2013 You should first figure your itemized deductions and compare that amount to your standard deduction to make sure you are using the method that gives you the greater benefit. Instructions for 1040ez 2013 You may be subject to a limit on some of your itemized deductions if your adjusted gross income is more than: $250,000 if single ($275,000 if head of household, $300,000 if married filing jointly or qualifying widow(er); or $150,000 if married filing separately). Instructions for 1040ez 2013 See chapter 29 or the instructions for Schedule A (Form 1040) for more information on figuring the correct amount of your itemized deductions. Instructions for 1040ez 2013 When to itemize. Instructions for 1040ez 2013   You may benefit from itemizing your deductions on Schedule A (Form 1040) if you: Do not qualify for the standard deduction, or the amount you can claim is limited, Had large uninsured medical and dental expenses during the year, Paid interest and taxes on your home, Had large unreimbursed employee business expenses or other miscellaneous deductions, Had large uninsured casualty or theft losses, Made large contributions to qualified charities, or Have total itemized deductions that are more than the standard deduction to which you otherwise are entitled. Instructions for 1040ez 2013 These deductions are explained in chapters 21–28. Instructions for 1040ez 2013    If you decide to itemize your deductions, complete Schedule A and attach it to your Form 1040. Instructions for 1040ez 2013 Enter the amount from Schedule A, line 29, on Form 1040, line 40. Instructions for 1040ez 2013 Electing to itemize for state tax or other purposes. Instructions for 1040ez 2013   Even if your itemized deductions are less than your standard deduction, you can elect to itemize deductions on your federal return rather than take the standard deduction. Instructions for 1040ez 2013 You may want to do this if, for example, the tax benefit of itemizing your deductions on your state tax return is greater than the tax benefit you lose on your federal return by not taking the standard deduction. Instructions for 1040ez 2013 To make this election, you must check the box on line 30 of Schedule A. Instructions for 1040ez 2013 Changing your mind. Instructions for 1040ez 2013   If you do not itemize your deductions and later find that you should have itemized — or if you itemize your deductions and later find you should not have — you can change your return by filing Form 1040X, Amended U. Instructions for 1040ez 2013 S. Instructions for 1040ez 2013 Individual Income Tax Return. Instructions for 1040ez 2013 See Amended Returns and Claims for Refund in chapter 1 for more information on amended returns. Instructions for 1040ez 2013 Married persons who filed separate returns. Instructions for 1040ez 2013   You can change methods of taking deductions only if you and your spouse both make the same changes. Instructions for 1040ez 2013 Both of you must file a consent to assessment for any additional tax either one may owe as a result of the change. Instructions for 1040ez 2013    You and your spouse can use the method that gives you the lower total tax, even though one of you may pay more tax than you would have paid by using the other method. Instructions for 1040ez 2013 You both must use the same method of claiming deductions. Instructions for 1040ez 2013 If one itemizes deductions, the other should itemize because he or she will not qualify for the standard deduction. Instructions for 1040ez 2013 See Persons not eligible for the standard deduction , earlier. Instructions for 1040ez 2013 2013 Standard Deduction Tables If you are married filing a separate return and your spouse itemizes deductions, or if you are a dual-status alien, you cannot take the standard deduction even if you were born before January 2, 1949, or are blind. Instructions for 1040ez 2013 Table 20-1. Instructions for 1040ez 2013 Standard Deduction Chart for Most People* If your filing status is. Instructions for 1040ez 2013 . Instructions for 1040ez 2013 . Instructions for 1040ez 2013 Your standard deduction is: Single or Married filing separately $6,100 Married filing jointly or Qualifying widow(er) with dependent child 12,200 Head of household 8,950 *Do not use this chart if you were born before January 2, 1949, are blind, or if someone else can claim you (or your spouse if filing jointly) as a dependent. Instructions for 1040ez 2013 Use Table 20-2 or 20-3 instead. Instructions for 1040ez 2013 Table 20-2. Instructions for 1040ez 2013 Standard Deduction Chart for People Born Before January 2, 1949, or Who are Blind Check the correct number of boxes below. Instructions for 1040ez 2013 Then go to the chart. Instructions for 1040ez 2013 You: Born before January 2, 1949 □ Blind □ Your spouse, if claiming spouse's exemption: Born before January 2, 1949 □ Blind □ Total number of boxes checked   IF  your filing status is. Instructions for 1040ez 2013 . Instructions for 1040ez 2013 . Instructions for 1040ez 2013 AND the number in the box above is. Instructions for 1040ez 2013 . Instructions for 1040ez 2013 . Instructions for 1040ez 2013 THEN your standard deduction is. Instructions for 1040ez 2013 . Instructions for 1040ez 2013 . Instructions for 1040ez 2013 Single 1 $7,600   2 9,100 Married filing jointly 1 $13,400 or Qualifying 2 14,600 widow(er) with 3 15,800 dependent child 4 17,000 Married filing 1 $7,300 separately 2 8,500   3 9,700   4 10,900 Head of household 1 $10,450   2 11,950 *If someone else can claim you (or your spouse if filing jointly) as a dependent, use Table 20-3 instead. Instructions for 1040ez 2013 Table 20-3. Instructions for 1040ez 2013 Standard Deduction Worksheet for Dependents Use this worksheet only if someone else can claim you (or your spouse if filing jointly) as a dependent. Instructions for 1040ez 2013 Check the correct number of boxes below. Instructions for 1040ez 2013 Then go to the worksheet. Instructions for 1040ez 2013 You:   Born before January 2, 1949 □ Blind □ Your spouse, if claiming spouse's exemption: Born before January 2, 1949 □ Blind □ Total number of boxes checked 1. Instructions for 1040ez 2013 Enter your earned income (defined below). Instructions for 1040ez 2013 If none, enter -0-. Instructions for 1040ez 2013 1. Instructions for 1040ez 2013   2. Instructions for 1040ez 2013 Additional amount. Instructions for 1040ez 2013 2. Instructions for 1040ez 2013 $350 3. Instructions for 1040ez 2013 Add lines 1 and 2. Instructions for 1040ez 2013 3. Instructions for 1040ez 2013   4. Instructions for 1040ez 2013 Minimum standard deduction. Instructions for 1040ez 2013 4. Instructions for 1040ez 2013 $1,000 5. Instructions for 1040ez 2013 Enter the larger of line 3 or line 4. Instructions for 1040ez 2013 5. Instructions for 1040ez 2013   6. Instructions for 1040ez 2013 Enter the amount shown below for your filing status. Instructions for 1040ez 2013 Single or Married filing separately—$6,100 Married filing jointly—$12,200 Head of household—$8,950 6. Instructions for 1040ez 2013   7. Instructions for 1040ez 2013 Standard deduction. Instructions for 1040ez 2013         a. Instructions for 1040ez 2013 Enter the smaller of line 5 or line 6. Instructions for 1040ez 2013 If born after January 1, 1949, and not blind, stop here. Instructions for 1040ez 2013 This is your standard deduction. Instructions for 1040ez 2013 Otherwise, go on to line 7b. Instructions for 1040ez 2013 7a. Instructions for 1040ez 2013     b. Instructions for 1040ez 2013 If born before January 2, 1949, or blind, multiply $1,500 ($1,200 if married) by the number in the box above. Instructions for 1040ez 2013 7b. Instructions for 1040ez 2013     c. Instructions for 1040ez 2013 Add lines 7a and 7b. Instructions for 1040ez 2013 This is your standard deduction for 2013. Instructions for 1040ez 2013 7c. Instructions for 1040ez 2013   Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. Instructions for 1040ez 2013 It also includes any amount received as a scholarship that you must include in your income. 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The Instructions For 1040ez 2013

Instructions for 1040ez 2013 Other Methods of Depreciation Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: How To Figure the DeductionBasis Useful Life Salvage Value Methods To UseStraight Line Method Declining Balance Method Income Forecast Method How To Change Methods DispositionsSale or exchange. Instructions for 1040ez 2013 Property not disposed of or abandoned. Instructions for 1040ez 2013 Special rule for normal retirements from item accounts. Instructions for 1040ez 2013 Abandoned property. Instructions for 1040ez 2013 Single item accounts. Instructions for 1040ez 2013 Multiple property account. Instructions for 1040ez 2013 Topics - This chapter discusses: How to figure the deduction Methods to use How to change methods Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records 946 How To Depreciate Property Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization Schedule C (Form 1040) Profit or Loss From Business If your property is being depreciated under ACRS, you must continue to use rules for depreciation that applied when you placed the property in service. Instructions for 1040ez 2013 If your property qualified for MACRS, you must depreciate it under MACRS. Instructions for 1040ez 2013 See Publication 946. Instructions for 1040ez 2013 However, you cannot use MACRS for certain property because of special rules that exclude it from MACRS. Instructions for 1040ez 2013 Also, you can elect to exclude certain property from being depreciated under MACRS. Instructions for 1040ez 2013 Property that you cannot depreciate using MACRS includes: Intangible property, Property you can elect to exclude from MACRS that you properly depreciate under a method that is not based on a term of years, Certain public utility property, Any motion picture film or video tape, Any sound recording, and Certain real and personal property placed in service before 1987. Instructions for 1040ez 2013 Intangible property. Instructions for 1040ez 2013   You cannot depreciate intangible property under ACRS or MACRS. Instructions for 1040ez 2013 You depreciate intangible property using any other reasonable method, usually, the straight line method. Instructions for 1040ez 2013 Note. Instructions for 1040ez 2013 The cost of certain intangible property that you acquire after August 10, 1993, must be amortized over a 15-year period. Instructions for 1040ez 2013 For more information, see chapter 12 of Publication 535. Instructions for 1040ez 2013 Public utility property. Instructions for 1040ez 2013   The law excludes from MACRS any public utility property for which the taxpayer does not use a normalization method of accounting. Instructions for 1040ez 2013 This type of property is subject to depreciation under a special rule. Instructions for 1040ez 2013 Videocassettes. Instructions for 1040ez 2013   If you are in the videocassette rental business, you can depreciate those videocassettes purchased for rental. Instructions for 1040ez 2013 You can depreciate the cost less salvage value of those videocassettes that have a useful life over one year using either: The straight line method, or The income forecast method. Instructions for 1040ez 2013 The straight line method, salvage value, and useful life are discussed later under Methods To Use. Instructions for 1040ez 2013 You can deduct in the year of purchase as a business expense the cost of any cassette that has a useful life of one year or less. Instructions for 1040ez 2013 How To Figure the Deduction Two other reasonable methods can be used to figure your deduction for property not covered under ACRS or MACRS. Instructions for 1040ez 2013 These methods are straight line and declining balance. Instructions for 1040ez 2013 To figure depreciation using these methods, you must generally determine three things about the property you intend to depreciate. Instructions for 1040ez 2013 They are: The basis, The useful life, and The estimated salvage value at the end of its useful life. Instructions for 1040ez 2013 The amount of the deduction in any year also depends on which method of depreciation you choose. Instructions for 1040ez 2013 Basis To deduct the proper amount of depreciation each year, first determine your basis in the property you intend to depreciate. Instructions for 1040ez 2013 The basis used for figuring depreciation is the same as the basis that would be used for figuring the gain on a sale. Instructions for 1040ez 2013 Your original basis is usually the purchase price. Instructions for 1040ez 2013 However, if you acquire property in some other way, such as inheriting it, getting it as a gift, or building it yourself, you have to figure your original basis in a different way. Instructions for 1040ez 2013 Adjusted basis. Instructions for 1040ez 2013   Events will often change the basis of property. Instructions for 1040ez 2013 When this occurs, the changed basis is called the adjusted basis. Instructions for 1040ez 2013 Some events, such as improvements you make, increase basis. Instructions for 1040ez 2013 Events such as deducting casualty losses and depreciation decrease basis. Instructions for 1040ez 2013 If basis is adjusted, the depreciation deduction may also have to be changed, depending on the reason for the adjustment and the method of depreciation you are using. Instructions for 1040ez 2013   Publication 551 explains how to figure basis for property acquired in different ways. Instructions for 1040ez 2013 It also discusses what items increase and decrease basis, how to figure adjusted basis, and how to allocate cost if you buy several pieces of property at one time. Instructions for 1040ez 2013 Useful Life The useful life of a piece of property is an estimate of how long you can expect to use it in your trade or business, or to produce income. Instructions for 1040ez 2013 It is the length of time over which you will make yearly depreciation deductions of your basis in the property. Instructions for 1040ez 2013 It is how long it will continue to be useful to you, not how long the property will last. Instructions for 1040ez 2013 Many things affect the useful life of property, such as: Frequency of use, Age when acquired, Your repair policy, and Environmental conditions. Instructions for 1040ez 2013 The useful life can also be affected by technological improvements, progress in the arts, reasonably foreseeable economic changes, shifting of business centers, prohibitory laws, and other causes. Instructions for 1040ez 2013 Consider all these factors before you arrive at a useful life for your property. Instructions for 1040ez 2013 The useful life of the same type of property varies from user to user. Instructions for 1040ez 2013 When you determine the useful life of your property, keep in mind your own experience with similar property. Instructions for 1040ez 2013 You can use the general experience of the industry you are in until you are able to determine a useful life of your property from your own experience. Instructions for 1040ez 2013 Change in useful life. Instructions for 1040ez 2013   You base your estimate of useful life on certain facts. Instructions for 1040ez 2013 If these facts change significantly, you can adjust your estimate of the remaining useful life. Instructions for 1040ez 2013 However, you redetermine the estimated useful life only when the change is substantial and there is a clear reason for making the change. Instructions for 1040ez 2013 Salvage Value It is important for you to accurately determine the correct salvage value of the property you want to depreciate. Instructions for 1040ez 2013 You generally cannot depreciate property below a reasonable salvage value. Instructions for 1040ez 2013 Determining salvage value. Instructions for 1040ez 2013   Salvage value is the estimated value of property at the end of its useful life. Instructions for 1040ez 2013 It is what you expect to get for the property if you sell it after you can no longer use it productively. Instructions for 1040ez 2013 You must estimate the salvage value of a piece of property when you first acquire it. Instructions for 1040ez 2013   Salvage value is affected both by how you use the property and how long you use it. Instructions for 1040ez 2013 If it is your policy to dispose of property that is still in good operating condition, the salvage value can be relatively large. Instructions for 1040ez 2013 However, if your policy is to use property until it is no longer usable, its salvage value can be its junk value. Instructions for 1040ez 2013 Changing salvage value. Instructions for 1040ez 2013   Once you determine the salvage value for property, you should not change it merely because prices have changed. Instructions for 1040ez 2013 However, if you redetermine the useful life of property, as discussed earlier under Change in useful life, you can also redetermine the salvage value. Instructions for 1040ez 2013 When you redetermine the salvage value, take into account the facts that exist at the time. Instructions for 1040ez 2013 Net salvage. Instructions for 1040ez 2013   Net salvage is the salvage value of property minus what it costs to remove it when you dispose of it. Instructions for 1040ez 2013 You can choose either salvage value or net salvage when you figure depreciation. Instructions for 1040ez 2013 You must consistently use the one you choose and the treatment of the costs of removal must be consistent with the practice adopted. Instructions for 1040ez 2013 However, if the cost to remove the property is more than the estimated salvage value, then net salvage is zero. Instructions for 1040ez 2013 Your salvage value can never be less than zero. Instructions for 1040ez 2013 Ten percent rule. Instructions for 1040ez 2013   If you acquire personal property that has a useful life of 3 years or more, you can use an amount for salvage value that is less than your actual estimate. Instructions for 1040ez 2013 You can subtract from your estimate of salvage value an amount equal to 10% of your basis in the property. Instructions for 1040ez 2013 If salvage value is less than 10% of basis, you can ignore salvage value when you figure depreciation. Instructions for 1040ez 2013 Methods To Use Two methods of depreciation are the straight line and declining balance methods. Instructions for 1040ez 2013 If ACRS or MACRS does not apply, you can use one of these methods. Instructions for 1040ez 2013 The straight line and declining balance methods discussed in this section are not figured in the same way as straight line or declining balance methods under MACRS. Instructions for 1040ez 2013 Straight Line Method Before 1981, you could use any reasonable method for every kind of depreciable property. Instructions for 1040ez 2013 One of these methods was the straight line method. Instructions for 1040ez 2013 This method was also used for intangible property. Instructions for 1040ez 2013 It lets you deduct the same amount of depreciation each year. Instructions for 1040ez 2013 To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. Instructions for 1040ez 2013 Subtract the salvage value, if any, from the adjusted basis. Instructions for 1040ez 2013 The balance is the total amount of depreciation you can take over the useful life of the property. Instructions for 1040ez 2013 Divide the balance by the number of years remaining in the useful life. Instructions for 1040ez 2013 This gives you the amount of your yearly depreciation deduction. Instructions for 1040ez 2013 Unless there is a big change in adjusted basis, or useful life, this amount will stay the same throughout the time you depreciate the property. Instructions for 1040ez 2013 If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Instructions for 1040ez 2013 Example. Instructions for 1040ez 2013 In April 1994, Frank bought a franchise for $5,600. Instructions for 1040ez 2013 It expires in 10 years. Instructions for 1040ez 2013 This property is intangible property that cannot be depreciated under MACRS. Instructions for 1040ez 2013 Frank depreciates the franchise under the straight line method, using a 10-year useful life and no salvage value. Instructions for 1040ez 2013 He takes the $5,600 basis and divides that amount by 10 years ($5,600 ÷ 10 = $560, a full year's use). Instructions for 1040ez 2013 He must prorate the $560 for his 9 months of use in 1994. Instructions for 1040ez 2013 This gives him a deduction of $420 ($560 ÷ 9/12). Instructions for 1040ez 2013 In 1995, Frank can deduct $560 for the full year. Instructions for 1040ez 2013 Declining Balance Method The declining balance method allows you to recover a larger amount of the cost of the property in the early years of your use of the property. Instructions for 1040ez 2013 The rate cannot be more than twice the straight line rate. Instructions for 1040ez 2013 Rate of depreciation. Instructions for 1040ez 2013   Under this method, you must determine your declining balance rate of depreciation. Instructions for 1040ez 2013 The initial step is to: Divide the number 1 by the useful life of your property to get a straight line rate. Instructions for 1040ez 2013 (For example, if property has a useful life of 5 years, its normal straight line rate of depreciation is ⅕, or 20%. Instructions for 1040ez 2013 ) Multiply this straight line rate by a number that is more than 1 but not more than 2 to determine the declining balance rate. Instructions for 1040ez 2013 Unless there is a change in the useful life during the time you depreciate the property, the rate of depreciation generally will not change. Instructions for 1040ez 2013 Depreciation deductions. Instructions for 1040ez 2013   After you determine the rate of depreciation, multiply the adjusted basis of the property by it. Instructions for 1040ez 2013 This gives you the amount of your deduction. Instructions for 1040ez 2013 For example, if your adjusted basis at the beginning of the first year is $10,000, and your declining balance rate is 20%, your depreciation deduction for the first year is $2,000 ($10,000 ÷ 20%). Instructions for 1040ez 2013 To figure your depreciation deduction in the second year, you must first adjust the basis for the amount of depreciation you deducted in the first year. Instructions for 1040ez 2013 Subtract the previous year's depreciation from your basis ($10,000 - $2,000 = $8,000). Instructions for 1040ez 2013 Multiply this amount by the rate of depreciation ($8,000 ÷ 20% = $1,600). Instructions for 1040ez 2013 Your depreciation deduction for the second year is $1,600. Instructions for 1040ez 2013   As you can see from this example, your adjusted basis in the property gets smaller each year. Instructions for 1040ez 2013 Also, under this method, deductions are larger in the earlier years and smaller in the later years. Instructions for 1040ez 2013 You can make a change to the straight line method without consent. Instructions for 1040ez 2013 Salvage value. Instructions for 1040ez 2013   Do not subtract salvage value when you figure your yearly depreciation deductions under the declining balance method. Instructions for 1040ez 2013 However, you cannot depreciate the property below its reasonable salvage value. Instructions for 1040ez 2013 Determine salvage value using the rules discussed earlier, including the special 10% rule. Instructions for 1040ez 2013 Example. Instructions for 1040ez 2013 If your adjusted basis has been decreased to $1,000 and the rate of depreciation is 20%, your depreciation deduction should be $200. Instructions for 1040ez 2013 But if your estimate of salvage value was $900, you can only deduct $100. Instructions for 1040ez 2013 This is because $100 is the amount that would lower your adjusted basis to equal salvage value. Instructions for 1040ez 2013 Income Forecast Method The income forecast method requires income projections for each videocassette or group of videocassettes. Instructions for 1040ez 2013 You can group the videocassettes by title for making this projection. Instructions for 1040ez 2013 You determine the depreciation by applying a fraction to the cost less salvage value of the cassette. Instructions for 1040ez 2013 The numerator is the income from the videocassette for the tax year and the denominator is the total projected income for the cassette. Instructions for 1040ez 2013 For more information on the income forecast method, see Revenue Ruling 60-358 in Cumulative Bulletin 1960, Volume 2, on page 68. Instructions for 1040ez 2013 How To Change Methods In some cases, you may change your method of depreciation for property depreciated under a reasonable method. Instructions for 1040ez 2013 If you change your method of depreciation, it is generally a change in your method of accounting. Instructions for 1040ez 2013 You must get IRS consent before making the change. Instructions for 1040ez 2013 However, you do not need permission for certain changes in your method of depreciation. Instructions for 1040ez 2013 The rules discussed in this section do not apply to property depreciated under ACRS or MACRS. Instructions for 1040ez 2013 For information on ACRS elections,see Revocation of election, in chapter 1 under Alternate ACRS Method. Instructions for 1040ez 2013 Change to the straight line method. Instructions for 1040ez 2013   You can change from the declining balance method to the straight line method at any time during the useful life of your property without IRS consent. Instructions for 1040ez 2013 However, if you have a written agreement with the IRS that prohibits a change, you must first get IRS permission. Instructions for 1040ez 2013 When the change is made, figure depreciation based on your adjusted basis in the property at that time. Instructions for 1040ez 2013 Your adjusted basis takes into account all previous depreciation deductions. Instructions for 1040ez 2013 Use the estimated remaining useful life of your property at the time of change and its estimated salvage value. Instructions for 1040ez 2013   You can change from the declining balance method to straight line only on the original tax return for the year you first use the straight line method. Instructions for 1040ez 2013 You cannot make the change on an amended return filed after the due date of the original return (including extensions). Instructions for 1040ez 2013   When you make the change, attach a statement to your tax return showing: When you acquired the property, Its original cost or other original basis, The total amount claimed for depreciation and other allowances since you acquired it, Its salvage value and remaining useful life, and A description of the property and its use. Instructions for 1040ez 2013   After you change to straight line, you cannot change back to the declining balance method or to any other method for a period of 10 years without written permission from the IRS. Instructions for 1040ez 2013 Changes that require permission. Instructions for 1040ez 2013   For most other changes in method of depreciation, you must get permission from the IRS. Instructions for 1040ez 2013 To request a change in method of depreciation, file Form 3115. Instructions for 1040ez 2013 File the application within the first 180 days of the tax year the change is to become effective. Instructions for 1040ez 2013 In most cases, there is a user fee that must accompany Form 3115. Instructions for 1040ez 2013 See the instructions for Form 3115 to determine if a fee is required. Instructions for 1040ez 2013 Changes granted automatically. Instructions for 1040ez 2013   The IRS automatically approves certain changes of a method of depreciation. Instructions for 1040ez 2013 But, you must file Form 3115 for these automatic changes. Instructions for 1040ez 2013   However, IRS can deny permission if Form 3115 is not filed on time. Instructions for 1040ez 2013 For more information on automatic changes, see Revenue Procedure 74-11, 1974-1 C. Instructions for 1040ez 2013 B. Instructions for 1040ez 2013 420. Instructions for 1040ez 2013 Changes for which approval is not automatic. Instructions for 1040ez 2013   The automatic change procedures do not apply to: Property or an account where you made a change in depreciation within the last 10 tax years (unless the change was made under the Class Life System), Class Life Asset Depreciation Range System, and Public utility property. Instructions for 1040ez 2013   You must request and receive permission for these changes. Instructions for 1040ez 2013 To make the request, file Form 3115 during the first 180 days of the tax year for which you want the change to be effective. Instructions for 1040ez 2013 Change from an improper method. Instructions for 1040ez 2013   If the IRS disallows the method you are using, you do not need permission to change to a proper method. Instructions for 1040ez 2013 You can adopt the straight line method, or any other method that would have been permitted if you had used it from the beginning. Instructions for 1040ez 2013 If you file your tax return using an improper method, but later file an amended return, you can use a proper method on the amended return without getting IRS permission. Instructions for 1040ez 2013 However, you must file the amended return before the filing date for the next tax year. Instructions for 1040ez 2013 Dispositions Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. Instructions for 1040ez 2013 You can do this by selling, exchanging, or abandoning the item of property. Instructions for 1040ez 2013 You can also withdraw it from use without disposing of it. Instructions for 1040ez 2013 For example, you could place it in a supplies or scrap account. Instructions for 1040ez 2013 Retirements can be either normal or abnormal depending on all facts and circumstances. Instructions for 1040ez 2013 The rules discussed next do not apply to MACRS and ACRS property. Instructions for 1040ez 2013 Normal retirement. Instructions for 1040ez 2013   A normal retirement is a permanent withdrawal of depreciable property from use if the following apply: The retirement is made within the useful life you estimated originally, and The property has reached a condition at which you customarily retire or would retire similar property from use. Instructions for 1040ez 2013 A retirement is generally considered normal unless you can show that you retired the property because of a reason you did not consider when you originally estimated the useful life of the property. Instructions for 1040ez 2013 Abnormal retirement. Instructions for 1040ez 2013   A retirement can be abnormal if you withdraw the property early or under other circumstances. Instructions for 1040ez 2013 For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless. Instructions for 1040ez 2013 Gain or loss on retirement. Instructions for 1040ez 2013   There are special rules for figuring the gain or loss on retirement of property. Instructions for 1040ez 2013 The gain or loss will depend on several factors. Instructions for 1040ez 2013 These include the type of withdrawal, if the withdrawal was from a single property or multiple property account, and if the retirement was normal or abnormal. Instructions for 1040ez 2013 A single property account contains only one item of property. Instructions for 1040ez 2013 A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account. Instructions for 1040ez 2013 Sale or exchange. Instructions for 1040ez 2013   If property is retired by sale or exchange, you figure gain or loss by the usual rules that apply to sales or other dispositions of property. Instructions for 1040ez 2013 See Publication 544. Instructions for 1040ez 2013 Property not disposed of or abandoned. Instructions for 1040ez 2013   If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. Instructions for 1040ez 2013 You are allowed a loss in such a case, but only if the retirement is: An abnormal retirement, A normal retirement from a single property account in which you determined the life of each item of property separately, or A normal retirement from a multiple property account in which the depreciation rate is based on the maximum expected life of the longest lived item of property and the loss occurs before the expiration of the full useful life. Instructions for 1040ez 2013 However, you are not allowed a loss if the depreciation rate is based on the average useful life of the items of property in the account. Instructions for 1040ez 2013   To figure your loss, subtract the estimated salvage or fair market value of the property at the date of retirement, whichever is more, from its adjusted basis. Instructions for 1040ez 2013 Special rule for normal retirements from item accounts. Instructions for 1040ez 2013   You can generally deduct losses upon retirement of a few depreciable items of property with similar useful lives, if: You account for each one in a separate account, and You use the average useful life to figure depreciation. Instructions for 1040ez 2013 However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives. Instructions for 1040ez 2013   If you have a large number of depreciable property items and use average useful lives to figure depreciation, you cannot deduct the losses upon normal retirements from these accounts. Instructions for 1040ez 2013 Abandoned property. Instructions for 1040ez 2013   If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. Instructions for 1040ez 2013 However, your intent must be to discard the property so that you will not use it again or retrieve it for sale, exchange, or other disposition. Instructions for 1040ez 2013 Basis of property retired. Instructions for 1040ez 2013   The basis for figuring gain or loss on the retirement of property is its adjusted basis at the time of retirement, as determined in the following discussions. Instructions for 1040ez 2013 Single item accounts. Instructions for 1040ez 2013   If an item of property is accounted for in a single item account, the adjusted basis is the basis you would use to figure gain or loss for a sale or exchange of the property. Instructions for 1040ez 2013 This is generally the cost or other basis of the item of property less depreciation. Instructions for 1040ez 2013 See Publication 551. Instructions for 1040ez 2013 Multiple property account. Instructions for 1040ez 2013   For a normal retirement from a multiple property account, if you figured depreciation using the average expected useful life, the adjusted basis is the salvage value estimated for the item of property when it was originally acquired. Instructions for 1040ez 2013 If you figured depreciation using the maximum expected useful life of the longest lived item of property in the account, you must use the depreciation method used for the multiple property account and a rate based on the maximum expected useful life of the item of property retired. Instructions for 1040ez 2013   You make the adjustment for depreciation for an abnormal retirement from a multiple property account at the rate that would be proper if the item of property was depreciated in a single property account. Instructions for 1040ez 2013 The method of depreciation used for the multiple property account is used. Instructions for 1040ez 2013 You base the rate on either the average expected useful life or the maximum expected useful life of the retired item of property, depending on the method used to determine the depreciation rate for the multiple property account. Instructions for 1040ez 2013 Prev  Up  Next   Home   More Online Publications