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Tax 2011

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Tax 2011

Tax 2011 Publication 526 - Main Content Table of Contents Organizations That Qualify To Receive Deductible ContributionsTypes of Qualified Organizations Contributions You Can DeductContributions From Which You Benefit Expenses Paid for Student Living With You Out-of-Pocket Expenses in Giving Services Expenses of Whaling Captains Contributions You Cannot DeductContributions to Individuals Contributions to Nonqualified Organizations Contributions From Which You Benefit Value of Time or Services Personal Expenses Appraisal Fees Contributions to Donor-Advised Funds Partial Interest in Property Contributions of PropertyContributions Subject to Special Rules Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value Penalty When To DeductChecks. Tax 2011 Text message. Tax 2011 Credit card. Tax 2011 Pay-by-phone account. Tax 2011 Stock certificate. Tax 2011 Promissory note. Tax 2011 Option. Tax 2011 Borrowed funds. Tax 2011 Conditional gift. Tax 2011 Limits on Deductions50% Limit 30% Limit Special 30% Limit for Capital Gain Property 20% Limit Special 50% Limit for Qualified Conservation Contributions How To Figure Your Deduction When Limits Apply Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To ReportReporting expenses for student living with you. Tax 2011 Total deduction over $500. Tax 2011 Deduction over $5,000 for one item. Tax 2011 Vehicle donations. Tax 2011 Clothing and household items not in good used condition. Tax 2011 Easement on building in historic district. Tax 2011 Deduction over $500,000. Tax 2011 How To Get Tax HelpLow Income Taxpayer Clinics Organizations That Qualify To Receive Deductible Contributions You can deduct your contributions only if you make them to a qualified organization. Tax 2011 Most organizations, other than churches and governments, must apply to the IRS to become a qualified organization. Tax 2011 How to check whether an organization can receive deductible charitable contributions. Tax 2011   You can ask any organization whether it is a qualified organization, and most will be able to tell you. Tax 2011 Or go to IRS. Tax 2011 gov. Tax 2011 Click on “Tools” and then on “Exempt Organizations Select Check” (www. Tax 2011 irs. Tax 2011 gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check). Tax 2011 This online tool will enable you to search for qualified organizations. Tax 2011 You can also call the IRS to find out if an organization is qualified. Tax 2011 Call 1-877-829-5500. Tax 2011 People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment can call 1-800-829-4059. Tax 2011 Deaf or hard of hearing individuals can also contact the IRS through relay services such as the Federal Relay Service at www. Tax 2011 gsa. Tax 2011 gov/fedrelay. Tax 2011 Types of Qualified Organizations Generally, only the following types of organizations can be qualified organizations. Tax 2011 A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). Tax 2011 It must, however, be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Tax 2011 Certain organizations that foster national or international amateur sports competition also qualify. Tax 2011 War veterans' organizations, including posts, auxiliaries, trusts, or foundations, organized in the United States or any of its possessions (including Puerto Rico). Tax 2011 Domestic fraternal societies, orders, and associations operating under the lodge system. Tax 2011 (Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Tax 2011 ) Certain nonprofit cemetery companies or corporations. Tax 2011 (Your contribution to this type of organization is not deductible if it can be used for the care of a specific lot or mausoleum crypt. Tax 2011 ) The United States or any state, the District of Columbia, a U. Tax 2011 S. Tax 2011 possession (including Puerto Rico), a political subdivision of a state or U. Tax 2011 S. Tax 2011 possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. Tax 2011 (Your contribution to this type of organization is deductible only if it is to be used solely for public purposes. Tax 2011 ) Example 1. Tax 2011 You contribute cash to your city's police department to be used as a reward for information about a crime. Tax 2011 The city police department is a qualified organization, and your contribution is for a public purpose. Tax 2011 You can deduct your contribution. Tax 2011 Example 2. Tax 2011 You make a voluntary contribution to the social security trust fund, not earmarked for a specific account. Tax 2011 Because the trust fund is part of the U. Tax 2011 S. Tax 2011 Government, you contributed to a qualified organization. Tax 2011 You can deduct your contribution. Tax 2011 Examples. Tax 2011   The following list gives some examples of qualified organizations. Tax 2011 Churches, a convention or association of churches, temples, synagogues, mosques, and other religious organizations. Tax 2011 Most nonprofit charitable organizations such as the American Red Cross and the United Way. Tax 2011 Most nonprofit educational organizations, including the Boy Scouts of America, Girl Scouts of America, colleges, and museums. Tax 2011 This also includes nonprofit daycare centers that provide childcare to the general public if substantially all the childcare is provided to enable parents and guardians to be gainfully employed. Tax 2011 However, if your contribution is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution, as explained later under Contributions You Cannot Deduct . Tax 2011 Nonprofit hospitals and medical research organizations. Tax 2011 Utility company emergency energy programs, if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs. Tax 2011 Nonprofit volunteer fire companies. Tax 2011 Nonprofit organizations that develop and maintain public parks and recreation facilities. Tax 2011 Civil defense organizations. Tax 2011 Canadian charities. Tax 2011   You may be able to deduct contributions to certain Canadian charitable organizations covered under an income tax treaty with Canada. Tax 2011 To deduct your contribution to a Canadian charity, you generally must have income from sources in Canada. Tax 2011 See Publication 597, Information on the United States-Canada Income Tax Treaty, for information on how to figure your deduction. Tax 2011 Mexican charities. Tax 2011   Under the U. Tax 2011 S. Tax 2011 -Mexico income tax treaty, a contribution to a Mexican charitable organization may be deductible, but only if and to the extent the contribution would have been treated as a charitable contribution to a public charity created or organized under U. Tax 2011 S. Tax 2011 law. Tax 2011 To deduct your contribution to a Mexican charity, you must have income from sources in Mexico. Tax 2011 The limits described in Limits on Deductions , later, apply and are figured using your income from Mexican sources. Tax 2011 Israeli charities. Tax 2011   Under the U. Tax 2011 S. Tax 2011 -Israel income tax treaty, a contribution to an Israeli charitable organization is deductible if and to the extent the contribution would have been treated as a charitable contribution if the organization had been created or organized under U. Tax 2011 S. Tax 2011 law. Tax 2011 To deduct your contribution to an Israeli charity, you must have income from sources in Israel. Tax 2011 The limits described in Limits on Deductions , later, apply. Tax 2011 The deduction is also limited to 25% of your adjusted gross income from Israeli sources. Tax 2011 Contributions You Can Deduct Generally, you can deduct contributions of money or property you make to, or for the use of, a qualified organization. Tax 2011 A contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. Tax 2011 The contributions must be made to a qualified organization and not set aside for use by a specific person. Tax 2011 If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution. Tax 2011 See Contributions of Property , later. Tax 2011 Your deduction for charitable contributions generally cannot be more than 50% of your adjusted gross income (AGI), but in some cases 20% and 30% limits may apply. Tax 2011 In addition, the total of your charitable contributions deduction and certain other itemized deductions may be limited. Tax 2011 See Limits on Deductions , later. Tax 2011 Table 1 in this publication gives examples of contributions you can and cannot deduct. Tax 2011 Contributions From Which You Benefit If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. Tax 2011 Also see Contributions From Which You Benefit under Contributions You Cannot Deduct, later. Tax 2011 If you pay more than fair market value to a qualified organization for goods or services, the excess may be a charitable contribution. Tax 2011 For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. Tax 2011 Example 1. Tax 2011 You pay $65 for a ticket to a dinner-dance at a church. Tax 2011 Your entire $65 payment goes to the church. Tax 2011 The ticket to the dinner-dance has a fair market value of $25. Tax 2011 When you buy your ticket, you know its value is less than your payment. Tax 2011 To figure the amount of your charitable contribution, subtract the value of the benefit you receive ($25) from your total payment ($65). Tax 2011 You can deduct $40 as a charitable contribution to the church. Tax 2011 Example 2. Tax 2011 At a fundraising auction conducted by a charity, you pay $600 for a week's stay at a beach house. Tax 2011 The amount you pay is no more than the fair rental value. Tax 2011 You have not made a deductible charitable contribution. Tax 2011 Athletic events. Tax 2011   If you make a payment to, or for the benefit of, a college or university and, as a result, you receive the right to buy tickets to an athletic event in the athletic stadium of the college or university, you can deduct 80% of the payment as a charitable contribution. Tax 2011   If any part of your payment is for tickets (rather than the right to buy tickets), that part is not deductible. Tax 2011 Subtract the price of the tickets from your payment. Tax 2011 You can deduct 80% of the remaining amount as a charitable contribution. Tax 2011 Example 1. Tax 2011 You pay $300 a year for membership in a university's athletic scholarship program. Tax 2011 The only benefit of membership is that you have the right to buy one season ticket for a seat in a designated area of the stadium at the university's home football games. Tax 2011 You can deduct $240 (80% of $300) as a charitable contribution. Tax 2011 Example 2. Tax 2011 The facts are the same as in Example 1 except your $300 payment includes the purchase of one season ticket for the stated ticket price of $120. Tax 2011 You must subtract the usual price of a ticket ($120) from your $300 payment. Tax 2011 The result is $180. Tax 2011 Your deductible charitable contribution is $144 (80% of $180). Tax 2011 Charity benefit events. Tax 2011   If you pay a qualified organization more than fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, you can deduct only the amount that is more than the value of the privileges or other benefits you receive. Tax 2011   If there is an established charge for the event, that charge is the value of your benefit. Tax 2011 If there is no established charge, the reasonable value of the right to attend the event is the value of your benefit. Tax 2011 Whether you use the tickets or other privileges has no effect on the amount you can deduct. Tax 2011 However, if you return the ticket to the qualified organization for resale, you can deduct the entire amount you paid for the ticket. Tax 2011    Even if the ticket or other evidence of payment indicates that the payment is a “contribution,” this does not mean you can deduct the entire amount. Tax 2011 If the ticket shows the price of admission and the amount of the contribution, you can deduct the contribution amount. Tax 2011 Example. Tax 2011 You pay $40 to see a special showing of a movie for the benefit of a qualified organization. Tax 2011 Printed on the ticket is “Contribution–$40. Tax 2011 ” If the regular price for the movie is $8, your contribution is $32 ($40 payment − $8 regular price). Tax 2011 Membership fees or dues. Tax 2011   You may be able to deduct membership fees or dues you pay to a qualified organization. Tax 2011 However, you can deduct only the amount that is more than the value of the benefits you receive. Tax 2011   You cannot deduct dues, fees, or assessments paid to country clubs and other social organizations. Tax 2011 They are not qualified organizations. Tax 2011 Certain membership benefits can be disregarded. Tax 2011   Both you and the organization can disregard the following membership benefits if you get them in return for an annual payment of $75 or less. Tax 2011 Any rights or privileges, other than those discussed under Athletic events , earlier, that you can use frequently while you are a member, such as: Free or discounted admission to the organization's facilities or events, Free or discounted parking, Preferred access to goods or services, and Discounts on the purchase of goods and services. Tax 2011 Admission, while you are a member, to events open only to members of the organization if the organization reasonably projects that the cost per person (excluding any allocated overhead) is not more than $10. Tax 2011 20. Tax 2011 Token items. Tax 2011   You do not have to reduce your contribution by the value of any benefit you receive if both of the following are true. Tax 2011 You receive only a small item or other benefit of token value. Tax 2011 The qualified organization correctly determines that the value of the item or benefit you received is not substantial and informs you that you can deduct your payment in full. Tax 2011 The organization determines whether the value of an item or benefit is substantial by using Revenue Procedures 90-12 and 92-49 and the inflation adjustment in Revenue Procedure 2012–41. Tax 2011 Written statement. Tax 2011   A qualified organization must give you a written statement if you make a payment of more than $75 that is partly a contribution and partly for goods or services. Tax 2011 The statement must say you can deduct only the amount of your payment that is more than the value of the goods or services you received. Tax 2011 It must also give you a good faith estimate of the value of those goods or services. Tax 2011   The organization can give you the statement either when it solicits or when it receives the payment from you. Tax 2011 Exception. Tax 2011   An organization will not have to give you this statement if one of the following is true. Tax 2011 The organization is: A governmental organization described in (5) under Types of Qualified Organizations , earlier, or An organization formed only for religious purposes, and the only benefit you receive is an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in commercial transactions outside the donative context. Tax 2011 You receive only items whose value is not substantial as described under Token items , earlier. Tax 2011 You receive only membership benefits that can be disregarded, as described under Membership fees or dues , earlier. Tax 2011 Expenses Paid for Student Living With You You may be able to deduct some expenses of having a student live with you. Tax 2011 You can deduct qualifying expenses for a foreign or American student who: Lives in your home under a written agreement between you and a qualified organization (defined later) as part of a program of the organization to provide educational opportunities for the student, Is not your relative (defined later) or dependent (also defined later), and Is a full-time student in the twelfth or any lower grade at a school in the United States. Tax 2011 You can deduct up to $50 a month for each full calendar month the student lives with you. Tax 2011 Any month when conditions (1) through (3) above are met for 15 or more days counts as a full month. Tax 2011 Qualified organization. Tax 2011   For these purposes, a qualified organization can be any of the organizations described earlier under Types of Qualified Organizations , except those in (4) and (5). Tax 2011 For example, if you are providing a home for a student as part of a state or local government program, you cannot deduct your expenses as charitable contributions. Tax 2011 But see Foster parents under Out-of-Pocket Expenses in Giving Services, later, if you provide the home as a foster parent. Tax 2011 Relative. Tax 2011   The term “relative” means any of the following persons. Tax 2011 Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). Tax 2011 A legally adopted child is considered your child. Tax 2011 Your brother, sister, half brother, half sister, stepbrother, or stepsister. Tax 2011 Your father, mother, grandparent, or other direct ancestor. Tax 2011 Your stepfather or stepmother. Tax 2011 A son or daughter of your brother or sister. Tax 2011 A brother or sister of your father or mother. Tax 2011 Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Tax 2011 Dependent. Tax 2011   For this purpose, the term “dependent” means: A person you can claim as a dependent, or A person you could have claimed as a dependent except that: He or she received gross income of $3,900 or more, He or she filed a joint return, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Tax 2011    Foreign students brought to this country under a qualified international education exchange program and placed in American homes for a temporary period generally are not U. Tax 2011 S. Tax 2011 residents and cannot be claimed as dependents. Tax 2011 Qualifying expenses. Tax 2011   You may be able to deduct the cost of books, tuition, food, clothing, transportation, medical and dental care, entertainment, and other amounts you actually spend for the well-being of the student. Tax 2011 Expenses that do not qualify. Tax 2011   You cannot deduct depreciation on your home, the fair market value of lodging, and similar items not considered amounts actually spent by you. Tax 2011 Nor can you deduct general household expenses, such as taxes, insurance, and repairs. Tax 2011 Reimbursed expenses. Tax 2011   In most cases, you cannot claim a charitable contribution deduction if you are compensated or reimbursed for any part of the costs of having a student live with you. Tax 2011 However, you may be able to claim a charitable contribution deduction for the unreimbursed portion of your expenses if you are reimbursed only for an extraordinary or one-time item, such as a hospital bill or vacation trip, you paid in advance at the request of the student's parents or the sponsoring organization. Tax 2011 Mutual exchange program. Tax 2011   You cannot deduct the costs of a foreign student living in your home under a mutual exchange program through which your child will live with a family in a foreign country. Tax 2011 Reporting expenses. Tax 2011   For a list of what you must file with your return if you deduct expenses for a student living with you, see Reporting expenses for student living with you under How To Report, later. Tax 2011 Out-of-Pocket Expenses in Giving Services Table 2. Tax 2011 Volunteers' Questions and Answers If you volunteer for a qualified organization, the following questions and answers may apply to you. Tax 2011 All of the rules explained in this publication also apply. Tax 2011 See, in particular, Out-of-Pocket Expenses in Giving Services . Tax 2011 Question Answer I volunteer 6 hours a week in the office of a qualified organization. Tax 2011 The receptionist is paid $10 an hour for the same work. Tax 2011 Can I deduct $60 a week for my time? No, you cannot deduct the value of your time or services. Tax 2011  The office is 30 miles from my home. Tax 2011 Can I deduct any of my car expenses for these trips? Yes, you can deduct the costs of gas and oil that are directly related to getting to and from the place where you volunteer. Tax 2011 If you do not want to figure your actual costs, you can deduct 14 cents for each mile. Tax 2011 I volunteer as a Red Cross nurse's aide at a hospital. Tax 2011 Can I deduct the cost of the uniforms I must wear? Yes, you can deduct the cost of buying and cleaning your uniforms if the hospital is a qualified organization, the uniforms are not suitable for everyday use, and you must wear them when volunteering. Tax 2011 I pay a babysitter to watch my children while I volunteer for a qualified organization. Tax 2011 Can I deduct these costs? No, you cannot deduct payments for childcare expenses as a charitable contribution, even if you would be unable to volunteer without childcare. Tax 2011 (If you have childcare expenses so you can work for pay, see Publication 503, Child and Dependent Care Expenses. Tax 2011 ) Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. Tax 2011 The amounts must be: Unreimbursed, Directly connected with the services, Expenses you had only because of the services you gave, and Not personal, living, or family expenses. Tax 2011 Table 2 contains questions and answers that apply to some individuals who volunteer their services. Tax 2011 Underprivileged youths selected by charity. Tax 2011   You can deduct reasonable unreimbursed out-of-pocket expenses you pay to allow underprivileged youths to attend athletic events, movies, or dinners. Tax 2011 The youths must be selected by a charitable organization whose goal is to reduce juvenile delinquency. Tax 2011 Your own similar expenses in accompanying the youths are not deductible. Tax 2011 Conventions. Tax 2011   If a qualified organization selects you to attend a convention as its representative, you can deduct your unreimbursed expenses for travel, including reasonable amounts for meals and lodging, while away from home overnight for the convention. Tax 2011 However, see Travel , later. Tax 2011   You cannot deduct personal expenses for sightseeing, fishing parties, theater tickets, or nightclubs. Tax 2011 You also cannot deduct travel, meals and lodging, and other expenses for your spouse or children. Tax 2011   You cannot deduct your travel expenses in attending a church convention if you go only as a member of your church rather than as a chosen representative. Tax 2011 You can, however, deduct unreimbursed expenses that are directly connected with giving services for your church during the convention. Tax 2011 Uniforms. Tax 2011   You can deduct the cost and upkeep of uniforms that are not suitable for everyday use and that you must wear while performing donated services for a charitable organization. Tax 2011 Foster parents. Tax 2011   You may be able to deduct as a charitable contribution some of the costs of being a foster parent (foster care provider) if you have no profit motive in providing the foster care and are not, in fact, making a profit. Tax 2011 A qualified organization must select the individuals you take into your home for foster care. Tax 2011   You can deduct expenses that meet both of the following requirements. Tax 2011 They are unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child. Tax 2011 They are incurred primarily to benefit the qualified organization. Tax 2011   Unreimbursed expenses that you cannot deduct as charitable contributions may be considered support provided by you in determining whether you can claim the foster child as a dependent. Tax 2011 For details, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Tax 2011 Example. Tax 2011 You cared for a foster child because you wanted to adopt her, not to benefit the agency that placed her in your home. Tax 2011 Your unreimbursed expenses are not deductible as charitable contributions. Tax 2011 Church deacon. Tax 2011   You can deduct as a charitable contribution any unreimbursed expenses you have while in a permanent diaconate program established by your church. Tax 2011 These expenses include the cost of vestments, books, and transportation required in order to serve in the program as either a deacon candidate or an ordained deacon. Tax 2011 Car expenses. Tax 2011   You can deduct as a charitable contribution any unreimbursed out-of-pocket expenses, such as the cost of gas and oil, directly related to the use of your car in giving services to a charitable organization. Tax 2011 You cannot deduct general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. Tax 2011   If you do not want to deduct your actual expenses, you can use a standard mileage rate of 14 cents a mile to figure your contribution. Tax 2011   You can deduct parking fees and tolls whether you use your actual expenses or the standard mileage rate. Tax 2011   You must keep reliable written records of your car expenses. Tax 2011 For more information, see Car expenses under Records To Keep, later. Tax 2011 Travel. Tax 2011   Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. Tax 2011 This applies whether you pay the expenses directly or indirectly. Tax 2011 You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses. Tax 2011   The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization. Tax 2011 Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. Tax 2011 However, if you have only nominal duties, or if for significant parts of the trip you do not have any duties, you cannot deduct your travel expenses. Tax 2011 Example 1. Tax 2011 You are a troop leader for a tax-exempt youth group and you take the group on a camping trip. Tax 2011 You are responsible for overseeing the setup of the camp and for providing adult supervision for other activities during the entire trip. Tax 2011 You participate in the activities of the group and enjoy your time with them. Tax 2011 You oversee the breaking of camp and you transport the group home. Tax 2011 You can deduct your travel expenses. Tax 2011 Example 2. Tax 2011 You sail from one island to another and spend 8 hours a day counting whales and other forms of marine life. Tax 2011 The project is sponsored by a charitable organization. Tax 2011 In most circumstances, you cannot deduct your expenses. Tax 2011 Example 3. Tax 2011 You work for several hours each morning on an archeological dig sponsored by a charitable organization. Tax 2011 The rest of the day is free for recreation and sightseeing. Tax 2011 You cannot take a charitable contribution deduction even though you work very hard during those few hours. Tax 2011 Example 4. Tax 2011 You spend the entire day attending a charitable organization's regional meeting as a chosen representative. Tax 2011 In the evening you go to the theater. Tax 2011 You can claim your travel expenses as charitable contributions, but you cannot claim the cost of your evening at the theater. Tax 2011 Daily allowance (per diem). Tax 2011   If you provide services for a charitable organization and receive a daily allowance to cover reasonable travel expenses, including meals and lodging while away from home overnight, you must include in income any part of the allowance that is more than your deductible travel expenses. Tax 2011 You may be able to deduct any necessary travel expenses that are more than the allowance. Tax 2011 Deductible travel expenses. Tax 2011   These include: Air, rail, and bus transportation, Out-of-pocket expenses for your car, Taxi fares or other costs of transportation between the airport or station and your hotel, Lodging costs, and The cost of meals. Tax 2011 Because these travel expenses are not business-related, they are not subject to the same limits as business related expenses. Tax 2011 For information on business travel expenses, see Travel in Publication 463, Travel, Entertainment, Gift, and Car Expenses. Tax 2011 Expenses of Whaling Captains You may be able to deduct as a charitable contribution any reasonable and necessary whaling expenses you pay during the year to carry out sanctioned whaling activities. Tax 2011 The deduction is limited to $10,000 a year. Tax 2011 To claim the deduction, you must be recognized by the Alaska Eskimo Whaling Commission as a whaling captain charged with the responsibility of maintaining and carrying out sanctioned whaling activities. Tax 2011 Sanctioned whaling activities are subsistence bowhead whale hunting activities conducted under the management plan of the Alaska Eskimo Whaling Commission. Tax 2011 Whaling expenses include expenses for: Acquiring and maintaining whaling boats, weapons, and gear used in sanctioned whaling activities, Supplying food for the crew and other provisions for carrying out these activities, and Storing and distributing the catch from these activities. Tax 2011 You must keep records showing the time, place, date, amount, and nature of the expenses. Tax 2011 For details, see Revenue Procedure 2006-50, which is on page 944 of Internal Revenue Bulletin 2006-47 at www. Tax 2011 irs. Tax 2011 gov/pub/irs-irbs/irb06-47. Tax 2011 pdf. Tax 2011 Contributions You Cannot Deduct There are some contributions you cannot deduct and others you can deduct only in part. Tax 2011 You cannot deduct as a charitable contribution: A contribution to a specific individual, A contribution to a nonqualified organization, The part of a contribution from which you receive or expect to receive a benefit, The value of your time or services, Your personal expenses, A qualified charitable distribution from an individual retirement arrangement (IRA), Appraisal fees, Certain contributions to donor-advised funds, or Certain contributions of partial interests in property. Tax 2011 Detailed discussions of these items follow. Tax 2011 Contributions to Individuals You cannot deduct contributions to specific individuals, including the following. Tax 2011 Contributions to fraternal societies made for the purpose of paying medical or burial expenses of members. Tax 2011 Contributions to individuals who are needy or worthy. Tax 2011 You cannot deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. Tax 2011 But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you do not indicate that your contribution is for a specific person. Tax 2011 Example. Tax 2011 You can deduct contributions to a qualified organization for flood relief, hurricane relief, or other disaster relief. Tax 2011 However, you cannot deduct contributions earmarked for relief of a particular individual or family. Tax 2011 Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses. Tax 2011 Expenses you paid for another person who provided services to a qualified organization. Tax 2011 Example. Tax 2011 Your son does missionary work. Tax 2011 You pay his expenses. Tax 2011 You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services. Tax 2011 Payments to a hospital that are for a specific patient's care or for services for a specific patient. Tax 2011 You cannot deduct these payments even if the hospital is operated by a city, state, or other qualified organization. Tax 2011 Contributions to Nonqualified Organizations You cannot deduct contributions to organizations that are not qualified to receive tax-deductible contributions, including the following. Tax 2011 Certain state bar associations if: The bar is not a political subdivision of a state, The bar has private, as well as public, purposes, such as promoting the professional interests of members, and Your contribution is unrestricted and can be used for private purposes. Tax 2011 Chambers of commerce and other business leagues or organizations. Tax 2011 Civic leagues and associations. Tax 2011 Communist organizations. Tax 2011 Country clubs and other social clubs. Tax 2011 Foreign organizations other than certain Canadian, Israeli, or Mexican charitable organizations. Tax 2011 (See Canadian charities , Mexican charities , and Israeli charities under Organizations That Qualify To Receive Deductible Contributions, earlier. Tax 2011 ) Also, you cannot deduct a contribution you made to any qualifying organization if the contribution is earmarked to go to a foreign organization. Tax 2011 However, certain contributions to a qualified organization for use in a program conducted by a foreign charity may be deductible as long as they are not earmarked to go to the foreign charity. Tax 2011 For the contribution to be deductible, the qualified organization must approve the program as furthering its own exempt purposes and must keep control over the use of the contributed funds. Tax 2011 The contribution is also deductible if the foreign charity is only an administrative arm of the qualified organization. Tax 2011 Homeowners' associations. Tax 2011 Labor unions. Tax 2011 But you may be able to deduct union dues as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit, on Schedule A (Form 1040). Tax 2011 See Publication 529, Miscellaneous Deductions. Tax 2011 Political organizations and candidates. Tax 2011 Contributions From Which You Benefit If you receive or expect to receive a financial or economic benefit as a result of making a contribution to a qualified organization, you cannot deduct the part of the contribution that represents the value of the benefit you receive. Tax 2011 See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. Tax 2011 These contributions include the following. Tax 2011 Contributions for lobbying. Tax 2011 This includes amounts you earmark for use in, or in connection with, influencing specific legislation. Tax 2011 Contributions to a retirement home for room, board, maintenance, or admittance. Tax 2011 Also, if the amount of your contribution depends on the type or size of apartment you will occupy, it is not a charitable contribution. Tax 2011 Costs of raffles, bingo, lottery, etc. Tax 2011 You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other games of chance. Tax 2011 For information on how to report gambling winnings and losses, see Deductions Not Subject to the 2% Limit in Publication 529. Tax 2011 Dues to fraternal orders and similar groups. Tax 2011 However, see Membership fees or dues under Contributions From Which You Benefit, earlier. Tax 2011 Tuition, or amounts you pay instead of tuition. Tax 2011 You cannot deduct as a charitable contribution amounts you pay as tuition even if you pay them for children to attend parochial schools or qualifying nonprofit daycare centers. Tax 2011 You also cannot deduct any fixed amount you must pay in addition to, or instead of, tuition to enroll in a private school, even if it is designated as a “donation. Tax 2011 ” Contributions connected with split-dollar insurance arrangements. Tax 2011 You cannot deduct any part of a contribution to a charitable organization if, in connection with the contribution, the organization directly or indirectly pays, has paid, or is expected to pay any premium on any life insurance, annuity, or endowment contract for which you, any member of your family, or any other person chosen by you (other than a qualified charitable organization) is a beneficiary. Tax 2011 Example. Tax 2011 You donate money to a charitable organization. Tax 2011 The charity uses the money to purchase a cash value life insurance policy. Tax 2011 The beneficiaries under the insurance policy include members of your family. Tax 2011 Even though the charity may eventually get some benefit out of the insurance policy, you cannot deduct any part of the donation. Tax 2011 Qualified Charitable Distributions A qualified charitable distribution (QCD) is a distribution made directly by the trustee of your individual retirement arrangement (IRA), other than a SEP or SIMPLE IRA, to certain qualified organizations. Tax 2011 You must have been at least age 70½ when the distribution was made. Tax 2011 Your total QCDs for the year cannot be more than $100,000. Tax 2011 If all the requirements are met, a QCD is nontaxable, but you cannot claim a charitable contribution deduction for a QCD. Tax 2011 See Publication 590, Individual Retirement Arrangements (IRAs), for more information about QCDs. Tax 2011 Value of Time or Services You cannot deduct the value of your time or services, including: Blood donations to the American Red Cross or to blood banks, and The value of income lost while you work as an unpaid volunteer for a qualified organization. Tax 2011 Personal Expenses You cannot deduct personal, living, or family expenses, such as the following items. Tax 2011 The cost of meals you eat while you perform services for a qualified organization, unless it is necessary for you to be away from home overnight while performing the services. Tax 2011 Adoption expenses, including fees paid to an adoption agency and the costs of keeping a child in your home before adoption is final. Tax 2011 However, you may be able to claim a tax credit for these expenses. Tax 2011 Also, you may be able to exclude from your gross income amounts paid or reimbursed by your employer for your adoption expenses. Tax 2011 See Form 8839, Qualified Adoption Expenses, and its instructions, for more information. Tax 2011 You also may be able to claim an exemption for the child. Tax 2011 See Exemptions for Dependents in Publication 501 for more information. Tax 2011 Appraisal Fees You cannot deduct as a charitable contribution any fees you pay to find the fair market value of donated property. Tax 2011 But you can claim them, subject to the 2%-of-adjusted-gross-income limit, as a miscellaneous itemized deduction on Schedule A (Form 1040). Tax 2011 See Deductions Subject to the 2% Limit in Publication 529 for more information. Tax 2011 Contributions to Donor-Advised Funds You cannot deduct a contribution to a donor-advised fund if: The qualified organization that sponsors the fund is a war veterans' organization, a fraternal society, or a nonprofit cemetery company, or You do not have an acknowledgment from that sponsoring organization that it has exclusive legal control over the assets contributed. Tax 2011 There are also other circumstances in which you cannot deduct your contribution to a donor-advised fund. Tax 2011 Generally, a donor-advised fund is a fund or account in which a donor can, because of being a donor, advise the fund how to distribute or invest amounts held in the fund. Tax 2011 For details, see Internal Revenue Code section 170(f)(18). Tax 2011 Partial Interest in Property Generally, you cannot deduct a contribution of less than your entire interest in property. Tax 2011 For details, see Partial Interest in Property under Contributions of Property, later. Tax 2011 Contributions of Property If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. Tax 2011 However, if the property has increased in value, you may have to make some adjustments to the amount of your deduction. Tax 2011 See Giving Property That Has Increased in Value , later. Tax 2011 For information about the records you must keep and the information you must furnish with your return if you donate property, see Records To Keep and How To Report , later. Tax 2011 Contributions Subject to Special Rules Special rules apply if you contribute: Clothing or household items, A car, boat, or airplane, Taxidermy property, Property subject to a debt, A partial interest in property, A fractional interest in tangible personal property, A qualified conservation contribution, A future interest in tangible personal property, Inventory from your business, or A patent or other intellectual property. Tax 2011 These special rules are described next. Tax 2011 Clothing and Household Items You cannot take a deduction for clothing or household items you donate unless the clothing or household items are in good used condition or better. Tax 2011 Exception. Tax 2011   You can take a deduction for a contribution of an item of clothing or a household item that is not in good used condition or better if you deduct more than $500 for it and include a qualified appraisal of it with your return. Tax 2011 Household items. Tax 2011   Household items include: Furniture and furnishings, Electronics, Appliances, Linens, and Other similar items. Tax 2011   Household items do not include: Food, Paintings, antiques, and other objects of art, Jewelry and gems, and Collections. Tax 2011 Fair market value. Tax 2011   To determine the fair market value of these items, use the rules under Determining Fair Market Value , later. Tax 2011 Cars, Boats, and Airplanes The following rules apply to any donation of a qualified vehicle. Tax 2011 A qualified vehicle is: A car or any motor vehicle manufactured mainly for use on public streets, roads, and highways, A boat, or An airplane. Tax 2011 Deduction more than $500. Tax 2011   If you donate a qualified vehicle with a claimed fair market value of more than $500, you can deduct the smaller of: The gross proceeds from the sale of the vehicle by the organization, or The vehicle's fair market value on the date of the contribution. Tax 2011 If the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to figure the deductible amount, as described under Giving Property That Has Increased in Value , later. Tax 2011 Form 1098-C. Tax 2011   You must attach to your return Copy B of the Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, (or other statement containing the same information as Form 1098-C) you received from the organization. Tax 2011 The Form 1098-C (or other statement) will show the gross proceeds from the sale of the vehicle. Tax 2011   If you e-file your return, you must: Attach Copy B of Form 1098-C to Form 8453, U. Tax 2011 S. Tax 2011 Individual Income Tax Transmittal for an IRS e-file Return, and mail the forms to the IRS, or Include Copy B of Form 1098-C as a pdf attachment if your software program allows it. Tax 2011   If you do not attach Form 1098-C (or other statement), you cannot deduct your contribution. Tax 2011    You must get Form 1098-C (or other statement) within 30 days of the sale of the vehicle. Tax 2011 But if exception 1 or 2 (described later) applies, you must get Form 1098-C (or other statement) within 30 days of your donation. Tax 2011 Filing deadline approaching and still no Form 1098-C. Tax 2011   If the filing deadline is approaching and you still do not have a Form 1098-C, you have two choices. Tax 2011 Request an automatic 6-month extension of time to file your return. Tax 2011 You can get this extension by filing Form 4868, Application for Automatic Extension of Time To File U. Tax 2011 S. Tax 2011 Individual Income Tax Return. Tax 2011 For more information, see the instructions for Form 4868. Tax 2011 File the return on time without claiming the deduction for the qualified vehicle. Tax 2011 After receiving the Form 1098-C, file an amended return, Form 1040X, Amended U. Tax 2011 S. Tax 2011 Individual Income Tax Return, claiming the deduction. Tax 2011 Attach Copy B of Form 1098-C (or other statement) to the amended return. Tax 2011 Exceptions. Tax 2011   There are two exceptions to the rules just described for deductions of more than $500. Tax 2011 Exception 1—vehicle used or improved by organization. Tax 2011   If the qualified organization makes a significant intervening use of or material improvement to the vehicle before transferring it, you generally can deduct the vehicle's fair market value at the time of the contribution. Tax 2011 But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Tax 2011 The Form 1098-C (or other statement) will show whether this exception applies. Tax 2011    Exception 2—vehicle given or sold to needy individual. Tax 2011   If the qualified organization will give the vehicle, or sell it for a price well below fair market value, to a needy individual to further the organization's charitable purpose, you generally can deduct the vehicle's fair market value at the time of the contribution. Tax 2011 But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Tax 2011 The Form 1098-C (or other statement) will show whether this exception applies. Tax 2011   This exception does not apply if the organization sells the vehicle at auction. Tax 2011 In that case, you cannot deduct the vehicle's fair market value. Tax 2011 Example. Tax 2011 Anita donates a used car to a qualified organization. Tax 2011 She bought it 3 years ago for $9,000. Tax 2011 A used car guide shows the fair market value for this type of car is $6,000. Tax 2011 However, Anita gets a Form 1098-C from the organization showing the car was sold for $2,900. Tax 2011 Neither exception 1 nor exception 2 applies. Tax 2011 If Anita itemizes her deductions, she can deduct $2,900 for her donation. Tax 2011 She must attach Form 1098-C and Form 8283 to her return. Tax 2011 Deduction $500 or less. Tax 2011   If the qualified organization sells the vehicle for $500 or less and exceptions 1 and 2 do not apply, you can deduct the smaller of: $500, or The vehicle's fair market value on the date of the contribution. Tax 2011 But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. Tax 2011   If the vehicle's fair market value is at least $250 but not more than $500, you must have a written statement from the qualified organization acknowledging your donation. Tax 2011 The statement must contain the information and meet the tests for an acknowledgment described under Contributions of $250 or More under Records To Keep, later. Tax 2011 Fair market value. Tax 2011   To determine a vehicle's fair market value, use the rules described under Determining Fair Market Value , later. Tax 2011 Donations of inventory. Tax 2011   The vehicle donation rules just described do not apply to donations of inventory. Tax 2011 For example, these rules do not apply if you are a car dealer who donates a car you had been holding for sale to customers. Tax 2011 See Inventory , later. Tax 2011 Taxidermy Property If you donate taxidermy property to a qualified organization, your deduction is limited to your basis in the property or its fair market value, whichever is less. Tax 2011 This applies if you prepared, stuffed, or mounted the property or paid or incurred the cost of preparing, stuffing, or mounting the property. Tax 2011 Your basis for this purpose includes only the cost of preparing, stuffing, and mounting the property. Tax 2011 Your basis does not include transportation or travel costs. Tax 2011 It also does not include the direct or indirect costs for hunting or killing an animal, such as equipment costs. Tax 2011 In addition, it does not include the value of your time. Tax 2011 Taxidermy property means any work of art that: Is the reproduction or preservation of an animal, in whole or in part, Is prepared, stuffed, or mounted to recreate one or more characteristics of the animal, and Contains a part of the body of the dead animal. Tax 2011 Property Subject to a Debt If you contribute property subject to a debt (such as a mortgage), you must reduce the fair market value of the property by: Any allowable deduction for interest you paid (or will pay) that is attributable to any period after the contribution, and If the property is a bond, the lesser of: Any allowable deduction for interest you paid (or will pay) to buy or carry the bond that is attributable to any period before the contribution, or The interest, including bond discount, receivable on the bond that is attributable to any period before the contribution, and that is not includible in your income due to your accounting method. Tax 2011 This prevents you from deducting the same amount as both investment interest and a charitable contribution. Tax 2011 If the recipient (or another person) assumes the debt, you must also reduce the fair market value of the property by the amount of the outstanding debt assumed. Tax 2011 The amount of the debt is also treated as an amount realized on the sale or exchange of property for purposes of figuring your taxable gain (if any). Tax 2011 For more information, see Bargain Sales under Giving Property That Has Increased in Value, later. Tax 2011 Partial Interest in Property Generally, you cannot deduct a charitable contribution of less than your entire interest in property. Tax 2011 Right to use property. Tax 2011   A contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible. Tax 2011 Example 1. Tax 2011 You own a 10-story office building and donate rent-free use of the top floor to a charitable organization. Tax 2011 Because you still own the building, you have contributed a partial interest in the property and cannot take a deduction for the contribution. Tax 2011 Example 2. Tax 2011 Mandy White owns a vacation home at the beach that she sometimes rents to others. Tax 2011 For a fund-raising auction at her church, she donated the right to use the vacation home for 1 week. Tax 2011 At the auction, the church received and accepted a bid from Lauren Green equal to the fair rental value of the home for 1 week. Tax 2011 Mandy cannot claim a deduction because of the partial interest rule. Tax 2011 Lauren cannot claim a deduction either, because she received a benefit equal to the amount of her payment. Tax 2011 See Contributions From Which You Benefit , earlier. Tax 2011 Exceptions. Tax 2011   You can deduct a charitable contribution of a partial interest in property only if that interest represents one of the following items. Tax 2011 A remainder interest in your personal home or farm. Tax 2011 A remainder interest is one that passes to a beneficiary after the end of an earlier interest in the property. Tax 2011 Example. Tax 2011 You keep the right to live in your home during your lifetime and give your church a remainder interest that begins upon your death. Tax 2011 You can deduct the value of the remainder interest. Tax 2011 An undivided part of your entire interest. Tax 2011 This must consist of a part of every substantial interest or right you own in the property and must last as long as your interest in the property lasts. Tax 2011 But see Fractional Interest in Tangible Personal Property , later. Tax 2011 Example. Tax 2011 You contribute voting stock to a qualified organization but keep the right to vote the stock. Tax 2011 The right to vote is a substantial right in the stock. Tax 2011 You have not contributed an undivided part of your entire interest and cannot deduct your contribution. Tax 2011 A partial interest that would be deductible if transferred to certain types of trusts. Tax 2011 A qualified conservation contribution (defined later). Tax 2011 For information about how to figure the value of a contribution of a partial interest in property, see Partial Interest in Property Not in Trust in Publication 561. Tax 2011 Fractional Interest in Tangible Personal Property You cannot deduct a charitable contribution of a fractional interest in tangible personal property unless all interests in the property are held immediately before the contribution by: You, or You and the qualifying organization receiving the contribution. Tax 2011 If you make an additional contribution later, the fair market value of that contribution will be determined by using the smaller of: The fair market value of the property at the time of the initial contribution, or The fair market value of the property at the time of the additional contribution. Tax 2011 Tangible personal property is defined later under Future Interest in Tangible Personal Property . Tax 2011 A fractional interest in property is an undivided portion of your entire interest in the property. Tax 2011 Example. Tax 2011 An undivided one-quarter interest in a painting that entitles an art museum to possession of the painting for 3 months of each year is a fractional interest in the property. Tax 2011 Recapture of deduction. Tax 2011   You must recapture your charitable contribution deduction by including it in your income if both of the following statements are true. Tax 2011 You contributed a fractional interest in tangible personal property after August 17, 2006. Tax 2011 You do not contribute the rest of your interests in the property to the original recipient or, if it no longer exists, another qualified organization on or before the earlier of: The date that is 10 years after the date of the initial contribution, or The date of your death. Tax 2011   Recapture is also required if the qualified organization has not taken substantial physical possession of the property and used it in a way related to the organization's purpose during the period beginning on the date of the initial contribution and ending on the earlier of: The date that is 10 years after the date of the initial contribution, or The date of your death. Tax 2011 Additional tax. Tax 2011   If you must recapture your deduction, you must also pay interest and an additional tax equal to 10% of the amount recaptured. Tax 2011 Qualified Conservation Contribution A qualified conservation contribution is a contribution of a qualified real property interest to a qualified organization to be used only for conservation purposes. Tax 2011 Qualified organization. Tax 2011   For purposes of a qualified conservation contribution, a qualified organization is: A governmental unit, A publicly supported charity, or An organization controlled by, and operated for the exclusive benefit of, a governmental unit or a publicly supported charity. Tax 2011 The organization also must have a commitment to protect the conservation purposes of the donation and must have the resources to enforce the restrictions. Tax 2011   A publicly supported charity is an organization of the type described in (1) under Types of Qualified Organizations , earlier, that normally receives a substantial part of its support, other than income from its exempt activities, from direct or indirect contributions from the general public or from governmental units. Tax 2011 Qualified real property interest. Tax 2011   This is any of the following interests in real property. Tax 2011 Your entire interest in real estate other than a mineral interest (subsurface oil, gas, or other minerals, and the right of access to these minerals). Tax 2011 A remainder interest. Tax 2011 A restriction (granted in perpetuity) on the use that may be made of the real property. Tax 2011 Conservation purposes. Tax 2011   Your contribution must be made only for one of the following conservation purposes. Tax 2011 Preserving land areas for outdoor recreation by, or for the education of, the general public. Tax 2011 Protecting a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem. Tax 2011 Preserving open space, including farmland and forest land, if it yields a significant public benefit. Tax 2011 The open space must be preserved either for the scenic enjoyment of the general public or under a clearly defined federal, state, or local governmental conservation policy. Tax 2011 Preserving a historically important land area or a certified historic structure. Tax 2011 Building in registered historic district. Tax 2011   If a building in a registered historic district is a certified historic structure, a contribution of a qualified real property interest that is an easement or other restriction on the exterior of the building is deductible only if it meets all of the following conditions. Tax 2011 The restriction must preserve the entire exterior of the building (including its front, sides, rear, and height) and must prohibit any change to the exterior of the building that is inconsistent with its historical character. Tax 2011 You and the organization receiving the contribution must enter into a written agreement certifying, under penalty of perjury, that the organization: Is a qualified organization with a purpose of environmental protection, land conservation, open space preservation, or historic preservation, and Has the resources to manage and enforce the restriction and a commitment to do so. Tax 2011 You must include with your return: A qualified appraisal, Photographs of the building's entire exterior, and A description of all restrictions on development of the building, such as zoning laws and restrictive covenants. Tax 2011   If you claimed the rehabilitation credit for the building for any of the 5 years before the year of the contribution, your charitable deduction is reduced. Tax 2011 For more information, see Form 3468, Investment Credit, and Internal Revenue Code section 170(f)(14). Tax 2011   If you claim a deduction of more than $10,000, your deduction will not be allowed unless you pay a $500 filing fee. Tax 2011 See Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13), and its instructions. Tax 2011 You may be able to deduct the filing fee as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit, on Schedule A (Form 1040). Tax 2011 See Deductions Subject to the 2% Limit in Publication 529 for more information. Tax 2011 More information. Tax 2011   For information about determining the fair market value of qualified conservation contributions, see Publication 561. Tax 2011 For information about the limits that apply to deductions for this type of contribution, see Limits on Deductions , later. Tax 2011 For more information about qualified conservation contributions, see Regulations section 1. Tax 2011 170A-14. Tax 2011 Future Interest in Tangible Personal Property You cannot deduct the value of a charitable contribution of a future interest in tangible personal property until all intervening interests in and rights to the actual possession or enjoyment of the property have either expired or been turned over to someone other than yourself, a related person, or a related organization. Tax 2011 But see Fractional Interest in Tangible Personal Property , earlier, and Tangible personal property put to unrelated use , later. Tax 2011 Related persons include your spouse, children, grandchildren, brothers, sisters, and parents. Tax 2011 Related organizations may include a partnership or corporation in which you have an interest, or an estate or trust with which you have a connection. Tax 2011 Tangible personal property. Tax 2011   This is any property, other than land or buildings, that can be seen or touched. Tax 2011 It includes furniture, books, jewelry, paintings, and cars. Tax 2011 Future interest. Tax 2011   This is any interest that is to begin at some future time, regardless of whether it is designated as a future interest under state law. Tax 2011 Example. Tax 2011 You own an antique car that you contribute to a museum. Tax 2011 You give up ownership, but retain the right to keep the car in your garage with your personal collection. Tax 2011 Because you keep an interest in the property, you cannot deduct the contribution. Tax 2011 If you turn the car over to the museum in a later year, giving up all rights to its use, possession, and enjoyment, you can take a deduction for the contribution in that later year. Tax 2011 Inventory If you contribute inventory (property you sell in the course of your business), the amount you can deduct is the smaller of its fair market value on the day you contributed it or its basis. Tax 2011 The basis of contributed inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. Tax 2011 You must remove the amount of your charitable contribution deduction from your opening inventory. Tax 2011 It is not part of the cost of goods sold. Tax 2011 If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you cannot claim a charitable contribution deduction. Tax 2011 Treat the inventory's cost as you would ordinarily treat it under your method of accounting. Tax 2011 For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year. Tax 2011 A special rule applies to certain donations of food inventory. Tax 2011 See Food Inventory, later. Tax 2011 Patents and Other Intellectual Property If you donate intellectual property to a qualified organization, your deduction is limited to the basis of the property or the fair market value of the property, whichever is smaller. Tax 2011 Intellectual property means any of the following: Patents. Tax 2011 Copyrights (other than a copyright described in Internal Revenue Code sections 1221(a)(3) or 1231(b)(1)(C)). Tax 2011 Trademarks. Tax 2011 Trade names. Tax 2011 Trade secrets. Tax 2011 Know-how. Tax 2011 Software (other than software described in Internal Revenue Code section 197(e)(3)(A)(i)). Tax 2011 Other similar property or applications or registrations of such property. Tax 2011 Additional deduction based on income. Tax 2011   You may be able to claim additional charitable contribution deductions in the year of the contribution and years following, based on the income, if any, from the donated property. Tax 2011   The following table shows the percentage of income from the property that you can deduct for each of your tax years ending on or after the date of the contribution. Tax 2011 In the table, “tax year 1,” for example, means your first tax year ending on or after the date of the contribution. Tax 2011 However, you can take the additional deduction only to the extent the total of the amounts figured using this table is more than the amount of the deduction claimed for the original donation of the property. Tax 2011   After the legal life of the intellectual property ends, or after the 10th anniversary of the donation, whichever is earlier, no additional deduction is allowed. Tax 2011 The additional deductions cannot be taken for intellectual property donated to certain private foundations. Tax 2011 Tax year Deductible percentage 1 100% 2 100% 3 90% 4 80% 5 70% 6 60% 7 50% 8 40% 9 30% 10 20% 11 10% 12 10% Reporting requirements. Tax 2011   You must inform the organization at the time of the donation that you intend to treat the donation as a contribution subject to the provisions just discussed. Tax 2011   The organization is required to file an information return showing the income from the property, with a copy to you. Tax 2011 This is done on Form 8899, Notice of Income From Donated Intellectual Property. Tax 2011 Determining Fair Market Value This section discusses general guidelines for determining the fair market value of various types of donated property. Tax 2011 Publication 561 contains a more complete discussion. Tax 2011 Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Tax 2011 Used clothing. Tax 2011   The fair market value of used clothing and other personal items is usually far less than the price you paid for them. Tax 2011 There are no fixed formulas or methods for finding the value of items of clothing. Tax 2011   You should claim as the value the price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops. Tax 2011      Also see Clothing and Household Items , earlier. Tax 2011 Example. Tax 2011    Kristin donated a coat to a thrift store operated by her church. Tax 2011 She paid $300 for the coat 3 years ago. Tax 2011 Similar coats in the thrift store sell for $50. Tax 2011 The fair market value of the coat is $50. Tax 2011 Kristin's donation is limited to $50. Tax 2011 Household items. Tax 2011   The fair market value of used household items, such as furniture, appliances, and linens, is usually much lower than the price paid when new. Tax 2011 These items may have little or no market value because they are in a worn condition, out of style, or no longer useful. Tax 2011 For these reasons, formulas (such as using a percentage of the cost to buy a new replacement item) are not acceptable in determining value. Tax 2011   You should support your valuation with photographs, canceled checks, receipts from your purchase of the items, or other evidence. Tax 2011 Magazine or newspaper articles and photographs that describe the items and statements by the recipients of the items are also useful. Tax 2011 Do not include any of this evidence with your tax return. Tax 2011   If the property is valuable because it is old or unique, see the discussion under Paintings, Antiques, and Other Objects of Art in Publication 561. Tax 2011   Also see Clothing and Household Items , earlier. Tax 2011 Cars, boats, and airplanes. Tax 2011   If you contribute a car, boat, or airplane to a charitable organization, you must determine its fair market value. Tax 2011 Boats. Tax 2011   Except for small, inexpensive boats, the valuation of boats should be based on an appraisal by a marine surveyor or appraiser because the physical condition is critical to the value. Tax 2011 Cars. Tax 2011   Certain commercial firms and trade organizations publish used car pricing guides, commonly called “blue books,” containing complete dealer sale prices or dealer average prices for recent model years. Tax 2011 The guides may be published monthly or seasonally, and for different regions of the country. Tax 2011 These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. Tax 2011 The prices are not “official” and these publications are not considered an appraisal of any specific donated property. Tax 2011 But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. Tax 2011   These publications are sometimes available from public libraries, or from the loan officer at a bank, credit union, or finance company. Tax 2011 You can also find used car pricing information on the Internet. Tax 2011   To find the fair market value of a donated car, use the price listed in a used car guide for a private party sale, not the dealer retail value. Tax 2011 However, the fair market value may be less if the car has engine trouble, body damage, high mileage, or any type of excessive wear. Tax 2011 The fair market value of a donated car is the same as the price listed in a used car guide for a private party sale only if the guide lists a sales price for a car that is the same make, model, and year, sold in the same area, in the same condition, with the same or similar options or accessories, and with the same or similar warranties as the donated car. Tax 2011 Example. Tax 2011 You donate a used car in poor condition to a local high school for use by students studying car repair. Tax 2011 A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. Tax 2011 However, the guide shows the price for a private party sale of the car is only $750. Tax 2011 The fair market value of the car is considered to be $750. Tax 2011 Large quantities. Tax 2011   If you contribute a large number of the same item, fair market value is the price at which comparable numbers of the item are being sold. Tax 2011 Example. Tax 2011 You purchase 500 bibles for $1,000. Tax 2011 The person who sells them to you says the retail value of these bibles is $3,000. Tax 2011 If you contribute the bibles to a qualified organization, you can claim a deduction only for the price at which similar numbers of the same bible are currently being sold. Tax 2011 Your charitable contribution is $1,000, unless you can show that similar numbers of that bible wer
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Department of Housing and Urban Development (HUD)

The Department of Housing and Urban Development administers programs that provide housing and community development assistance. The Department also works to ensure fair and equal housing opportunity for all.

The Tax 2011

Tax 2011 4. Tax 2011   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. Tax 2011 Rent-to-own contract. Tax 2011 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. Tax 2011 MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Tax 2011 Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Tax 2011 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. Tax 2011 This chapter explains how to determine which MACRS depreciation system applies to your property. Tax 2011 It also discusses other information you need to know before you can figure depreciation under MACRS. Tax 2011 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. Tax 2011 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. Tax 2011 Finally, it explains when and how to recapture MACRS depreciation. Tax 2011 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. Tax 2011 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. Tax 2011 You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Tax 2011 If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. Tax 2011 Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. Tax 2011 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. Tax 2011 Required use of ADS. Tax 2011   You must use ADS for the following property. Tax 2011 Listed property used 50% or less in a qualified business use. Tax 2011 See chapter 5 for information on listed property. Tax 2011 Any tangible property used predominantly outside the United States during the year. Tax 2011 Any tax-exempt use property. Tax 2011 Any tax-exempt bond-financed property. Tax 2011 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. Tax 2011 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. Tax 2011 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. Tax 2011 Electing ADS. Tax 2011   Although your property may qualify for GDS, you can elect to use ADS. Tax 2011 The election generally must cover all property in the same property class that you placed in service during the year. Tax 2011 However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Tax 2011 Once you make this election, you can never revoke it. Tax 2011   You make the election by completing line 20 in Part III of Form 4562. Tax 2011 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. Tax 2011 These property classes are also listed under column (a) in section B, Part III, of Form 4562. Tax 2011 For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. Tax 2011 3-year property. Tax 2011 Tractor units for over-the-road use. Tax 2011 Any race horse over 2 years old when placed in service. Tax 2011 (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. Tax 2011 ) Any other horse (other than a race horse) over 12 years old when placed in service. Tax 2011 Qualified rent-to-own property (defined later). Tax 2011 5-year property. Tax 2011 Automobiles, taxis, buses, and trucks. Tax 2011 Computers and peripheral equipment. Tax 2011 Office machinery (such as typewriters, calculators, and copiers). Tax 2011 Any property used in research and experimentation. Tax 2011 Breeding cattle and dairy cattle. Tax 2011 Appliances, carpets, furniture, etc. Tax 2011 , used in a residential rental real estate activity. Tax 2011 Certain geothermal, solar, and wind energy property. Tax 2011 7-year property. Tax 2011 Office furniture and fixtures (such as desks, files, and safes). Tax 2011 Agricultural machinery and equipment. Tax 2011 Any property that does not have a class life and has not been designated by law as being in any other class. Tax 2011 Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. Tax 2011 Any natural gas gathering line placed in service after April 11, 2005. Tax 2011 See Natural gas gathering line and electric transmission property , later. Tax 2011 10-year property. Tax 2011 Vessels, barges, tugs, and similar water transportation equipment. Tax 2011 Any single purpose agricultural or horticultural structure. Tax 2011 Any tree or vine bearing fruits or nuts. Tax 2011 Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. Tax 2011 15-year property. Tax 2011 Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). Tax 2011 Any retail motor fuels outlet (defined later), such as a convenience store. Tax 2011 Any municipal wastewater treatment plant. Tax 2011 Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. Tax 2011 Any qualified restaurant property (defined later) placed in service before January 1, 2014. Tax 2011 Initial clearing and grading land improvements for gas utility property. Tax 2011 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. Tax 2011 See Natural gas gathering line and electric transmission property , later. Tax 2011 Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. Tax 2011 Any qualified retail improvement property placed in service before January 1, 2014. Tax 2011 20-year property. Tax 2011 Farm buildings (other than single purpose agricultural or horticultural structures). Tax 2011 Municipal sewers not classified as 25-year property. Tax 2011 Initial clearing and grading land improvements for electric utility transmission and distribution plants. Tax 2011 25-year property. Tax 2011 This class is water utility property, which is either of the following. Tax 2011 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. Tax 2011 Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. Tax 2011 Residential rental property. Tax 2011 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. Tax 2011 A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. Tax 2011 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. Tax 2011 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. Tax 2011 Nonresidential real property. Tax 2011 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. Tax 2011 5 years. Tax 2011 Qualified rent-to-own property. Tax 2011   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. Tax 2011 It is tangible personal property generally used in the home for personal use. Tax 2011 It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. Tax 2011 Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. Tax 2011   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. Tax 2011 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. Tax 2011 Rent-to-own dealer. Tax 2011   You are a rent-to-own dealer if you meet all the following requirements. Tax 2011 You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. Tax 2011 A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. Tax 2011 The property is tangible personal property of a type generally used within the home for personal use. Tax 2011 Rent-to-own contract. Tax 2011   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. Tax 2011 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). Tax 2011 Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. Tax 2011 If the payments are decreasing, no payment can be less than 40% of the largest payment. Tax 2011 Provides for total payments that generally exceed the normal retail price of the property plus interest. Tax 2011 Provides for total payments that do not exceed $10,000 for each item of property. Tax 2011 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. Tax 2011 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. Tax 2011 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. Tax 2011 Motorsports entertainment complex. Tax 2011   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. Tax 2011 The events must be open to the public for the price of admission. Tax 2011 Qualified smart electric grid system. Tax 2011   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. Tax 2011 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. Tax 2011 Retail motor fuels outlet. Tax 2011   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. Tax 2011 It is not larger than 1,400 square feet. Tax 2011 50% or more of the gross revenues generated from the property are derived from petroleum sales. Tax 2011 50% or more of the floor space in the property is devoted to petroleum marketing sales. Tax 2011 A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. Tax 2011 Qualified leasehold improvement property. Tax 2011    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. Tax 2011   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. Tax 2011 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. Tax 2011 Examples include the following. Tax 2011 A complete liquidation of a subsidiary. Tax 2011 A transfer to a corporation controlled by the transferor. Tax 2011 An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Tax 2011 Qualified restaurant property. Tax 2011   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. Tax 2011 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. Tax 2011 Qualified smart electric meter. Tax 2011   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. Tax 2011 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. Tax 2011 Natural gas gathering line and electric transmission property. Tax 2011   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. Tax 2011 The original use of the property must have begun with you after April 11, 2005. Tax 2011 Original use means the first use to which the property is put, whether or not by you. Tax 2011 Therefore, property used by any person before April 12, 2005, is not original use. Tax 2011 Original use includes additional capital expenditures you incurred to recondition or rebuild your property. Tax 2011 However, original use does not include the cost of reconditioned or rebuilt property you acquired. Tax 2011 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. Tax 2011 The property must not be placed in service under a binding contract in effect before April 12, 2005. Tax 2011 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. Tax 2011 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. Tax 2011 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. Tax 2011 The placed in service date for your property is the date the property is ready and available for a specific use. Tax 2011 It is therefore not necessarily the date it is first used. Tax 2011 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. Tax 2011 See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. Tax 2011 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. Tax 2011 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 . Tax 2011 Reduce that amount by any credits and deductions allocable to the property. Tax 2011 The following are examples of some credits and deductions that reduce basis. Tax 2011 Any deduction for section 179 property. Tax 2011 Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. Tax 2011 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. Tax 2011 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. Tax 2011 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 . Tax 2011 Any deduction for removal of barriers to the disabled and the elderly. Tax 2011 Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Tax 2011 Any special depreciation allowance. Tax 2011 Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Tax 2011 For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Tax 2011 Enter the basis for depreciation under column (c) in Part III of Form 4562. Tax 2011 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 . Tax 2011 Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Tax 2011 It is determined based on the depreciation system (GDS or ADS) used. Tax 2011 Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. Tax 2011 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. Tax 2011 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. Tax 2011 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. Tax 2011 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. Tax 2011 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. Tax 2011 431. Tax 2011 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). Tax 2011 The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. Tax 2011 Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. Tax 2011 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). Tax 2011 Office in the home. Tax 2011   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. Tax 2011 5 years if you began using it for business before May 13, 1993). Tax 2011 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. Tax 2011 5 years. Tax 2011 See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. Tax 2011 Home changed to rental use. Tax 2011   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. Tax 2011 5 years. Tax 2011 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. Tax 2011 The following table shows these shorter recovery periods. Tax 2011 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 . Tax 2011 Use this chart to find the correct percentage table to use for qualified Indian reservation property. Tax 2011 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. Tax 2011   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. Tax 2011 You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. Tax 2011 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. Tax 2011   The following property is not qualified property. Tax 2011 Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. Tax 2011 Property acquired directly or indirectly from a related person. Tax 2011 Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. Tax 2011 These activities are defined in section 4 of the Indian Regulatory Act (25 U. Tax 2011 S. Tax 2011 C. Tax 2011 2703). Tax 2011 Any property you must depreciate under ADS. Tax 2011 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). Tax 2011 Qualified infrastructure property. Tax 2011   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. Tax 2011 Qualified infrastructure property is property that meets all the following rules. Tax 2011 It is qualified property, as defined earlier, except that it is outside the reservation. Tax 2011 It benefits the tribal infrastructure. Tax 2011 It is available to the general public. Tax 2011 It is placed in service in connection with the active conduct of a trade or business within a reservation. Tax 2011 Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. Tax 2011 Related person. Tax 2011   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. Tax 2011 Indian reservation. Tax 2011   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. Tax 2011 S. Tax 2011 C. Tax 2011 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. Tax 2011 S. Tax 2011 C. Tax 2011 1903(10)). Tax 2011 Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. Tax 2011 For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. Tax 2011 Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. Tax 2011 The following table shows some of the ADS recovery periods. Tax 2011 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. Tax 2011 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 . Tax 2011 Tax-exempt use property subject to a lease. Tax 2011   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. Tax 2011 Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. Tax 2011 See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. Tax 2011 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. Tax 2011 The recovery period begins on the later of the following dates. Tax 2011 The date you place the addition or improvement in service. Tax 2011 The date you place in service the property to which you made the addition or improvement. Tax 2011 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). Tax 2011 Example. Tax 2011 You own a rental home that you have been renting out since 1981. Tax 2011 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. Tax 2011 Under GDS, the property class for the addition is residential rental property and its recovery period is 27. Tax 2011 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. Tax 2011 Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Tax 2011 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. Tax 2011 The mid-month convention. Tax 2011   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. Tax 2011   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. Tax 2011 This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. Tax 2011   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. Tax 2011 The mid-quarter convention. Tax 2011   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. Tax 2011   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. Tax 2011 This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. Tax 2011   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. Tax 2011    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. Tax 2011 However, it does not reflect any reduction in basis for any special depreciation allowance. Tax 2011 The half-year convention. Tax 2011   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. Tax 2011   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. Tax 2011 This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. Tax 2011   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. Tax 2011 Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Tax 2011 The 200% declining balance method over a GDS recovery period. Tax 2011 The 150% declining balance method over a GDS recovery period. Tax 2011 The straight line method over a GDS recovery period. Tax 2011 The straight line method over an ADS recovery period. Tax 2011 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. Tax 2011 If you made this election, continue to use the same method and recovery period for that property. Tax 2011 Table 4–1 lists the types of property you can depreciate under each method. Tax 2011 It also gives a brief explanation of the method, including any benefits that may apply. Tax 2011 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. Tax 2011 You can depreciate real property using the straight line method under either GDS or ADS. Tax 2011 Fruit or nut trees and vines. Tax 2011   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. Tax 2011 ADS required for some farmers. Tax 2011   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. Tax 2011 You must use ADS for all property you place in service in any year the election is in effect. Tax 2011 See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. Tax 2011 Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. Tax 2011 You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Tax 2011 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). Tax 2011 Attach the election to the amended return and write “Filed pursuant to section 301. Tax 2011 9100-2” on the election statement. Tax 2011 File the amended return at the same address you filed the original return. Tax 2011 Once you make the election, you cannot change it. Tax 2011 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. Tax 2011 However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. Tax 2011 150% election. Tax 2011   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. Tax 2011 Make the election by entering “150 DB” under column (f) in Part III of Form 4562. Tax 2011 Straight line election. Tax 2011   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. Tax 2011 Make the election by entering  “S/L” under column (f) in Part III of Form 4562. Tax 2011 Election of ADS. Tax 2011   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. Tax 2011 ADS uses the straight line method of depreciation over fixed ADS recovery periods. Tax 2011 Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. Tax 2011   Make the election by completing line 20 in Part III of Form 4562. Tax 2011 Farm property. Tax 2011   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. Tax 2011 The straight line method over a GDS recovery period. Tax 2011 The straight line method over an ADS recovery period. Tax 2011 Table 4-1. Tax 2011 Depreciation Methods Note. Tax 2011 The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Tax 2011 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. Tax 2011 S. Tax 2011  • 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. Tax 2011 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. Tax 2011 Then, you are ready to figure your depreciation deduction. Tax 2011 You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. Tax 2011 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. Tax 2011 These percentage tables are in Appendix A near the end of this publication. Tax 2011 Which table to use. Tax 2011    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. Tax 2011 The percentage tables immediately follow the guide. Tax 2011 Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. Tax 2011 You must apply the rates in the percentage tables to your property's unadjusted basis. Tax 2011 You cannot use the percentage tables for a short tax year. Tax 2011 See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. Tax 2011 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. Tax 2011 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. Tax 2011 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. Tax 2011 Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. Tax 2011   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. Tax 2011 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. Tax 2011 See Figuring the Deduction Without Using the Tables, later. Tax 2011 Basis adjustment due to casualty loss. Tax 2011   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Tax 2011 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. Tax 2011 See Figuring the Deduction Without Using the Tables, later. Tax 2011 Example. Tax 2011 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. Tax 2011 It cost $39,000 and she elected a section 179 deduction of $24,000. Tax 2011 She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. Tax 2011 Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). Tax 2011 She figured her MACRS depreciation deduction using the percentage tables. Tax 2011 For 2012, her MACRS depreciation deduction was $268. Tax 2011 In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. Tax 2011 She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. Tax 2011 Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. Tax 2011 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. Tax 2011 She must now figure her depreciation for 2013 without using the percentage tables. Tax 2011 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. Tax 2011 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. Tax 2011 However, you do reduce your original basis by other amounts, including the following. Tax 2011 Any amortization taken on the property. Tax 2011 Any section 179 deduction claimed. Tax 2011 Any special depreciation allowance taken on the property. Tax 2011 For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. Tax 2011 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. Tax 2011 MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Tax 2011 Use a separate worksheet for each item of property. Tax 2011 Then, use the information from this worksheet to prepare Form 4562. Tax 2011 Do not use this worksheet for automobiles. Tax 2011 Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. Tax 2011 MACRS Worksheet Part I   1. Tax 2011 MACRS system (GDS or ADS)   2. Tax 2011 Property class   3. Tax 2011 Date placed in service   4. Tax 2011 Recovery period   5. Tax 2011 Method and convention   6. Tax 2011 Depreciation rate (from tables)   Part II   7. Tax 2011 Cost or other basis* $     8. Tax 2011 Business/investment use   %   9. Tax 2011 Multiply line 7 by line 8   $ 10. Tax 2011 Total claimed for section 179 deduction and other items   $ 11. Tax 2011 Subtract line 10 from line 9. Tax 2011 This is your tentative basis for depreciation   $ 12. Tax 2011 Multiply line 11 by . Tax 2011 50 if the 50% special depreciation allowance applies. Tax 2011 This is your special depreciation allowance. Tax 2011 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. Tax 2011 Subtract line 12 from line 11. Tax 2011 This is your basis for depreciation     14. Tax 2011 Depreciation rate (from line 6)     15. Tax 2011 Multiply line 13 by line 14. Tax 2011 This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. Tax 2011 The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. Tax 2011 Example. Tax 2011 You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. Tax 2011 You use the furniture only for business. Tax 2011 This is the only property you placed in service this year. Tax 2011 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. Tax 2011 You use GDS and the half-year convention to figure your depreciation. Tax 2011 You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. Tax 2011 Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. Tax 2011 You figure your depreciation deduction using the MACRS worksheet as follows. Tax 2011 MACRS Worksheet Part I 1. Tax 2011 MACRS system (GDS or ADS) GDS 2. Tax 2011 Property class 7-year 3. Tax 2011 Date placed in service 8/11/13 4. Tax 2011 Recovery period 7-Year 5. Tax 2011 Method and convention 200%DB/Half-Year 6. Tax 2011 Depreciation rate (from tables) . Tax 2011 1429 Part II 7. Tax 2011 Cost or other basis* $10,000     8. Tax 2011 Business/investment use 100 %   9. Tax 2011 Multiply line 7 by line 8   $10,000 10. Tax 2011 Total claimed for section 179 deduction and other items   -0- 11. Tax 2011 Subtract line 10 from line 9. Tax 2011 This is your tentative basis for depreciation   $10,000 12. Tax 2011 Multiply line 11 by . Tax 2011 50 if the 50% special depreciation allowance applies. Tax 2011 This is your special depreciation allowance. Tax 2011 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. Tax 2011 Subtract line 12 from line 11. Tax 2011 This is your basis for depreciation   $10,000 14. Tax 2011 Depreciation rate (from line 6)   . Tax 2011 1429 15. Tax 2011 Multiply line 13 by line 14. Tax 2011 This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. Tax 2011 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. Tax 2011 Year   Basis Percentage Deduction 2014 $ 10,000 24. Tax 2011 49%   $2,449   2015   10,000 17. Tax 2011 49   1,749   2016   10,000 12. Tax 2011 49   1,249   2017   10,000 8. Tax 2011 93   893   2018   10,000 8. Tax 2011 92   892   2019   10,000 8. Tax 2011 93   893   2020   10,000 4. Tax 2011 46   446   Examples The following examples are provided to show you how to use the percentage tables. Tax 2011 In both examples, assume the following. Tax 2011 You use the property only for business. Tax 2011 You use the calendar year as your tax year. Tax 2011 You use GDS for all the properties. Tax 2011 Example 1. Tax 2011 You bought a building and land for $120,000 and placed it in service on March 8. Tax 2011 The sales contract showed that the building cost $100,000 and the land cost $20,000. Tax 2011 It is nonresidential real property. Tax 2011 The building's unadjusted basis is its original cost, $100,000. Tax 2011 You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. Tax 2011 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. Tax 2011 Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. Tax 2011 033%   $2,033   2nd   100,000 2. Tax 2011 564   2,564   3rd   100,000 2. Tax 2011 564   2,564   Example 2. Tax 2011 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. Tax 2011 You placed the machine in service in January, the furniture in September, and the computer in October. Tax 2011 You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. Tax 2011 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. Tax 2011 The total bases of all property you placed in service during the year is $10,000. Tax 2011 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. Tax 2011 Therefore, you must use the mid-quarter convention for all three items. Tax 2011 You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. Tax 2011 The machine is 7-year property placed in service in the first quarter, so you use Table A-2. Tax 2011 The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. Tax 2011 Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. Tax 2011 Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. Tax 2011 Year Property Basis Percentage Deduction 1st Machine $4,000 25. Tax 2011 00 $1,000   2nd Machine 4,000 21. Tax 2011 43 857   1st Furniture 1,000 10. Tax 2011 71 107   2nd Furniture 1,000 25. Tax 2011 51 255   1st Computer 5,000 5. Tax 2011 00 250   2nd Computer 5,000 38. Tax 2011 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. Tax 2011 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. Tax 2011 After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. Tax 2011 Half-year convention used. Tax 2011   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. Tax 2011 Mid-quarter convention used. Tax 2011   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. Tax 2011 Quarter Percentage First 12. Tax 2011 5% Second 37. Tax 2011 5 Third 62. Tax 2011 5 Fourth 87. Tax 2011 5 Example. Tax 2011 On December 2, 2010, you placed in service an item of 5-year property costing $10,000. Tax 2011 You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Tax 2011 Your unadjusted basis for the property was $10,000. Tax 2011 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. Tax 2011 Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. Tax 2011 Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. Tax 2011 80% of $10,000). Tax 2011 You disposed of the property on April 6, 2013. Tax 2011 To determine your depreciation deduction for 2013, first figure the deduction for the full year. Tax 2011 This is $1,368 (13. Tax 2011 68% of $10,000). Tax 2011 April is in the second quarter of the year, so you multiply $1,368 by 37. Tax 2011 5% to get your depreciation deduction of $513 for 2013. Tax 2011 Mid-month convention used. Tax 2011   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. Tax 2011 The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. Tax 2011 The denominator is 12. Tax 2011 Example. Tax 2011 On July 2, 2011, you purchased and placed in service residential rental property. Tax 2011 The property cost $100,000, not including the cost of land. Tax 2011 You used Table A-6 to figure your MACRS depreciation for this property. Tax 2011 You sold the property on March 2, 2013. Tax 2011 You file your tax return based on the calendar year. Tax 2011 A full year of depreciation for 2013 is $3,636. Tax 2011 This is $100,000 multiplied by . Tax 2011 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . Tax 2011 You then apply the mid-month convention for the 2½ months of use in 2013. Tax 2011 Treat the month of disposition as one-half month of use. Tax 2011 Multiply $3,636 by the fraction, 2. Tax 2011 5 over 12, to get your 2013 depreciation deduction of $757. Tax 2011 50. Tax 2011 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. Tax 2011 Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. Tax 2011 Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. Tax 2011 Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. Tax 2011 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. Tax 2011 The straight line method is explained later. Tax 2011 You figure depreciation for the year you place property in service as follows. Tax 2011 Multiply your adjusted basis in the property by the declining balance rate. Tax 2011 Apply the applicable convention. Tax 2011 You figure depreciation for all other years (before the year you switch to the straight line method) as follows. Tax 2011 Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. Tax 2011 Multiply this new adjusted basis by the same declining balance rate used in earlier years. Tax 2011 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. Tax 2011 Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. Tax 2011 Declining balance rate. Tax 2011   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. Tax 2011 For example, for 3-year property depreciated using the 200% declining balance method, divide 2. Tax 2011 00 (200%) by 3 to get 0. Tax 2011 6667, or a 66. Tax 2011 67% declining balance rate. Tax 2011 For 15-year property depreciated using the 150% declining balance method, divide 1. Tax 2011 50 (150%) by 15 to get 0. Tax 2011 10, or a 10% declining balance rate. Tax 2011   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. Tax 2011 Property Class Method Declining Balance Rate Year 3-year 200% DB 66. Tax 2011 667% 3rd 5-year 200% DB 40. Tax 2011 0 4th 7-year 200% DB 28. Tax 2011 571 5th 10-year 200% DB 20. Tax 2011 0 7th 15-year 150% DB 10. Tax 2011 0 7th 20-year 150% DB 7. Tax 2011 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. Tax 2011 You must use the applicable convention in the year you place the property in service and the year you dispose of the property. Tax 2011 You figure depreciation for the year you place property in service as follows. Tax 2011 Multiply your adjusted basis in the property by the straight line rate. Tax 2011 Apply the applicable convention. Tax 2011 You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. Tax 2011 Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). Tax 2011 Determine the depreciation rate for the year. Tax 2011 Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). Tax 2011 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. Tax 2011 Straight line rate. Tax 2011   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. Tax 2011 When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. Tax 2011 If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. Tax 2011 0 (100%). Tax 2011 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. Tax 2011 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. Tax 2011 See Straight line rate in the previous discussion. Tax 2011 Use the applicable convention as explained in the following discussions. Tax 2011 Half-year convention. Tax 2011   If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. Tax 2011 You deduct a full year of depreciation for any other year during the recovery period. Tax 2011   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. Tax 2011 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. Tax 2011 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. Tax 2011 Mid-quarter convention. Tax 2011   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. Tax 2011   A quarter of a full 12-month tax year is a period of 3 months. Tax 2011 The first quarter in a year begins on the first day of the tax year. Tax 2011 The second quarter begins on the first day of the fourth month of the tax year. Tax 2011 The third quarter begins on the first day of the seventh month of the tax year. Tax 2011 The fourth quarter begins on the first day of the tenth month of the tax year. Tax 2011 A calendar year is divided into the following quarters. Tax 2011 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. Tax 2011 Quarter Percentage First 87. Tax 2011 5% Second 62. Tax 2011 5 Third 37. Tax 2011 5 Fourth 12. Tax 2011 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. Tax 2011 Quarter Percentage First 12. Tax 2011 5% Second 37. Tax 2011 5 Third 62. Tax 2011 5 Fourth 87. Tax 2011 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. Tax 2011 Mid-month convention. Tax 2011   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. Tax 2011 Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. Tax 2011 The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. Tax 2011 5). Tax 2011 The denominator is 12. Tax 2011   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. Tax 2011 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. Tax 2011 Example. Tax 2011 You use the calendar year and place nonresidential real property in service in August. Tax 2011 The property is in service 4 full months (September, October, November, and December). Tax 2011 Your numerator is 4. Tax 2011 5 (4 full months plus 0. Tax 2011 5). Tax 2011 You multiply the depreciation for a full year by 4. Tax 2011 5/12, or 0. Tax 2011 375. Tax 2011 Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. Tax 2011 Figures are rounded for purposes of the examples. Tax 2011 Assume for all the examples that you use a calendar year as your tax year. Tax 2011 Example 1—200% DB method and half-year convention. Tax 2011 In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. Tax 2011 You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. Tax 2011 You use GDS and the 200% declining balance (DB) method to figure your depreciation. Tax 2011 When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. Tax 2011 You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. Tax 2011 First year. Tax 2011 You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). Tax 2011 The result is 40%. Tax 2011 You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. Tax 2011 You apply the half-year convention by dividing the result ($400) by 2. Tax 2011 Depreciation for the first year under the 200% DB method is $200. Tax 2011 You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. Tax 2011 The result is 20%. Tax 2011 You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. Tax 2011 You apply the half-year convention by dividing the result ($200) by 2. Tax 2011 Depreciation for the first year under the SL method is $100. Tax 2011 The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. Tax 2011 Second year. Tax 2011 You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). Tax 2011 You multiply the result ($800) by the DB rate (40%). Tax 2011 Depreciation for the second year under the 200% DB method is $320. Tax 2011 You figure the SL depreciation rate by dividing 1 by 4. Tax 2011 5, the number of years remaining in the recovery period. Tax 2011 (Based on the half-year convention, you used only half a year of the recovery period in the first year. Tax 2011 ) You multiply the reduced adjusted basis ($800) by the result (22. Tax 2011 22%). Tax 2011 Depreciation under the SL method for the second year is $178. Tax 2011 The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. Tax 2011 Third year. Tax 2011 You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). Tax 2011 You multiply the result ($480) by the DB rate (40%). Tax 2011 Depreciation for the third year under the 200% DB method is $192. Tax 2011 You figure the SL depreciation rate by dividing 1 by 3. Tax 2011 5. Tax 2011 You multiply the reduced adjusted basis ($480) by the result (28. Tax 2011 57%). Tax 2011 Depreciation under the SL method for the third year is $137. Tax 2011 The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. Tax 2011 Fourth year. Tax 2011 You reduce the adjusted basis ($480) by the de