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Military TaxMontana State Tax Form 20112012 Federal Income Tax FormsTurbotax For Students FreeState Tax ReturnState Taxes2012 TaxWww Freefilefillableforms Com Ffa Freefileforms HtmFederal Form 1040xHow Do You Amend A Tax Return1040 Ez FilingFree E File 20111040ez Form For 2012Free Online Amended Tax ReturnH&r Block Income Tax2011 TaxFree 2012 Tax Return SoftwareAmend 2008 Taxes1040x Form 2014Free Tax2014 State Tax FormsWww Irs GovTurbotax Deluxe Federal E File State 2010 Old VersionFile 2009 Tax Return Online FreeFree Efile 2012Irs E File 2012Free Tax Filing For Low Income Families1040ez Tax TablesTax Preparer Software1040nrTax Act 2012 Login Return UserHow To Fill Out A 1040xAarp Org TaxaideFree 2010 Tax AmendmentEfile ExtensionNonresidents State Tax FormsTurbotax Free EditionTaxslayer For MilitaryFree Tax E FileWww.irs.gov/1040x

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Taxes online free Publication 501 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. Taxes online free Tax questions. Taxes online free Useful Items - You may want to see: What's New Who must file. Taxes online free   In some cases, the amount of income you can receive before you must file a tax return has increased. Taxes online free Table 1 shows the filing requirements for most taxpayers. Taxes online free Exemption amount. Taxes online free  The amount you can deduct for each exemption has increased. Taxes online free It was $3,800 for 2012. Taxes online free It is $3,900 for 2013. Taxes online free Exemption phaseout. Taxes online free  You lose at least part of the benefit of your exemptions if your adjusted gross income is above a certain amount. Taxes online free For 2013, the phaseout begins at $150,000 for married individuals filing separate returns; $250,000 for single individuals; $275,000 for heads of household; and $300,000 for married individuals filing joint returns or qualifying widow(er)s. Taxes online free See Phaseout of Exemptions , later. Taxes online free Standard deduction increased. Taxes online free   The standard deduction for some taxpayers who do not itemize their deductions on Schedule A of Form 1040 is higher for 2013 than it was for 2012. Taxes online free The amount depends on your filing status. Taxes online free You can use the 2013 Standard Deduction Tables near the end of this publication to figure your standard deduction. Taxes online free Same-sex marriages. Taxes online free . Taxes online free  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. Taxes online free See Same-sex marriage under Marital Status, later. Taxes online free If you meet certain requirements, you may be able to file amended returns to change your filing status for some earlier years. Taxes online free For details on filing amended returns, see Joint Return After Separate Returns . Taxes online free Reminders Future developments. Taxes online free  Information about any future developments affecting Publication 501 (such as legislation enacted after we release it) will be posted at www. Taxes online free irs. Taxes online free gov/pub501. Taxes online free Taxpayer identification number for aliens. Taxes online free   If you are a nonresident or resident alien and you do not have and are not eligible to get a social security number (SSN), you must apply for an individual taxpayer identification number (ITIN). Taxes online free Your spouse also may need an ITIN if he or she does not have and is not eligible to get an SSN. Taxes online free See Form W-7, Application for IRS Individual Taxpayer Identification Number. Taxes online free Also, see Social Security Numbers for Dependents , later. Taxes online free Photographs of missing children. Taxes online free   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Taxes online free Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Taxes online free You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Taxes online free Introduction This publication discusses some tax rules that affect every person who may have to file a federal income tax return. Taxes online free It answers some basic questions: who must file; who should file; what filing status to use; how many exemptions to claim; and the amount of the standard deduction. Taxes online free Who Must File explains who must file an income tax return. Taxes online free If you have little or no gross income, reading this section will help you decide if you have to file a return. Taxes online free Who Should File helps you decide if you should file a return, even if you are not required to do so. Taxes online free Filing Status helps you determine which filing status to use. Taxes online free Filing status is important in determining whether you must file a return and whether you may claim certain deductions and credits. Taxes online free It also helps determine your standard deduction and tax rate. Taxes online free Exemptions, which reduce your taxable income, are discussed in Exemptions . Taxes online free Exemptions for Dependents explains the difference between a qualifying child and a qualifying relative. Taxes online free Other topics include the social security number requirement for dependents, the rules for multiple support agreements, and the rules for divorced or separated parents. Taxes online free Phaseout of Exemptions explains how to determine whether you must reduce the dollar amount of exemptions you claim and, if so, the amount of the reduction. Taxes online free Standard Deduction gives the rules and dollar amounts for the standard deduction — a benefit for taxpayers who do not itemize their deductions. Taxes online free This section also discusses the standard deduction for taxpayers who are blind or age 65 or older, as well as special rules that limit the standard deduction available to dependents. Taxes online free In addition, this section helps you decide whether you would be better off taking the standard deduction or itemizing your deductions. Taxes online free How To Get Tax Help explains how to get tax help from the IRS. Taxes online free This publication is for U. Taxes online free S. Taxes online free citizens and resident aliens only. Taxes online free If you are a resident alien for the entire year, you must follow the same tax rules that apply to U. Taxes online free S. Taxes online free citizens. Taxes online free The rules to determine if you are a resident or nonresident alien are discussed in chapter 1 of Publication 519, U. Taxes online free S. Taxes online free Tax Guide for Aliens. Taxes online free Nonresident aliens. Taxes online free    If you were a nonresident alien at any time during the year, the rules and tax forms that apply to you may be different from those that apply to U. Taxes online free S. Taxes online free citizens. Taxes online free See Publication 519. Taxes online free Comments and suggestions. Taxes online free    We welcome your comments about this publication and your suggestions for future editions. Taxes online free   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Taxes online free NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Taxes online free Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Taxes online free   You can send your comments from www. Taxes online free irs. Taxes online free gov/formspubs. Taxes online free Click on “More Information” and then on “Comment on Tax Forms and Publications. Taxes online free ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Taxes online free Ordering forms and publications. Taxes online free    Visit www. Taxes online free irs. Taxes online free gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Taxes online free Internal Revenue Service 1201 N. Taxes online free Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Taxes online free    If you have a tax question, check the information available on IRS. Taxes online free gov or call 1-800-829-1040. Taxes online free We cannot answer tax questions sent to either of the above addresses. Taxes online free Useful Items - You may want to see: Publication 559 Survivors, Executors, and Administrators 929 Tax Rules for Children and Dependents Form (and Instructions) 1040X Amended U. Taxes online free S. Taxes online free Individual Income Tax Return 2848 Power of Attorney and Declaration of Representative 8332 Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent 8814 Parents' Election To Report Child's Interest and Dividends Prev  Up  Next   Home   More Online Publications
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Understanding Your CP187 Notice

You received this notice to remind you of the amount you owe in tax, penalty and interest.


What you need to do

  • Read your notice carefully ― it will explain how much money you owe on your taxes.

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Answers to Common Questions

  • Am I charged interest on the money I owe?
    Yes, interest accrues on your unpaid balance until you pay it in full.

  • Do I receive a penalty if I cannot pay the full amount?
    Yes, you receive a late payment penalty.

  • What happens if I cannot pay the full amount I owe?
    You can arrange to make a payment plan with us if you cannot pay the full amount you owe.

  • How can I set up a payment plan?
    Call the toll-free number listed on the top right corner of your notice to discuss payment options or learn more about payment arrangements here.

  • What’s a Federal Tax Deposit Coupon Book? Do I need one?
    The coupon book allows you to make deposits at your bank of various business taxes such as income tax withholding, Social Security tax and Medicare tax collected from your employees’ pay. You can also make your tax liability deposits electronically through the Electronic Federal Tax Deposit System. If your employment taxes are less than $2500 each quarter, you can submit your employment tax payment with your Form 941, Employer’s QUARTERLY Federal Tax Return.

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  • Tips for next year

    Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions for which you may qualify. In many cases, you can file free. Learn more about how to file electronically here.


    Understanding your notice

    Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

    Notice CP187, Page 1

    Notice CP187, Page 2

    Notice CP187, Page 3

Page Last Reviewed or Updated: 09-Dec-2013

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

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Taxes online free 2. Taxes online free   Depreciation of Rental Property Table of Contents The BasicsWhat Rental Property Can Be Depreciated? When Does Depreciation Begin and End? Depreciation Methods Basis of Depreciable Property Claiming the Special Depreciation Allowance MACRS DepreciationDepreciation Systems Property Classes Under GDS Recovery Periods Under GDS Conventions Figuring Your Depreciation Deduction Figuring MACRS Depreciation Under ADS Claiming the Correct Amount of Depreciation You recover the cost of income producing property through yearly tax deductions. Taxes online free You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Taxes online free Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Taxes online free You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. Taxes online free You can deduct depreciation only on the part of your property used for rental purposes. Taxes online free Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Taxes online free You may have to use Form 4562 to figure and report your depreciation. Taxes online free See Which Forms To Use in chapter 3. Taxes online free Also see Publication 946. Taxes online free Section 179 deduction. Taxes online free   The section 179 deduction is a means of recovering part or all of the cost of certain qualifying property in the year you place the property in service. Taxes online free This deduction is not allowed for property used in connection with residential rental property. Taxes online free See chapter 2 of Publication 946. Taxes online free Alternative minimum tax (AMT). Taxes online free   If you use accelerated depreciation, you may be subject to the AMT. Taxes online free Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Taxes online free   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. Taxes online free However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). Taxes online free   To find out if you are subject to the AMT, see the Instructions for Form 6251. Taxes online free The Basics The following section discusses the information you will need to have about the rental property and the decisions to be made before figuring your depreciation deduction. Taxes online free What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. Taxes online free You own the property. Taxes online free You use the property in your business or income-producing activity (such as rental property). Taxes online free The property has a determinable useful life. Taxes online free The property is expected to last more than one year. Taxes online free Property you own. Taxes online free   To claim depreciation, you usually must be the owner of the property. Taxes online free You are considered as owning property even if it is subject to a debt. Taxes online free Rented property. Taxes online free   Generally, if you pay rent for property, you cannot depreciate that property. Taxes online free Usually, only the owner can depreciate it. Taxes online free However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. Taxes online free See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Taxes online free Cooperative apartments. Taxes online free   If you are a tenant-stockholder in a cooperative housing corporation and rent your cooperative apartment to others, you can deduct depreciation on your stock in the corporation. Taxes online free See chapter 4, Special Situations. Taxes online free Property having a determinable useful life. Taxes online free   To be depreciable, your property must have a determinable useful life. Taxes online free This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Taxes online free What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. Taxes online free This includes land and certain excepted property. Taxes online free Land. Taxes online free   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Taxes online free But if it does, the loss is accounted for upon disposition. Taxes online free The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Taxes online free   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Taxes online free These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Taxes online free Example. Taxes online free You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. Taxes online free Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. Taxes online free If you replace the house, you would have to destroy the bushes and trees right next to it. Taxes online free These bushes and trees are closely associated with the house, so they have a determinable useful life. Taxes online free Therefore, you can depreciate them. Taxes online free Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Taxes online free Excepted property. Taxes online free   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. Taxes online free Property placed in service and disposed of (or taken out of business use) in the same year. Taxes online free Equipment used to build capital improvements. Taxes online free You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Taxes online free For more information, see chapter 1 of Publication 946. Taxes online free When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. Taxes online free You stop depreciating it either when you have fully recovered your cost or other basis, or when you retire it from service, whichever happens first. Taxes online free Placed in Service You place property in service in a rental activity when it is ready and available for a specific use in that activity. Taxes online free Even if you are not using the property, it is in service when it is ready and available for its specific use. Taxes online free Example 1. Taxes online free On November 22 of last year, you purchased a dishwasher for your rental property. Taxes online free The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. Taxes online free Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. Taxes online free If the appliance had been installed and ready for use when it was delivered in December of last year, it would have been considered placed in service in December, even if it was not actually used until this year. Taxes online free Example 2. Taxes online free On April 6, you purchased a house to use as residential rental property. Taxes online free You made extensive repairs to the house and had it ready for rent on July 5. Taxes online free You began to advertise the house for rent in July and actually rented it beginning September 1. Taxes online free The house is considered placed in service in July when it was ready and available for rent. Taxes online free You can begin to depreciate the house in July. Taxes online free Example 3. Taxes online free You moved from your home in July. Taxes online free During August and September you made several repairs to the house. Taxes online free On October 1, you listed the property for rent with a real estate company, which rented it on December 1. Taxes online free The property is considered placed in service on October 1, the date when it was available for rent. Taxes online free Conversion to business use. Taxes online free   If you place property in service in a personal activity, you cannot claim depreciation. Taxes online free However, if you change the property's use to business or the production of income, you can begin to depreciate it at the time of the change. Taxes online free You place the property in service for business or income-producing use on the date of the change. Taxes online free Example. Taxes online free You bought a house and used it as your personal home several years before you converted it to rental property. Taxes online free Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Taxes online free You can begin to claim depreciation in the year you converted it to rental property because at that time its use changed to the production of income. Taxes online free Idle Property Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). Taxes online free For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent. Taxes online free Cost or Other Basis Fully Recovered You must stop depreciating property when the total of your yearly depreciation deductions equals your cost or other basis of your property. Taxes online free For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. Taxes online free See Basis of Depreciable Property , later. Taxes online free Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Taxes online free You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Taxes online free You sell or exchange the property. Taxes online free You convert the property to personal use. Taxes online free You abandon the property. Taxes online free The property is destroyed. Taxes online free Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. Taxes online free If you placed rental property in service before 1987, you are using one of the following methods. Taxes online free ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. Taxes online free Straight line or declining balance method over the useful life of property placed in service before 1981. Taxes online free See MACRS Depreciation , later, for more information. Taxes online free Rental property placed in service before 2013. Taxes online free   Continue to use the same method of figuring depreciation that you used in the past. Taxes online free Use of real property changed. Taxes online free   Generally, you must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Taxes online free This includes your residence that you changed to rental use. Taxes online free See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. Taxes online free Improvements made after 1986. Taxes online free   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Taxes online free As a result, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Taxes online free For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. Taxes online free This publication discusses MACRS depreciation only. Taxes online free If you need information about depreciating property placed in service before 1987, see Publication 534. Taxes online free Basis of Depreciable Property The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. Taxes online free This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity. Taxes online free If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and credits with respect to the property. Taxes online free Basis and adjusted basis are explained in the following discussions. Taxes online free If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its fair market value when you change it to rental use. Taxes online free See Basis of Property Changed to Rental Use in chapter 4. Taxes online free Cost Basis The basis of property you buy is usually its cost. Taxes online free The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. Taxes online free Your cost also includes amounts you pay for: Sales tax charged on the purchase (but see Exception next), Freight charges to obtain the property, and Installation and testing charges. Taxes online free Exception. Taxes online free   If you deducted state and local general sales taxes as an itemized deduction on Schedule A (Form 1040), do not include those sales taxes as part of your cost basis. Taxes online free Such taxes were deductible before 1987 and after 2003. Taxes online free Loans with low or no interest. Taxes online free   If you buy property on any time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, less the amount considered to be unstated interest. Taxes online free See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Taxes online free Real property. Taxes online free   If you buy real property, such as a building and land, certain fees and other expenses you pay are part of your cost basis in the property. Taxes online free Real estate taxes. Taxes online free   If you buy real property and agree to pay real estate taxes on it that were owed by the seller and the seller does not reimburse you, the taxes you pay are treated as part of your basis in the property. Taxes online free You cannot deduct them as taxes paid. Taxes online free   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. Taxes online free Do not include that amount in your basis in the property. Taxes online free Settlement fees and other costs. Taxes online free   The following settlement fees and closing costs for buying the property are part of your basis in the property. Taxes online free Abstract fees. Taxes online free Charges for installing utility services. Taxes online free Legal fees. Taxes online free Recording fees. Taxes online free Surveys. Taxes online free Transfer taxes. Taxes online free Title insurance. Taxes online free Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Taxes online free   The following are settlement fees and closing costs you cannot include in your basis in the property. Taxes online free Fire insurance premiums. Taxes online free Rent or other charges relating to occupancy of the property before closing. Taxes online free Charges connected with getting or refinancing a loan, such as: Points (discount points, loan origination fees), Mortgage insurance premiums, Loan assumption fees, Cost of a credit report, and Fees for an appraisal required by a lender. Taxes online free   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Taxes online free Assumption of a mortgage. Taxes online free   If you buy property and become liable for an existing mortgage on the property, your basis is the amount you pay for the property plus the amount remaining to be paid on the mortgage. Taxes online free Example. Taxes online free You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. Taxes online free Your basis is $300,000. Taxes online free Separating cost of land and buildings. Taxes online free   If you buy buildings and your cost includes the cost of the land on which they stand, you must divide the cost between the land and the buildings to figure the basis for depreciation of the buildings. Taxes online free The part of the cost that you allocate to each asset is the ratio of the fair market value of that asset to the fair market value of the whole property at the time you buy it. Taxes online free   If you are not certain of the fair market values of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes. Taxes online free Example. Taxes online free You buy a house and land for $200,000. Taxes online free The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. Taxes online free The latest real estate tax assessment on the property was based on an assessed value of $160,000, of which $136,000 was for the house and $24,000 was for the land. Taxes online free You can allocate 85% ($136,000 ÷ $160,000) of the purchase price to the house and 15% ($24,000 ÷ $160,000) of the purchase price to the land. Taxes online free Your basis in the house is $170,000 (85% of $200,000) and your basis in the land is $30,000 (15% of $200,000). Taxes online free Basis Other Than Cost You cannot use cost as a basis for property that you received: In return for services you performed; In an exchange for other property; As a gift; From your spouse, or from your former spouse as the result of a divorce; or As an inheritance. Taxes online free If you received property in one of these ways, see Publication 551 for information on how to figure your basis. Taxes online free Adjusted Basis To figure your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service for business or the production of income. Taxes online free The result of these adjustments to the basis is the adjusted basis. Taxes online free Increases to basis. Taxes online free   You must increase the basis of any property by the cost of all items properly added to a capital account. Taxes online free These include the following. Taxes online free The cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year. Taxes online free Amounts spent after a casualty to restore the damaged property. Taxes online free The cost of extending utility service lines to the property. Taxes online free Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. Taxes online free Additions or improvements. Taxes online free   Add to the basis of your property the amount an addition or improvement actually cost you, including any amount you borrowed to make the addition or improvement. Taxes online free This includes all direct costs, such as material and labor, but does not include your own labor. Taxes online free It also includes all expenses related to the addition or improvement. Taxes online free   For example, if you had an architect draw up plans for remodeling your property, the architect's fee is a part of the cost of the remodeling. Taxes online free Or, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. Taxes online free   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. Taxes online free For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Taxes online free    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. Taxes online free However, see What Rental Property Cannot Be Depreciated, earlier. Taxes online free Assessments for local improvements. Taxes online free   Assessments for items which tend to increase the value of property, such as streets and sidewalks, must be added to the basis of the property. Taxes online free For example, if your city installs curbing on the street in front of your house, and assesses you and your neighbors for its cost, you must add the assessment to the basis of your property. Taxes online free Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. Taxes online free You cannot deduct these items as taxes or depreciate them. Taxes online free    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. Taxes online free Do not add them to your basis in the property. Taxes online free Deducting vs. Taxes online free capitalizing costs. Taxes online free   Do not add to your basis costs you can deduct as current expenses. Taxes online free However, there are certain costs you can choose either to deduct or to capitalize. Taxes online free If you capitalize these costs, include them in your basis. Taxes online free If you deduct them, do not include them in your basis. Taxes online free   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. Taxes online free   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. Taxes online free Decreases to basis. Taxes online free   You must decrease the basis of your property by any items that represent a return of your cost. Taxes online free These include the following. Taxes online free Insurance or other payment you receive as the result of a casualty or theft loss. Taxes online free Casualty loss not covered by insurance for which you took a deduction. Taxes online free Amount(s) you receive for granting an easement. Taxes online free Residential energy credits you were allowed before 1986, or after 2005, if you added the cost of the energy items to the basis of your home. Taxes online free Exclusion from income of subsidies for energy conservation measures. Taxes online free Special depreciation allowance claimed on qualified property. Taxes online free Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Taxes online free If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. Taxes online free   If your rental property was previously used as your main home, you must also decrease the basis by the following. Taxes online free Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. Taxes online free District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. Taxes online free Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. Taxes online free Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. Taxes online free This allowance is figured before you figure your regular depreciation deduction. Taxes online free See Publication 946, chapter 3, for details. Taxes online free Also see the Instructions for Form 4562, Line 14. Taxes online free If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. Taxes online free The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. Taxes online free MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. Taxes online free This section explains how to determine which MACRS depreciation system applies to your property. Taxes online free It also discusses other information you need to know before you can figure depreciation under MACRS. Taxes online free This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. Taxes online free Depreciation Systems MACRS consists of two systems that determine how you depreciate your property—the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Taxes online free You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Taxes online free Excluded Property You cannot use MACRS for certain personal property (such as furniture or appliances) placed in service in your rental property in 2013 if it had been previously placed in service before 1987 when MACRS became effective. Taxes online free In most cases, personal property is excluded from MACRS if you (or a person related to you) owned or used it in 1986 or if your tenant is a person (or someone related to the person) who owned or used it in 1986. Taxes online free However, the property is not excluded if your 2013 deduction under MACRS (using a half-year convention) is less than the deduction you would have under ACRS. Taxes online free For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. Taxes online free Electing ADS If you choose, you can use the ADS method for most property. Taxes online free Under ADS, you use the straight line method of depreciation. Taxes online free The election of ADS for one item in a class of property generally applies to all property in that class that is placed in service during the tax year of the election. Taxes online free However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. Taxes online free If you choose to use ADS for your residential rental property, the election must be made in the first year the property is placed in service. Taxes online free Once you make this election, you can never revoke it. Taxes online free For property placed in service during 2013, you make the election to use ADS by entering the depreciation on Form 4562, Part III, Section C, line 20c. Taxes online free Property Classes Under GDS Each item of property that can be depreciated under MACRS is assigned to a property class, determined by its class life. Taxes online free The property class generally determines the depreciation method, recovery period, and convention. Taxes online free The property classes under GDS are: 3-year property, 5-year property, 7-year property, 10-year property, 15-year property, 20-year property, Nonresidential real property, and Residential rental property. Taxes online free Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. Taxes online free 5-year property. Taxes online free This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. Taxes online free ), automobiles, and light trucks. Taxes online free This class also includes appliances, carpeting, furniture, etc. Taxes online free , used in a residential rental real estate activity. Taxes online free Depreciation on automobiles, other property used for transportation, computers and related peripheral equipment, and property of a type generally used for entertainment, recreation, or amusement is limited. Taxes online free See chapter 5 of Publication 946. Taxes online free 7-year property. Taxes online free This class includes office furniture and equipment (desks, file cabinets, etc. Taxes online free ). Taxes online free This class also includes any property that does not have a class life and that has not been designated by law as being in any other class. Taxes online free 15-year property. Taxes online free This class includes roads, fences, and shrubbery (if depreciable). Taxes online free Residential rental property. Taxes online free This class includes any real property that is a rental building or structure (including a mobile home) for which 80% or more of the gross rental income for the tax year is from dwelling units. Taxes online free It does not include a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis. Taxes online free If you live in any part of the building or structure, the gross rental income includes the fair rental value of the part you live in. Taxes online free The other property classes do not generally apply to property used in rental activities. Taxes online free These classes are not discussed in this publication. Taxes online free See Publication 946 for more information. Taxes online free Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. Taxes online free The recovery periods are generally longer under ADS than GDS. Taxes online free The recovery period of property depends on its property class. Taxes online free Under GDS, the recovery period of an asset is generally the same as its property class. Taxes online free Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. Taxes online free See Table 2-1 for recovery periods of property commonly used in residential rental activities. Taxes online free Qualified Indian reservation property. Taxes online free   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. Taxes online free For more information, see chapter 4 of Publication 946. Taxes online free Additions or improvements to property. Taxes online free   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. Taxes online free   The property class and recovery period of the addition or improvement is the one that would apply to the original property if you had placed it in service at the same time as the addition or improvement. Taxes online free   The recovery period for an addition or improvement to property begins on the later of: The date the addition or improvement is placed in service, or The date the property to which the addition or improvement was made is placed in service. Taxes online free Example. Taxes online free You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. Taxes online free You built an addition onto the house and placed it in service in 2013. Taxes online free You must use MACRS for the addition. Taxes online free Under GDS, the addition is depreciated as residential rental property over 27. Taxes online free 5 years. Taxes online free Table 2-1. Taxes online free MACRS Recovery Periods for Property Used in Rental Activities   MACRS Recovery Period   Type of Property General Depreciation System Alternative Depreciation System   Computers and their peripheral equipment 5 years 5 years   Office machinery, such as: Typewriters Calculators Copiers 5 years 6 years   Automobiles 5 years 5 years   Light trucks 5 years 5 years   Appliances, such as: Stoves Refrigerators 5 years 9 years   Carpets 5 years 9 years   Furniture used in rental property 5 years 9 years   Office furniture and equipment, such as: Desks Files 7 years 10 years   Any property that does not have a class life and that has not been designated by law as being in any other class 7 years 12 years   Roads 15 years 20 years   Shrubbery 15 years 20 years   Fences 15 years 20 years   Residential rental property (buildings or structures) and structural components such as furnaces, waterpipes, venting, etc. Taxes online free 27. Taxes online free 5 years 40 years   Additions and improvements, such as a new roof The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement. Taxes online free   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. Taxes online free 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. Taxes online free Mid-month convention. Taxes online free    A mid-month convention is used for all residential rental property and nonresidential real property. Taxes online free Under this convention, you treat all property placed in service, or disposed of, during any month as placed in service, or disposed of, at the midpoint of that month. Taxes online free Mid-quarter convention. Taxes online free   A mid-quarter convention must be used if the mid-month convention does not apply and the total depreciable basis of MACRS property placed in service in the last 3 months of a tax year (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) is more than 40% of the total basis of all such property you place in service during the year. Taxes online free   Under this convention, you treat all property placed in service, or disposed of, during any quarter of a tax year as placed in service, or disposed of, at the midpoint of the quarter. Taxes online free Example. Taxes online free During the tax year, Tom Martin purchased the following items to use in his rental property. Taxes online free He elects not to claim the special depreciation allowance discussed earlier. Taxes online free A dishwasher for $400 that he placed in service in January. Taxes online free Used furniture for $100 that he placed in service in September. Taxes online free A refrigerator for $800 that he placed in service in October. Taxes online free Tom uses the calendar year as his tax year. Taxes online free The total basis of all property placed in service that year is $1,300. Taxes online free The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). Taxes online free Tom must use the mid-quarter convention instead of the half-year convention for all three items. Taxes online free Half-year convention. Taxes online free    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. Taxes online free 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 that tax year. Taxes online free   If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. Taxes online free You deduct a full year of depreciation for any other year during the recovery period. Taxes online free Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. Taxes online free The deduction is substantially the same both ways. Taxes online free You can either: Actually compute the deduction using the depreciation method and convention that apply over the recovery period of the property, or Use the percentage from the MACRS percentage tables. Taxes online free In this publication we will use the percentage tables. Taxes online free For instructions on how to compute the deduction, see chapter 4 of Publication 946. Taxes online free Residential rental property. Taxes online free   You must use the straight line method and a mid-month convention for residential rental property. Taxes online free In the first year that you claim depreciation for residential rental property, you can claim depreciation only for the number of months the property is in use, and you must use the mid-month convention (explained under Conventions , earlier). Taxes online free 5-, 7-, or 15-year property. Taxes online free   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. Taxes online free However, in limited cases you must use the mid-quarter convention, if it applies. Taxes online free For property in the 15-year class, use the 150% declining balance method and a half-year convention. Taxes online free   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. Taxes online free The choice to use the 150% method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Taxes online free You make this election on Form 4562. Taxes online free In Part III, column (f), enter “150 DB. Taxes online free ” Once you make this election, you cannot change to another method. Taxes online free   If you use either the 200% or 150% declining balance method, you figure your deduction using the straight line method in the first tax year that the straight line method gives you an equal or larger deduction. Taxes online free   You can also choose to use the straight line method with a half-year or mid-quarter convention for 5-, 7-, or 15-year property. Taxes online free The choice to use the straight line method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Taxes online free You elect the straight line method on Form 4562. Taxes online free In Part III, column (f), enter “S/L. Taxes online free ” Once you make this election, you cannot change to another method. Taxes online free MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. Taxes online free The tables show the percentages for the first few years or until the change to the straight line method is made. Taxes online free See Appendix A of Publication 946 for complete tables. Taxes online free The percentages in Tables 2-2a, 2-2b, and 2-2c make the change from declining balance to straight line in the year that straight line will give a larger deduction. Taxes online free If you elect to use the straight line method for 5-, 7-, or 15-year property, or the 150% declining balance method for 5- or 7-year property, use the tables in Appendix A of Publication 946. Taxes online free How to use the percentage tables. Taxes online free   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. Taxes online free   Once you begin using a percentage table to figure depreciation, you must continue to use it for the entire recovery period unless there is an adjustment to the basis of your property for a reason other than: Depreciation allowed or allowable, or An addition or improvement that is depreciated as a separate item of property. Taxes online free   If there is an adjustment for any reason other than (1) or (2), for example, because of a deductible casualty loss, you can no longer use the table. Taxes online free For the year of the adjustment and for the remaining recovery period, figure depreciation using the property's adjusted basis at the end of the year and the appropriate depreciation method, as explained earlier under Figuring Your Depreciation Deduction . Taxes online free See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. Taxes online free Unadjusted basis. Taxes online free   This is the same basis you would use to figure gain on a sale (see Basis of Depreciable Property , earlier), but without reducing your original basis by any MACRS depreciation taken in earlier years. Taxes online free   However, you do reduce your original basis by other amounts claimed on the property, including: Any amortization, Any section 179 deduction, and Any special depreciation allowance. Taxes online free For more information, see chapter 4 of Publication 946. Taxes online free Please click here for the text description of the image. Taxes online free Table 2-2 Tables 2-2a, 2-2b, and 2-2c. Taxes online free   The percentages in these tables take into account the half-year and mid-quarter conventions. Taxes online free Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. Taxes online free Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). Taxes online free If you must use the mid-quarter convention, use the column that corresponds to the calendar year quarter in which you placed the property in service. Taxes online free Example 1. Taxes online free You purchased a stove and refrigerator and placed them in service in June. Taxes online free Your basis in the stove is $600 and your basis in the refrigerator is $1,000. Taxes online free Both are 5-year property. Taxes online free Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. Taxes online free For that year your depreciation deduction is $120 ($600 × . Taxes online free 20) for the stove and $200 ($1,000 × . Taxes online free 20) for the refrigerator. Taxes online free For Year 2, the depreciation percentage is 32%. Taxes online free That year's depreciation deduction will be $192 ($600 × . Taxes online free 32) for the stove and $320 ($1,000 × . Taxes online free 32) for the refrigerator. Taxes online free Example 2. Taxes online free Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. Taxes online free Since the refrigerator was placed in service in the last 3 months of the tax year, and its basis ($1,000) is more than 40% of the total basis of all property placed in service during the year ($1,600 × . Taxes online free 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. Taxes online free Because you placed the refrigerator in service in October, you use the fourth quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 5%. Taxes online free Your depreciation deduction for the refrigerator is $50 ($1,000 x . Taxes online free 05). Taxes online free Because you placed the stove in service in June, you use the second quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 25%. Taxes online free For that year, your depreciation deduction for the stove is $150 ($600 x . Taxes online free 25). Taxes online free Table 2-2d. Taxes online free    Use this table when you are using the GDS 27. Taxes online free 5 year option for residential rental property. Taxes online free Find the row for the month that you placed the property in service. Taxes online free Use the percentages listed for that month to figure your depreciation deduction. Taxes online free The mid-month convention is taken into account in the percentages shown in the table. Taxes online free Continue to use the same row (month) under the column for the appropriate year. Taxes online free Example. Taxes online free You purchased a single family rental house for $185,000 and placed it in service on February 8. Taxes online free The sales contract showed that the building cost $160,000 and the land cost $25,000. Taxes online free Your basis for depreciation is its original cost, $160,000. Taxes online free This is the first year of service for your residential rental property and you decide to use GDS which has a recovery period of 27. Taxes online free 5 years. Taxes online free Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. Taxes online free 182%. Taxes online free That year's depreciation deduction is $5,091 ($160,000 x . Taxes online free 03182). Taxes online free Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. Taxes online free See Appendix B in Publication 946 for other property. Taxes online free If your property is not listed in Appendix B, it is considered to have no class life. Taxes online free Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. Taxes online free Use the mid-month convention for residential rental property and nonresidential real property. Taxes online free For all other property, use the half-year or mid-quarter convention, as appropriate. Taxes online free See Publication 946 for ADS depreciation tables. Taxes online free Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. Taxes online free If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Taxes online free For more information, see Depreciation under Decreases to Basis in Publication 551. Taxes online free If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Taxes online free S. Taxes online free Individual Income Tax Return. Taxes online free If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Taxes online free Filing an amended return. Taxes online free   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Taxes online free You claimed the incorrect amount because of a mathematical error made in any year. Taxes online free You claimed the incorrect amount because of a posting error made in any year. Taxes online free You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Taxes online free You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Taxes online free   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return for the property used in your rental activity. Taxes online free This also occurs when you use the same impermissible method of determining depreciation (for example, using the wrong MACRS recovery period) in two or more consecutively filed tax returns. Taxes online free   If an amended return is allowed, you must file it by the later of the following dates. Taxes online free 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Taxes online free A return filed before an unextended due date is considered filed on that due date. Taxes online free 2 years from the time you paid your tax for that year. Taxes online free Changing your accounting method. Taxes online free   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Taxes online free In some instances, that consent is automatic. Taxes online free For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. Taxes online free Prev  Up  Next   Home   More Online Publications