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Where to file state taxes for free 3. Where to file state taxes for free   Section 501(c)(3) Organizations Table of Contents IntroductionChild care organizations. Where to file state taxes for free Topics - This chapter discusses: Useful Items - You may want to see: Contributions to 501(c)(3) OrganizationsCertain annuity contracts. Where to file state taxes for free Certain contracts held by a charitable remainder trust. Where to file state taxes for free Excise Taxes. Where to file state taxes for free Indoor tanning services. Where to file state taxes for free Application for Recognition of ExemptionPolitical activity. Where to file state taxes for free Private delivery service. Where to file state taxes for free Amendments to organizing documents required. Where to file state taxes for free How to show reasonable action and good faith. Where to file state taxes for free Not acting reasonably and in good faith. Where to file state taxes for free Prejudicing the interest of the Government. Where to file state taxes for free Procedure for requesting extension. Where to file state taxes for free More information. Where to file state taxes for free Organizations Not Required To File Form 1023 Articles of OrganizationOrganizational Test Dedication and Distribution of Assets Educational Organizations and Private SchoolsEducational Organizations Private Schools Organizations Providing InsuranceCharitable Risk Pools Other Section 501(c)(3) OrganizationsCharitable Organizations Religious Organizations Scientific Organizations Literary Organizations Amateur Athletic Organizations Prevention of Cruelty to Children or Animals Private Foundations and Public CharitiesPrivate Foundations Public Charities Private Operating Foundations Lobbying ExpendituresLobbying expenditures. Where to file state taxes for free Grass roots expenditures. Where to file state taxes for free Lobbying nontaxable amount. Where to file state taxes for free Grass roots nontaxable amount. Where to file state taxes for free Organization that no longer qualifies. Where to file state taxes for free Tax on organization. Where to file state taxes for free Tax on managers. Where to file state taxes for free Taxes on organizations. Where to file state taxes for free Taxes on managers. Where to file state taxes for free Political expenditures. Where to file state taxes for free Correction of expenditure. Where to file state taxes for free Introduction An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes. Where to file state taxes for free Religious. Where to file state taxes for free Charitable. Where to file state taxes for free Scientific. Where to file state taxes for free Testing for public safety. Where to file state taxes for free Literary. Where to file state taxes for free Educational. Where to file state taxes for free Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations , later in this chapter). Where to file state taxes for free The prevention of cruelty to children or animals. Where to file state taxes for free To qualify, the organization must be a corporation, community chest, fund, articles of association, or foundation. Where to file state taxes for free A trust is a fund or foundation and will qualify. Where to file state taxes for free However, an individual or a partnership will not qualify. Where to file state taxes for free Examples. Where to file state taxes for free   Qualifying organizations include: Nonprofit old-age homes, Parent-teacher associations, Charitable hospitals or other charitable organizations, Alumni associations, Schools, Chapters of the Red Cross, Boys' or Girls' Clubs, and Churches. Where to file state taxes for free Child care organizations. Where to file state taxes for free   The term educational purposes includes providing for care of children away from their homes if substantially all the care provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. Where to file state taxes for free Instrumentalities. Where to file state taxes for free   A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). Where to file state taxes for free Examples of a qualifying instrumentality might include state schools, universities, or hospitals. Where to file state taxes for free However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. Where to file state taxes for free A state or municipality itself does not qualify for exemption. Where to file state taxes for free Topics - This chapter discusses: Contributions to 501(c)(3) organizations, Applications for recognition of exemption, Articles of Organization, Educational organizations and private schools, Organizations providing insurance, Other section 501(c)(3) organizations, Private foundations and public charities, and Lobbying expenditures. Where to file state taxes for free Useful Items - You may want to see: Forms (and Instructions) 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code See chapter 6 for information about getting publications and forms. Where to file state taxes for free Contributions to 501(c)(3) Organizations Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return. Where to file state taxes for free Fundraising events. Where to file state taxes for free   If the donor receives something of value in return for the contribution, a common occurrence with fundraising efforts, part or all of the contribution may not be deductible. Where to file state taxes for free This may apply to fundraising activities such as charity balls, bazaars, banquets, auctions, concerts, athletic events, and solicitations for membership or contributions when merchandise or benefits are given in return for payment of a specified minimum contribution. Where to file state taxes for free   If the donor receives or expects to receive goods or services in return for a contribution to your organization, the donor cannot deduct any part of the contribution unless the donor intends to, and does, make a payment greater than the fair market value of the goods or services. Where to file state taxes for free If a deduction is allowed, the donor can deduct only the part of the contribution, if any, that is more than the fair market value of the goods or services received. Where to file state taxes for free You should determine in advance the fair market value of any goods or services to be given to contributors and tell them, when you publicize the fundraising event or solicit their contributions, how much is deductible and how much is for the goods or services. Where to file state taxes for free See Disclosure of Quid Pro Quo Contributions in chapter 2. Where to file state taxes for free Exemption application not filed. Where to file state taxes for free   Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. Where to file state taxes for free Separate fund—contributions that are deductible. Where to file state taxes for free   An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) can, if it desires, establish a fund, separate and apart from its other funds, exclusively for religious, charitable, scientific, literary, or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. Where to file state taxes for free   If the fund is organized and operated exclusively for these purposes, it may qualify for exemption as an organization described in section 501(c)(3), and contributions made to it will be deductible as provided by section 170. Where to file state taxes for free A fund with these characteristics must be organized in such a manner as to prohibit the use of its funds upon dissolution, or otherwise, for the general purposes of the organization creating it. Where to file state taxes for free Personal benefit contracts. Where to file state taxes for free   Generally, charitable deductions will not be allowed for a transfer to, or for the use of, a section 501(c)(3) or (c)(4) organization if in connection with the transfer: The organization directly or indirectly pays, or previously paid, a premium on a personal benefit contract for the transferor, or There is an understanding or expectation that anyone will directly or indirectly pay a premium on a personal benefit contract for the transferor. Where to file state taxes for free   A personal benefit contract with respect to the transferor is any life insurance, annuity, or endowment contract, if any direct or indirect beneficiary under the contract is the transferor, any member of the transferor's family, or any other person designated by the transferor. Where to file state taxes for free Certain annuity contracts. Where to file state taxes for free   If an organization incurs an obligation to pay a charitable gift annuity, and the organization purchases an annuity contract to fund the obligation, individuals receiving payments under the charitable gift annuity will not be treated as indirect beneficiaries if the organization owns all of the incidents of ownership under the contract, is entitled to all payments under the contract, and the timing and amount of the payments are substantially the same as the timing and amount of payments to each person under the obligation (as such obligation is in effect at the time of the transfer). Where to file state taxes for free Certain contracts held by a charitable remainder trust. Where to file state taxes for free   An individual will not be considered an indirect beneficiary under a life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust solely by reason of being entitled to the payment if the trust owns all of the incidents of ownership under the contract, and the trust is entitled to all payments under the contract. Where to file state taxes for free Excise tax. Where to file state taxes for free   If the premiums are paid in connection with a transfer for which a deduction is not allowable under the deduction denial rule, without regard to when the transfer to the charitable organization was made, an excise tax will be applied that is equal to the amount of the premiums paid by the organization on any life insurance, annuity, or endowment contract. Where to file state taxes for free The excise tax does not apply if all of the direct and indirect beneficiaries under the contract are organizations. Where to file state taxes for free Excise Taxes. Where to file state taxes for free   A charitable organization liable for excise taxes must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. Where to file state taxes for free Generally, the due date for filing Form 4720 occurs on the fifteenth day of the fifth month following the close of the organization's tax year. Where to file state taxes for free Indoor tanning services. Where to file state taxes for free   If your organization provides an indoor tanning bed service, the ACA imposed a 10% excise tax on services provided after June 30, 2010. Where to file state taxes for free For more information, go to IRS. Where to file state taxes for free gov and select Affordable Care Act Tax Provisions. Where to file state taxes for free Application for Recognition of Exemption This discussion describes certain information to be provided upon application for recognition of exemption by all organizations created for any of the purposes described earlier in this chapter. Where to file state taxes for free For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization , later in this chapter. Where to file state taxes for free See the organization headings that follow for specific information your organization may need to provide. Where to file state taxes for free Form 1023. Where to file state taxes for free   Your organization must file its application for recognition of exemption on Form 1023. Where to file state taxes for free See chapter 1 and the instructions accompanying Form 1023 for the procedures to follow in applying. Where to file state taxes for free Some organizations are not required to file Form 1023. Where to file state taxes for free See Organizations Not Required To File Form 1023, later. Where to file state taxes for free    Additional information to help you complete your application can be found online. Where to file state taxes for free Go to Exemption Requirement – Section 501(c)(3) Organizations and select the link at the bottom of the Web page for step by step help with the application process. Where to file state taxes for free See Exemption Requirements - Section 501(c)(3) Organizations. Where to file state taxes for free   Form 1023 and accompanying statements must show that all of the following are true. Where to file state taxes for free The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc. Where to file state taxes for free ) specified in the introduction to this chapter. Where to file state taxes for free No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. Where to file state taxes for free You must establish that your organization will not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. Where to file state taxes for free The organization will not, as a substantial part of its activities, attempt to influence legislation (unless it elects to come under the provisions allowing certain lobbying expenditures) or participate to any extent in a political campaign for or against any candidate for public office. Where to file state taxes for free See Political activity, next, and Lobbying Expenditures , near the end of this chapter. Where to file state taxes for free Political activity. Where to file state taxes for free   If any of the activities (whether or not substantial) of your organization consist of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization will not qualify for tax-exempt status under section 501(c)(3). Where to file state taxes for free Such participation or intervention includes the publishing or distributing of statements. Where to file state taxes for free   Whether your organization is participating or intervening, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. Where to file state taxes for free Certain voter education activities or public forums conducted in a nonpartisan manner may not be prohibited political activity under section 501(c)(3), while other so-called voter education activities may be prohibited. Where to file state taxes for free Effective date of exemption. Where to file state taxes for free   Most organizations described in this chapter that were organized after October 9, 1969, will not be treated as tax exempt unless they apply for recognition of exemption by filing Form 1023. Where to file state taxes for free These organizations will not be treated as tax exempt for any period before they file Form 1023, unless they file the form within 27 months from the end of the month in which they were organized. Where to file state taxes for free If the organization files the application within this 27-month period, the organization's exemption will be recognized retroactively to the date it was organized. Where to file state taxes for free Otherwise, exemption will be recognized only from the date of receipt. Where to file state taxes for free The date of receipt is the date of the U. Where to file state taxes for free S. Where to file state taxes for free postmark on the cover in which an exemption application is mailed or, if no postmark appears on the cover, the date the application is stamped as received by the IRS. Where to file state taxes for free Private delivery service. Where to file state taxes for free   If a private delivery service designated by the IRS, rather than the U. Where to file state taxes for free S. Where to file state taxes for free Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. Where to file state taxes for free The following private delivery services have been designated by the IRS. Where to file state taxes for free DHL Express (DHL): DHL “Same Day” Service. Where to file state taxes for free Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. Where to file state taxes for free United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Where to file state taxes for free M. Where to file state taxes for free , UPS Worldwide Express Plus, and UPS Worldwide Express. Where to file state taxes for free Amendments to organizing documents required. Where to file state taxes for free   If an organization is required to alter its activities or to make substantive amendments to its organizing document, the ruling or determination letter recognizing its exempt status will be effective as of the date the changes are made. Where to file state taxes for free If only a nonsubstantive amendment is made, exempt status will be effective as of the date it was organized, if the application was filed within the 15-month period, or the date the application was filed. Where to file state taxes for free Extensions of time for filing. Where to file state taxes for free   There are two ways organizations seeking exemption can receive an extension of time for filing Form 1023. Where to file state taxes for free Automatic 12-month extension. Where to file state taxes for free Organizations will receive an automatic 12-month extension if they file an application for recognition of exemption with the IRS within 12 months of the original deadline. Where to file state taxes for free To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301. Where to file state taxes for free 9100-2. Where to file state taxes for free ” Discretionary extensions. Where to file state taxes for free An organization that fails to file a Form 1023 within the extended 12-month period will be granted an extension to file if it submits evidence (including affidavits) to establish that: It acted reasonably and in good faith, and Granting a discretionary extension will not prejudice the interests of the government. Where to file state taxes for free How to show reasonable action and good faith. Where to file state taxes for free   An organization acted reasonably and showed good faith if at least one of the following is true. Where to file state taxes for free The organization requests relief before its failure to file is discovered by the IRS. Where to file state taxes for free The organization failed to file because of intervening events beyond its control. Where to file state taxes for free The organization exercised reasonable diligence (taking into account the complexity of the return or issue and the organization's experience in these matters) but was not aware of the filing requirement. Where to file state taxes for free The organization reasonably relied upon the written advice of the IRS. Where to file state taxes for free The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. Where to file state taxes for free An organization cannot rely on the advice of a tax professional if it knows or should know that he or she is not competent to render advice on filing exemption applications or is not aware of all the relevant facts. Where to file state taxes for free Not acting reasonably and in good faith. Where to file state taxes for free   An organization has not acted reasonably and in good faith under the following circumstances. Where to file state taxes for free It seeks to change a return position for which an accuracy-related penalty has been or could be imposed at the time the relief is requested. Where to file state taxes for free It was informed of the requirement to file and related tax consequences, but chose not to file. Where to file state taxes for free It uses hindsight in requesting relief. Where to file state taxes for free The IRS will not ordinarily grant an extension if specific facts have changed since the due date that makes filing an application advantageous to an organization. Where to file state taxes for free Prejudicing the interest of the Government. Where to file state taxes for free   Prejudice to the interest of the Government results if granting an extension of time to file to an organization results in a lower total tax liability for the years to which the filing applies than would have been the case if the organization had filed on time. Where to file state taxes for free Before granting an extension, the IRS can require the organization requesting it to submit a statement from an independent auditor certifying that no prejudice will result if the extension is granted. Where to file state taxes for free The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. Where to file state taxes for free The IRS can condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government are not prejudiced. Where to file state taxes for free Procedure for requesting extension. Where to file state taxes for free   To request a discretionary extension, an organization must submit (to the IRS address shown on Form 1023 and Notice 1382) the following. Where to file state taxes for free A statement showing the date Form 1023 was required to have been filed and the date it was actually filed. Where to file state taxes for free Any documents relevant to the application. Where to file state taxes for free An affidavit describing in detail the events that led to the failure to apply and to the discovery of that failure. Where to file state taxes for free If the organization relied on a tax professional's advice, the affidavit must describe the engagement and responsibilities of the professional and the extent to which the organization relied on him or her. Where to file state taxes for free This affidavit must be accompanied by a dated declaration, signed by an individual who has personal knowledge of the facts and circumstances, who is authorized to act for the organization, which states, “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. Where to file state taxes for free ” Detailed affidavits from individuals having knowledge or information about the events that led to the failure to make the application and to the discovery of that failure. Where to file state taxes for free This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. Where to file state taxes for free The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided. Where to file state taxes for free These affidavits must include the name, current address, and taxpayer identification number of the individual, and be accompanied by a dated declaration, signed by the individual, which states: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. Where to file state taxes for free ” The organization must state whether the returns for the tax year in which the application should have been filed or any tax years that would have been affected by the application had it been timely made are being examined by the IRS, an appeals office, or a federal court. Where to file state taxes for free The organization must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the organization's request for relief is pending. Where to file state taxes for free The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers. Where to file state taxes for free   A request for this relief in connection with an application for exemption does not require payment of an additional user fee. Where to file state taxes for free Also, a request for relief under the automatic 12-month extension does not require payment of a user fee. Where to file state taxes for free More information. Where to file state taxes for free   For more information about these procedures, see Regulations sections 301. Where to file state taxes for free 9100-1, 301. Where to file state taxes for free 9100-2, 301. Where to file state taxes for free 9100-3, Revenue Procedure 2013-4, section 6. Where to file state taxes for free 04, 2013-1 I. Where to file state taxes for free R. Where to file state taxes for free B. Where to file state taxes for free 126, and Revenue Procedure 2013-8, 2013-1 I. Where to file state taxes for free R. Where to file state taxes for free B. Where to file state taxes for free 237. Where to file state taxes for free See Revenue Procedure 2013-4 and Revenue Procedure 2013-8. Where to file state taxes for free Notification from the IRS. Where to file state taxes for free   Organizations filing Form 1023 and satisfying all requirements of section 501(c)(3) will be notified of their exempt status in writing. Where to file state taxes for free Organizations Not Required To File Form 1023 Some organizations are not required to file Form 1023. Where to file state taxes for free These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group. Where to file state taxes for free Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later). Where to file state taxes for free These organizations are exempt automatically if they meet the requirements of section 501(c)(3). Where to file state taxes for free Filing Form 1023 to establish exemption. Where to file state taxes for free   If the organization wants to establish its exemption with the IRS and receive a ruling or determination letter recognizing its exempt status, it should file Form 1023. Where to file state taxes for free By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible. Where to file state taxes for free A subordinate organization (other than a private foundation) covered by a group exemption letter does not have to submit a Form 1023 for itself. Where to file state taxes for free Private foundations. Where to file state taxes for free   See Private Foundations and Public Charities, later in this chapter, for more information about the additional notice required from an organization in order for it not to be presumed to be a private foundation and for the additional information required from a private foundation claiming to be an operating foundation. Where to file state taxes for free Gross receipts test. Where to file state taxes for free   For purposes of the gross receipts test, an organization normally does not have more than $5,000 annually in gross receipts if: During its first tax year the organization received gross receipts of $7,500 or less, During its first 2 years the organization had a total of $12,000 or less in gross receipts, and In the case of an organization that has been in existence for at least 3 years, the total gross receipts received by the organization during the immediately preceding 2 years, plus the current year, are $15,000 or less. Where to file state taxes for free   An organization with gross receipts more than the amounts in the gross receipts test, unless otherwise exempt from filing Form 1023, must file a Form 1023 within 90 days after the end of the period in which the amounts are exceeded. Where to file state taxes for free For example, an organization's gross receipts for its first tax year were less than $7,500, but at the end of its second tax year its gross receipts for the 2-year period were more than $12,000. Where to file state taxes for free The organization must file Form 1023 within 90 days after the end of its second tax year. Where to file state taxes for free   If the organization had existed for at least 3 tax years and had met the gross receipts test for all prior tax years but fails to meet the requirement for the current tax year, its tax-exempt status for the prior years will not be lost even if Form 1023 is not filed within 90 days after the close of the current tax year. Where to file state taxes for free However, the organization will not be treated as a section 501(c)(3) organization for the period beginning with the current tax year and ending with the filing of Form 1023. Where to file state taxes for free Example. Where to file state taxes for free   An organization is organized and operated exclusively for charitable purposes and is not a private foundation. Where to file state taxes for free It was incorporated on January 1, 2009, and files returns on a calendar-year basis. Where to file state taxes for free It did not file a Form 1023. Where to file state taxes for free The organization's gross receipts during the years 2009 through 2012 were as follows: 2009 $3,600 2010 2,900 2011 400 2012 12,600   The organization's total gross receipts for 2009, 2010, and 2011 were $6,900. Where to file state taxes for free Therefore, it did not have to file Form 1023 and is exempt for those years. Where to file state taxes for free However, for 2010, 2011, and 2012 the total gross receipts were $15,900. Where to file state taxes for free Therefore, the organization must file Form 1023 within 90 days after the end of its 2012 tax year. Where to file state taxes for free If it does not file within this time period, it will not be exempt under section 501(c)(3) for the period beginning with tax year 2012 ending when the Form 1023 is received by the IRS. Where to file state taxes for free The organization, however, will not lose its exempt status for the tax years ending before January 1, 2012. Where to file state taxes for free   The IRS will consider applying the Commissioner's discretionary authority to extend the time for filing Form 1023. Where to file state taxes for free See the procedures for this extension discussed earlier. Where to file state taxes for free Articles of Organization Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. Where to file state taxes for free This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created. Where to file state taxes for free Organizational Test The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not further one or more of those purposes. Where to file state taxes for free These conditions for exemption are referred to as the organizational test. Where to file state taxes for free Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. Where to file state taxes for free Therefore, the organizational test may be met if the purposes stated in the articles of organization are limited in some way by reference to section 501(c)(3). Where to file state taxes for free The requirement that your organization's purposes and powers must be limited by the articles of organization is not satisfied if the limit is contained only in the bylaws or other rules or regulations. Where to file state taxes for free Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. Where to file state taxes for free Also, the test is not satisfied by the fact that your actual operations are for exempt purposes. Where to file state taxes for free In interpreting an organization's articles, the law of the state where the organization was created is controlling. Where to file state taxes for free If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities. Where to file state taxes for free The following are examples illustrating the organizational test. Where to file state taxes for free Example 1. Where to file state taxes for free Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). Where to file state taxes for free These articles appropriately limit the organization's purposes. Where to file state taxes for free The organization meets the organizational test. Where to file state taxes for free Example 2. Where to file state taxes for free An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. Where to file state taxes for free The organization will not be properly limited as to its purposes since all research is not scientific. Where to file state taxes for free The organization does not meet the organizational test. Where to file state taxes for free Example 3. Where to file state taxes for free An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). Where to file state taxes for free The organization meets the organizational test. Where to file state taxes for free Example 4. Where to file state taxes for free If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited. Where to file state taxes for free Example 5. Where to file state taxes for free If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily will be sufficient since the term charitable has a generally accepted legal meaning. Where to file state taxes for free On the other hand, if the purposes are stated to be charitable, philanthropic, and benevolent, the organizational requirement will not be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law. Where to file state taxes for free Example 6. Where to file state taxes for free If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further the common welfare and well-being of the community, without any limitation or provision restricting such purposes to accomplishment only in a charitable manner, the purposes will not be sufficiently limited. Where to file state taxes for free Such purposes are vague and may be accomplished other than in an exempt manner. Where to file state taxes for free Example 7. Where to file state taxes for free A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. Where to file state taxes for free A hospital may or may not be exempt depending on the manner in which it is operated. Where to file state taxes for free Example 8. Where to file state taxes for free An organization that is expressly empowered by its articles to carry on social activities will not be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes. Where to file state taxes for free Dedication and Distribution of Assets Assets of an organization must be permanently dedicated to an exempt purpose. Where to file state taxes for free This means that should an organization dissolve, its assets must be distributed for an exempt purpose described in this chapter, or to the Federal Government or to a state or local government for a public purpose. Where to file state taxes for free If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met. Where to file state taxes for free Dedication. Where to file state taxes for free   To establish that your organization's assets will be permanently dedicated to an exempt purpose, the articles of organization should contain a provision ensuring their distribution for an exempt purpose in the event of dissolution. Where to file state taxes for free Although reliance can be placed upon state law to establish permanent dedication of assets for exempt purposes, your organization's application probably can be processed much more rapidly if its articles of organization include a provision ensuring permanent dedication of assets for exempt purposes. Where to file state taxes for free Distribution. Where to file state taxes for free   Revenue Procedure 82-2, 1982-1 C. Where to file state taxes for free B. Where to file state taxes for free 367, identifies the states and circumstances in which the IRS will not require an express provision for the distribution of assets upon dissolution in the articles of organization. Where to file state taxes for free The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. Where to file state taxes for free   If a named beneficiary is to be the distributee, it must be one that would qualify and would be exempt within the meaning of section 501(c)(3) at the time the dissolution takes place. Where to file state taxes for free Since the named beneficiary at the time of dissolution may not be qualified, may not be in existence, or may be unwilling or unable to accept the assets of the dissolving organization, a provision should be made for distribution of the assets for one or more of the purposes specified in this chapter in the event of any such contingency. Where to file state taxes for free Sample articles of organization. Where to file state taxes for free   See sample articles of organization in the Appendix in the back of this publication. Where to file state taxes for free Educational Organizations and Private Schools If your organization wants to obtain recognition of exemption as an educational organization, you must submit complete information as to how your organization carries on or plans to carry on its educational activities, such as by conducting a school, by panels, discussions, lectures, forums, radio and television programs, or through various cultural media such as museums, symphony orchestras, or art exhibits. Where to file state taxes for free In each instance, you must explain by whom and where these activities are or will be conducted and the amount of admission fees, if any. Where to file state taxes for free You must submit a copy of the pertinent contracts, agreements, publications, programs, etc. Where to file state taxes for free If you are organized to conduct a school, you must submit full information regarding your tuition charges, number of faculty members, number of full-time and part-time students enrolled, courses of study and degrees conferred, together with a copy of your school catalog. Where to file state taxes for free See also Private Schools , discussed later. Where to file state taxes for free Educational Organizations The term educational relates to: The instruction or training of individuals for the purpose of improving or developing their capabilities, or The instruction of the public on subjects useful to individuals and beneficial to the community. Where to file state taxes for free Advocacy of a position. Where to file state taxes for free   Advocacy of a particular position or viewpoint may be educational if there is a sufficiently full and fair exposition of pertinent facts to permit an individual or the public to form an independent opinion or conclusion. Where to file state taxes for free The mere presentation of unsupported opinion is not educational. Where to file state taxes for free Method not educational. Where to file state taxes for free   The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). Where to file state taxes for free The following factors may indicate that the method is not educational. Where to file state taxes for free The presentation of viewpoints unsupported by facts is a significant part of the organization's communications. Where to file state taxes for free The facts that purport to support the viewpoint are distorted. Where to file state taxes for free The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations. Where to file state taxes for free The approach used is not aimed at developing an understanding on the part of the audience because it does not consider their background or training. Where to file state taxes for free   Exceptional circumstances, however, may exist where an organization's advocacy may be educational even if one or more of the factors listed above are present. Where to file state taxes for free Qualifying organizations. Where to file state taxes for free   The following types of organizations may qualify as educational: An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on, An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs, An organization that presents a course of instruction by correspondence or through the use of television or radio, A museum, zoo, planetarium, symphony orchestra, or other similar organization, A nonprofit children's day-care center, and A credit counseling organization. Where to file state taxes for free College book stores, cafeterias, restaurants, etc. Where to file state taxes for free   These and other on-campus organizations should submit information to show that they are controlled by and operated for the convenience of the faculty and student body or by whom they are controlled and whom they serve. Where to file state taxes for free Alumni association. Where to file state taxes for free   An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. Where to file state taxes for free If your association does not have these characteristics, it may still be exempt as a social club if it meets the requirements described in chapter 4, under 501(c)(7) - Social and Recreation Clubs . Where to file state taxes for free Athletic organization. Where to file state taxes for free   This type of organization must submit evidence that it is engaged in activities such as directing and controlling interscholastic athletic competitions, conducting tournaments, and prescribing eligibility rules for contestants. Where to file state taxes for free If it is not so engaged, your organization may be exempt as a social club described in chapter 4. Where to file state taxes for free Raising funds to be used for travel and other activities to interview and persuade prospective students with outstanding athletic ability to attend a particular university does not show an exempt purpose. Where to file state taxes for free If your organization is not exempt as an educational organization, see Amateur Athletic Organizations , later in this chapter. Where to file state taxes for free Private Schools Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information. Where to file state taxes for free The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. Where to file state taxes for free (This information also must be projected, so far as may be feasible, for the next academic year. Where to file state taxes for free ) The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards. Where to file state taxes for free A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations. Where to file state taxes for free A statement indicating whether any of the organizations described in item (3) above have an objective of maintaining segregated public or private school education at the time the application is filed and, if so, whether any of the individuals described in item (3) are officers or active members of those organizations at the time the application is filed. Where to file state taxes for free The public school district and county in which the school is located. Where to file state taxes for free How to determine racial composition. Where to file state taxes for free   The racial composition of the student body, faculty, and administrative staff can be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty, or administrative staff to submit to the school information that the school otherwise does not require. Where to file state taxes for free Nevertheless, a statement of the method by which the racial composition was determined must be supplied. Where to file state taxes for free The identity of individual students or members of the faculty and administrative staff should not be included with this information. Where to file state taxes for free   A school that is a state or municipal instrumentality (see Instrumentalities , near the beginning of this chapter), whether or not it qualifies for exemption under section 501(c)(3), is not considered to be a private school for purposes of the following discussion. Where to file state taxes for free Racially Nondiscriminatory Policy To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it does not discriminate against applicants and students on the basis of race, color, or national or ethnic origin. Where to file state taxes for free Also, the school must circulate information that clearly states the school's admission policies. Where to file state taxes for free A racially nondiscriminatory policy toward students means that the school admits the students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs. Where to file state taxes for free The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin. Where to file state taxes for free The existence of a racially discriminatory policy with respect to the employment of faculty and administrative staff is indicative of a racially discriminatory policy as to students. Where to file state taxes for free Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students. Where to file state taxes for free A policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance is not discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy. Where to file state taxes for free A school that selects students on the basis of membership in a religious denomination or unit is not discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis. Where to file state taxes for free Policy statement. Where to file state taxes for free   The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. Where to file state taxes for free Also, the school must include a reference to its racially nondiscriminatory policy in other written advertising that it uses to inform prospective students of its programs. Where to file state taxes for free Publicity requirement. Where to file state taxes for free   The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. Where to file state taxes for free Selective communication of a racially nondiscriminatory policy that a school provides solely to leaders of racial groups will not be considered an effective means of communication to make the policy known to all segments of the community. Where to file state taxes for free To satisfy this requirement, the school must use one of the following two methods. Where to file state taxes for free Method one. Where to file state taxes for free   The school can publish a notice of its racially nondiscriminatory policy in a newspaper of general circulation that serves all racial segments of the community. Where to file state taxes for free Such publication must be repeated at least once annually during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. Where to file state taxes for free When more than one community is served by a school, the school can publish the notice in those newspapers that are reasonably likely to be read by all racial segments in the communities that the school serves. Where to file state taxes for free If this method is used, the notice must meet the following printing requirements. Where to file state taxes for free It must appear in a section of the newspaper likely to be read by prospective students and their families. Where to file state taxes for free It must occupy at least 3 column inches. Where to file state taxes for free It must have its title printed in at least 12 point bold face type. Where to file state taxes for free It must have the remaining text printed in at least 8 point type. Where to file state taxes for free The following is an acceptable example of the notice:   NOTICE OF NONDISCRIMINATORY POLICY AS TO STUDENTS     The M School admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. Where to file state taxes for free It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs. Where to file state taxes for free   Method two. Where to file state taxes for free   The school can use the broadcast media to publicize its racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves. Where to file state taxes for free If the school uses this method, it must provide documentation showing that the means by which this policy was communicated to all segments of the general community was reasonably expected to be effective. Where to file state taxes for free In this case, appropriate documentation would include copies of the tapes or scripts used and records showing that there was an adequate number of announcements. Where to file state taxes for free The documentation also would include proof that these announcements were made during hours when they were likely to be communicated to all segments of the general community, that they were long enough to convey the message clearly, and that they were broadcast on radio or television stations likely to be listened to by substantial numbers of members of all racial segments of the general community. Where to file state taxes for free Announcements must be made during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. Where to file state taxes for free Exceptions. Where to file state taxes for free   The publicity requirements will not apply in the following situations. Where to file state taxes for free First, if for the preceding 3 years the enrollment of a parochial or other church-related school consists of students at least 75% of whom are members of the sponsoring religious denomination or unit, the school can make known its racially nondiscriminatory policy in whatever newspapers or circulars the religious denomination or unit uses in the communities from which the students are drawn. Where to file state taxes for free These newspapers and circulars can be distributed by a particular religious denomination or unit or by an association that represents a number of religious organizations of the same denomination. Where to file state taxes for free If, however, the school advertises in newspapers of general circulation in the community or communities from which its students are drawn and the second exception (discussed next) does not apply to the school, then it must comply with either of the publicity requirements explained earlier. Where to file state taxes for free Second, if a school customarily draws a substantial percentage of its students nationwide, worldwide, from a large geographic section or sections of the United States, or from local communities, and if the school follows a racially nondiscriminatory policy as to its students, the school may satisfy the publicity requirement by complying with the instructions explained earlier under Policy statement . Where to file state taxes for free   The school can demonstrate that it follows a racially nondiscriminatory policy either by showing that it currently enrolls students of racial minority groups in meaningful numbers or, except for local community schools, when minority students are not enrolled in meaningful numbers, that its promotional activities and recruiting efforts in each geographic area were reasonably designed to inform students of all racial segments in the general communities within the area of the availability of the school. Where to file state taxes for free The question as to whether a school demonstrates such a policy satisfactorily will be determined on the basis of the facts and circumstances of each case. Where to file state taxes for free   The IRS recognizes that the failure by a school drawing its students from local communities to enroll racial minority group students may not necessarily indicate the absence of a racially nondiscriminatory policy when there are relatively few or no such students in these communities. Where to file state taxes for free Actual enrollment is, however, a meaningful indication of a racially nondiscriminatory policy in a community in which a public school or schools became subject to a desegregation order of a federal court or are otherwise expressly obligated to implement a desegregation plan under the terms of any written contract or other commitment to which any federal agency was a party. Where to file state taxes for free   The IRS encourages schools to satisfy the publicity requirement by using either of the methods described earlier, even though a school considers itself to be within one of the Exceptions. Where to file state taxes for free The IRS believes that these publicity requirements are the most effective methods to make known a school's racially nondiscriminatory policy. Where to file state taxes for free In this regard, it is each school's responsibility to determine whether either of the exceptions applies. Where to file state taxes for free Such responsibility will prepare the school, if it is audited by the IRS, to demonstrate that the failure to publish its racially nondiscriminatory policy in accordance with either one of the publicity requirements was justified by one of the exceptions. Where to file state taxes for free Also, a school must be prepared to demonstrate that it has publicly disavowed or repudiated any statements purported to have been made on its behalf (after November 6, 1975) that are contrary to its publicity of a racially nondiscriminatory policy as to students, to the extent that the school or its principal official was aware of these statements. Where to file state taxes for free Facilities and programs. Where to file state taxes for free   A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner. Where to file state taxes for free Scholarship and loan programs. Where to file state taxes for free   As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. Where to file state taxes for free This must be known throughout the general community being served by the school and should be referred to in its publicity. Where to file state taxes for free Financial assistance programs, as well as scholarships and loans made under financial assistance programs, that favor members of one or more racial minority groups and that do not significantly detract from or are designed to promote a school's racially nondiscriminatory policy will not adversely affect the school's exempt status. Where to file state taxes for free Certification. Where to file state taxes for free   An individual authorized to take official action on behalf of a school that claims to be racially nondiscriminatory as to students must certify annually, under penalties of perjury, on Schedule E (Form 990 or 990-EZ) or Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax, whichever applies, that to the best of his or her knowledge and belief the school has satisfied all requirements that apply, as previously explained. Where to file state taxes for free   Failure to comply with the guidelines ordinarily will result in the proposed revocation of the exempt status of a school. Where to file state taxes for free Recordkeeping requirements. Where to file state taxes for free With certain exceptions, given later, each exempt private school must maintain the following records for a minimum period of 3 years, beginning with the year after the year of compilation or acquisition. Where to file state taxes for free Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year. Where to file state taxes for free Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis. Where to file state taxes for free Copies of all materials used by or on behalf of the school to solicit contributions. Where to file state taxes for free Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. Where to file state taxes for free (Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in what publications their advertisements were placed. Where to file state taxes for free ) The racial composition of the student body, faculty, and administrative staff can be determined in the same manner as that described at the beginning of this section. Where to file state taxes for free However, a school cannot discontinue maintaining a system of records that reflect the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS. Where to file state taxes for free The IRS does not require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. Where to file state taxes for free Similarly, the IRS does not require a school to keep records prohibited under state or federal law. Where to file state taxes for free Exceptions. Where to file state taxes for free   The school does not have to independently maintain these records for IRS use if both of the following are true. Where to file state taxes for free Substantially the same information has been included in a report or reports filed with an agency or agencies of federal, state, or local governments, and this information is current within 1 year. Where to file state taxes for free The school maintains copies of these reports from which this information is readily obtainable. Where to file state taxes for free If these reports do not include all of the information required, as discussed earlier, records providing such remaining information must be maintained by the school for IRS use. Where to file state taxes for free Failure to maintain records. Where to file state taxes for free   Failure to maintain or to produce the required records and information, upon proper request, will create a presumption that the organization has failed to comply with these guidelines. Where to file state taxes for free Organizations Providing Insurance An organization described in sections 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance. Where to file state taxes for free However, this rule does not apply to state-sponsored organizations described in sections 501(c)(26) or 501(c)(27), which are discussed in chapter 4, or to charitable risk pools, discussed next. Where to file state taxes for free Charitable Risk Pools A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it: Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management, Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a), Is organized under state law authorizing this type of risk pooling, Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization), Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations, Is controlled by a board of directors elected by its members, and Is organized under documents requiring that: Each member be a section 501(c)(3) organization exempt from tax under section 501(a), Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and Each insurance policy issued by the pool provide that it will not cover events occurring after a final determination described in (b). Where to file state taxes for free Other Section 501(c)(3) Organizations In addition to the information required for all organizations, as described earlier, you should include any other information described in this section. Where to file state taxes for free Charitable Organizations If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes that are beneficial to the public interest. Where to file state taxes for free Some examples of this type of organization are those organized for: Relief of the poor, the distressed, or the underprivileged, Advancement of religion, Advancement of education or science, Erection or maintenance of public buildings, monuments, or works, Lessening the burdens of government, Lessening of neighborhood tensions, Elimination of prejudice and discrimination, Defense of human and civil rights secured by law, and Combating community deterioration and juvenile delinquency. Where to file state taxes for free The rest of this section contains a description of the information to be provided by certain specific organizations. Where to file state taxes for free This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. Where to file state taxes for free Each of the following organizations must submit the information described. Where to file state taxes for free Charitable organization supporting education. Where to file state taxes for free   Submit information showing how your organization supports education — for example, contributes to an existing educational institution, endows a professorial chair, contributes toward paying teachers' salaries, or contributes to an educational institution to enable it to carry on research. Where to file state taxes for free Scholarships. Where to file state taxes for free   If the organization awards or plans to award scholarships, complete Schedule H of Form 1023. Where to file state taxes for free Also, submit the following: Criteria used for selecting recipients, including the rules of eligibility. Where to file state taxes for free How and by whom the recipients are or will be selected. Where to file state taxes for free If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school. Where to file state taxes for free If awards are or will be made to recipients of a particular class, for example, children of employees of a particular employer— Whether any preference is or will be accorded an applicant by reason of the parent's position, length of employment, or salary, Whether as a condition of the award the recipient must upon graduation accept employment with the company, and Whether the award will be continued even if the parent's employment ends. Where to file state taxes for free A copy of the scholarship application form and any brochures or literature describing the scholarship program. Where to file state taxes for free Hospital. Where to file state taxes for free   If you are organized to operate a charitable hospital, complete and attach Section I of Schedule C, Form 1023. Where to file state taxes for free   If your hospital was transferred to you from proprietary ownership, complete and attach Schedule G of Form 1023. Where to file state taxes for free You must attach a list showing: The names of the active and courtesy staff members of the proprietary hospital, as well as the names of your medical staff members after the transfer to nonprofit ownership, and The names of any doctors who continued to lease office space in the hospital after its transfer to nonprofit ownership and the amount of rent paid. Where to file state taxes for free Submit also an appraisal showing the fair rental value of the rented space. Where to file state taxes for free Clinic. Where to file state taxes for free   If you are organized to operate a clinic, attach a statement including: A description of the facilities and services, To whom the services are offered, such as the public at large or a specific group, How charges are determined, such as on a profit basis, to recover costs, or at less than cost, By whom administered and controlled, Whether any of the professional staff (that is, those who perform or will perform the clinical services) also serve or will serve in an administrative capacity, and How compensation paid the professional staff is or will be determined. Where to file state taxes for free Home for the aged. Where to file state taxes for free   If you are organized to operate a home for the aged, complete and attach Schedule F of Form 1023 and required attachments. Where to file state taxes for free Community nursing bureau. Where to file state taxes for free   If you provide a nursing register or community nursing bureau, provide information showing that your organization will be operated as a community project and will receive its primary support from public contributions to maintain a nonprofit register of qualified nursing personnel, including graduate nurses, unregistered nursing school graduates, licensed attendants and practical nurses for the benefit of hospitals, health agencies, doctors, and individuals. Where to file state taxes for free Organization providing loans. Where to file state taxes for free   If you make, or will make, loans for charitable and educational purposes, submit the following information. Where to file state taxes for free An explanation of the circumstances under which such loans are, or will be, made. Where to file state taxes for free Criteria for selection, including the rules of eligibility. Where to file state taxes for free How and by whom the recipients are or will be selected. Where to file state taxes for free Manner of repayment of the loan. Where to file state taxes for free Security required, if any. Where to file state taxes for free Interest charged, if any, and when payable. Where to file state taxes for free Copies in duplicate of the loan application and any brochures or literature describing the loan program. Where to file state taxes for free Public-interest law firms. Where to file state taxes for free   If your organization was formed to litigate in the public interest (as opposed to providing legal services to the poor), such as in the area of protection of the environment, you should submit the following information. Where to file state taxes for free How the litigation can reasonably be said to be representative of a broad public interest rather than a private one. Where to file state taxes for free Whether the organization will accept fees for its services. Where to file state taxes for free A description of the cases litigated or to be litigated and how they benefit the public generally. Where to file state taxes for free Whether the policies and program of the organization are the responsibility of a board or committee representative of the public interest, which is neither controlled by employees or persons who litigate on behalf of the organization nor by any organization that is not itself an organization described in this chapter. Where to file state taxes for free Whether the organization is operated, through sharing of office space or otherwise, in a way to create identification or confusion with a particular private law firm. Where to file state taxes for free Whether there is an arrangement to provide, directly or indirectly, a deduction for the cost of litigation that is for the private benefit of the donor. Where to file state taxes for free Acceptance of attorneys' fees. Where to file state taxes for free   A nonprofit public-interest law firm can accept attorneys' fees in public-interest cases if the fees are paid directly by its clients and the fees are not more than the actual costs incurred in the case. Where to file state taxes for free Upon undertaking a representation, the organization cannot withdraw from the case because the litigant is unable to pay the fee. Where to file state taxes for free   Firms can accept fees awarded or approved by a court or an administrative agency and paid by an opposing party if the firms do not use the likelihood or probability of fee awards as a consideration in the selection of cases. Where to file state taxes for free All fee awards must be paid to the organization and not to its individual staff attorneys. Where to file state taxes for free Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. Where to file state taxes for free Private attorneys, whose services are retained by the firm to assist it in particular cases, can be compensated by the firm, but only on a fixed fee or salary basis. Where to file state taxes for free   The total amount of all attorneys' fees (court awarded and those received from clients) must not be more than 50% of the total cost of operations of the organization's legal functions, calculated over a 5-year period. Where to file state taxes for free   If, in order to carry out its program, an organization violates applicable canons of ethics, disrupts the judicial system, or engages in any illegal action, the organization will jeopardize its exemption. Where to file state taxes for free Religious Organizations To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines. Where to file state taxes for free That the particular religious beliefs of the organization are truly and sincerely held. Where to file state taxes for free That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy. Where to file state taxes for free Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. Where to file state taxes for free If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs. Where to file state taxes for free Churches. Where to file state taxes for free   Although a church, its integrated auxiliaries, or a convention or association of churches is not required to file Form 1023 to be exempt from federal income tax or to receive tax deductible contributions, the organization may find it advantageous to obtain recognition of exemption. Where to file state taxes for free In this event, you should submit information showing that your organization is a church, synagogue, association or convention of churches, religious order, or religious organization that is an integral part of a church, and that it is engaged in carrying out the function of a church. Where to file state taxes for free   In determining whether an admittedly religious organization is also a church, the IRS does not accept every assertion that the organization is a church. Where to file state taxes for free Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. Where to file state taxes for free The IRS considers the facts and circumstances of each organization applying for church status. Where to file state taxes for free Convention or association of churches. Where to file state taxes for free   Any organization that is otherwise a convention or association of churches will not fail to qualify as a church merely because the membership of the organization includes individuals as well as churches or because the individuals have voting rights in the organization. Where to file state taxes for free Integrated auxiliaries. Where to file state taxes for free   An organization is an integrated auxiliary of a church if all the following are true. Where to file state taxes for free The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3). Where to file state taxes for free It is affiliated with a church or a convention or association of churches. Where to file state taxes for free It is internally supported. Where to file state taxes for free An organization is internally supported unless both of the following are true. Where to file state taxes for free It offers admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or for a small part of the cost). Where to file state taxes for free It normally gets more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses. Where to file state taxes for free Special rule. Where to file state taxes for free   Men's and women's organizations, seminaries, mission societies, and youth groups that satisfy (1) and (2) shown earlier are integrated auxiliaries of a church even if they are not internally supported. Where to file state taxes for free   In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings can inure to any individual. Where to file state taxes for free   Although an individual is entitled to a charitable deduction for contributions to a church, the assignment or similar transfer of compensation for personal services to a church generally does not relieve a taxpayer of federal income tax liability on the compensation, regardless of the motivation behind the transfer. Where to file state taxes for free Scientific Organizations You must show that your organization's research will be carried on in the public interest. Where to file state taxes for free Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes. Where to file state taxes for free Aiding in the scientific education of college or university students. Where to file state taxes for free Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form th
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Where to file state taxes for free 4. Where to file state taxes for free   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. Where to file state taxes for free Rent-to-own contract. Where to file state taxes for free 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. Where to file state taxes for free MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Where to file state taxes for free Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Where to file state taxes for free 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. Where to file state taxes for free This chapter explains how to determine which MACRS depreciation system applies to your property. Where to file state taxes for free It also discusses other information you need to know before you can figure depreciation under MACRS. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free Finally, it explains when and how to recapture MACRS depreciation. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Where to file state taxes for free If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. Where to file state taxes for free Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. Where to file state taxes for free 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. Where to file state taxes for free Required use of ADS. Where to file state taxes for free   You must use ADS for the following property. Where to file state taxes for free Listed property used 50% or less in a qualified business use. Where to file state taxes for free See chapter 5 for information on listed property. Where to file state taxes for free Any tangible property used predominantly outside the United States during the year. Where to file state taxes for free Any tax-exempt use property. Where to file state taxes for free Any tax-exempt bond-financed property. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free Electing ADS. Where to file state taxes for free   Although your property may qualify for GDS, you can elect to use ADS. Where to file state taxes for free The election generally must cover all property in the same property class that you placed in service during the year. Where to file state taxes for free However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Where to file state taxes for free Once you make this election, you can never revoke it. Where to file state taxes for free   You make the election by completing line 20 in Part III of Form 4562. Where to file state taxes for free 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. Where to file state taxes for free These property classes are also listed under column (a) in section B, Part III, of Form 4562. Where to file state taxes for free For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. Where to file state taxes for free 3-year property. Where to file state taxes for free Tractor units for over-the-road use. Where to file state taxes for free Any race horse over 2 years old when placed in service. Where to file state taxes for free (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. Where to file state taxes for free ) Any other horse (other than a race horse) over 12 years old when placed in service. Where to file state taxes for free Qualified rent-to-own property (defined later). Where to file state taxes for free 5-year property. Where to file state taxes for free Automobiles, taxis, buses, and trucks. Where to file state taxes for free Computers and peripheral equipment. Where to file state taxes for free Office machinery (such as typewriters, calculators, and copiers). Where to file state taxes for free Any property used in research and experimentation. Where to file state taxes for free Breeding cattle and dairy cattle. Where to file state taxes for free Appliances, carpets, furniture, etc. Where to file state taxes for free , used in a residential rental real estate activity. Where to file state taxes for free Certain geothermal, solar, and wind energy property. Where to file state taxes for free 7-year property. Where to file state taxes for free Office furniture and fixtures (such as desks, files, and safes). Where to file state taxes for free Agricultural machinery and equipment. Where to file state taxes for free Any property that does not have a class life and has not been designated by law as being in any other class. Where to file state taxes for free Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. Where to file state taxes for free Any natural gas gathering line placed in service after April 11, 2005. Where to file state taxes for free See Natural gas gathering line and electric transmission property , later. Where to file state taxes for free 10-year property. Where to file state taxes for free Vessels, barges, tugs, and similar water transportation equipment. Where to file state taxes for free Any single purpose agricultural or horticultural structure. Where to file state taxes for free Any tree or vine bearing fruits or nuts. Where to file state taxes for free Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. Where to file state taxes for free 15-year property. Where to file state taxes for free Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). Where to file state taxes for free Any retail motor fuels outlet (defined later), such as a convenience store. Where to file state taxes for free Any municipal wastewater treatment plant. Where to file state taxes for free Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. Where to file state taxes for free Any qualified restaurant property (defined later) placed in service before January 1, 2014. Where to file state taxes for free Initial clearing and grading land improvements for gas utility property. Where to file state taxes for free 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. Where to file state taxes for free See Natural gas gathering line and electric transmission property , later. Where to file state taxes for free Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. Where to file state taxes for free Any qualified retail improvement property placed in service before January 1, 2014. Where to file state taxes for free 20-year property. Where to file state taxes for free Farm buildings (other than single purpose agricultural or horticultural structures). Where to file state taxes for free Municipal sewers not classified as 25-year property. Where to file state taxes for free Initial clearing and grading land improvements for electric utility transmission and distribution plants. Where to file state taxes for free 25-year property. Where to file state taxes for free This class is water utility property, which is either of the following. Where to file state taxes for free 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. Where to file state taxes for free Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. Where to file state taxes for free Residential rental property. Where to file state taxes for free 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. Where to file state taxes for free A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free Nonresidential real property. Where to file state taxes for free 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. Where to file state taxes for free 5 years. Where to file state taxes for free Qualified rent-to-own property. Where to file state taxes for free   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. Where to file state taxes for free It is tangible personal property generally used in the home for personal use. Where to file state taxes for free It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. Where to file state taxes for free Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. Where to file state taxes for free   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. Where to file state taxes for free 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. Where to file state taxes for free Rent-to-own dealer. Where to file state taxes for free   You are a rent-to-own dealer if you meet all the following requirements. Where to file state taxes for free You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. Where to file state taxes for free A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. Where to file state taxes for free The property is tangible personal property of a type generally used within the home for personal use. Where to file state taxes for free Rent-to-own contract. Where to file state taxes for free   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. Where to file state taxes for free 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). Where to file state taxes for free Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. Where to file state taxes for free If the payments are decreasing, no payment can be less than 40% of the largest payment. Where to file state taxes for free Provides for total payments that generally exceed the normal retail price of the property plus interest. Where to file state taxes for free Provides for total payments that do not exceed $10,000 for each item of property. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free Motorsports entertainment complex. Where to file state taxes for free   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. Where to file state taxes for free The events must be open to the public for the price of admission. Where to file state taxes for free Qualified smart electric grid system. Where to file state taxes for free   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. Where to file state taxes for free 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. Where to file state taxes for free Retail motor fuels outlet. Where to file state taxes for free   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. Where to file state taxes for free It is not larger than 1,400 square feet. Where to file state taxes for free 50% or more of the gross revenues generated from the property are derived from petroleum sales. Where to file state taxes for free 50% or more of the floor space in the property is devoted to petroleum marketing sales. Where to file state taxes for free A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. Where to file state taxes for free Qualified leasehold improvement property. Where to file state taxes for free    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. Where to file state taxes for free   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. Where to file state taxes for free 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. Where to file state taxes for free Examples include the following. Where to file state taxes for free A complete liquidation of a subsidiary. Where to file state taxes for free A transfer to a corporation controlled by the transferor. Where to file state taxes for free An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Where to file state taxes for free Qualified restaurant property. Where to file state taxes for free   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. Where to file state taxes for free 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. Where to file state taxes for free Qualified smart electric meter. Where to file state taxes for free   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. Where to file state taxes for free 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. Where to file state taxes for free Natural gas gathering line and electric transmission property. Where to file state taxes for free   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. Where to file state taxes for free The original use of the property must have begun with you after April 11, 2005. Where to file state taxes for free Original use means the first use to which the property is put, whether or not by you. Where to file state taxes for free Therefore, property used by any person before April 12, 2005, is not original use. Where to file state taxes for free Original use includes additional capital expenditures you incurred to recondition or rebuild your property. Where to file state taxes for free However, original use does not include the cost of reconditioned or rebuilt property you acquired. Where to file state taxes for free 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. Where to file state taxes for free The property must not be placed in service under a binding contract in effect before April 12, 2005. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free The placed in service date for your property is the date the property is ready and available for a specific use. Where to file state taxes for free It is therefore not necessarily the date it is first used. Where to file state taxes for free 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. Where to file state taxes for free See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. Where to file state taxes for free 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. Where to file state taxes for free 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 . Where to file state taxes for free Reduce that amount by any credits and deductions allocable to the property. Where to file state taxes for free The following are examples of some credits and deductions that reduce basis. Where to file state taxes for free Any deduction for section 179 property. Where to file state taxes for free Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free 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 . Where to file state taxes for free Any deduction for removal of barriers to the disabled and the elderly. Where to file state taxes for free Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Where to file state taxes for free Any special depreciation allowance. Where to file state taxes for free Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Where to file state taxes for free For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Where to file state taxes for free Enter the basis for depreciation under column (c) in Part III of Form 4562. Where to file state taxes for free 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 . Where to file state taxes for free Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Where to file state taxes for free It is determined based on the depreciation system (GDS or ADS) used. Where to file state taxes for free Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. Where to file state taxes for free 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. Where to file state taxes for free 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. Where to file state taxes for free 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. Where to file state taxes for free 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. Where to file state taxes for free 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. Where to file state taxes for free 431. Where to file state taxes for free 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). Where to file state taxes for free The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. Where to file state taxes for free Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. Where to file state taxes for free 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). Where to file state taxes for free Office in the home. Where to file state taxes for free   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. Where to file state taxes for free 5 years if you began using it for business before May 13, 1993). Where to file state taxes for free 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. Where to file state taxes for free 5 years. Where to file state taxes for free See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. Where to file state taxes for free Home changed to rental use. Where to file state taxes for free   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. Where to file state taxes for free 5 years. Where to file state taxes for free 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. Where to file state taxes for free The following table shows these shorter recovery periods. Where to file state taxes for free 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 . Where to file state taxes for free Use this chart to find the correct percentage table to use for qualified Indian reservation property. Where to file state taxes for free 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. Where to file state taxes for free   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. Where to file state taxes for free You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. Where to file state taxes for free 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. Where to file state taxes for free   The following property is not qualified property. Where to file state taxes for free Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. Where to file state taxes for free Property acquired directly or indirectly from a related person. Where to file state taxes for free Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. Where to file state taxes for free These activities are defined in section 4 of the Indian Regulatory Act (25 U. Where to file state taxes for free S. Where to file state taxes for free C. Where to file state taxes for free 2703). Where to file state taxes for free Any property you must depreciate under ADS. Where to file state taxes for free 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). Where to file state taxes for free Qualified infrastructure property. Where to file state taxes for free   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. Where to file state taxes for free Qualified infrastructure property is property that meets all the following rules. Where to file state taxes for free It is qualified property, as defined earlier, except that it is outside the reservation. Where to file state taxes for free It benefits the tribal infrastructure. Where to file state taxes for free It is available to the general public. Where to file state taxes for free It is placed in service in connection with the active conduct of a trade or business within a reservation. Where to file state taxes for free Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. Where to file state taxes for free Related person. Where to file state taxes for free   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. Where to file state taxes for free Indian reservation. Where to file state taxes for free   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. Where to file state taxes for free S. Where to file state taxes for free C. Where to file state taxes for free 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. Where to file state taxes for free S. Where to file state taxes for free C. Where to file state taxes for free 1903(10)). Where to file state taxes for free Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. Where to file state taxes for free For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. Where to file state taxes for free Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. Where to file state taxes for free The following table shows some of the ADS recovery periods. Where to file state taxes for free 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. Where to file state taxes for free 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 . Where to file state taxes for free Tax-exempt use property subject to a lease. Where to file state taxes for free   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. Where to file state taxes for free Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. Where to file state taxes for free See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. Where to file state taxes for free 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. Where to file state taxes for free The recovery period begins on the later of the following dates. Where to file state taxes for free The date you place the addition or improvement in service. Where to file state taxes for free The date you place in service the property to which you made the addition or improvement. Where to file state taxes for free 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). Where to file state taxes for free Example. Where to file state taxes for free You own a rental home that you have been renting out since 1981. Where to file state taxes for free 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. Where to file state taxes for free Under GDS, the property class for the addition is residential rental property and its recovery period is 27. Where to file state taxes for free 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. Where to file state taxes for free Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Where to file state taxes for 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. Where to file state taxes for free The mid-month convention. Where to file state taxes for free   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. Where to file state taxes for free   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. Where to file state taxes for free This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. Where to file state taxes for free   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. Where to file state taxes for free The mid-quarter convention. Where to file state taxes for free   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. Where to file state taxes for free   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. Where to file state taxes for free This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. Where to file state taxes for free   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. Where to file state taxes for free    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. Where to file state taxes for free However, it does not reflect any reduction in basis for any special depreciation allowance. Where to file state taxes for free The half-year convention. Where to file state taxes for free   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. Where to file state taxes for 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 the year. Where to file state taxes for free This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. Where to file state taxes for free   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. Where to file state taxes for free Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Where to file state taxes for free The 200% declining balance method over a GDS recovery period. Where to file state taxes for free The 150% declining balance method over a GDS recovery period. Where to file state taxes for free The straight line method over a GDS recovery period. Where to file state taxes for free The straight line method over an ADS recovery period. Where to file state taxes for free 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. Where to file state taxes for free If you made this election, continue to use the same method and recovery period for that property. Where to file state taxes for free Table 4–1 lists the types of property you can depreciate under each method. Where to file state taxes for free It also gives a brief explanation of the method, including any benefits that may apply. Where to file state taxes for free 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. Where to file state taxes for free You can depreciate real property using the straight line method under either GDS or ADS. Where to file state taxes for free Fruit or nut trees and vines. Where to file state taxes for free   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. Where to file state taxes for free ADS required for some farmers. Where to file state taxes for free   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. Where to file state taxes for free You must use ADS for all property you place in service in any year the election is in effect. Where to file state taxes for free See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. Where to file state taxes for free Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. Where to file state taxes for free You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Where to file state taxes for free 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). Where to file state taxes for free Attach the election to the amended return and write “Filed pursuant to section 301. Where to file state taxes for free 9100-2” on the election statement. Where to file state taxes for free File the amended return at the same address you filed the original return. Where to file state taxes for free Once you make the election, you cannot change it. Where to file state taxes for free 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. Where to file state taxes for free However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. Where to file state taxes for free 150% election. Where to file state taxes for free   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. Where to file state taxes for free Make the election by entering “150 DB” under column (f) in Part III of Form 4562. Where to file state taxes for free Straight line election. Where to file state taxes for free   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. Where to file state taxes for free Make the election by entering  “S/L” under column (f) in Part III of Form 4562. Where to file state taxes for free Election of ADS. Where to file state taxes for free   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. Where to file state taxes for free ADS uses the straight line method of depreciation over fixed ADS recovery periods. Where to file state taxes for free Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. Where to file state taxes for free   Make the election by completing line 20 in Part III of Form 4562. Where to file state taxes for free Farm property. Where to file state taxes for free   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. Where to file state taxes for free The straight line method over a GDS recovery period. Where to file state taxes for free The straight line method over an ADS recovery period. Where to file state taxes for free Table 4-1. Where to file state taxes for free Depreciation Methods Note. Where to file state taxes for free The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Where to file state taxes for free 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. Where to file state taxes for free S. Where to file state taxes for free  • 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. Where to file state taxes for free 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. Where to file state taxes for free Then, you are ready to figure your depreciation deduction. Where to file state taxes for free You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. Where to file state taxes for free 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. Where to file state taxes for free These percentage tables are in Appendix A near the end of this publication. Where to file state taxes for free Which table to use. Where to file state taxes for free    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. Where to file state taxes for free The percentage tables immediately follow the guide. Where to file state taxes for free Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. Where to file state taxes for free You must apply the rates in the percentage tables to your property's unadjusted basis. Where to file state taxes for free You cannot use the percentage tables for a short tax year. Where to file state taxes for free See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. Where to file state taxes for free   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. Where to file state taxes for free 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. Where to file state taxes for free See Figuring the Deduction Without Using the Tables, later. Where to file state taxes for free Basis adjustment due to casualty loss. Where to file state taxes for free   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Where to file state taxes for free 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. Where to file state taxes for free See Figuring the Deduction Without Using the Tables, later. Where to file state taxes for free Example. Where to file state taxes for free 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. Where to file state taxes for free It cost $39,000 and she elected a section 179 deduction of $24,000. Where to file state taxes for free She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. Where to file state taxes for free Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). Where to file state taxes for free She figured her MACRS depreciation deduction using the percentage tables. Where to file state taxes for free For 2012, her MACRS depreciation deduction was $268. Where to file state taxes for free In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. Where to file state taxes for free She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. Where to file state taxes for free Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. Where to file state taxes for free 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. Where to file state taxes for free She must now figure her depreciation for 2013 without using the percentage tables. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free However, you do reduce your original basis by other amounts, including the following. Where to file state taxes for free Any amortization taken on the property. Where to file state taxes for free Any section 179 deduction claimed. Where to file state taxes for free Any special depreciation allowance taken on the property. Where to file state taxes for free For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. Where to file state taxes for free 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. Where to file state taxes for free MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Where to file state taxes for free Use a separate worksheet for each item of property. Where to file state taxes for free Then, use the information from this worksheet to prepare Form 4562. Where to file state taxes for free Do not use this worksheet for automobiles. Where to file state taxes for free Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. Where to file state taxes for free MACRS Worksheet Part I   1. Where to file state taxes for free MACRS system (GDS or ADS)   2. Where to file state taxes for free Property class   3. Where to file state taxes for free Date placed in service   4. Where to file state taxes for free Recovery period   5. Where to file state taxes for free Method and convention   6. Where to file state taxes for free Depreciation rate (from tables)   Part II   7. Where to file state taxes for free Cost or other basis* $     8. Where to file state taxes for free Business/investment use   %   9. Where to file state taxes for free Multiply line 7 by line 8   $ 10. Where to file state taxes for free Total claimed for section 179 deduction and other items   $ 11. Where to file state taxes for free Subtract line 10 from line 9. Where to file state taxes for free This is your tentative basis for depreciation   $ 12. Where to file state taxes for free Multiply line 11 by . Where to file state taxes for free 50 if the 50% special depreciation allowance applies. Where to file state taxes for free This is your special depreciation allowance. Where to file state taxes for free 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. Where to file state taxes for free Subtract line 12 from line 11. Where to file state taxes for free This is your basis for depreciation     14. Where to file state taxes for free Depreciation rate (from line 6)     15. Where to file state taxes for free Multiply line 13 by line 14. Where to file state taxes for free This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. Where to file state taxes for free The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. Where to file state taxes for free Example. Where to file state taxes for free You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. Where to file state taxes for free You use the furniture only for business. Where to file state taxes for free This is the only property you placed in service this year. Where to file state taxes for free 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. Where to file state taxes for free You use GDS and the half-year convention to figure your depreciation. Where to file state taxes for free You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. Where to file state taxes for free Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. Where to file state taxes for free You figure your depreciation deduction using the MACRS worksheet as follows. Where to file state taxes for free MACRS Worksheet Part I 1. Where to file state taxes for free MACRS system (GDS or ADS) GDS 2. Where to file state taxes for free Property class 7-year 3. Where to file state taxes for free Date placed in service 8/11/13 4. Where to file state taxes for free Recovery period 7-Year 5. Where to file state taxes for free Method and convention 200%DB/Half-Year 6. Where to file state taxes for free Depreciation rate (from tables) . Where to file state taxes for free 1429 Part II 7. Where to file state taxes for free Cost or other basis* $10,000     8. Where to file state taxes for free Business/investment use 100 %   9. Where to file state taxes for free Multiply line 7 by line 8   $10,000 10. Where to file state taxes for free Total claimed for section 179 deduction and other items   -0- 11. Where to file state taxes for free Subtract line 10 from line 9. Where to file state taxes for free This is your tentative basis for depreciation   $10,000 12. Where to file state taxes for free Multiply line 11 by . Where to file state taxes for free 50 if the 50% special depreciation allowance applies. Where to file state taxes for free This is your special depreciation allowance. Where to file state taxes for free 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. Where to file state taxes for free Subtract line 12 from line 11. Where to file state taxes for free This is your basis for depreciation   $10,000 14. Where to file state taxes for free Depreciation rate (from line 6)   . Where to file state taxes for free 1429 15. Where to file state taxes for free Multiply line 13 by line 14. Where to file state taxes for free This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. Where to file state taxes for free 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. Where to file state taxes for free Year   Basis Percentage Deduction 2014 $ 10,000 24. Where to file state taxes for free 49%   $2,449   2015   10,000 17. Where to file state taxes for free 49   1,749   2016   10,000 12. Where to file state taxes for free 49   1,249   2017   10,000 8. Where to file state taxes for free 93   893   2018   10,000 8. Where to file state taxes for free 92   892   2019   10,000 8. Where to file state taxes for free 93   893   2020   10,000 4. Where to file state taxes for free 46   446   Examples The following examples are provided to show you how to use the percentage tables. Where to file state taxes for free In both examples, assume the following. Where to file state taxes for free You use the property only for business. Where to file state taxes for free You use the calendar year as your tax year. Where to file state taxes for free You use GDS for all the properties. Where to file state taxes for free Example 1. Where to file state taxes for free You bought a building and land for $120,000 and placed it in service on March 8. Where to file state taxes for free The sales contract showed that the building cost $100,000 and the land cost $20,000. Where to file state taxes for free It is nonresidential real property. Where to file state taxes for free The building's unadjusted basis is its original cost, $100,000. Where to file state taxes for free You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. Where to file state taxes for free 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. Where to file state taxes for free Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. Where to file state taxes for free 033%   $2,033   2nd   100,000 2. Where to file state taxes for free 564   2,564   3rd   100,000 2. Where to file state taxes for free 564   2,564   Example 2. Where to file state taxes for free 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. Where to file state taxes for free You placed the machine in service in January, the furniture in September, and the computer in October. Where to file state taxes for free You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. Where to file state taxes for free 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. Where to file state taxes for free The total bases of all property you placed in service during the year is $10,000. Where to file state taxes for free 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. Where to file state taxes for free Therefore, you must use the mid-quarter convention for all three items. Where to file state taxes for free You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. Where to file state taxes for free The machine is 7-year property placed in service in the first quarter, so you use Table A-2. Where to file state taxes for free The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. Where to file state taxes for free Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. Where to file state taxes for free Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. Where to file state taxes for free Year Property Basis Percentage Deduction 1st Machine $4,000 25. Where to file state taxes for free 00 $1,000   2nd Machine 4,000 21. Where to file state taxes for free 43 857   1st Furniture 1,000 10. Where to file state taxes for free 71 107   2nd Furniture 1,000 25. Where to file state taxes for free 51 255   1st Computer 5,000 5. Where to file state taxes for free 00 250   2nd Computer 5,000 38. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. Where to file state taxes for free Half-year convention used. Where to file state taxes for free   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. Where to file state taxes for free Mid-quarter convention used. Where to file state taxes for free   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. Where to file state taxes for free Quarter Percentage First 12. Where to file state taxes for free 5% Second 37. Where to file state taxes for free 5 Third 62. Where to file state taxes for free 5 Fourth 87. Where to file state taxes for free 5 Example. Where to file state taxes for free On December 2, 2010, you placed in service an item of 5-year property costing $10,000. Where to file state taxes for free You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Where to file state taxes for free Your unadjusted basis for the property was $10,000. Where to file state taxes for free 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. Where to file state taxes for free Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. Where to file state taxes for free Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. Where to file state taxes for free 80% of $10,000). Where to file state taxes for free You disposed of the property on April 6, 2013. Where to file state taxes for free To determine your depreciation deduction for 2013, first figure the deduction for the full year. Where to file state taxes for free This is $1,368 (13. Where to file state taxes for free 68% of $10,000). Where to file state taxes for free April is in the second quarter of the year, so you multiply $1,368 by 37. Where to file state taxes for free 5% to get your depreciation deduction of $513 for 2013. Where to file state taxes for free Mid-month convention used. Where to file state taxes for free   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. Where to file state taxes for free The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. Where to file state taxes for free The denominator is 12. Where to file state taxes for free Example. Where to file state taxes for free On July 2, 2011, you purchased and placed in service residential rental property. Where to file state taxes for free The property cost $100,000, not including the cost of land. Where to file state taxes for free You used Table A-6 to figure your MACRS depreciation for this property. Where to file state taxes for free You sold the property on March 2, 2013. Where to file state taxes for free You file your tax return based on the calendar year. Where to file state taxes for free A full year of depreciation for 2013 is $3,636. Where to file state taxes for free This is $100,000 multiplied by . Where to file state taxes for free 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . Where to file state taxes for free You then apply the mid-month convention for the 2½ months of use in 2013. Where to file state taxes for free Treat the month of disposition as one-half month of use. Where to file state taxes for free Multiply $3,636 by the fraction, 2. Where to file state taxes for free 5 over 12, to get your 2013 depreciation deduction of $757. Where to file state taxes for free 50. Where to file state taxes for free 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. Where to file state taxes for free Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. Where to file state taxes for free Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. Where to file state taxes for free Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. Where to file state taxes for free 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. Where to file state taxes for free The straight line method is explained later. Where to file state taxes for free You figure depreciation for the year you place property in service as follows. Where to file state taxes for free Multiply your adjusted basis in the property by the declining balance rate. Where to file state taxes for free Apply the applicable convention. Where to file state taxes for free You figure depreciation for all other years (before the year you switch to the straight line method) as follows. Where to file state taxes for free Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. Where to file state taxes for free Multiply this new adjusted basis by the same declining balance rate used in earlier years. Where to file state taxes for free 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. Where to file state taxes for free Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. Where to file state taxes for free Declining balance rate. Where to file state taxes for free   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. Where to file state taxes for free For example, for 3-year property depreciated using the 200% declining balance method, divide 2. Where to file state taxes for free 00 (200%) by 3 to get 0. Where to file state taxes for free 6667, or a 66. Where to file state taxes for free 67% declining balance rate. Where to file state taxes for free For 15-year property depreciated using the 150% declining balance method, divide 1. Where to file state taxes for free 50 (150%) by 15 to get 0. Where to file state taxes for free 10, or a 10% declining balance rate. Where to file state taxes for free   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. Where to file state taxes for free Property Class Method Declining Balance Rate Year 3-year 200% DB 66. Where to file state taxes for free 667% 3rd 5-year 200% DB 40. Where to file state taxes for free 0 4th 7-year 200% DB 28. Where to file state taxes for free 571 5th 10-year 200% DB 20. Where to file state taxes for free 0 7th 15-year 150% DB 10. Where to file state taxes for free 0 7th 20-year 150% DB 7. Where to file state taxes for free 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. Where to file state taxes for free You must use the applicable convention in the year you place the property in service and the year you dispose of the property. Where to file state taxes for free You figure depreciation for the year you place property in service as follows. Where to file state taxes for free Multiply your adjusted basis in the property by the straight line rate. Where to file state taxes for free Apply the applicable convention. Where to file state taxes for free You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. Where to file state taxes for free Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). Where to file state taxes for free Determine the depreciation rate for the year. Where to file state taxes for free Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). Where to file state taxes for free 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. Where to file state taxes for free Straight line rate. Where to file state taxes for free   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. Where to file state taxes for free When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. Where to file state taxes for free If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. Where to file state taxes for free 0 (100%). Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free See Straight line rate in the previous discussion. Where to file state taxes for free Use the applicable convention as explained in the following discussions. Where to file state taxes for free Half-year convention. Where to file state taxes for 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. Where to file state taxes for free You deduct a full year of depreciation for any other year during the recovery period. Where to file state taxes for free   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. Where to file state taxes for free 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. Where to file state taxes for free 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. Where to file state taxes for free Mid-quarter convention. Where to file state taxes for free   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. Where to file state taxes for free   A quarter of a full 12-month tax year is a period of 3 months. Where to file state taxes for free The first quarter in a year begins on the first day of the tax year. Where to file state taxes for free The second quarter begins on the first day of the fourth month of the tax year. Where to file state taxes for free The third quarter begins on the first day of the seventh month of the tax year. Where to file state taxes for free The fourth quarter begins on the first day of the tenth month of the tax year. Where to file state taxes for free A calendar year is divided into the following quarters. Where to file state taxes for free 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. Where to file state taxes for free Quarter Percentage First 87. Where to file state taxes for free 5% Second 62. Where to file state taxes for free 5 Third 37. Where to file state taxes for free 5 Fourth 12. Where to file state taxes for free 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. Where to file state taxes for free Quarter Percentage First 12. Where to file state taxes for free 5% Second 37. Where to file state taxes for free 5 Third 62. Where to file state taxes for free 5 Fourth 87. Where to file state taxes for free 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. Where to file state taxes for free Mid-month convention. Where to file state taxes for free   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. Where to file state taxes for free Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. Where to file state taxes for free The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. Where to file state taxes for free 5). Where to file state taxes for free The denominator is 12. Where to file state taxes for free   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. Where to file state taxes for free 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. Where to file state taxes for free Example. Where to file state taxes for free You use the calendar year and place nonresidential real property in service in August. Where to file state taxes for free The property is in service 4 full months (September, October, November, and December). Where to file state taxes for free Your numerator is 4. Where to file state taxes for free 5 (4 full months plus 0. Where to file state taxes for free 5). Where to file state taxes for free You multiply the depreciation for a full year by 4. Where to file state taxes for free 5/12, or 0. Where to file state taxes for free 375. Where to file state taxes for free Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. Where to file state taxes for free Figures are rounded for purposes of the examples. Where to file state taxes for free Assume for all the examples that you use a calendar year as your tax year. Where to file state taxes for free Example 1—200% DB method and half-year convention. Where to file state taxes for free In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. Where to file state taxes for free You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. Where to file state taxes for free You use GDS and the 200% declining balance (DB) method to figure your depreciation. Where to file state taxes for free When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. Where to file state taxes for free You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. Where to file state taxes for free First year. Where to file state taxes for free You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). Where to file state taxes for free The result is 40%. Where to file state taxes for free You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. Where to file state taxes for free You apply the half-year convention by dividing the result ($400) by 2. Where to file state taxes for free Depreciation for the first year under the 200% DB method is $200. Where to file state taxes for free You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. Where to file state taxes for free The result is 20%. Where to file state taxes for free You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. Where to file state taxes for free You apply the half-year convention by dividing the result ($200) by 2. Where to file state taxes for free Depreciation for the first year under the SL method is $100. Where to file state taxes for free The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. Where to file state taxes for free Second year. Where to file state taxes for free You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). Where to file state taxes for free You multiply the result ($800) by the DB rate (40%). Where to file state taxes for free Depreciation for the second year under the 200% DB method is $320. Where to file state taxes for free You figure the SL depreciation rate by dividing 1 by 4. Where to file state taxes for free 5, the number of years remaining in the recovery period. Where to file state taxes for free (Based on the half-year convention, you used only half a year of the recovery period in the first year. Where to file state taxes for free ) You multiply the reduced adjusted basis ($800) by the result (22. Where to file state taxes for free 22%). Where to file state taxes for free Depreciation under the SL method for the second year is $178. Where to file state taxes for free The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. Where to file state taxes for free Third year. Where to file state taxes for free You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). Where to file state taxes for free You multiply the result ($480) by the DB rate (40%). Where to file state taxes for free Depreciation for the third year under the 200% DB method is $192. Where to file state taxes for free You figure the SL depreciation rate by dividing 1 by 3. Where to file state taxes for free 5. Where to file state taxes for free You multiply the reduced adjusted basis ($480) by the result (28. Where to file state taxes for free 57%). Where to file state taxes for free Depreciation under the SL method for the third year is $137. Where to file state taxes for free The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. Where to file state taxes for free Fourth year. Where to file state taxes for free You reduce the adjusted basis ($480) by the de