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2008 1040x

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2008 1040x

2008 1040x Accelerated Cost Recovery System (ACRS) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: ACRS Defined What Can and Cannot Be Depreciated Under ACRSRecovery Property Nonrecovery Property How To Figure the DeductionUnadjusted Basis Classes of Recovery Property Recovery Periods Alternate ACRS Method (Modified Straight Line Method) ACRS Deduction in Short Tax Year DispositionsEarly dispositions of ACRS property other than 15-, 18-, or 19-year real property. 2008 1040x Dispositions — mass asset accounts. 2008 1040x Early dispositions — 15-year real property. 2008 1040x Early dispositions — 18- and 19-year real property. 2008 1040x Depreciation Recapture Topics - This chapter discusses: The definition of ACRS What can and cannot be depreciated under ACRS How to figure the deduction Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization The Accelerated Cost Recovery System (ACRS) applies to property first used before 1987. 2008 1040x It is the name given to tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. 2008 1040x These rules are mandatory and generally apply to tangible property placed in service after 1980 and before 1987. 2008 1040x If you placed property in service during this period, you must continue to figure your depreciation under ACRS. 2008 1040x If you used listed property placed in service after June 18, 1984, less than 50% for business in 1995, see Predominant Use Test in chapter 3. 2008 1040x Listed property includes cars, other means of transportation, and certain computers. 2008 1040x Any additions or improvements placed in service after 1986, including any components of a building (such as plumbing, wiring, storm windows, etc. 2008 1040x ), are depreciated using MACRS, discussed in chapter 3 of Publication 946. 2008 1040x It does not matter that the underlying property is depreciated under ACRS or one of the other methods. 2008 1040x ACRS Defined ACRS consists of accelerated depreciation methods and an alternate ACRS method that could have been elected. 2008 1040x The alternate ACRS method used a recovery percentage based on a modified straight line method. 2008 1040x The law prescribes fixed percentages to be uses for each class of property. 2008 1040x Property depreciable under ACRS is called recovery property. 2008 1040x The recovery class of property determines the recovery period. 2008 1040x Generally, the class life of property places it in a 3-year, 5-year, 10-year, 15-year, 18-year, or 19-year recovery class. 2008 1040x Under ACRS, the prescribed percentages are used to recover the unadjusted basis of recovery property. 2008 1040x To figure a depreciation deduction, you multiply the prescribed percentage for the recovery class by the unadjusted basis of the recovery property. 2008 1040x You must continue to figure your depreciation under ACRS for property placed in service after 1980 and before 1987. 2008 1040x For property you placed in service after 1986, you must use MACRS, discussed in chapter 3 of Publication 946. 2008 1040x What Can and Cannot Be Depreciated Under ACRS ACRS applies to most depreciable tangible property placed in service after 1980 and before 1987. 2008 1040x It includes new or used and real or personal property. 2008 1040x The property must be for use in a trade or business or for the production of income. 2008 1040x Property you acquired before 1981 or after 1986 is not ACRS recovery property. 2008 1040x For information on depreciating property acquired before 1981, see chapter 2. 2008 1040x For information on depreciating property acquired after 1986, see chapter 3 of Publication 946. 2008 1040x Recovery Property Recovery property under ACRS is tangible depreciable property placed in service after 1980 and before 1987. 2008 1040x It generally includes new or used property that you acquired after 1980 and before 1987 for use in your trade or business or for the production of income. 2008 1040x Nonrecovery Property You cannot use ACRS for property you placed in service before 1981 or after 1986. 2008 1040x Nonrecovery property also includes: Intangible property, Property you elected to exclude from ACRS that is properly depreciated under a method of depreciation that is not based on a term of years, Certain public utility property, and Certain property acquired and excluded from ACRS because of the antichurning rules. 2008 1040x Intangible property. 2008 1040x   Intangible property is not depreciated under ACRS. 2008 1040x Property depreciated under methods not expressed in a term of years. 2008 1040x   Certain property depreciated under a method not expressed in a term of years is not depreciated under ACRS. 2008 1040x This included any property: If you made an irrevocable election to exclude such property, and In the first year that you could have claimed depreciation, you properly used the unit-of-production method or any method of depreciation not expressed in a term of years (not including the retirement-replacement-betterment method). 2008 1040x Public utility property. 2008 1040x   Public utility property for which the taxpayer does not use a normalization method of accounting is excluded from ACRS and is subject to depreciation under a special rule. 2008 1040x Additions or improvements to ACRS property after 1986. 2008 1040x   Any additions or improvements placed in service after 1986, including any components of a building (plumbing, wiring, storm windows, etc. 2008 1040x ) are depreciated using MACRS, discussed in chapter 3 of Publication 946. 2008 1040x It does not matter that the underlying property is depreciated under ACRS or one of the other methods. 2008 1040x How To Figure the Deduction After you determine that your property can be depreciated under ACRS, you are ready to figure your deduction. 2008 1040x Because the conventions are built into the percentage table rates, you only need to know the following: The unadjusted basis of your recovery property, The classes of recovery property, The recovery periods, and Whether to use the prescribed percentages based on accelerated methods or percentages based on using the alternate ACRS method. 2008 1040x Unadjusted Basis To figure your ACRS deduction, you multiply the unadjusted basis in your recovery property by its applicable percentage for the year. 2008 1040x Unadjusted basis is the same amount you would use to figure gain on a sale, but it is figured without taking into account any depreciation taken in earlier years. 2008 1040x However, reduce your original basis by the amount of amortization taken on the property and by any section 179 deduction claimed as discussed in chapter 2 of Publication 946. 2008 1040x If you buy property, your unadjusted basis is usually its cost minus any amortized amount and minus any section 179 deduction elected. 2008 1040x If you acquire property in some other way, such as by inheriting it, getting it as a gift, or building it yourself, you figure your unadjusted basis under other rules. 2008 1040x See Publication 551. 2008 1040x Classes of Recovery Property All recovery property under ACRS is in one of the following classes. 2008 1040x The class for your property was determined when you began to depreciate it. 2008 1040x 3-Year Property 3-year property includes automobiles, light-duty trucks (actual unloaded weight less than 13,000 pounds), and tractor units for use over-the-road. 2008 1040x Race horses over 2 years old when placed in service are 3-year property. 2008 1040x Any other horses over 12 years old when you placed them in service are also included in the 3-year property class. 2008 1040x The ACRS percentages for 3-year recovery property are: Recovery Period Percentage 1st year 25% 2nd year 38% 3rd year 37% If you used the percentages above to depreciate your 3-year recovery property, your property, except for certain passenger automobiles, is fully depreciated. 2008 1040x You cannot claim depreciation for this property after 1988. 2008 1040x 5-Year Property 5-year property includes computers, copiers, and equipment, such as office furniture and fixtures. 2008 1040x It also includes single purpose agricultural or horticultural structures and petroleum storage facilities (other than buildings and their structural components). 2008 1040x The ACRS percentages for 5-year recovery property are: Recovery period Percentage 1st year 15% 2nd year 22% 3rd through 5th year 21% If you used the percentages above to depreciate your 5-year recovery property, it is fully depreciated. 2008 1040x You cannot claim depreciation for this property after 1990. 2008 1040x 10-Year Property 10-year property includes certain real property such as theme-park structures and certain public utility property. 2008 1040x Manufactured homes (including mobile homes) and railroad tank cars are also 10-year property. 2008 1040x You do not treat a building, and its structural components, as 10-year property by reason of a change in use after you placed the property in service. 2008 1040x For example, a building (15-year real property) that was placed in service in 1981 and was converted to a theme-park structure in 1986 remains 15-year real property. 2008 1040x The ACRS percentages for 10-year recovery property are: Recovery Period Percentage 1st year 8% 2nd year 14% 3rd year 12% 4th through 6th year 10% 7th through 10th year 9% If you used the percentages above, you cannot claim depreciation for this property after 1995. 2008 1040x Example. 2008 1040x On April 21, 1986, you bought and placed in service a new mobile home for $26,000 to be used as rental property. 2008 1040x You paid $10,000 cash and signed a note for $16,000 giving you an unadjusted basis of $26,000. 2008 1040x On June 8, 1986, you bought and placed in service a used mobile home for use as rental property at a total cost of $11,500. 2008 1040x The total unadjusted basis of your 10-year recovery property placed in service in 1986 was $37,500 ($26,000 + $11,500). 2008 1040x Your ACRS deduction was $3,000 (8% × $37,500). 2008 1040x In 1987, your ACRS deduction was $5,250 (14% × $37,500). 2008 1040x In 1988, your ACRS deduction was $4,500 (12% × $37,500). 2008 1040x In 1989, 1990, and 1991, your ACRS deduction was $3,750 (10% × $37,500). 2008 1040x In 1992, 1993, 1994, and 1995 your deduction for each year is $3,375 (9% × $37,500). 2008 1040x 15-Year Real Property 15-year real property is real property that is recovery property placed in service before March 16, 1984. 2008 1040x It includes all real property, such as buildings, other than that designated as 5-year or 10-year property. 2008 1040x Unlike the 3-, 5-, or 10-year classes of property, the percentages for 15-year real property depend on when you placed the property in service during your tax year. 2008 1040x You could group 15-year real property by month and year placed in service. 2008 1040x In Table 1, at the end of this publication in the Appendix, find the month in your tax year that you placed the property in service in your trade or business or for the production of income. 2008 1040x You use the percentages listed under that month for each year of the recovery period to determine your depreciation deduction each year. 2008 1040x Example. 2008 1040x On March 5, 1984, you placed an apartment building in service in your business. 2008 1040x It is 15-year real property. 2008 1040x After subtracting the value of the land, your unadjusted basis in the building is $250,000. 2008 1040x You use the calendar year as your tax year. 2008 1040x March is the third month of your tax year. 2008 1040x Your ACRS deduction for 1984 was $25,000 (10% × $250,000). 2008 1040x For 1985, the percentage for the third month of the second year of the recovery period is 11%. 2008 1040x Your deduction was $27,500 (11% × $250,000). 2008 1040x For the third, fourth, and fifth years of the recovery period (1986, 1987, and 1988), the percentages are 9%, 8%, and 7%. 2008 1040x For 1989 through 1992, the percentage for the third month is 6%. 2008 1040x Your deduction each year is $15,000 (6% × $250,000). 2008 1040x For 1993, 1994, and 1995, the percentage for the third month is 5%. 2008 1040x Your depreciation deduction is $12,500 (5% × $250,000) for 1993, 1994, and 1995. 2008 1040x Low-Income Housing Low-income housing that was assigned a 15-year recovery period under ACRS includes the following types of property: Federally assisted housing projects where the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. 2008 1040x Low-income rental housing for which a depreciation deduction for rehabilitation expenditures is allowed. 2008 1040x Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of state or local laws that authorize similar subsidies for low-income families. 2008 1040x Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. 2008 1040x The ACRS percentages for low-income housing real property, like the regular 15-year real property percentages, depend on when you placed the property in service. 2008 1040x Find the month in your tax year in Table 2 or 3 at the end of this publication in the Appendix that you first placed the property in service as rental housing. 2008 1040x Use the percentages listed under that month for each year of the recovery period. 2008 1040x Table 2 shows percentages for low-income housing placed in service before May 9, 1985. 2008 1040x Table 3 shows percentages for low-income housing placed in service after May 8, 1985, and before 1987. 2008 1040x Example. 2008 1040x In May 1986, you acquired and placed in service a house that qualified as low-income rental housing under item 3) of the above listing. 2008 1040x You use the calendar year as your tax year. 2008 1040x You use Table C–3 because the property was placed in service after May 8, 1985. 2008 1040x Your unadjusted basis for the property, not including the land, was $59,000. 2008 1040x Your deduction for 1986 through 2001 is shown in the following table. 2008 1040x Year Rate Deduction 1986 8. 2008 1040x 9% $5,251 1987 12. 2008 1040x 1% 7,139 1988 10. 2008 1040x 5% 6,195 1989 9. 2008 1040x 1% 5,369 1990 7. 2008 1040x 9% 4,661 1991 6. 2008 1040x 9% 4,071 1992 5. 2008 1040x 9% 3,481 1993 5. 2008 1040x 2% 3,068 1994 4. 2008 1040x 6% 2,714 1995 4. 2008 1040x 6% 2,714 1996 4. 2008 1040x 6% 2,714 1997 4. 2008 1040x 6% 2,714 1998 4. 2008 1040x 6% 2,714 1999 4. 2008 1040x 5% 2,655 2000 4. 2008 1040x 5% 2,655 2001 1. 2008 1040x 5% 885 18-Year Real Property 18-year real property is real property that is recovery property placed in service after March 15, 1984, and before May 9, 1985. 2008 1040x It includes real property, such as buildings, other than that designated as 5-year, 10-year, 15-year real property, or low-income housing. 2008 1040x The ACRS percentages for 18-year real property depend on when you placed the property in service in your trade or business or for the production of income during your tax year. 2008 1040x There are also tables for 18-year real property in the Appendix. 2008 1040x Table 4 shows the percentages for 18-year real property you placed in service after June 22, 1984, and before May 9, 1985. 2008 1040x Table 5 is for 18-year real property placed in service after March 15, 1984, and before June 23, 1984. 2008 1040x Find the month in your tax year that you placed the property in service in a trade or business or for the production of income. 2008 1040x Use the percentages listed under that month for each year of the recovery period. 2008 1040x Example. 2008 1040x On April 28, 1985, you bought and placed in service a rental house. 2008 1040x The house, not including the land, cost $95,000. 2008 1040x This is your unadjusted basis for the house. 2008 1040x You use the calendar year as your tax year. 2008 1040x Because the house was placed in service after June 22, 1984, and before May 9, 1985, it is 18-year real property. 2008 1040x You use Table 4 to figure your deduction for the house. 2008 1040x April is the fourth month of your tax year. 2008 1040x Your deduction for 1985 through 2003 is shown in the following table. 2008 1040x Year Rate Deduction 1985 7. 2008 1040x 0% $6,650 1986 9. 2008 1040x 0% 8,550 1987 8. 2008 1040x 0% 7,600 1988 7. 2008 1040x 0% 6,650 1989 7. 2008 1040x 0% 6,650 1990 6. 2008 1040x 0% 5,700 1991 5. 2008 1040x 0% 4,750 1992 5. 2008 1040x 0% 4,750 1993 5. 2008 1040x 0% 4,750 1994 5. 2008 1040x 0% 4,750 1995 5. 2008 1040x 0% 4,750 1996 5. 2008 1040x 0% 4,750 1997 5. 2008 1040x 0% 4,750 1998 4. 2008 1040x 0% 3,800 1999 4. 2008 1040x 0% 3,800 2000 4. 2008 1040x 0% 3,800 2001 4. 2008 1040x 0% 3,800 2002 4. 2008 1040x 0% 3,800 2003 1. 2008 1040x 0% 950 19-Year Real Property 19-year real property is real property that is recovery property placed in service after May 8, 1985, and before 1987. 2008 1040x It includes all real property, other than that designated as 5-year, 10-year, 15-year, or 18-year real property, or low-income housing. 2008 1040x The ACRS percentages for 19-year real property depend on when you placed the property in service in a trade or business or for the production of income during your tax year. 2008 1040x Table 6 shows the percentages for 19-year real property. 2008 1040x You find the month in your tax year that you placed the property in service. 2008 1040x You use the percentages listed under that month for each year of the recovery period. 2008 1040x Recovery Periods Each item of recovery property is assigned to a class of property. 2008 1040x The classes of recovery property establish the recovery periods over which the unadjusted basis of items in a class is recovered. 2008 1040x The classes of property are: 3-Year property 5-Year property 10-Year property 15-Year real property Low-income housing 18-Year real property 19-Year real property Alternate ACRS Method (Modified Straight Line Method) ACRS provides an alternate ACRS method that could be elected. 2008 1040x This alternate ACRS method uses a recovery percentage based on a modified straight line method. 2008 1040x This alternate ACRS method generally uses percentages other than those from the tables. 2008 1040x If you elected the alternate ACRS method, you determine the recovery period by using the following schedule. 2008 1040x This schedule is for other than 18- and 19-year real property and low-income housing: In the case of: You could have elected a recovery period of: 3-year property 3, 5, or 12 years 5-year property 5, 12, or 25 years 15-year real property 15, 35, or 45 years Percentages. 2008 1040x   The straight-line percentages for the alternate ACRS method are: Recovery Period Percentage 5 years 20. 2008 1040x 00% 10 years 10. 2008 1040x 00% 12 years 8. 2008 1040x 333% 15 years 6. 2008 1040x 667% 25 years 4. 2008 1040x 00% 35 years 2. 2008 1040x 857%   You apply the percentage to the unadjusted basis(defined earlier) of the property to figure your ACRS deduction. 2008 1040x There are tables for 18- and 19-year real property later in this publication in the Appendix. 2008 1040x For 15-year real property, see 15-year real property, later. 2008 1040x 3-, 5-, and 10-year property. 2008 1040x   If you elected to use an alternate recovery percentage, you have to use the same recovery percentage for all property in that class that you placed in service in that tax year. 2008 1040x This applies throughout the recovery period you selected. 2008 1040x Half-year convention. 2008 1040x   If you elected the alternate method, only a half-year of depreciation was deducted for the year you placed the property in service. 2008 1040x This applied regardless of when in the tax year you placed the property in service. 2008 1040x For each of the remaining years in the recovery period, you take a full year's deduction. 2008 1040x If you hold the property for the entire recovery period, a half-year of depreciation is allowable for the year following the end of the recovery period. 2008 1040x Example. 2008 1040x You operate a small upholstery business. 2008 1040x On March 19, 1986, you bought and placed in service a $13,000 light-duty panel truck to be used in your business and a $500 electric saw. 2008 1040x You elected to use the alternate ACRS method. 2008 1040x You did not elect to take a section 179 deduction. 2008 1040x You decided to recover the cost of the truck, which is 3-year recovery property, over 5 years. 2008 1040x The saw is 5-year property, but you decided to recover its cost over 12 years. 2008 1040x For 1986, your ACRS deduction reflected the half-year convention. 2008 1040x In the first year, you deducted half of the amount determined for a full year. 2008 1040x Your ACRS deduction for 1986 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. 2008 1040x 00     Electric saw   12 years straight line = 8. 2008 1040x 333% 8. 2008 1040x 333% ÷ $500 = $41. 2008 1040x 67 Half-year convention -½ of $41. 2008 1040x 67= 20. 2008 1040x 84 Total ACRS deduction for 1986 $1,320. 2008 1040x 84       You take a full year of depreciation for both the truck and the saw for the years 1987 through 1990. 2008 1040x Your ACRS deduction for each of those years is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600     Electric saw     12 years straight line = 8. 2008 1040x 333% 8. 2008 1040x 333% ÷ $500 = $41. 2008 1040x 67 Total annual ACRS deduction for 1987 through 1990 $2,641. 2008 1040x 67       In 1991, you take a half-year of depreciation for the truck and a full year of depreciation for the saw. 2008 1040x Your ACRS deduction for 1991 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. 2008 1040x 00     Electric saw   12 years straight line = 8. 2008 1040x 333% 8. 2008 1040x 333% ÷ $500 = $41. 2008 1040x 67 Total ACRS deduction for 1991 $1,341. 2008 1040x 67       The truck is fully depreciated after 1991. 2008 1040x You take a full year of depreciation for the saw for the years 1992 through 1997. 2008 1040x Your ACRS deduction for each of those years is as follows: Electric saw     12 years straight line = 8. 2008 1040x 333% 8. 2008 1040x 333% ÷ $500 = $41. 2008 1040x 67 Total annual ACRS deduction for 1992 through 1997 $41. 2008 1040x 67       You take a half-year of depreciation for the saw for 1998. 2008 1040x Your ACRS deduction for 1998 is as follows: Electric saw   12 years straight line = 8. 2008 1040x 333% 8. 2008 1040x 333% ÷ $500 = $41. 2008 1040x 67 Half-year convention -½ of $41. 2008 1040x 67= 20. 2008 1040x 84 Total ACRS deduction for 1998 $20. 2008 1040x 84       The saw is fully depreciated after 1998. 2008 1040x 15-year real property. 2008 1040x   Under ACRS, you could also elect to use the alternate ACRS method for 15-year real property. 2008 1040x The alternate ACRS method allows you to depreciate your 15-year real property using the straight line ACRS method over the alternate recovery periods of 15, 35, or 45 years. 2008 1040x If you selected a 15-year recovery period, you use the percentage (6. 2008 1040x 667%) from the schedule above. 2008 1040x You prorate this percentage for the number of months the property was in service in the first year. 2008 1040x If you selected a 35- or 45-year recovery period, you use either Table 11 or 15. 2008 1040x Alternate periods for 18-year real property. 2008 1040x   For 18-year real property, the alternate recovery periods are 18, 35, or 45 years. 2008 1040x The percentages for 18-year real property under the alternate method are in Tables 7, 8, 10, 11, 14, and 15 in the Appendix. 2008 1040x There are two tables for each alternate recovery period. 2008 1040x One table shows the percentage for property placed in service after June 22, 1984. 2008 1040x The other table has the percentages for property placed in service after March 15, 1984, and before June 23, 1984. 2008 1040x Alternate periods for 19-year real property. 2008 1040x   For 19-year real property, the alternate recovery periods are 19, 35, or 45 years. 2008 1040x If you selected a 19-year recovery period, use Table 9 to determine your deduction. 2008 1040x If you select a 35- or 45-year recovery period, use either Table 13 or 14. 2008 1040x Example. 2008 1040x You placed in service an apartment building on August 3, 1986. 2008 1040x The building is 19-year real property. 2008 1040x The sales contract allocated $300,000 to the building and $100,000 to the land. 2008 1040x You use the calendar year as your tax year. 2008 1040x You chose the alternate ACRS method over a recovery period of 35 years. 2008 1040x For 1986, you figure your ACRS deduction usingTable 13. 2008 1040x August is the eighth month of your tax year. 2008 1040x The percentage from Table 13 for the eighth month is 1. 2008 1040x 1%. 2008 1040x Your deduction was $3,300 ($300,000 ÷ 1. 2008 1040x 1%). 2008 1040x The deduction rate from ACRS Table 13 for years 2 through 20 is 2. 2008 1040x 9% so that your deduction in 1987 through 2005 is $8,700 ($300,000 ÷ 2. 2008 1040x 9%). 2008 1040x Alternate periods for low-income housing. 2008 1040x   For low-income housing, the alternate recovery periods are 15, 35, or 45 years. 2008 1040x If you selected a 15-year period for this property, use 6. 2008 1040x 667% as the percentage. 2008 1040x If you selected a 35- or 45-year period, use either Table 11, 12, or 15. 2008 1040x Election. 2008 1040x   You had to make the election to use the alternate ACRS method by the return due date (including extensions) for the tax year you placed the property in service. 2008 1040x Revocation of election. 2008 1040x   Your election to use an alternate ACRS method, once made, can be changed only with the consent of the Commissioner. 2008 1040x The Commissioner grants consent only in extraordinary circumstances. 2008 1040x Any request for a revocation will be considered a request for a ruling. 2008 1040x ACRS Deduction in Short Tax Year For a tax year that is less than 12 months, the ACRS deduction is prorated on a 12-month basis. 2008 1040x Figure the amount of the ACRS deduction for a short tax year as follows: First, you figure the ACRS deduction for a full year. 2008 1040x You figure this by multiplying the unadjusted basis by the recovery percentage. 2008 1040x You then multiply the ACRS deduction determined for a full tax year by a fraction. 2008 1040x The numerator (top number) of the fraction is the number of months in the short tax year and the denominator (bottom number) is 12. 2008 1040x For example, a corporation placed in service in June 1986 an item of 3-year property with an unadjusted basis of $10,000. 2008 1040x The corporation files a tax return, because of a change in its accounting period, for the 6-month short tax year ending June 30, 1986. 2008 1040x The full year's ACRS deduction for this item is $2,500 ($10,000 ÷ 25%), the first year percentage from the 3-year table. 2008 1040x The ACRS deduction for the short tax year is $1,250 ($2,500 ÷ 6/12). 2008 1040x You use the full ACRS percentages during the remaining years of the recovery period. 2008 1040x For the first tax year after the recovery period, the unrecovered basis will be deductible. 2008 1040x Exception. 2008 1040x   For the tax year in which you placed 15-, 18-, or 19-year real property in service or in the tax year you dispose of it, you compute the ACRS deduction for the number of months that the property is in service during that tax year. 2008 1040x You compute the number of months using either a full month or mid-month convention. 2008 1040x This is true regardless of the number of months in the tax year and the recovery period and method used. 2008 1040x Dispositions A disposition is the permanent withdrawal of property from use in your trade or business or in the production of income. 2008 1040x You can make a withdrawal by sale, exchange, retirement, abandonment, or destruction. 2008 1040x You generally recognize gain or loss on the disposition of an asset by sale. 2008 1040x However, nonrecognition rules can allow you to postpone some gain. 2008 1040x See Publication 544. 2008 1040x If you physically abandon property, you can deduct as a loss the adjusted basis of the asset at the time of its abandonment. 2008 1040x Your intent must be to discard the asset so that you will not use it again or retrieve it for sale, exchange, or other disposition. 2008 1040x Early dispositions. 2008 1040x   The disposal of an asset before the end of its specified recovery period, is referred to as an early disposition. 2008 1040x When an early disposition occurs, the depreciation deduction in the year of disposition depends on the class of property involved. 2008 1040x Early dispositions of ACRS property other than 15-, 18-, or 19-year real property. 2008 1040x   Generally, you get no ACRS deduction for the tax year in which you dispose of or retire recovery property, except for 15-, 18-, and 19-year real property. 2008 1040x This means there is no depreciation deduction under ACRS in the year you dispose of or retire any of your 3-, 5-, or 10-year recovery property. 2008 1040x Dispositions — mass asset accounts. 2008 1040x   The law provides a special rule to avoid the calculation of gain on the disposition of assets from mass asset accounts. 2008 1040x A mass asset account includes items usually minor in value in relation to the group, numerous in quantity, impractical to separately identify, and not usually accounted for on a separate basis, but on a total dollar value. 2008 1040x Examples of mass assets include minor items of office, plant, and store furniture and fixtures. 2008 1040x   Under the special rule, if you elected to use a mass asset account, you recognize gain to the extent of the proceeds from the disposition of the asset. 2008 1040x You leave the unadjusted basis of the property in the account until recovered in future years. 2008 1040x If you did this, include the total proceeds realized from the disposition in income on the tax return for the year of disposition. 2008 1040x Early dispositions — 15-year real property. 2008 1040x   If you dispose of 15-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. 2008 1040x You use a full-month convention. 2008 1040x For a disposition at any time during a particular month before the end of the recovery period, no deduction is allowed for the month of disposition. 2008 1040x This applies whether you use the regular ACRS method or elected the alternate ACRS method. 2008 1040x Example. 2008 1040x You purchased and placed in service a rental house on March 2, 1984, for $98,000 (not including the cost of land). 2008 1040x You file your return based on a calendar year. 2008 1040x Your rate from Table 1 for the third month is 10%. 2008 1040x Your ACRS deduction for 1984 was $9,800 ($98. 2008 1040x 000 ÷ 10%). 2008 1040x For 1985 through 1988, you figured your ACRS deductions using 11%, 9%, 8%, and 7% ÷ $98,000. 2008 1040x For 1989 through 1992, you figured your ACRS deductions using 6% for each year. 2008 1040x The deduction each year was $98,000 ÷ 6%. 2008 1040x For 1993 and 1994, the ACRS deduction is ($98,000 ÷ 5%) $4,900 for each year. 2008 1040x You sell the house on June 1, 1995. 2008 1040x You figure your ACRS deduction for 1995 for the full year and then prorate that amount for the months of use. 2008 1040x The full ACRS deduction for 1995 is $4,900 ($98,000 ÷ 5%). 2008 1040x You then prorate this amount to the 5 months in 1995 during which it was rented. 2008 1040x Your ACRS deduction for 1995 is $2,042 ($4,900 ÷ 5/12). 2008 1040x Early dispositions — 18- and 19-year real property. 2008 1040x   If you dispose of 18- or 19-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. 2008 1040x For 18-year property placed in service before June 23, 1984, use a full-month convention on a disposition. 2008 1040x For 18-year property placed in service after June 22, 1984, and for 19-year property, determine the number of months in use by using the mid-month convention. 2008 1040x Under the mid-month convention,treat real property disposed of any time during a month as disposed of in the middle of that month. 2008 1040x Count the month of disposition as half a month of use. 2008 1040x Example. 2008 1040x You purchased and placed in service a rental house on July 2, 1984, for $100,000 (not including the cost of land). 2008 1040x You file your return based on a calendar year. 2008 1040x Your rate from Table 4 for the seventh month is 4%. 2008 1040x You figured your ACRS deduction for 1984 was $4,000 ($100,000 ÷ 4%). 2008 1040x In 1985 through 1994, your ACRS deductions were 9%, 8%, 8%, 7%, 6%, 6%, 5%, 5%, and 5% ÷ $100,000. 2008 1040x You sell the house on September 24, 1995. 2008 1040x Figure your ACRS deduction for 1995 for the months of use. 2008 1040x The full ACRS deduction for 1995 is $5,000 ($100,000 ÷ 5%). 2008 1040x Prorate this amount for the 8. 2008 1040x 5 months in 1995 that you held the property. 2008 1040x Under the mid-month convention, you count September as half a month. 2008 1040x Your ACRS deduction for 1995 is $3,542 ($5,000 ÷ 8. 2008 1040x 5/12). 2008 1040x Depreciation Recapture If you dispose of property depreciated under ACRS that is section 1245 recovery property, you will generally recognize gain or loss. 2008 1040x Gain recognized on a disposition is ordinary income to the extent of prior depreciation deductions taken. 2008 1040x This recapture rule applies to all personal property in the 3-year, 5-year, and 10-year classes. 2008 1040x You recapture gain on manufactured homes and theme park structures in the 10-year class as section 1245 property. 2008 1040x Section 1245 property generally includes all personal property. 2008 1040x See Section 1245 property in chapter 4 of Publication 544 for more information. 2008 1040x You treat dispositions of section 1250 real property on which you have a gain as section 1245 recovery property. 2008 1040x You recognize gain on this property as ordinary income to the extent of prior depreciation deductions taken. 2008 1040x Section 1250 property includes most real property. 2008 1040x See Section 1250 property in chapter 4 of Publication 544 for more information. 2008 1040x This rule applies to all section 1250 real property except the following property: Any 15-, 18-, or 19-year real property that is residential rental property. 2008 1040x Any 15-, 18-, or 19-year real property that you elected to depreciate using the alternate ACRS method. 2008 1040x Any 15-, 18-, or 19-year real property that is subsidized low-income housing. 2008 1040x For these recapture rules, you treat the section 179 deduction and 50% of the investment credit that reduced your basis as depreciation. 2008 1040x See Publication 544 for further discussion of dispositions of section 1245 and 1250 property. 2008 1040x Prev  Up  Next   Home   More Online Publications
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The 2008 1040x

2008 1040x Index A Abandonment of home, Abandonment. 2008 1040x Absence, temporary, Temporary absence. 2008 1040x Abstract fees, Settlement fees or closing costs. 2008 1040x Address, change of, Reminders Adjusted basis, Adjusted Basis, Adjusted Basis Definition of, Determining Basis Worksheet 1 to figure, Determining Basis, Worksheet 1. 2008 1040x Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 1. 2008 1040x Adjusted Basis of Home Sold—Illustrated Example 3 for Emily White, Worksheet 1 Instructions. 2008 1040x Adjusted Basis of Home Sold Adoption Adjusted basis of home for credit claimed, Decreases to Basis Advertising fees, Selling expenses. 2008 1040x Amount realized, Amount Realized Appraisal fees, Settlement fees or closing costs. 2008 1040x Architect's fees, Construction. 2008 1040x Armed forces Ownership and use tests, Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. 2008 1040x Assistance (see Tax help) B Back interest, Settlement fees or closing costs. 2008 1040x Basis Adjusted basis (see Adjusted basis) Determination of, Determining Basis, Adjusted Basis Other than cost, Basis Other Than Cost Building permit fees, Construction. 2008 1040x Business use of home, Business Use or Rental of Home, Use test met for business part (with no business use in year of sale). 2008 1040x C Casualties Amounts spent after to restore damaged property, Increases to Basis Deductible casualty losses, Decreases to Basis Disaster as cause of, Specific event safe harbors. 2008 1040x Insurance payments for casualty losses, Decreases to Basis Change of address, Reminders Closing costs, Settlement fees or closing costs. 2008 1040x Commissions, Selling expenses. 2008 1040x , Settlement fees or closing costs. 2008 1040x Community property Basis determination, Community property. 2008 1040x Condemnation Gain exclusion, Home destroyed or condemned. 2008 1040x Ownership and use test when previous home condemned, Previous home destroyed or condemned. 2008 1040x Condominiums As main home, Main Home Basis determination, Condominium. 2008 1040x Construction costs, Construction. 2008 1040x Built by you, Built by you. 2008 1040x Cooperative apartments As main home, Main Home Basis determination, Cooperative apartment. 2008 1040x Ownership and use tests, Cooperative apartment. 2008 1040x Cost as basis, Cost As Basis Credit reports Cost of obtaining, Settlement fees or closing costs. 2008 1040x D Date of sale, Date of sale. 2008 1040x Death Sale due to, Specific event safe harbors. 2008 1040x Spouse's death before sale, ownership and use tests, Sale of main home by surviving spouse. 2008 1040x Decreases to basis, Decreases to Basis Depreciation After May 6, 1997, Depreciation after May 6, 1997. 2008 1040x Home used for business or rental purposes, Decreases to Basis Destroyed homes Gain exclusion, Home destroyed or condemned. 2008 1040x Ownership and use test when previous home destroyed, Previous home destroyed or condemned. 2008 1040x Disabilities, individuals with Ownership and use test, Exception for individuals with a disability. 2008 1040x Disasters, Specific event safe harbors. 2008 1040x Discharge of qualified principal residence indebtedness, Adjusted Basis Divorce Home received from spouse, Home received from spouse. 2008 1040x Home transferred to spouse, Transfer to spouse. 2008 1040x Ownership and use tests, Home transferred from spouse. 2008 1040x Sale due to, Specific event safe harbors. 2008 1040x Transfers after July 18, 1984, Transfers after July 18, 1984. 2008 1040x Transfers before July 19, 1984, Transfers before July 19, 1984. 2008 1040x Use of home after divorce, Use of home after divorce. 2008 1040x Doctor's recommendation for sale, Doctor's recommendation safe harbor. 2008 1040x E Easements, Decreases to Basis Employee of the intelligence community, Employee of the intelligence community. 2008 1040x Employment Change in place of employment, Change in Place of Employment Payment by employer, when job transfer involved, Payment by employer. 2008 1040x Energy Conservation subsidies, Decreases to Basis Credit, Decreases to Basis Exclusion of gain, Excluding the Gain, Nonqualified Use Reduced maximum exclusion, Reduced Maximum Exclusion Expatriates, Expatriates. 2008 1040x F Federal mortgage subsidies Recapture of, Recapturing (Paying Back) a Federal Mortgage Subsidy Figuring gain or loss, Figuring Gain or Loss, More information. 2008 1040x Fire insurance premiums, Settlement fees or closing costs. 2008 1040x Foreclosure, Foreclosure or repossession. 2008 1040x Foreign Service, Foreign Service member. 2008 1040x Ownership and use tests, Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. 2008 1040x Form 1040 Reporting sale of home, Reporting the Sale Seller-financed mortgages, Seller-financed mortgage. 2008 1040x Form 1040, Schedule A Real estate taxes, Real estate taxes. 2008 1040x Form 1040, Schedule D Reporting sale of home, Reporting the Sale Form 1099-S Proceeds from real estate transactions, Date of sale. 2008 1040x , Form 1099-S. 2008 1040x , Form 1099-S. 2008 1040x Form 2119 Sale of home, Adjusted Basis Form 6252 Installment sale income, Installment sale. 2008 1040x Form 8828 Recapture tax, How to figure and report the recapture. 2008 1040x Form 8960 Net Investment Income Tax, Net Investment Income Tax (NIIT). 2008 1040x NIIT, Net Investment Income Tax (NIIT). 2008 1040x Form 982 Discharge of indebtedness, Adjusted Basis Free tax services, Free help with your tax return. 2008 1040x Future developments, Future Developments G Gain or loss Basis determination, Determining Basis, Adjusted Basis Exclusion of gain, Excluding the Gain Exclusion of gain, nonqualified use, Nonqualified Use Gain on sale, Gain on sale. 2008 1040x Loss on sale, Loss on sale. 2008 1040x Postponed from sale of previous home before May 7, 1997, Decreases to Basis Worksheet 2 to figure, Worksheet 2. 2008 1040x Taxable Gain on Sale of Home—Completed Example 1 for Amy, Worksheet 1. 2008 1040x Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 2. 2008 1040x Taxable Gain on Sale of Home—Illustrated Example 2 for Peter and Betty Clark, Worksheet 2. 2008 1040x Taxable Gain on Sale of Home—Illustrated Example 3 for Emily White, Worksheet 2. 2008 1040x Taxable Gain on Sale of Home Gifts Home received as, Home received as gift. 2008 1040x H Health Sale of home due to, Health Help (see Tax help) Homebuyer credit Recapture, Recapture of the post-2008 first-time homebuyer credit. 2008 1040x Houseboats As main home, Main Home I Important reminders Change of address, Reminders Home sold with undeducted points, Reminders Improvements Adjusted basis determination, Improvements. 2008 1040x Charges for, Settlement fees or closing costs. 2008 1040x Receipts and other records, Adjusted Basis Useful life of more than 1 year, Increases to Basis Increases to basis, Increases to Basis Individual taxpayer identification numbers (ITINs), Individual taxpayer identification number (ITIN). 2008 1040x Inheritance Home received as, Home acquired from a decedent who died before or after 2010. 2008 1040x Installment sales, Installment sale. 2008 1040x Involuntary conversion, Specific event safe harbors. 2008 1040x ITINs (Individual taxpayer identification numbers), Individual taxpayer identification number (ITIN). 2008 1040x J Joint owners not married, Joint owners not married. 2008 1040x Joint returns, Jointly owned home. 2008 1040x Ownership and use tests, Married Persons L Land Sale of land on which home located, Land. 2008 1040x Sale of vacant land, Vacant land. 2008 1040x Legal fees, Selling expenses. 2008 1040x , Settlement fees or closing costs. 2008 1040x , Construction. 2008 1040x Legal separation Sale due to, Specific event safe harbors. 2008 1040x Like-kind exchange, Sale of home acquired in a like-kind exchange. 2008 1040x Living expenses, Reasonable basic living expenses. 2008 1040x Loan assumption fees, Settlement fees or closing costs. 2008 1040x Loan placement fees, Selling expenses. 2008 1040x Loss (see Gain or loss) M Main home Defined, Main Home Factors used to determine, Factors used to determine main home. 2008 1040x Property used partly as, Property used partly as your main home. 2008 1040x , Property Used Partly for Business or Rental Married taxpayers (see Joint returns) Maximum exclusion, Maximum Exclusion Reduced, Reduced Maximum Exclusion Military (see Armed forces) Missing children, photographs of, Reminders Mobile homes As main home, Main Home More than one home, More than one home. 2008 1040x Mortgage fees, Settlement fees or closing costs. 2008 1040x Mortgage insurance premiums, Settlement fees or closing costs. 2008 1040x Mortgage subsidies Recapturing (paying back) federal mortgage subsidy, Recapturing (Paying Back) a Federal Mortgage Subsidy Mortgages, seller-financed, Seller-financed mortgage. 2008 1040x Moving expense, Settlement fees or closing costs. 2008 1040x Multiple births Sale due to, Specific event safe harbors. 2008 1040x N Nonqualified use, Nonqualified Use Nonresident aliens Spouse as, transfer of home to, Exception. 2008 1040x O Option to buy home, Option to buy. 2008 1040x Ownership and use tests, Ownership and Use Tests, Ownership and use tests met at different times. 2008 1040x P Partly used for business, Property Used Partly for Business or Rental Personal property Selling price of home not to include, Personal property. 2008 1040x Points, Selling expenses. 2008 1040x Home sold with undeducted points, Reminders Seller-paid, Seller-paid points. 2008 1040x Publications (see Tax help) R Real estate taxes, Settlement fees or closing costs. 2008 1040x , Real estate taxes. 2008 1040x Deducting in year of sale, Deducting Taxes in the Year of Sale Recapture of federal mortgage subsidy, Recapturing (Paying Back) a Federal Mortgage Subsidy Recapture of first-time homebuyer credit, Recapture of First-Time Homebuyer Credit Recording fees, Settlement fees or closing costs. 2008 1040x Recordkeeping, Adjusted Basis Reduced maximum exclusion, Reduced Maximum Exclusion Worksheet 3, Worksheet 3. 2008 1040x Reduced Maximum Exclusion Refinancing, Settlement fees or closing costs. 2008 1040x Relatives Sale of home to, Exception for sales to related persons. 2008 1040x Remainder interest Sale of, Sale of remainder interest. 2008 1040x Remodeling, Improvements. 2008 1040x , Exception. 2008 1040x (see also Improvements) Rental of home, Business Use or Rental of Home, Use test met for business part (with no business use in year of sale). 2008 1040x Before closing, by buyer, Settlement fees or closing costs. 2008 1040x Partial use, Property Used Partly for Business or Rental Repairs, Settlement fees or closing costs. 2008 1040x , Improvements. 2008 1040x , Repairs. 2008 1040x (see also Improvements) Reporting the sale, Reporting the Sale, Worksheet 2. 2008 1040x Taxable Gain on Sale of Home—Illustrated Example 3 for Emily White Repossession, Foreclosure or repossession. 2008 1040x Right-of-ways, Decreases to Basis S Safe harbors Distance safe harbor, Distance safe harbor. 2008 1040x Doctor's recommendation for sale, Doctor's recommendation safe harbor. 2008 1040x Unforeseeable events, Specific event safe harbors. 2008 1040x Sales commissions, Selling expenses. 2008 1040x , Settlement fees or closing costs. 2008 1040x Sales to related persons, Exception for sales to related persons. 2008 1040x Self-employed persons Change in status causing inability to pay basic expenses, Specific event safe harbors. 2008 1040x Seller-financed mortgages, Seller-financed mortgage. 2008 1040x Seller-paid points, Seller-paid points. 2008 1040x Selling expenses, Selling expenses. 2008 1040x Selling price, Selling Price Separate returns, Separate returns. 2008 1040x Settlement fees, Settlement fees or closing costs. 2008 1040x Spouse Death of (see Surviving spouse) Divorce, transfers subsequent to (see Divorce) Survey fees, Settlement fees or closing costs. 2008 1040x Surviving spouse Basis determination, Surviving spouse. 2008 1040x Ownership and use tests, Sale of main home by surviving spouse. 2008 1040x T Tax help, How To Get Tax Help Temporary absence, Temporary absence. 2008 1040x Temporary housing, Temporary housing. 2008 1040x Title insurance, Settlement fees or closing costs. 2008 1040x Title search fees, Settlement fees or closing costs. 2008 1040x Trading homes, Trading (exchanging) homes. 2008 1040x , Home received as trade. 2008 1040x Transfer taxes, Settlement fees or closing costs. 2008 1040x , Transfer taxes. 2008 1040x Transfer to spouse, Transfer to spouse. 2008 1040x After July 18, 1984, Transfers after July 18, 1984. 2008 1040x Before July 19, 1984, Transfers before July 19, 1984. 2008 1040x TTY/TDD information, How To Get Tax Help U Unemployment, Specific event safe harbors. 2008 1040x Unforeseen circumstances, Unforeseen Circumstances Uniformed services (see Armed forces) Use tests, Ownership and Use Tests, Ownership and use tests met at different times. 2008 1040x Utilities Charges for installing, Settlement fees or closing costs. 2008 1040x Charges related to occupancy of house before closing, Settlement fees or closing costs. 2008 1040x Energy conservation subsidy, Decreases to Basis Meter and connection charges for construction, Construction. 2008 1040x V Vacant land Sale of, Vacant land. 2008 1040x W Worksheets, Worksheets. 2008 1040x Adjusted basis (Worksheet 1), Determining Basis, Worksheet 1. 2008 1040x Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 1. 2008 1040x Adjusted Basis of Home Sold—Illustrated Example 3 for Emily White, Worksheet 1 Instructions. 2008 1040x Adjusted Basis of Home Sold Gain (or loss), exclusion, and taxable gain (Worksheet 2), Worksheet 2. 2008 1040x Taxable Gain on Sale of Home—Completed Example 1 for Amy, Worksheet 1. 2008 1040x Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 2. 2008 1040x Taxable Gain on Sale of Home—Illustrated Example 2 for Peter and Betty Clark, Worksheet 2. 2008 1040x Taxable Gain on Sale of Home—Illustrated Example 3 for Emily White, Worksheet 2. 2008 1040x Taxable Gain on Sale of Home Recordkeeping and, Adjusted Basis Reduced maximum exclusion (Worksheet 3), Worksheet 3. 2008 1040x Reduced Maximum Exclusion Prev  Up     Home   More Online Publications