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Ez1040 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. Ez1040 Dispositions — mass asset accounts. Ez1040 Early dispositions — 15-year real property. Ez1040 Early dispositions — 18- and 19-year real property. Ez1040 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. Ez1040 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. Ez1040 These rules are mandatory and generally apply to tangible property placed in service after 1980 and before 1987. Ez1040 If you placed property in service during this period, you must continue to figure your depreciation under ACRS. Ez1040 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. Ez1040 Listed property includes cars, other means of transportation, and certain computers. Ez1040 Any additions or improvements placed in service after 1986, including any components of a building (such as plumbing, wiring, storm windows, etc. Ez1040 ), are depreciated using MACRS, discussed in chapter 3 of Publication 946. Ez1040 It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Ez1040 ACRS Defined ACRS consists of accelerated depreciation methods and an alternate ACRS method that could have been elected. Ez1040 The alternate ACRS method used a recovery percentage based on a modified straight line method. Ez1040 The law prescribes fixed percentages to be uses for each class of property. Ez1040 Property depreciable under ACRS is called recovery property. Ez1040 The recovery class of property determines the recovery period. Ez1040 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. Ez1040 Under ACRS, the prescribed percentages are used to recover the unadjusted basis of recovery property. Ez1040 To figure a depreciation deduction, you multiply the prescribed percentage for the recovery class by the unadjusted basis of the recovery property. Ez1040 You must continue to figure your depreciation under ACRS for property placed in service after 1980 and before 1987. Ez1040 For property you placed in service after 1986, you must use MACRS, discussed in chapter 3 of Publication 946. Ez1040 What Can and Cannot Be Depreciated Under ACRS ACRS applies to most depreciable tangible property placed in service after 1980 and before 1987. Ez1040 It includes new or used and real or personal property. Ez1040 The property must be for use in a trade or business or for the production of income. Ez1040 Property you acquired before 1981 or after 1986 is not ACRS recovery property. Ez1040 For information on depreciating property acquired before 1981, see chapter 2. Ez1040 For information on depreciating property acquired after 1986, see chapter 3 of Publication 946. Ez1040 Recovery Property Recovery property under ACRS is tangible depreciable property placed in service after 1980 and before 1987. Ez1040 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. Ez1040 Nonrecovery Property You cannot use ACRS for property you placed in service before 1981 or after 1986. Ez1040 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. Ez1040 Intangible property. Ez1040   Intangible property is not depreciated under ACRS. Ez1040 Property depreciated under methods not expressed in a term of years. Ez1040   Certain property depreciated under a method not expressed in a term of years is not depreciated under ACRS. Ez1040 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). Ez1040 Public utility property. Ez1040   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. Ez1040 Additions or improvements to ACRS property after 1986. Ez1040   Any additions or improvements placed in service after 1986, including any components of a building (plumbing, wiring, storm windows, etc. Ez1040 ) are depreciated using MACRS, discussed in chapter 3 of Publication 946. Ez1040 It does not matter that the underlying property is depreciated under ACRS or one of the other methods. Ez1040 How To Figure the Deduction After you determine that your property can be depreciated under ACRS, you are ready to figure your deduction. Ez1040 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. Ez1040 Unadjusted Basis To figure your ACRS deduction, you multiply the unadjusted basis in your recovery property by its applicable percentage for the year. Ez1040 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. Ez1040 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. Ez1040 If you buy property, your unadjusted basis is usually its cost minus any amortized amount and minus any section 179 deduction elected. Ez1040 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. Ez1040 See Publication 551. Ez1040 Classes of Recovery Property All recovery property under ACRS is in one of the following classes. Ez1040 The class for your property was determined when you began to depreciate it. Ez1040 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. Ez1040 Race horses over 2 years old when placed in service are 3-year property. Ez1040 Any other horses over 12 years old when you placed them in service are also included in the 3-year property class. Ez1040 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. Ez1040 You cannot claim depreciation for this property after 1988. Ez1040 5-Year Property 5-year property includes computers, copiers, and equipment, such as office furniture and fixtures. Ez1040 It also includes single purpose agricultural or horticultural structures and petroleum storage facilities (other than buildings and their structural components). Ez1040 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. Ez1040 You cannot claim depreciation for this property after 1990. Ez1040 10-Year Property 10-year property includes certain real property such as theme-park structures and certain public utility property. Ez1040 Manufactured homes (including mobile homes) and railroad tank cars are also 10-year property. Ez1040 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. Ez1040 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. Ez1040 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. Ez1040 Example. Ez1040 On April 21, 1986, you bought and placed in service a new mobile home for $26,000 to be used as rental property. Ez1040 You paid $10,000 cash and signed a note for $16,000 giving you an unadjusted basis of $26,000. Ez1040 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. Ez1040 The total unadjusted basis of your 10-year recovery property placed in service in 1986 was $37,500 ($26,000 + $11,500). Ez1040 Your ACRS deduction was $3,000 (8% × $37,500). Ez1040 In 1987, your ACRS deduction was $5,250 (14% × $37,500). Ez1040 In 1988, your ACRS deduction was $4,500 (12% × $37,500). Ez1040 In 1989, 1990, and 1991, your ACRS deduction was $3,750 (10% × $37,500). Ez1040 In 1992, 1993, 1994, and 1995 your deduction for each year is $3,375 (9% × $37,500). Ez1040 15-Year Real Property 15-year real property is real property that is recovery property placed in service before March 16, 1984. Ez1040 It includes all real property, such as buildings, other than that designated as 5-year or 10-year property. Ez1040 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. Ez1040 You could group 15-year real property by month and year placed in service. Ez1040 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. Ez1040 You use the percentages listed under that month for each year of the recovery period to determine your depreciation deduction each year. Ez1040 Example. Ez1040 On March 5, 1984, you placed an apartment building in service in your business. Ez1040 It is 15-year real property. Ez1040 After subtracting the value of the land, your unadjusted basis in the building is $250,000. Ez1040 You use the calendar year as your tax year. Ez1040 March is the third month of your tax year. Ez1040 Your ACRS deduction for 1984 was $25,000 (10% × $250,000). Ez1040 For 1985, the percentage for the third month of the second year of the recovery period is 11%. Ez1040 Your deduction was $27,500 (11% × $250,000). Ez1040 For the third, fourth, and fifth years of the recovery period (1986, 1987, and 1988), the percentages are 9%, 8%, and 7%. Ez1040 For 1989 through 1992, the percentage for the third month is 6%. Ez1040 Your deduction each year is $15,000 (6% × $250,000). Ez1040 For 1993, 1994, and 1995, the percentage for the third month is 5%. Ez1040 Your depreciation deduction is $12,500 (5% × $250,000) for 1993, 1994, and 1995. Ez1040 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. Ez1040 Low-income rental housing for which a depreciation deduction for rehabilitation expenditures is allowed. Ez1040 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. Ez1040 Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Ez1040 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. Ez1040 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. Ez1040 Use the percentages listed under that month for each year of the recovery period. Ez1040 Table 2 shows percentages for low-income housing placed in service before May 9, 1985. Ez1040 Table 3 shows percentages for low-income housing placed in service after May 8, 1985, and before 1987. Ez1040 Example. Ez1040 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. Ez1040 You use the calendar year as your tax year. Ez1040 You use Table C–3 because the property was placed in service after May 8, 1985. Ez1040 Your unadjusted basis for the property, not including the land, was $59,000. Ez1040 Your deduction for 1986 through 2001 is shown in the following table. Ez1040 Year Rate Deduction 1986 8. Ez1040 9% $5,251 1987 12. Ez1040 1% 7,139 1988 10. Ez1040 5% 6,195 1989 9. Ez1040 1% 5,369 1990 7. Ez1040 9% 4,661 1991 6. Ez1040 9% 4,071 1992 5. Ez1040 9% 3,481 1993 5. Ez1040 2% 3,068 1994 4. Ez1040 6% 2,714 1995 4. Ez1040 6% 2,714 1996 4. Ez1040 6% 2,714 1997 4. Ez1040 6% 2,714 1998 4. Ez1040 6% 2,714 1999 4. Ez1040 5% 2,655 2000 4. Ez1040 5% 2,655 2001 1. Ez1040 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. Ez1040 It includes real property, such as buildings, other than that designated as 5-year, 10-year, 15-year real property, or low-income housing. Ez1040 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. Ez1040 There are also tables for 18-year real property in the Appendix. Ez1040 Table 4 shows the percentages for 18-year real property you placed in service after June 22, 1984, and before May 9, 1985. Ez1040 Table 5 is for 18-year real property placed in service after March 15, 1984, and before June 23, 1984. Ez1040 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. Ez1040 Use the percentages listed under that month for each year of the recovery period. Ez1040 Example. Ez1040 On April 28, 1985, you bought and placed in service a rental house. Ez1040 The house, not including the land, cost $95,000. Ez1040 This is your unadjusted basis for the house. Ez1040 You use the calendar year as your tax year. Ez1040 Because the house was placed in service after June 22, 1984, and before May 9, 1985, it is 18-year real property. Ez1040 You use Table 4 to figure your deduction for the house. Ez1040 April is the fourth month of your tax year. Ez1040 Your deduction for 1985 through 2003 is shown in the following table. Ez1040 Year Rate Deduction 1985 7. Ez1040 0% $6,650 1986 9. Ez1040 0% 8,550 1987 8. Ez1040 0% 7,600 1988 7. Ez1040 0% 6,650 1989 7. Ez1040 0% 6,650 1990 6. Ez1040 0% 5,700 1991 5. Ez1040 0% 4,750 1992 5. Ez1040 0% 4,750 1993 5. Ez1040 0% 4,750 1994 5. Ez1040 0% 4,750 1995 5. Ez1040 0% 4,750 1996 5. Ez1040 0% 4,750 1997 5. Ez1040 0% 4,750 1998 4. Ez1040 0% 3,800 1999 4. Ez1040 0% 3,800 2000 4. Ez1040 0% 3,800 2001 4. Ez1040 0% 3,800 2002 4. Ez1040 0% 3,800 2003 1. Ez1040 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. Ez1040 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. Ez1040 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. Ez1040 Table 6 shows the percentages for 19-year real property. Ez1040 You find the month in your tax year that you placed the property in service. Ez1040 You use the percentages listed under that month for each year of the recovery period. Ez1040 Recovery Periods Each item of recovery property is assigned to a class of property. Ez1040 The classes of recovery property establish the recovery periods over which the unadjusted basis of items in a class is recovered. Ez1040 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. Ez1040 This alternate ACRS method uses a recovery percentage based on a modified straight line method. Ez1040 This alternate ACRS method generally uses percentages other than those from the tables. Ez1040 If you elected the alternate ACRS method, you determine the recovery period by using the following schedule. Ez1040 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. Ez1040   The straight-line percentages for the alternate ACRS method are: Recovery Period Percentage 5 years 20. Ez1040 00% 10 years 10. Ez1040 00% 12 years 8. Ez1040 333% 15 years 6. Ez1040 667% 25 years 4. Ez1040 00% 35 years 2. Ez1040 857%   You apply the percentage to the unadjusted basis(defined earlier) of the property to figure your ACRS deduction. Ez1040 There are tables for 18- and 19-year real property later in this publication in the Appendix. Ez1040 For 15-year real property, see 15-year real property, later. Ez1040 3-, 5-, and 10-year property. Ez1040   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. Ez1040 This applies throughout the recovery period you selected. Ez1040 Half-year convention. Ez1040   If you elected the alternate method, only a half-year of depreciation was deducted for the year you placed the property in service. Ez1040 This applied regardless of when in the tax year you placed the property in service. Ez1040 For each of the remaining years in the recovery period, you take a full year's deduction. Ez1040 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. Ez1040 Example. Ez1040 You operate a small upholstery business. Ez1040 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. Ez1040 You elected to use the alternate ACRS method. Ez1040 You did not elect to take a section 179 deduction. Ez1040 You decided to recover the cost of the truck, which is 3-year recovery property, over 5 years. Ez1040 The saw is 5-year property, but you decided to recover its cost over 12 years. Ez1040 For 1986, your ACRS deduction reflected the half-year convention. Ez1040 In the first year, you deducted half of the amount determined for a full year. Ez1040 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. Ez1040 00     Electric saw   12 years straight line = 8. Ez1040 333% 8. Ez1040 333% ÷ $500 = $41. Ez1040 67 Half-year convention -½ of $41. Ez1040 67= 20. Ez1040 84 Total ACRS deduction for 1986 $1,320. Ez1040 84       You take a full year of depreciation for both the truck and the saw for the years 1987 through 1990. Ez1040 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. Ez1040 333% 8. Ez1040 333% ÷ $500 = $41. Ez1040 67 Total annual ACRS deduction for 1987 through 1990 $2,641. Ez1040 67       In 1991, you take a half-year of depreciation for the truck and a full year of depreciation for the saw. Ez1040 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. Ez1040 00     Electric saw   12 years straight line = 8. Ez1040 333% 8. Ez1040 333% ÷ $500 = $41. Ez1040 67 Total ACRS deduction for 1991 $1,341. Ez1040 67       The truck is fully depreciated after 1991. Ez1040 You take a full year of depreciation for the saw for the years 1992 through 1997. Ez1040 Your ACRS deduction for each of those years is as follows: Electric saw     12 years straight line = 8. Ez1040 333% 8. Ez1040 333% ÷ $500 = $41. Ez1040 67 Total annual ACRS deduction for 1992 through 1997 $41. Ez1040 67       You take a half-year of depreciation for the saw for 1998. Ez1040 Your ACRS deduction for 1998 is as follows: Electric saw   12 years straight line = 8. Ez1040 333% 8. Ez1040 333% ÷ $500 = $41. Ez1040 67 Half-year convention -½ of $41. Ez1040 67= 20. Ez1040 84 Total ACRS deduction for 1998 $20. Ez1040 84       The saw is fully depreciated after 1998. Ez1040 15-year real property. Ez1040   Under ACRS, you could also elect to use the alternate ACRS method for 15-year real property. Ez1040 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. Ez1040 If you selected a 15-year recovery period, you use the percentage (6. Ez1040 667%) from the schedule above. Ez1040 You prorate this percentage for the number of months the property was in service in the first year. Ez1040 If you selected a 35- or 45-year recovery period, you use either Table 11 or 15. Ez1040 Alternate periods for 18-year real property. Ez1040   For 18-year real property, the alternate recovery periods are 18, 35, or 45 years. Ez1040 The percentages for 18-year real property under the alternate method are in Tables 7, 8, 10, 11, 14, and 15 in the Appendix. Ez1040 There are two tables for each alternate recovery period. Ez1040 One table shows the percentage for property placed in service after June 22, 1984. Ez1040 The other table has the percentages for property placed in service after March 15, 1984, and before June 23, 1984. Ez1040 Alternate periods for 19-year real property. Ez1040   For 19-year real property, the alternate recovery periods are 19, 35, or 45 years. Ez1040 If you selected a 19-year recovery period, use Table 9 to determine your deduction. Ez1040 If you select a 35- or 45-year recovery period, use either Table 13 or 14. Ez1040 Example. Ez1040 You placed in service an apartment building on August 3, 1986. Ez1040 The building is 19-year real property. Ez1040 The sales contract allocated $300,000 to the building and $100,000 to the land. Ez1040 You use the calendar year as your tax year. Ez1040 You chose the alternate ACRS method over a recovery period of 35 years. Ez1040 For 1986, you figure your ACRS deduction usingTable 13. Ez1040 August is the eighth month of your tax year. Ez1040 The percentage from Table 13 for the eighth month is 1. Ez1040 1%. Ez1040 Your deduction was $3,300 ($300,000 ÷ 1. Ez1040 1%). Ez1040 The deduction rate from ACRS Table 13 for years 2 through 20 is 2. Ez1040 9% so that your deduction in 1987 through 2005 is $8,700 ($300,000 ÷ 2. Ez1040 9%). Ez1040 Alternate periods for low-income housing. Ez1040   For low-income housing, the alternate recovery periods are 15, 35, or 45 years. Ez1040 If you selected a 15-year period for this property, use 6. Ez1040 667% as the percentage. Ez1040 If you selected a 35- or 45-year period, use either Table 11, 12, or 15. Ez1040 Election. Ez1040   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. Ez1040 Revocation of election. Ez1040   Your election to use an alternate ACRS method, once made, can be changed only with the consent of the Commissioner. Ez1040 The Commissioner grants consent only in extraordinary circumstances. Ez1040 Any request for a revocation will be considered a request for a ruling. Ez1040 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. Ez1040 Figure the amount of the ACRS deduction for a short tax year as follows: First, you figure the ACRS deduction for a full year. Ez1040 You figure this by multiplying the unadjusted basis by the recovery percentage. Ez1040 You then multiply the ACRS deduction determined for a full tax year by a fraction. Ez1040 The numerator (top number) of the fraction is the number of months in the short tax year and the denominator (bottom number) is 12. Ez1040 For example, a corporation placed in service in June 1986 an item of 3-year property with an unadjusted basis of $10,000. Ez1040 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. Ez1040 The full year's ACRS deduction for this item is $2,500 ($10,000 ÷ 25%), the first year percentage from the 3-year table. Ez1040 The ACRS deduction for the short tax year is $1,250 ($2,500 ÷ 6/12). Ez1040 You use the full ACRS percentages during the remaining years of the recovery period. Ez1040 For the first tax year after the recovery period, the unrecovered basis will be deductible. Ez1040 Exception. Ez1040   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. Ez1040 You compute the number of months using either a full month or mid-month convention. Ez1040 This is true regardless of the number of months in the tax year and the recovery period and method used. Ez1040 Dispositions A disposition is the permanent withdrawal of property from use in your trade or business or in the production of income. Ez1040 You can make a withdrawal by sale, exchange, retirement, abandonment, or destruction. Ez1040 You generally recognize gain or loss on the disposition of an asset by sale. Ez1040 However, nonrecognition rules can allow you to postpone some gain. Ez1040 See Publication 544. Ez1040 If you physically abandon property, you can deduct as a loss the adjusted basis of the asset at the time of its abandonment. Ez1040 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. Ez1040 Early dispositions. Ez1040   The disposal of an asset before the end of its specified recovery period, is referred to as an early disposition. Ez1040 When an early disposition occurs, the depreciation deduction in the year of disposition depends on the class of property involved. Ez1040 Early dispositions of ACRS property other than 15-, 18-, or 19-year real property. Ez1040   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. Ez1040 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. Ez1040 Dispositions — mass asset accounts. Ez1040   The law provides a special rule to avoid the calculation of gain on the disposition of assets from mass asset accounts. Ez1040 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. Ez1040 Examples of mass assets include minor items of office, plant, and store furniture and fixtures. Ez1040   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. Ez1040 You leave the unadjusted basis of the property in the account until recovered in future years. Ez1040 If you did this, include the total proceeds realized from the disposition in income on the tax return for the year of disposition. Ez1040 Early dispositions — 15-year real property. Ez1040   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. Ez1040 You use a full-month convention. Ez1040 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. Ez1040 This applies whether you use the regular ACRS method or elected the alternate ACRS method. Ez1040 Example. Ez1040 You purchased and placed in service a rental house on March 2, 1984, for $98,000 (not including the cost of land). Ez1040 You file your return based on a calendar year. Ez1040 Your rate from Table 1 for the third month is 10%. Ez1040 Your ACRS deduction for 1984 was $9,800 ($98. Ez1040 000 ÷ 10%). Ez1040 For 1985 through 1988, you figured your ACRS deductions using 11%, 9%, 8%, and 7% ÷ $98,000. Ez1040 For 1989 through 1992, you figured your ACRS deductions using 6% for each year. Ez1040 The deduction each year was $98,000 ÷ 6%. Ez1040 For 1993 and 1994, the ACRS deduction is ($98,000 ÷ 5%) $4,900 for each year. Ez1040 You sell the house on June 1, 1995. Ez1040 You figure your ACRS deduction for 1995 for the full year and then prorate that amount for the months of use. Ez1040 The full ACRS deduction for 1995 is $4,900 ($98,000 ÷ 5%). Ez1040 You then prorate this amount to the 5 months in 1995 during which it was rented. Ez1040 Your ACRS deduction for 1995 is $2,042 ($4,900 ÷ 5/12). Ez1040 Early dispositions — 18- and 19-year real property. Ez1040   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. Ez1040 For 18-year property placed in service before June 23, 1984, use a full-month convention on a disposition. Ez1040 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. Ez1040 Under the mid-month convention,treat real property disposed of any time during a month as disposed of in the middle of that month. Ez1040 Count the month of disposition as half a month of use. Ez1040 Example. Ez1040 You purchased and placed in service a rental house on July 2, 1984, for $100,000 (not including the cost of land). Ez1040 You file your return based on a calendar year. Ez1040 Your rate from Table 4 for the seventh month is 4%. Ez1040 You figured your ACRS deduction for 1984 was $4,000 ($100,000 ÷ 4%). Ez1040 In 1985 through 1994, your ACRS deductions were 9%, 8%, 8%, 7%, 6%, 6%, 5%, 5%, and 5% ÷ $100,000. Ez1040 You sell the house on September 24, 1995. Ez1040 Figure your ACRS deduction for 1995 for the months of use. Ez1040 The full ACRS deduction for 1995 is $5,000 ($100,000 ÷ 5%). Ez1040 Prorate this amount for the 8. Ez1040 5 months in 1995 that you held the property. Ez1040 Under the mid-month convention, you count September as half a month. Ez1040 Your ACRS deduction for 1995 is $3,542 ($5,000 ÷ 8. Ez1040 5/12). Ez1040 Depreciation Recapture If you dispose of property depreciated under ACRS that is section 1245 recovery property, you will generally recognize gain or loss. Ez1040 Gain recognized on a disposition is ordinary income to the extent of prior depreciation deductions taken. Ez1040 This recapture rule applies to all personal property in the 3-year, 5-year, and 10-year classes. Ez1040 You recapture gain on manufactured homes and theme park structures in the 10-year class as section 1245 property. Ez1040 Section 1245 property generally includes all personal property. Ez1040 See Section 1245 property in chapter 4 of Publication 544 for more information. Ez1040 You treat dispositions of section 1250 real property on which you have a gain as section 1245 recovery property. Ez1040 You recognize gain on this property as ordinary income to the extent of prior depreciation deductions taken. Ez1040 Section 1250 property includes most real property. Ez1040 See Section 1250 property in chapter 4 of Publication 544 for more information. Ez1040 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. Ez1040 Any 15-, 18-, or 19-year real property that you elected to depreciate using the alternate ACRS method. Ez1040 Any 15-, 18-, or 19-year real property that is subsidized low-income housing. Ez1040 For these recapture rules, you treat the section 179 deduction and 50% of the investment credit that reduced your basis as depreciation. Ez1040 See Publication 544 for further discussion of dispositions of section 1245 and 1250 property. Ez1040 Prev  Up  Next   Home   More Online Publications
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Ez1040 12. Ez1040   How To Get More Information Table of Contents Internal Revenue ServiceLow Income Taxpayer Clinics (LITCs) Small Business Administration Other Federal Agencies This section describes the help the IRS and other federal agencies offer to taxpayers who operate their own businesses. Ez1040 Internal Revenue Service Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Ez1040 Free help with your return. Ez1040   You can get free help preparing your return nationwide from IRS-certified volunteers. Ez1040 The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Ez1040 The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Ez1040 Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Ez1040 In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Ez1040 To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Ez1040 gov, download the IRS2Go app, or call 1-800-906-9887. Ez1040   As part of the TCE program, AARP offers the Tax-Aide counseling program. Ez1040 To find the nearest AARP Tax-Aide site, visit AARP's website at www. Ez1040 aarp. Ez1040 org/money/taxaide or call 1-888-227-7669. Ez1040 For more information on these programs, go to IRS. Ez1040 gov and enter “VITA” in the search box. Ez1040 Internet. Ez1040    IRS. Ez1040 gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Ez1040 Download the free IRS2Go app from the iTunes app store or from Google Play. Ez1040 Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Ez1040 Check the status of your 2013 refund with the Where's My Refund? application on IRS. Ez1040 gov or download the IRS2Go app and select the Refund Status option. Ez1040 The IRS issues more than 9 out of 10 refunds in less than 21 days. Ez1040 Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Ez1040 You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Ez1040 The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Ez1040 Use the Interactive Tax Assistant (ITA) to research your tax questions. Ez1040 No need to wait on the phone or stand in line. Ez1040 The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Ez1040 When you reach the response screen, you can print the entire interview and the final response for your records. Ez1040 New subject areas are added on a regular basis. Ez1040  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Ez1040 gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Ez1040 You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Ez1040 The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Ez1040 When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Ez1040 Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Ez1040 You can also ask the IRS to mail a return or an account transcript to you. Ez1040 Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Ez1040 gov or by calling 1-800-908-9946. Ez1040 Tax return and tax account transcripts are generally available for the current year and the past three years. Ez1040 Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Ez1040 Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Ez1040 If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Ez1040 Check the status of your amended return using Where's My Amended Return? Go to IRS. Ez1040 gov and enter Where's My Amended Return? in the search box. Ez1040 You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Ez1040 It can take up to 3 weeks from the date you mailed it to show up in our system. Ez1040 Make a payment using one of several safe and convenient electronic payment options available on IRS. Ez1040 gov. Ez1040 Select the Payment tab on the front page of IRS. Ez1040 gov for more information. Ez1040 Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Ez1040 Figure your income tax withholding with the IRS Withholding Calculator on IRS. Ez1040 gov. Ez1040 Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Ez1040 Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Ez1040 gov. Ez1040 Request an Electronic Filing PIN by going to IRS. Ez1040 gov and entering Electronic Filing PIN in the search box. Ez1040 Download forms, instructions and publications, including accessible versions for people with disabilities. Ez1040 Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Ez1040 gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Ez1040 An employee can answer questions about your tax account or help you set up a payment plan. Ez1040 Before you visit, check the Office Locator on IRS. Ez1040 gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Ez1040 If you have a special need, such as a disability, you can request an appointment. Ez1040 Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Ez1040 Apply for an Employer Identification Number (EIN). Ez1040 Go to IRS. Ez1040 gov and enter Apply for an EIN in the search box. Ez1040 Read the Internal Revenue Code, regulations, or other official guidance. Ez1040 Read Internal Revenue Bulletins. Ez1040 Sign up to receive local and national tax news and more by email. Ez1040 Just click on “subscriptions” above the search box on IRS. Ez1040 gov and choose from a variety of options. Ez1040    Phone. Ez1040 You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Ez1040 Download the free IRS2Go app from the iTunes app store or from Google Play. Ez1040 Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Ez1040 gov, or download the IRS2Go app. Ez1040 Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Ez1040 The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Ez1040 Most VITA and TCE sites offer free electronic filing. Ez1040 Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Ez1040 Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Ez1040 Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Ez1040 If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Ez1040 The IRS issues more than 9 out of 10 refunds in less than 21 days. Ez1040 Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Ez1040 Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Ez1040 The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Ez1040 Note, the above information is for our automated hotline. Ez1040 Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Ez1040 Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Ez1040 You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Ez1040 It can take up to 3 weeks from the date you mailed it to show up in our system. Ez1040 Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Ez1040 You should receive your order within 10 business days. Ez1040 Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Ez1040 If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Ez1040 Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Ez1040 The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Ez1040 These individuals can also contact the IRS through relay services such as the Federal Relay Service. Ez1040    Walk-in. Ez1040 You can find a selection of forms, publications and services — in-person. Ez1040 Products. Ez1040 You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Ez1040 Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Ez1040 Services. Ez1040 You can walk in to your local TAC for face-to-face tax help. Ez1040 An employee can answer questions about your tax account or help you set up a payment plan. Ez1040 Before visiting, use the Office Locator tool on IRS. Ez1040 gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Ez1040    Mail. Ez1040 You can send your order for forms, instructions, and publications to the address below. Ez1040 You should receive a response within 10 business days after your request is received. Ez1040  Internal Revenue Service 1201 N. Ez1040 Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. Ez1040 The Taxpayer Advocate Service (TAS) is your voice at the IRS. Ez1040 Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Ez1040   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Ez1040 We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Ez1040 You face (or your business is facing) an immediate threat of adverse action. Ez1040 You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Ez1040   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Ez1040 Here's why we can help: TAS is an independent organization within the IRS. Ez1040 Our advocates know how to work with the IRS. Ez1040 Our services are free and tailored to meet your needs. Ez1040 We have offices in every state, the District of Columbia, and Puerto Rico. Ez1040   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. Ez1040   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Ez1040 If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. Ez1040 Low Income Taxpayer Clinics (LITCs) Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals and tax collection disputes. Ez1040 Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Ez1040 Visit Taxpayer Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. Ez1040 Small Business Administration The Small Business Administration (SBA) offers training and educational programs, counseling services, financial programs, and contract assistance for small business owners. Ez1040 The SBA also has publications and videos on a variety of business topics. Ez1040 The following briefly describes assistance provided by the SBA. Ez1040 Small Business Development Centers (SBDCs). Ez1040   SBDCs provide counseling, training, and technical services to current and prospective small business owners who cannot afford the services of a private consultant. Ez1040 Help is available when beginning, improving, or expanding a small business. Ez1040 Business Information Centers (BICs). Ez1040   BICs offer a small business reference library, management video tapes, and computer technology to help plan a business. Ez1040 BICs also offer one-on-one assistance. Ez1040 Individuals who are in business or are interested in starting a business can use BICs as often as they wish at no charge. Ez1040 Service Corps of Retired Executives (SCORE). Ez1040   SCORE provides small business counseling and training to current and prospective small business owners. Ez1040 SCORE is made up of current and former business people who offer their expertise and knowledge to help people start, manage, and expand a small business. Ez1040 SCORE also offers a variety of small business workshops. Ez1040 Internet. Ez1040    You can visit the SBA website at www. Ez1040 sba. Ez1040 gov. Ez1040 While visiting the SBA website, you can find a variety of information of interest to small business owners. Ez1040 Phone. Ez1040    Call the SBA Answer Desk at 1-800-U-ASK-SBA (1-800-827-5722) for general information about programs available to assist small business owners. Ez1040 Walk-in. Ez1040   You can walk in to a Small Business Development Center or Business Information Center to request assistance with your small business. Ez1040 To find the location nearest you, visit the SBA website or call the SBA Answer Desk. Ez1040 Other Federal Agencies Other federal agencies also publish publications and pamphlets to assist small businesses. Ez1040 Most of these are available from the Superintendent of Documents at the Government Printing Office. Ez1040 You can get information and order these publications and pamphlets in several ways. Ez1040 Internet. Ez1040   You can visit the GPO website at  www. Ez1040 access. Ez1040 gpo. Ez1040 gov. Ez1040 Mail. Ez1040   Write to the GPO at the following address. Ez1040  Superintendent of Documents U. Ez1040 S. Ez1040 Government Printing Office P. Ez1040 O. Ez1040 Box 979050 St. Ez1040 Louis, MO 63917-9000 Phone. Ez1040   Call the GPO toll-free at 1-866-512-1800 or at 202-512-1800 from the Washington, DC, area. 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