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Free 1040ez FormHttps Www Freefilefillableforms Org2007 Tax Software1040ez EfileAmended Return 1040xIrs Forms PublicationsFree State Tax FilingMilitary Tax Free Zones2012 Income Tax FormFree Federal And State Tax Filing OnlinePa Direct FileFree Turbotax For MilitaryAmending A Tax ReturnFile Free Tax Return1040esMilitary Pay Taxes2006 Income Tax FormsHow Do I File My 2011 Taxes LateIrs 2012 Tax ReturnFederal Income Tax Forms 2011Can I File 2010 Taxes In 2012Form 1040x For 2012Instructions For 1040xDownload Ez FormFiling A Tax AmmendmentAmended Tax Returns1040nr Online Filing FreeFile Form 1040x OnlineH&r Free File2011 Tax 1040 FormAmendmentsTurbotax Download 2012Free State Tax Return OnlyIrs 2012 Tax Form2011 Irs Forms 1040Amend State Tax ReturnIrs Tax Forms 2007Amend Taxes 20101040x 2011Turbo Tax Ez Form

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File ez online Index A Adoption Child tax credit, Adopted child. File ez online (see also Child tax credit) Afghanistan, Afghanistan area. File ez online Aliens, Alien Status Amount of exclusion, Amount of Exclusion Arabian peninsula, Arabian peninsula. File ez online Assistance (see Tax help) C Child tax credit, Child Tax Credit Limits Modified adjusted gross income, Modified AGI. File ez online Qualifying child, Qualifying Child Child, qualifying, Qualifying child. File ez online Claims for tax forgiveness, Claims for Tax Forgiveness Codes, W-2, Form W-2 Codes Combat zone Election to include pay for earned income credit, Nontaxable combat pay election. File ez online Exclusion, Combat Zone Exclusion Extension of deadlines, Service That Qualifies for an Extension of Deadline Related forgiveness, Combat Zone Related Forgiveness Community property, Community Property, Residents of community property states. File ez online Contingency operation, Service That Qualifies for an Extension of Deadline Credits Child tax, Child Tax Credit Earned income, Earned Income Credit Excess social security tax withheld, Credit for Excess Social Security Tax Withheld First-time homebuyer, First-Time Homebuyer Credit D Decedents, Forgiveness of Decedent's Tax Liability Deductions, itemized, Itemized Deductions Domicile, Domicile. File ez online Dual-status aliens, Dual-Status Aliens E Earned income credit, Earned Income Credit Social security card, Social security number. File ez online Social security number, Social security number. File ez online Educational expenses, Educational Expenses Employee business expenses, Employee Business Expenses Excess social security tax withholding credit, Credit for Excess Social Security Tax Withheld Excess withholding credit How to take, How to take the credit. File ez online Expenses Employee business, Employee Business Expenses Moving, Moving Expenses Extension of deadlines, Extension of Deadlines Extension of time to file, Extensions F Family, Adopted child. File ez online (see also Child tax credit) Filing returns, Filing Returns First-time homebuyer credit, First-Time Homebuyer Credit Foreclosures Mortgage settlement payouts, Foreclosures Foreign income, Foreign Source Income Foreign moves, Foreign Moves Forms 1040, Foreign Moves, Itemized Deductions, Where To File 1040A, Where To File 1040EZ, Where To File 1040NR, Nonresident Aliens 2106, Employee Business Expenses, Reimbursement. File ez online 2106-EZ, Employee Business Expenses 2848, Signing Returns, Spouse overseas. File ez online 3903, Moving Expenses 4868, Extensions W-2, Form W-2 Codes, Form W-2. File ez online , Nontaxable combat pay election. File ez online Foster care Child tax credit, Qualifying Child Free tax services, Free help with your tax return. File ez online G Gross income, Gross Income H Help (see Tax help) Home Away from, Away from home. File ez online Definition of, Away from home. File ez online Sale of, Sale of Home Homebuyer credit, First-Time Homebuyer Credit Hospitalization, Hospitalized While Serving in a Combat Zone, Hospitalized After Leaving a Combat Zone, Qualified hospitalization. File ez online I Income Foreign source, Foreign Source Income Gross, Gross Income Individual retirement arrangements, Individual Retirement Arrangements Installment agreement Payment deferment, Request for deferment. File ez online Interest rate (maximum), Maximum Rate of Interest Iraq, Arabian peninsula. File ez online Itemized deductions, Itemized Deductions J Joint returns, Joint returns. File ez online , Joint returns. File ez online , Joint returns. File ez online K Kosovo, The Kosovo area. File ez online M Military action related forgiveness, Terrorist or Military Action Related Forgiveness Military Spouses Residency Relief Act Domicile, Military Spouses Residency Relief Act (MSRRA) Miscellaneous itemized deductions, Employee Business Expenses Missing status, Missing status. File ez online , Spouse in missing status. File ez online , Missing status. File ez online Modified adjusted gross income (MAGI) Child tax credit limits, Modified AGI. File ez online Moving expenses, Moving Expenses N Nonresident aliens, Nonresident Aliens P Permanent change of station, Permanent change of station. File ez online Personal representative, Forgiveness of Decedent's Tax Liability Power of attorney, Signing Returns Professional dues, Professional Dues Publications (see Tax help) Q Qualifying child, Qualifying child. File ez online R Reimbursements Employee business expenses, Reimbursement. File ez online Moving and storage, Services or reimbursements provided by the government. File ez online Uniforms, Uniforms Reservists, Armed Forces reservists. File ez online Travel, Armed Forces Reservists Uniforms, Uniforms Resident aliens, Resident Aliens Returns Filing, Filing Returns Signing, Signing Returns S Sale of home, Sale of Home Same-sex marriage, Same-Sex Marriage SCRA violation payouts, Foreclosures Separate returns, Separate returns. File ez online Servicemembers Civil Relief Act, Maximum Rate of Interest Serving in a combat zone, Serving in a Combat Zone Social security numbers (SSNs) Earned income credit, Residency test. File ez online Spouse Deadline extension, Spouses. File ez online Died, Spouse died during the year. File ez online Incapacitated, Spouse incapacitated. File ez online Missing, Spouse in missing status. File ez online Nonresident alien, Treating nonresident alien spouse as resident alien. File ez online Overseas, Spouse overseas. File ez online State bonus payments, State bonus payments. File ez online T Tax forgiven, Combat Zone Related Forgiveness Tax help, How To Get Tax Help Temporary work location, Temporary work location. File ez online Terrorist related forgiveness, Terrorist or Military Action Related Forgiveness Transportation, Armed Forces reservists. File ez online Transportation expenses, Transportation Expenses Travel expenses, Travel Expenses TTY/TDD information, How To Get Tax Help U Uniforms, Uniforms W When to file, When To File Where to file, Where To File Y Yugoslavia, The Kosovo area. File ez online Prev  Up     Home   More Online Publications
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File ez online 7. File ez online   Depreciation, Depletion, and Amortization Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Overview of DepreciationWhat Property Can Be Depreciated? What Property Cannot Be Depreciated? When Does Depreciation Begin and End? Can You Use MACRS To Depreciate Your Property? What Is the Basis of Your Depreciable Property? How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions? Section 179 Expense DeductionWhat Property Qualifies? What Property Does Not Qualify? How Much Can You Deduct? How Do You Elect the Deduction? When Must You Recapture the Deduction? Claiming the Special Depreciation AllowanceWhat is Qualified Property? How Can You Elect Not To Claim the Allowance? When Must You Recapture an Allowance Figuring Depreciation Under MACRSWhich Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS? What Is the Placed-in-Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies? Which Convention Applies? Which Depreciation Method Applies? How Is the Depreciation Deduction Figured? How Do You Use General Asset Accounts? When Do You Recapture MACRS Depreciation? Additional Rules for Listed PropertyWhat Is Listed Property? What Is the Business-Use Requirement? Do the Passenger Automobile Limits Apply? Depletion Who Can Claim Depletion? Figuring Depletion AmortizationBusiness Start-Up Costs Reforestation Costs Section 197 Intangibles What's New for 2013 Increased section 179 expense deduction dollar limits. File ez online  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. File ez online This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. File ez online See Dollar Limits under Section 179 Expense Deduction , later. File ez online Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. File ez online . File ez online  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. File ez online See Claiming the Special Depreciation Allowance , later. File ez online Expiration of the 3- year recovery period for certain race horses. File ez online  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. File ez online Introduction If you buy or make improvements to farm property such as machinery, equipment, livestock, or a structure with a useful life of more than a year, you generally cannot deduct its entire cost in one year. File ez online Instead, you must spread the cost over the time you use the property and deduct part of it each year. File ez online For most types of property, this is called depreciation. File ez online This chapter gives information on depreciation methods that generally apply to property placed in service after 1986. File ez online For information on depreciating pre-1987 property, see Publication 534, Depreciating Property Placed in Service Before 1987. File ez online Topics - This chapter discusses: Overview of depreciation Section 179 expense deduction Special depreciation allowance Modified Accelerated Cost Recovery System (MACRS) Listed property Basic information on cost depletion (including timber depletion) and percentage depletion Amortization of the costs of going into business, reforestation costs, the costs of pollution control facilities, and the costs of section 197 intangibles Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) T (Timber), Forest Activities Schedule 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. File ez online It is important to keep good records for property you depreciate. File ez online Do not file these records with your return. File ez online Instead, you should keep them as part of the permanent records of the depreciated property. File ez online They will help you verify the accuracy of the depreciation of assets placed in service in the current and previous tax years. File ez online For general information on recordkeeping, see Publication 583, Starting a Business and Keeping Records. File ez online For specific information on keeping records for section 179 property and listed property, see Publication 946, How To Depreciate Property. File ez online Overview of Depreciation This overview discusses basic information on the following. File ez online What property can be depreciated. File ez online What property cannot be depreciated. File ez online When depreciation begins and ends. File ez online Whether MACRS can be used to figure depreciation. File ez online What is the basis of your depreciable property. File ez online How to treat repairs and improvements. File ez online When you must file Form 4562. File ez online How you can correct depreciation claimed incorrectly. File ez online What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, equipment, vehicles, certain livestock, and furniture. File ez online You can also depreciate certain intangible property, such as copyrights, patents, and computer software. File ez online To be depreciable, the property must meet all the following requirements. File ez online It must be property you own. File ez online It must be used in your business or income-producing activity. File ez online It must have a determinable useful life. File ez online It must have a useful life that extends substantially beyond the year you place it in service. File ez online Property You Own To claim depreciation, you usually must be the owner of the property. File ez online You are considered as owning property even if it is subject to a debt. File ez online Leased property. File ez online   You can depreciate leased property only if you retain the incidents of ownership in the property. File ez online This means you bear the burden of exhaustion of the capital investment in the property. File ez online Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. File ez online You can, however, depreciate any capital improvements you make to the leased property. File ez online See Additions and Improvements under Which Recovery Period Applies in chapter 4 of Publication 946. File ez online   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. File ez online However, you cannot depreciate the cost of the property if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased. File ez online Life tenant. File ez online   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. File ez online See Certain term interests in property , later, for an exception. File ez online Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. File ez online If you use property to produce income (investment use), the income must be taxable. File ez online You cannot depreciate property that you use solely for personal activities. File ez online However, if you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the percentage of business or investment use. File ez online Example 1. File ez online   If you use your car for farm business, you can deduct depreciation based on its percentage of use in farming. File ez online If you also use it for investment purposes, you can depreciate it based on its percentage of investment use. File ez online Example 2. File ez online   If you use part of your home for business, you may be able to deduct depreciation on that part based on its business use. File ez online For more information, see Business Use of Your Home in chapter 4. File ez online Inventory. File ez online   You can never depreciate inventory because it is not held for use in your business. File ez online Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. File ez online Livestock. File ez online   Livestock purchased for draft, breeding, or dairy purposes can be depreciated only if they are not kept in an inventory account. File ez online Livestock you raise usually has no depreciable basis because the costs of raising them are deducted and not added to their basis. File ez online However, see Immature livestock under When Does Depreciation Begin and End , later, for a special rule. File ez online Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. File ez online This means it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. File ez online Irrigation systems and water wells. File ez online   Irrigation systems and wells used in a trade or business can be depreciated if their useful life can be determined. File ez online You can depreciate irrigation systems and wells composed of masonry, concrete, tile, metal, or wood. File ez online In addition, you can depreciate costs for moving dirt to construct irrigation systems and water wells composed of these materials. File ez online However, land preparation costs for center pivot irrigation systems are not depreciable. File ez online Dams, ponds, and terraces. File ez online   In general, you cannot depreciate earthen dams, ponds, and terraces unless the structures have a determinable useful life. File ez online What Property Cannot Be Depreciated? Certain property cannot be depreciated, even if the requirements explained earlier are met. File ez online This includes the following. File ez online Land. File ez online You can never depreciate the cost of land because land does not wear out, become obsolete, or get used up. File ez online The cost of land generally includes the cost of clearing, grading, planting, and landscaping. File ez online Although you cannot depreciate land, you can depreciate certain costs incurred in preparing land for business use. File ez online See chapter 1 of Publication 946. File ez online Property placed in service and disposed of in the same year. File ez online Determining when property is placed in service is explained later. File ez online Equipment used to build capital improvements. File ez online You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. File ez online Intangible property such as section 197 intangibles. File ez online This property does not have a determinable useful life and generally cannot be depreciated. File ez online However, see Amortization , later. File ez online Special rules apply to computer software (discussed below). File ez online Certain term interests (discussed below). File ez online Computer software. File ez online   Computer software is generally not a section 197 intangible even if acquired in connection with the acquisition of a business, if it meets all of the following tests. File ez online It is readily available for purchase by the general public. File ez online It is subject to a nonexclusive license. File ez online It has not been substantially modified. File ez online   If the software meets the tests above, it can be depreciated and may qualify for the section 179 expense deduction and the special depreciation allowance (if applicable), discussed later. File ez online Certain term interests in property. File ez online   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. File ez online This rule does not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. File ez online For more information, see chapter 1 of Publication 946. File ez online When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. File ez online You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. File ez online Placed in Service Property is placed in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. File ez online Even if you are not using the property, it is in service when it is ready and available for its specific use. File ez online Example. File ez online You bought a planter for use in your farm business. File ez online The planter was delivered in December 2012 after harvest was over. File ez online You begin to depreciate the planter for 2012 because it was ready and available for its specific use in 2012, even though it will not be used until the spring of 2013. File ez online If your planter comes unassembled in December 2012 and is put together in February 2013, it is not placed in service until 2013. File ez online You begin to depreciate it in 2013. File ez online If your planter was delivered and assembled in February 2013 but not used until April 2013, it is placed in service in February 2013, because this is when the planter was ready for its specified use. File ez online You begin to depreciate it in 2013. File ez online Fruit or nut trees and vines. File ez online   If you acquire an orchard, grove, or vineyard before the trees or vines have reached the income-producing stage, and they have a preproductive period of more than 2 years, you must capitalize the preproductive-period costs under the uniform capitalization rules (unless you elect not to use these rules). File ez online See chapter 6 for information about the uniform capitalization rules. File ez online Your depreciation begins when the trees and vines reach the income-producing stage (that is, when they bear fruit, nuts, or grapes in quantities sufficient to commercially warrant harvesting). File ez online Immature livestock. File ez online   Depreciation for livestock begins when the livestock reaches the age of maturity. File ez online If you bought immature livestock for drafting purposes, depreciation begins when they can be worked. File ez online If you bought immature livestock for dairy purposes, depreciation begins when they can be milked. File ez online If you bought immature livestock for breeding purposes, depreciation begins when they can be bred. File ez online Your basis for depreciation is your initial cost for the immature livestock. File ez online Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle. File ez online For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. File ez online Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. File ez online This happens when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. File ez online Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. File ez online You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. File ez online You sell or exchange the property. File ez online You convert the property to personal use. File ez online You abandon the property. File ez online You transfer the property to a supplies or scrap account. File ez online The property is destroyed. File ez online For information on abandonment of property, see chapter 8. File ez online For information on destroyed property, see chapter 11 and Publication 547, Casualties, Disasters, and Thefts. File ez online Can You Use MACRS To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most business and investment property placed in service after 1986. File ez online MACRS is explained later under Figuring Depreciation Under MACRS . File ez online You cannot use MACRS to depreciate the following property. File ez online Property you placed in service before 1987. File ez online Use the methods discussed in Publication 534. File ez online Certain property owned or used in 1986. File ez online See chapter 1 of Publication 946. File ez online Intangible property. File ez online Films, video tapes, and recordings. File ez online Certain corporate or partnership property acquired in a nontaxable transfer. File ez online Property you elected to exclude from MACRS. File ez online For more information, see chapter 1 of Publication 946. File ez online What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. File ez online To determine basis, you need to know the cost or other basis of your property. File ez online Cost or other basis. File ez online   The basis of property you buy is usually its cost plus amounts you paid for items such as sales tax, freight charges, and installation and testing fees. File ez online The cost includes the amount you pay in cash, debt obligations, other property, or services. File ez online   There are times when you cannot use cost as basis. File ez online In these situations, the fair market value (FMV) or the adjusted basis of the property may be used. File ez online Adjusted basis. File ez online   To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. File ez online Basis adjustment for depreciation allowed or allowable. File ez online   After you place your property in service, you must reduce the basis of the property by the depreciation allowed or allowable, whichever is greater. File ez online Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). File ez online Depreciation allowable is depreciation you are entitled to deduct. File ez online   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. File ez online   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). File ez online   For more information, see chapter 6. File ez online How Do You Treat Repairs and Improvements? You generally deduct the cost of repairing business property in the same way as any other business expense. File ez online However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. File ez online Treat improvements as separate depreciable property. File ez online See chapter 1 of Publication 946 for more information. File ez online Example. File ez online You repair a small section on a corner of the roof of a barn that you rent to others. File ez online You deduct the cost of the repair as a business expense. File ez online However, if you replace the entire roof, the new roof is considered to be an improvement because it increases the value and lengthens the life for the property. File ez online You depreciate the cost of the new roof. File ez online Improvements to rented property. File ez online   You can depreciate permanent improvements you make to business property you rent from someone else. File ez online Do You Have To File Form 4562? Use Form 4562 to claim your deduction for depreciation and amortization. File ez online You must complete and attach Form 4562 to your tax return if you are claiming any of the following. File ez online A section 179 expense deduction for the current year or a section 179 carryover from a prior year. File ez online Depreciation for property placed in service during the current year. File ez online Depreciation on any vehicle or other listed property, regardless of when it was placed in service. File ez online Amortization of costs that began in the current year. File ez online For more information, see the Instructions for Form 4562. File ez online How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. File ez online You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. File ez online You claimed the incorrect amount because of a mathematical error made in any year. File ez online You claimed the incorrect amount because of a posting error made in any year, for example, omitting an asset from the depreciation schedule. File ez online You have not adopted a method of accounting for the property placed in service by you in tax years ending after December 29, 2003. File ez online You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. File ez online Note. File ez online You have adopted a method of accounting if you used the same incorrect method of depreciation for two or more consecutively filed returns. File ez online If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. File ez online See the Instructions for Form 3115. File ez online Section 179 Expense Deduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. File ez online This is the section 179 expense deduction. File ez online You can elect the section 179 expense deduction instead of recovering the cost by taking depreciation deductions. File ez online This part of the chapter explains the rules for the section 179 expense deduction. File ez online It explains what property qualifies for the deduction, what property does not qualify for the deduction, the limits that may apply, how to elect the deduction, and when you may have to recapture the deduction. File ez online For more information, see chapter 2 of Publication 946. File ez online What Property Qualifies? To qualify for the section 179 expense deduction, your property must meet all the following requirements. File ez online It must be eligible property. File ez online It must be acquired for business use. File ez online It must have been acquired by purchase. File ez online Eligible Property To qualify for the section 179 expense deduction, your property must be one of the following types of depreciable property. File ez online Tangible personal property. File ez online Qualified real property. File ez online (Special rules apply to qualified real property that you elect to treat as qualified section 179 real property. File ez online For more information, see chapter 2 of Publication 946 and section 179(f) of the Internal Revenue Code. File ez online ) Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services; A research facility used in connection with any of the activities in (a) above; or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. File ez online Single purpose agricultural (livestock) or horticultural structures. File ez online Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. File ez online Off-the-shelf computer software that is readily available for purchase by the general public, is subject to a nonexclusive lease, and has not been substantially modified. File ez online Tangible personal property. File ez online   Tangible personal property is any tangible property that is not real property. File ez online It includes the following property. File ez online Machinery and equipment. File ez online Property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment. File ez online Gasoline storage tanks and pumps at retail service stations. File ez online Livestock, including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals. File ez online Facility used for the bulk storage of fungible commodities. File ez online   A facility used for the bulk storage of fungible commodities is qualifying property for purposes of the section 179 expense deduction if it is used in connection with any of the activities listed earlier in item (3)(a). File ez online Bulk storage means the storage of a commodity in a large mass before it is used. File ez online Grain bins. File ez online   A grain bin is an example of a storage facility that is qualifying section 179 property. File ez online It is a facility used in connection with the production of grain or livestock for the bulk storage of fungible commodities. File ez online Single purpose agricultural or horticultural structures. File ez online   A single purpose agricultural (livestock) or horticultural structure is qualifying property for purposes of the section 179 expense deduction. File ez online Agricultural structure. File ez online   A single purpose agricultural (livestock) structure is any building or enclosure specifically designed, constructed, and used for both the following reasons. File ez online To house, raise, and feed a particular type of livestock and its produce. File ez online To house the equipment, including any replacements, needed to house, raise, or feed the livestock. File ez online For this purpose, livestock includes poultry. File ez online   Single purpose structures are qualifying property if used, for example, to breed chickens or hogs, produce milk from dairy cattle, or produce feeder cattle or pigs, broiler chickens, or eggs. File ez online The facility must include, as an integral part of the structure or enclosure, equipment necessary to house, raise, and feed the livestock. File ez online Horticultural structure. File ez online   A single purpose horticultural structure is either of the following. File ez online A greenhouse specifically designed, constructed, and used for the commercial production of plants. File ez online A structure specifically designed, constructed, and used for the commercial production of mushrooms. File ez online Use of structure. File ez online   A structure must be used only for the purpose that qualified it. File ez online For example, a hog barn will not be qualifying property if you use it to house poultry. File ez online Similarly, using part of your greenhouse to sell plants will make the greenhouse nonqualifying property. File ez online   If a structure includes work space, the work space can be used only for the following activities. File ez online Stocking, caring for, or collecting livestock or plants or their produce. File ez online Maintaining the enclosure or structure. File ez online Maintaining or replacing the equipment or stock enclosed or housed in the structure. File ez online Property Acquired by Purchase To qualify for the section 179 expense deduction, your property must have been acquired by purchase. File ez online For example, property acquired by gift or inheritance does not qualify. File ez online Property acquired from a related person (that is, your spouse, ancestors, or lineal descendants) is not considered acquired by purchase. File ez online Example. File ez online Ken is a farmer. File ez online He purchased two tractors, one from his brother and one from his father. File ez online He placed both tractors in service in the same year he bought them. File ez online The tractor purchased from his father does not qualify for the section 179 expense deduction because he is a related person (as defined above). File ez online The tractor purchased from his brother does qualify for the deduction because Ken is not a related person (as defined above). File ez online What Property Does Not Qualify? Land and improvements. File ez online   Land and land improvements, do not qualify as section 179 property. File ez online Land improvements include nonagricultural fences, swimming pools, paved parking areas, wharves, docks, bridges, and fences. File ez online However, agricultural fences do qualify as section 179 property. File ez online Similarly, field drainage tile also qualifies as section 179 property. File ez online Excepted property. File ez online   Even if the requirements explained in the preceding discussions are met, farmers cannot elect the section 179 expense deduction for the following property. File ez online Certain property you lease to others (if you are a noncorporate lessor). File ez online Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. File ez online Property used by a tax-exempt organization (other than a tax-exempt farmers' cooperative) unless the property is used mainly in a taxable unrelated trade or business. File ez online Property used by governmental units or foreign persons or entities (except property used under a lease with a term of less than 6 months). File ez online How Much Can You Deduct? Your section 179 expense deduction is generally the cost of the qualifying property. File ez online However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. File ez online These limits apply to each taxpayer, not to each business. File ez online However, see Married individuals under Dollar Limits , later. File ez online See also the special rules for applying the limits for partnerships and S corporations under Partnerships and S Corporations , later. File ez online If you deduct only part of the cost of qualifying property as a section 179 expense deduction, you can generally depreciate the cost you do not deduct. File ez online Use Part I of Form 4562 to figure your section 179 expense deduction. File ez online Partial business use. File ez online   When you use property for business and nonbusiness purposes, you can elect the section 179 expense deduction only if you use it more than 50% for business in the year you place it in service. File ez online If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. File ez online Use the resulting business cost to figure your section 179 expense deduction. File ez online Trade-in of other property. File ez online   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 expense deduction includes only the cash you paid. File ez online For example, if you buy (for cash and a trade-in) a new tractor for use in your business, your cost for the section 179 expense deduction is the cash you paid. File ez online It does not include the adjusted basis of the old tractor you trade for the new tractor. File ez online Example. File ez online J-Bar Farms traded two cultivators having a total adjusted basis of $6,800 for a new cultivator costing $13,200. File ez online They received an $8,000 trade-in allowance for the old cultivators and paid $5,200 cash for the new cultivator. File ez online J-Bar also traded a used pickup truck with an adjusted basis of $8,000 for a new pickup truck costing $35,000. File ez online They received a $5,000 trade-in allowance and paid $30,000 cash for the new pickup truck. File ez online Only the cash paid by J-Bar qualifies for the section 179 expense deduction. File ez online J-Bar's business costs that qualify for a section 179 expense deduction are $35,200 ($5,200 + $30,000). File ez online Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 is $500,000. File ez online If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 expense deduction among the items in any way, as long as the total deduction is not more than $500,000. File ez online Qualified real property that you elect to treat as section 179 property is limited to $250,000 of the maximum section 179 deduction of $500,000 for 2013. File ez online You do not have to claim the full $500,000. File ez online For specific information on the section 179 dollar limits, see chapter 2 of Publication 946. File ez online Reduced dollar limit for cost exceeding $2 million. File ez online   If the cost of your qualifying section 179 property placed in service in 2013 is over $2 million, you must reduce the dollar limit (but not below zero) by the amount of cost over $2 million. File ez online If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 expense deduction and you cannot carry over the cost that is more than $2,500,000. File ez online Example. File ez online This year, James Smith placed in service machinery costing $2,050,000. File ez online Because this cost is $50,000 more than $2 million, he must reduce his dollar limit to $450,000 ($500,000 − $50,000). File ez online Limits for sport utility vehicles. File ez online   The total amount you can elect to deduct for certain sport utility vehicles and certain other vehicles placed in service in 2013 is $25,000. File ez online This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, and highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. File ez online   For more information, see chapter 2 of Publication 946. File ez online Limits for passenger automobiles. File ez online   For a passenger automobile that is placed in service in 2013, the total section 179 and depreciation deduction is limited. File ez online See Do the Passenger Automobile Limits Apply , later. File ez online Married individuals. File ez online   If you are married, how you figure your section 179 expense deduction depends on whether you file jointly or separately. File ez online If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. File ez online If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2 million. File ez online You must allocate the dollar limit (after any reduction) equally between you, unless you both elect a different allocation. File ez online If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. File ez online Joint return after separate returns. File ez online   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. File ez online The dollar limit (after reduction for any cost of section 179 property over $2 million). File ez online The total cost of section 179 property you and your spouse elected to expense on your separate returns. File ez online Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. File ez online Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. File ez online Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. File ez online See Carryover of disallowed deduction , later. File ez online Taxable income. File ez online   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. File ez online In addition to net income or loss from a sole proprietorship, partnership, or S corporation, net income or loss derived from a trade or business also includes the following items. File ez online Section 1231 gains (or losses) as discussed in chapter 9. File ez online Interest from working capital of your trade or business. File ez online Wages, salaries, tips, or other pay earned by you (or your spouse if you file a joint return) as an employee of any employer. File ez online   In addition, figure taxable income without regard to any of the following. File ez online The section 179 expense deduction. File ez online The self-employment tax deduction. File ez online Any net operating loss carryback or carryforward. File ez online Any unreimbursed employee business expenses. File ez online Two different taxable income limits. File ez online   In addition to the business income limit for your section 179 expense deduction, you may have a taxable income limit for some other deduction (for example, charitable contributions). File ez online You may have to figure the limit for this other deduction taking into account the section 179 expense deduction. File ez online If so, complete the following steps. File ez online Step Action 1 Figure taxable income without the section 179 expense deduction or the other deduction. File ez online 2 Figure a hypothetical section 179 expense deduction using the taxable income figured in Step 1. File ez online 3 Subtract the hypothetical section 179 expense deduction figured in Step 2 from the taxable income figured in Step 1. File ez online 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. File ez online 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in  Step 1. File ez online 6 Figure your actual section 179 expense deduction using the taxable income figured in Step 5. File ez online 7 Subtract your actual section 179 expense deduction figured in Step 6 from the taxable income figured in Step 1. File ez online 8 Figure your actual other deduction using the taxable income figured in Step 7. File ez online Example. File ez online On February 1, 2013, the XYZ farm corporation purchased and placed in service qualifying section 179 property that cost $500,000. File ez online It elects to expense the entire $500,000 cost under section 179. File ez online In June, the corporation gave a charitable contribution of $10,000. File ez online A corporation's limit on charitable contributions is figured after subtracting any section 179 expense deduction. File ez online The business income limit for the section 179 expense deduction is figured after subtracting any allowable charitable contributions. File ez online XYZ's taxable income figured without the section 179 expense deduction or the deduction for charitable contributions is $520,000. File ez online XYZ figures its section 179 expense deduction and its deduction for charitable contributions as follows. File ez online Step 1. File ez online Taxable income figured without either deduction is $520,000. File ez online Step 2. File ez online Using $520,000 as taxable income, XYZ's hypothetical section 179 expense deduction is $500,000. File ez online Step 3. File ez online $20,000 ($520,000 − $500,000). File ez online Step 4. File ez online Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. File ez online Step 5. File ez online $518,000 ($520,000 − $2,000). File ez online Step 6. File ez online Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 expense deduction. File ez online Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 expense deduction. File ez online Step 7. File ez online $20,000 ($520,000 − $500,000). File ez online Step 8. File ez online Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. File ez online Carryover of disallowed deduction. File ez online   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. File ez online   The amount you carry over is used in determining your section 179 expense deduction in the next year. File ez online However, it is subject to the limits in that year. File ez online If you place more than one property in service in a year, you can select the properties for which all or a part of the cost will be carried forward. File ez online Your selections must be shown in your books and records. File ez online Example. File ez online Last year, Joyce Jones placed in service a machine that cost $8,000 and elected to deduct all $8,000 under section 179. File ez online The taxable income from her business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) was $6,000. File ez online Her section 179 expense deduction was limited to $6,000. File ez online The $2,000 cost that was not allowed as a section 179 expense deduction (because of the business income limit) is carried to this year. File ez online This year, Joyce placed another machine in service that cost $9,000. File ez online Her taxable income from business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) is $10,000. File ez online Joyce can deduct the full cost of the machine ($9,000) but only $1,000 of the carryover from last year because of the business income limit. File ez online She can carry over the balance of $1,000 to next year. File ez online Partnerships and S Corporations The section 179 expense deduction limits apply both to the partnership or S corporation and to each partner or shareholder. File ez online The partnership or S corporation determines its section 179 expense deduction subject to the limits. File ez online It then allocates the deduction among its partners or shareholders. File ez online If you are a partner in a partnership or shareholder of an S corporation, you add the amount allocated from the partnership or S corporation to any section 179 costs not related to the partnership or S corporation and then apply the dollar limit to this total. File ez online To determine any reduction in the dollar limit for costs over $560,000, you do not include any of the cost of section 179 property placed in service by the partnership or S corporation. File ez online After you apply the dollar limit, you apply the business income limit to any remaining section 179 costs. File ez online For more information, see chapter 2 of Publication 946. File ez online Example. File ez online In 2013, Partnership P placed in service section 179 property with a total cost of $2,160,000. File ez online P must reduce its dollar limit by $160,000 ($2,160,000 − $2,000,000). File ez online Its maximum section 179 expense deduction is $340,000 ($500,000 − $160,000), and it elects to expense that amount. File ez online Because P's taxable income from the active conduct of all its trades or businesses for the year was $400,000, it can deduct the full $340,000. File ez online P allocates $100,000 of its section 179 expense deduction and $110,000 of its taxable income to John, one of its partners. File ez online John also conducts a business as a sole proprietor and in 2013, placed in service in that business, section 179 property costing $28,000. File ez online John's taxable income from that business was $10,000. File ez online In addition to the $100,000 allocated from P, he elects to expense the $28,000 of his sole proprietorship's section 179 costs. File ez online However, John's deduction is limited to his business taxable income of $120,000 ($110,000 from P plus $10,000 from his sole proprietorship). File ez online He carries over $8,000 ($128,000 − $120,000) of the elected section 179 costs to 2014. File ez online How Do You Elect the Deduction? You elect to take the section 179 expense deduction by completing Part I of Form 4562. File ez online If you elect the deduction for listed property, complete Part V of  Form 4562 before completing Part I. File ez online   File Form 4562 with either of the following: Your original tax return (whether or not you filed it timely), or An amended return filed within the time prescribed by law. File ez online An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. File ez online The amended return must also include any resulting adjustments to taxable income. File ez online Revoking an election. File ez online   An election (or any specification made in the election) to take a section 179 expense deduction for 2013 can be revoked without IRS approval by filing an amended return. File ez online The amended return must be filed within the time prescribed by law. File ez online The amended return must also include any resulting adjustments to taxable income (for example, allowable depreciation in that tax year for the item of section 179 property for which the election pertains. File ez online ) Once made, the revocation is irrevocable. File ez online When Must You Recapture the Deduction? You may have to recapture the section 179 expense deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. File ez online In the year the business use drops to 50% or less, you include the recapture amount as ordinary income. File ez online You also increase the basis of the property by the recapture amount. File ez online Recovery periods for property are discussed later. File ez online If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. File ez online Instead, use the rules for recapturing depreciation explained in  chapter 9 under Section 1245 Property. File ez online   If the property is listed property, do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. File ez online Instead, use the rules for recapturing depreciation explained in chapter 5 of Publication 946 under Recapture of Excess Depreciation. File ez online Figuring the recapture amount. File ez online   To figure the amount to recapture, take the following steps. File ez online Figure the allowable depreciation for the section 179 expense deduction you claimed. File ez online Begin with the year you placed the property in service and include the year of recapture. File ez online Subtract the depreciation figured in (1) from the section 179 expense deduction you actually claimed. File ez online The result is the amount you must recapture. File ez online Example. File ez online In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. File ez online The property is not listed property. File ez online He elected a $5,000 section 179 expense deduction for the property and also elected not to claim a special depreciation allowance. File ez online He used the property only for business in 2011 and 2012. File ez online During 2013, he used the property 40% for business and 60% for personal use. File ez online He figures his recapture amount as follows. File ez online Section 179 expense deduction claimed (2011) $5,000 Minus: Allowable depreciation (instead of section 179 expense deduction):   2011 $1,250   2012 1,875   2013 ($1,250 × 40% (business)) 500 3,625 2013 — Recapture amount $1,375     Paul must include $1,375 in income for 2013. File ez online Where to report recapture. File ez online   Report any recapture of the section 179 expense deduction as ordinary income in Part IV of Form 4797 and include it in income on Schedule F (Form 1040). File ez online Recapture for qualified section 179 GO Zone property. File ez online   If any qualified section 179 GO Zone property ceases to be used in the GO Zone in a later year, you must recapture the benefit of the increased section 179 expense deduction as “other income. File ez online ” Claiming the Special Depreciation Allowance For qualified property (defined below) placed in service in 2013, you can take an additional 50% special depreciation allowance. File ez online The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS. File ez online Figure the special depreciation allowance by multiplying the depreciable basis of the qualified property by 50%. File ez online What is Qualified Property? For farmers, qualified property generally is certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. File ez online Certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. File ez online   Certain qualified property (defined below) acquired after December 31, 2007, and before January 1, 2014, is eligible for a 50% special depreciation allowance. File ez online   Qualified property includes the following: Tangible property depreciated under the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less. File ez online Water utility property. File ez online Off-the-shelf computer software. File ez online Qualified leasehold improvement property. File ez online   Qualified property must also meet all of the following tests: You must have acquired qualified property by purchase after December 31, 2007. File ez online If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. File ez online Qualified property must be placed in service after December 31, 2007 and placed in service before January 1, 2014 (before January 1, 2015 for certain property with a long production period and for certain aircraft). File ez online The original use of the property must begin with you after December 31, 2007. File ez online For more information, see chapter 3 of Publication 946. File ez online How Can You Elect Not To Claim the Allowance? You can elect, for any class of property, not to deduct the special depreciation allowance for all property in such class placed in service during the tax year. File ez online To make the election, attach a statement to your return indicating the class of property for which you are making the election. File ez online Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. File ez online However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). File ez online Attach the election statement to the amended return. File ez online On the amended return, write “Filed pursuant to section 301. File ez online 9100-2. File ez online ” Once made, the election may not be revoked without IRS consent. File ez online If you elect not to have the special depreciation allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. File ez online When Must You Recapture an Allowance When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. File ez online For more information, see chapter 3 of Publication 946. File ez online Figuring Depreciation Under MACRS The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. File ez online MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). File ez online Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. File ez online To be sure you can use MACRS to figure depreciation for your property, see Can You Use MACRS To Depreciate Your Property, earlier. File ez online This part explains how to determine which MACRS depreciation system applies to your property. File ez online It also discusses the following information that you need to know before you can figure depreciation under MACRS. File ez online Property's recovery class. File ez online Placed-in-service date. File ez online Basis for depreciation. File ez online Recovery period. File ez online Convention. File ez online Depreciation method. File ez online Finally, this part explains how to use this information to figure your depreciation deduction. File ez online Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. File ez online You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. File ez online Required use of ADS. File ez online   You must use ADS for the following property. File ez online All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. File ez online Listed property used 50% or less in a qualified business use. File ez online See Additional Rules for Listed Property , later. File ez online Any tax-exempt use property. File ez online Any tax-exempt bond-financed property. File ez online Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. File ez online Any tangible property used predominantly outside the United States during the year. File ez online If you are required to use ADS to depreciate your property, you cannot claim the special depreciation allowance. File ez online Electing ADS. File ez online   Although your property may qualify for GDS, you can elect to use ADS. File ez online The election generally must cover all property in the same property class you placed in service during the year. File ez online However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. File ez online Once you make this election, you can never revoke it. File ez online   You make the election by completing line 20 in Part III of Form 4562. File ez online Which Property Class Applies Under GDS? The following is a list of the nine property classes under GDS. File ez online 3-year property. File ez online 5-year property. File ez online 7-year property. File ez online 10-year property. File ez online 15-year property. File ez online 20-year property. File ez online 25-year property. File ez online Residential rental property. File ez online Nonresidential real property. File ez online See Which Property Class Applies Under GDS in chapter 4 of Publication 946 for examples of the types of property included in each class. File ez online What Is the Placed-in-Service Date? You begin to claim depreciation when your property is placed in service for use either in a trade or business or for the production of income. File ez online The placed-in-service date for your property is the date the property is ready and available for a specific use. File ez online It is therefore not necessarily the date it is first used. File ez online If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. File ez online See Placed in Service under When Does Depreciation Begin and End , earlier, for examples illustrating when property is placed in service. File ez online What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. File ez online Reduce that amount by any credits and deductions allocable to the property. File ez online The following are examples of some of the credits and deductions that reduce basis. File ez online Any deduction for section 179 property. File ez online Any deduction for removal of barriers to the disabled and the elderly. File ez online Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. File ez online Any special depreciation allowance. File ez online Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. File ez online For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property , earlier. File ez online Also, see chapter 6. File ez online For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. File ez online Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. File ez online It is determined based on the depreciation system (GDS or ADS) used. File ez online See Table 7-1 for recovery periods under both GDS and ADS for some commonly used assets. File ez online For a complete list of recovery periods, see the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. File ez online House trailers for farm laborers. File ez online   To depreciate a house trailer you supply as housing for those who work on your farm, use one of the following recovery periods if the house trailer is mobile (it has wheels and a history of movement). File ez online A 7-year recovery period under GDS. File ez online A 10-year recovery period under ADS. File ez online   However, if the house trailer is not mobile (its wheels have been removed and permanent utilities and pipes attached to it), use one of the following recovery periods. File ez online A 20-year recovery period under GDS. File ez online A 25-year recovery period under ADS. File ez online Water wells. File ez online   Water wells used to provide water for raising poultry and livestock are land improvements. File ez online If they are depreciable, use one of the following recovery periods. File ez online A 15-year recovery period under GDS. File ez online A 20-year recovery period under ADS. File ez online   The types of water wells that can be depreciated were discussed earlier in Irrigation systems and water wells under Property Having a Determinable Useful Life . File ez online Table 7-1. File ez online Farm Property Recovery Periods   Recovery Period in Years Assets GDS ADS Agricultural structures (single purpose) 10 15 Automobiles 5 5 Calculators and copiers 5 6 Cattle (dairy or breeding) 5 7 Communication equipment1 7 10 Computer and peripheral equipment 5 5 Drainage facilities 15 20 Farm buildings2 20 25 Farm machinery and equipment 7 10 Fences (agricultural) 7 10 Goats and sheep (breeding) 5 5 Grain bin 7 10 Hogs (breeding) 3 3 Horses (age when placed in service)     Breeding and working (12 years or less) 7 10 Breeding and working (more than 12 years) 3 10 Racing horses 3 12 Horticultural structures (single purpose) 10 15 Logging machinery and equipment3 5 6 Nonresidential real property 394 40 Office furniture, fixtures, and equipment (not calculators, copiers, or typewriters) 7 10 Paved lots 15 20 Residential rental property 27. File ez online 5 40 Tractor units (over-the-road) 3 4 Trees or vines bearing fruit or nuts 10 20 Truck (heavy duty, unloaded weight 13,000 lbs. File ez online or more) 5 6 Truck (actual weight less than 13,000 lbs) 5 5 Water wells 15 20 1 Not including communication equipment listed in other classes. File ez online 2 Not including single purpose agricultural or horticultural structures. File ez online 3 Used by logging and sawmill operators for cutting of timber. File ez online 4 For property placed in service after May 12, 1993; for property placed in service before May 13, 1993,  the recovery period is 31. File ez online 5 years. File ez online Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. File ez online The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. File ez online Use one of the following conventions. File ez online The half-year convention. File ez online The mid-month convention. File ez online The mid-quarter convention. File ez online For a detailed explanation of each convention, see Which Convention Applies in chapter 4 of Publication 946. File ez online Also, see the Instructions for Form 4562. File ez online Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. File ez online The 200% declining balance method over a GDS recovery period. File ez online The 150% declining balance method over a GDS recovery period. File ez online The straight line method over a GDS recovery period. File ez online The straight line method over an ADS recovery period. File ez online Depreciation Table. File ez online   The following table lists the types of property you can depreciate under each method. File ez online The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. File ez online Depreciation Table System/Method   Type of Property GDS using  150% DB • All property used in a farming business (except real property)   • All 15- and 20-year property   • Nonfarm 3-, 5-, 7-, and 10-year property1 GDS using SL • Nonresidential real property   • Residential rental property   • Trees or vines bearing fruit or nuts   • All 3-, 5-, 7-, 10-, 15-, and 20-year property1 ADS using SL • Property used predomi- nantly outside the United States   • Farm property used when an election not to apply the uniform capitalization rules is in effect   • Tax-exempt property   • Tax-exempt bond-financed property   • Imported property2   • Any property for which you elect to use this method1 GDS using  200% DB • Nonfarm 3-, 5-, 7-, and 10-year property 1Elective method 2See section 168(g)(6) of the Internal Revenue  Code Property used in farming business. File ez online   For personal property placed in service after 1988 in a farming business, you must use the 150% declining balance method over a GDS recovery period or you can elect one of the following methods. File ez online The straight line method over a GDS recovery period. File ez online The straight line method over an ADS recovery period. File ez online For property placed in service before 1999, you could have elected to use the 150% declining balance method using the ADS recovery periods for certain property classes. File ez online If you made this election, continue to use the same method and recovery period for that property. File ez online Real property. File ez online   You can depreciate real property using the straight line method under either GDS or ADS. File ez online Switching to straight line. File ez online   If you use a declining balance method, you switch to the straight line method in the year it provides an equal or greater deduction. File ez online If you use the MACRS percentage tables, discussed later under How Is the Depreciation Deduction Figured , you do not need to determine in which year your deduction is greater using the straight line method. File ez online The tables have the switch to the straight line method built into their rates. File ez online Fruit or nut trees and vines. File ez online   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a 10-year recovery period. File ez online ADS required for some farmers. File ez online   If you elect not to apply the uniform capitalization rules to any plant shown in Table 6-1 of chapter 6 and produced in your farming business, you must use ADS for all property you place in service in any year the election is in effect. File ez online See chapter 6 for a discussion of the application of the uniform capitalization rules to farm property. File ez online Electing a different method. File ez online   As shown in the Depreciation Table , you can elect a different method for depreciation for certain types of property. File ez online You must make the election by the due date of the return (including extensions) for the year you placed the property in service. File ez online However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). File ez online Attach the election to the amended return and write “Filed pursuant to section 301. File ez online 9100-2” on the election statement. File ez online File the amended return at the same address you filed the original return. File ez online Once you make the election, you cannot change it. File ez online    If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. File ez online However, you can make the election on a property-by-property basis for residential rental and nonresidential real property. File ez online Straight line election. File ez online   Instead of using the declining balance method, you can elect to use the straight line method over the GDS recovery period. File ez online Make the election by entering “S/L” under column (f) in Part III of Form 4562. File ez online ADS election. File ez online   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. File ez online ADS uses the straight line method of depreciation over the ADS recovery periods, which are generally longer than the GDS recovery periods. File ez online The ADS recovery periods for many assets used in the business of farming are listed in Table 7–1. File ez online Additional ADS recovery periods for other classes of property may be found in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. File ez online How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed-in-service date, basis amount, recovery period, convention, and depreciation method that applies to your property. File ez online Then you are ready to figure your depreciation deduction. File ez online You can figure it in one of two ways. File ez online You can use the percentage tables provided by the IRS. File ez online You can figure your own deduction without using the tables. File ez online Figuring your own MACRS deduction will generally result in a slightly different amount than using the tables. File ez online Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. File ez online These percentage tables are in Appendix A of Publication 946. File ez online Rules for using the tables. File ez online   The following rules cover the use of the percentage tables. File ez online You must apply the rates in the percentage tables to your property's unadjusted basis. File ez online Unadjusted basis is the same basis amount you would use to figure gain on a sale but figured without reducing your original basis by any MACRS depreciation taken in earlier years. File ez online You cannot use the percentage tables for a short tax year. File ez online See chapter 4 of Publication 946 for information on how to figure the deduction for a short tax year. File ez online You generally must continue to use them for the entire recovery period of the property. File ez online You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to the property, which is depreciated as a separate property. File ez online Basis adjustment due to casualty loss. File ez online   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. File ez online For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. File ez online See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. File ez online Figuring depreciation using the 150% DB method and half-year convention. File ez online    Table 7-2 has the percentages for 3-, 5-, 7-, and 20-year property. File ez online The percentages are based on the 150% declining balance method with a change to the straight line method. File ez online This table covers only the half-year convention and the first 8 years for 20-year property. File ez online See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. File ez online   The following examples show how to figure depreciation under MACRS using the percentages in Table 7-2 . File ez online Example 1. File ez online During the year, you bought an item of 7-year property for $10,000 and placed it in service. File ez online You do not elect a section 179 expense deduction for this property. File ez online In addition, the property is not qualified property for purposes of the special depreciation allowance. File ez online The unadjusted basis of the property is $10,000. File ez online You use the percentages in Table 7-2 to figure your deduction. File ez online Since this is 7-year property, you multiply $10,000 by 10. File ez online 71% to get this year's depreciation of $1,071. File ez online For next year, your depreciation will be $1,913 ($10,000 × 19. File ez online 13%). File ez online Example 2. File ez online You had a barn constructed on your farm at a cost of $20,000. File ez online You placed the barn in service this year. File ez online You elect not to claim the special depreciation allowance. File ez online The barn is 20-year property and you use the table percentages to figure your deduction. File ez online You figure this year's depreciation by multiplying $20,000 (unadjusted basis) by 3. File ez online 75% to get $750. File ez online For next year, your depreciation will be $1,443. File ez online 80 ($20,000 × 7. File ez online 219%). File ez online Table 7-2. File ez online 150% Declining Balance Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 25. File ez online 0 % 15. File ez online 00 % 10. File ez online 71 % 3. File ez online 750 % 2 37. File ez online 5   25. File ez online 50   19. File ez online 13   7. File ez online 219   3 25. File ez online 0   17. File ez online 85   15. File ez online 03   6. File ez online 677   4 12. File ez online 5   16. File ez online 66   12. File ez online 25   6. File ez online 177   5     16. File ez online 66   12. File ez online 25   5. File ez online 713   6     8. File ez online 33   12. File ez online 25   5. File ez online 285   7         12. File ez online 25   4. File ez online 888   8         6. File ez online 13   4. File ez online 522   Figuring depreciation using the straight line method and half-year convention. File ez online   The following table has the straight line percentages for 3-, 5-, 7-, and 20-year property using the half-year convention. File ez online The table covers only the first 8 years for 20-year property. File ez online See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. File ez online Table 7-3. File ez online Straight Line Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 16. File ez online 67 % 10 % 7. File ez online 14 % 2. File ez online 5 % 2 33. File ez online 33   20   14. File ez online 29   5. File ez online 0   3 33. File ez online 33   20   14. File ez online 29   5. File ez online 0   4 16. File ez online 67   20   14. File ez online 28   5. File ez online 0   5     20   14. File ez online 29   5. File ez online 0   6     10   14. File ez online 28   5. File ez online 0   7         14. File ez online 29   5. File ez online 0   8         7. File ez online 14   5. File ez online 0