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Filing Tax Extension

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Filing Tax Extension

Filing tax extension 17. Filing tax extension   How To Get Tax Help Table of Contents Go online, use a smart phone, call or walk in to an office near you. Filing tax extension Whether it's help with a tax issue, preparing your tax return or picking up a free publication or form, get the help you need the way you want it. Filing tax extension Free help with your tax return. Filing tax extension   Free help in preparing your return is available nationwide from IRS-certified volunteers. Filing tax extension The Volunteer Income Tax Assistance (VITA) program is designed to help low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers. Filing tax extension The Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Filing tax extension 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. Filing tax extension Some VITA and TCE sites provide taxpayers the opportunity to prepare their return with the assistance of an IRS-certified volunteer. Filing tax extension To find the nearest VITA or TCE site, visit IRS. Filing tax extension gov or call 1-800-906-9887. Filing tax extension   As part of the TCE program, AARP offers the Tax-Aide counseling program. Filing tax extension To find the nearest AARP Tax-Aide site, visit AARP's website at www. Filing tax extension aarp. Filing tax extension org/money/taxaide or call 1-888-227-7669. Filing tax extension   For more information on these programs, go to IRS. Filing tax extension gov and enter “VITA” in the search box. Filing tax extension Internet. Filing tax extension IRS. Filing tax extension gov and IRS2Go are ready when you are — every day, every night, 24 hours a day, 7 days a week. Filing tax extension Apply for an Employer Identification Number (EIN). Filing tax extension Go to IRS. Filing tax extension gov and enter Apply for an EIN in the search box. Filing tax extension Request an Electronic Filing PIN by going to IRS. Filing tax extension gov and entering Electronic Filing PIN in the search box. Filing tax extension Download forms, instructions, and publications, including some accessible versions. Filing tax extension Order free transcripts of your tax returns or tax account using the Order a Transcript tool on IRS. Filing tax extension gov or IRS2Go. Filing tax extension Tax return and tax account transcripts are generally available for the current year and past three years. Filing tax extension Locate the nearest Taxpayer Assistance Center using the Office Locator tool on IRS. Filing tax extension gov or IRS2Go. Filing tax extension Stop by most business days for face-to-face tax help, no appointment necessary — just walk in. Filing tax extension An employee can explain IRS letters, request adjustments to your tax account or help you set up a payment plan. Filing tax extension Before you visit, check the Office Locator for the address, phone number, hours of operation and the services provided. Filing tax extension If you have an ongoing tax account problem or a special need, such as a disability, you can request an appointment. Filing tax extension Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Filing tax extension Locate the nearest volunteer help site with the VITA Locator Tool on IRS. Filing tax extension gov. Filing tax extension Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Filing tax extension The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. Filing tax extension Most VITA and TCE sites offer free electronic filing and some provide IRS-certified volunteers who can help prepare your tax return. Filing tax extension AARP offers the Tax-Aide counseling program as part of the TCE program. Filing tax extension Visit AARP's website to find the nearest Tax-Aide location. Filing tax extension Research your tax questions. Filing tax extension Search publications and instructions by topic or keyword. Filing tax extension Read the Internal Revenue Code, regulations, or other official guidance. Filing tax extension Read Internal Revenue Bulletins. Filing tax extension Sign up to receive local and national tax news by email. Filing tax extension Phone. Filing tax extension You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Filing tax extension   Call the Business and Specialty Tax line for questions at 1-800-829-4933. Filing tax extension Download the free IRS2Go mobile app from the iTunes app store or from Google Play. Filing tax extension Use it to watch the IRS YouTube channel, get IRS news as soon as it's released to the public, order transcripts of your tax returns or tax account, check your refund status, 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. Filing tax extension Call to locate the nearest volunteer help site, 1-800-906-9887. Filing tax extension Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Filing tax extension The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. Filing tax extension Most VITA and TCE sites offer free electronic filing. Filing tax extension Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Filing tax extension Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Filing tax extension Call to order forms, instructions and publications, 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions and publications, and prior-year forms and instructions (limited to 5 years). Filing tax extension You should receive your order within 10 business days. Filing tax extension Call to order transcripts of your tax returns or tax account, 1-800-908-9946. Filing tax extension Follow the prompts to provide your Employer Identification Number, street address and ZIP code. Filing tax extension Call for TeleTax topics, 1-800-829-4477, to listen to pre-recorded messages covering various tax topics. Filing tax extension Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Filing tax extension The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Filing tax extension These individuals can also contact the IRS through relay services such as the Federal Relay Service available at www. Filing tax extension gsa. Filing tax extension gov/fedrelay. Filing tax extension Walk-in. Filing tax extension You can find a selection of forms, publications and services — in-person, face-to-face. Filing tax extension   Products. Filing tax extension You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Filing tax extension Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Filing tax extension Services. Filing tax extension You can walk in to your local TAC most business days for personal, face-to-face tax help. Filing tax extension An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Filing tax extension If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local TAC where you can talk with an IRS representative face-to-face. Filing tax extension No appointment is necessary—just walk in. Filing tax extension Before visiting, check www. Filing tax extension irs. Filing tax extension gov/localcontacts for hours of operation and services provided. Filing tax extension Mail. Filing tax extension You can send your order for forms, instructions, and publications to the address below. Filing tax extension You should receive a response within 10 days after your request is received. Filing tax extension  Internal Revenue Service 1201 N. Filing tax extension Mitsubishi Motorway Bloomington, IL 61705-6613 The Taxpayer Advocate Service Is Here to Help You. Filing tax extension   The Taxpayer Advocate Service (TAS) is your voice at the IRS. Filing tax extension Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Filing tax extension What can TAS do for you?   We can offer you free help with IRS problems that you can't resolve on your own. Filing tax extension 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. Filing tax extension You face (or your business is facing) an immediate threat of adverse action. Filing tax extension You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Filing tax extension   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. Filing tax extension Here's why we can help: TAS is an independent organization within the IRS. Filing tax extension Our advocates know how to work with the IRS. Filing tax extension Our services are free and tailored to meet your needs. Filing tax extension We have offices in every state, the District of Columbia, and Puerto Rico. Filing tax extension 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 www. Filing tax extension irs. Filing tax extension gov/advocate, or call us toll-free at 1-877-777-4778. Filing tax extension How else does TAS help taxpayers?   TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Filing tax extension If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. Filing tax extension irs. Filing tax extension gov/sams. Filing tax extension Low Income Taxpayer Clinics. Filing tax extension   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. Filing tax extension Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Filing tax extension Visit www. Filing tax extension TaxpayerAdvocate. Filing tax extension irs. Filing tax extension gov or see IRS Publication 4134, Low Income Taxpayer Clinic List. Filing tax extension Small Business and Self-Employed Tax Center. Filing tax extension This online guide is a must for every small business owner or any taxpayer about to start a business. Filing tax extension  The information is updated during the year. Filing tax extension Visit www. Filing tax extension irs. Filing tax extension gov/Businesses/Small-Businesses-&-Self-Employed. Filing tax extension Prev  Up  Next   Home   More Online Publications
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The Filing Tax Extension

Filing tax extension 3. Filing tax extension   Ordinary or Capital Gain or Loss for Business Property Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. Filing tax extension Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sales Gifts Transfers at Death Like-Kind Exchanges and Involuntary Conversions Multiple Properties Introduction When you dispose of business property, your taxable gain or loss is usually a section 1231 gain or loss. Filing tax extension Its treatment as ordinary or capital is determined under rules for section 1231 transactions. Filing tax extension When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. Filing tax extension Any remaining gain is a section 1231 gain. Filing tax extension Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 537 Installment Sales 547 Casualties, Disasters and Thefts 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) 4797 Sales of Business Property See chapter 5 for information about getting publications and forms. Filing tax extension Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (discussed below). Filing tax extension Their treatment as ordinary or capital depends on whether you have a net gain or a net loss from all your section 1231 transactions. Filing tax extension If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). Filing tax extension Do not take that gain into account as section 1231 gain. Filing tax extension Section 1231 transactions. Filing tax extension   The following transactions result in gain or loss subject to section 1231 treatment. Filing tax extension Sales or exchanges of real property or depreciable personal property. Filing tax extension This property must be used in a trade or business and held longer than 1 year. Filing tax extension Generally, property held for the production of rents or royalties is considered to be used in a trade or business. Filing tax extension Depreciable personal property includes amortizable section 197 intangibles (described in chapter 2 under Other Dispositions). Filing tax extension Sales or exchanges of leaseholds. Filing tax extension The leasehold must be used in a trade or business and held longer than 1 year. Filing tax extension Sales or exchanges of cattle and horses. Filing tax extension The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 2 years or longer. Filing tax extension Sales or exchanges of other livestock. Filing tax extension This livestock does not include poultry. Filing tax extension It must be held for draft, breeding, dairy, or sporting purposes and held for 1 year or longer. Filing tax extension Sales or exchanges of unharvested crops. Filing tax extension The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person and the land must be held longer than 1 year. Filing tax extension You cannot keep any right or option to directly or indirectly reacquire the land (other than a right customarily incident to a mortgage or other security transaction). Filing tax extension Growing crops sold with a lease on the land, though sold to the same person in the same transaction, are not included. Filing tax extension Cutting of timber or disposal of timber, coal, or iron ore. Filing tax extension The cutting or disposal must be treated as a sale, as described in chapter 2 under Timber and Coal and Iron Ore. Filing tax extension Condemnations. Filing tax extension The condemned property must have been held longer than 1 year. Filing tax extension It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. Filing tax extension It cannot be property held for personal use. Filing tax extension Casualties and thefts. Filing tax extension The casualty or theft must have affected business property, property held for the production of rents and royalties, or investment property (such as notes and bonds). Filing tax extension You must have held the property longer than 1 year. Filing tax extension However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. Filing tax extension For more information on casualties and thefts, see Publication 547. Filing tax extension Property for sale to customers. Filing tax extension   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. Filing tax extension If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. Filing tax extension Example. Filing tax extension You manufacture and sell steel cable, which you deliver on returnable reels that are depreciable property. Filing tax extension Customers make deposits on the reels, which you refund if the reels are returned within a year. Filing tax extension If they are not returned, you keep each deposit as the agreed-upon sales price. Filing tax extension Most reels are returned within the 1-year period. Filing tax extension You keep adequate records showing depreciation and other charges to the capitalized cost of the reels. Filing tax extension Under these conditions, the reels are not property held for sale to customers in the ordinary course of your business. Filing tax extension Any gain or loss resulting from their not being returned may be capital or ordinary, depending on your section 1231 transactions. Filing tax extension Copyrights. Filing tax extension    The sale of a copyright, a literary, musical, or artistic composition, or similar property is not a section 1231 transaction if your personal efforts created the property, or if you acquired the property in a way that entitled you to the basis of the previous owner whose personal efforts created it (for example, if you receive the property as a gift). Filing tax extension The sale of such property results in ordinary income and generally is reported in Part II of Form 4797. Filing tax extension Treatment as ordinary or capital. Filing tax extension   To determine the treatment of section 1231 gains and losses, combine all your section 1231 gains and losses for the year. Filing tax extension If you have a net section 1231 loss, it is ordinary loss. Filing tax extension If you have a net section 1231 gain, it is ordinary income up to the amount of your nonrecaptured section 1231 losses from previous years. Filing tax extension The rest, if any, is long-term capital gain. Filing tax extension Nonrecaptured section 1231 losses. Filing tax extension   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain. Filing tax extension Therefore, if in any of your five preceding tax years you had section 1231 losses, a net gain for the current year from the sale of section 1231 assets is ordinary gain to the extent of your prior losses. Filing tax extension These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Filing tax extension Example. Filing tax extension In 2013, Ben has a $2,000 net section 1231 gain. Filing tax extension To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. Filing tax extension From 2008 through 2012 he had the following section 1231 gains and losses. Filing tax extension Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800 Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. Filing tax extension 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if otherwise nontaxable) as ordinary income. Filing tax extension To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. Filing tax extension This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis. Filing tax extension On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information. Filing tax extension Whether the adjusted basis was figured using depreciation or amortization you claimed on other property. Filing tax extension Whether the adjusted basis was figured using depreciation or amortization another person claimed. Filing tax extension Corporate distributions. Filing tax extension   For information on property distributed by corporations, see Distributions to Shareholders in Publication 542, Corporations. Filing tax extension General asset accounts. Filing tax extension   Different rules apply to dispositions of property you depreciated using a general asset account. Filing tax extension For information on these rules, see Publication 946. Filing tax extension Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable on the property. Filing tax extension See Gain Treated as Ordinary Income, later. Filing tax extension Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain. Filing tax extension See Treatment as ordinary or capital under Section 1231 Gains and Losses, earlier. Filing tax extension Section 1245 property defined. Filing tax extension   Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. Filing tax extension Personal property (either tangible or intangible). Filing tax extension Other tangible property (except buildings and their structural components) used as any of the following. Filing tax extension See Buildings and structural components below. Filing tax extension An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services. Filing tax extension A research facility in any of the activities in (a). Filing tax extension A facility in any of the activities in (a) for the bulk storage of fungible commodities (discussed on the next page). Filing tax extension That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. Filing tax extension Amortization of certified pollution control facilities. Filing tax extension The section 179 expense deduction. Filing tax extension Deduction for clean-fuel vehicles and certain refueling property. Filing tax extension Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations. Filing tax extension Deduction for certain qualified refinery property. Filing tax extension Deduction for qualified energy efficient commercial building property. Filing tax extension Amortization of railroad grading and tunnel bores, if in effect before the repeal by the Revenue Reconciliation Act of 1990. Filing tax extension (Repealed by Public Law 99-514, Tax Reform Act of 1986, section 242(a). Filing tax extension ) Certain expenditures for child care facilities if in effect before repeal by Public Law 101-58, Omnibus Budget Reconciliation Act of 1990, section 11801(a)(13) (except with regards to deductions made prior to November 5, 1990). Filing tax extension Expenditures to remove architectural and transportation barriers to the handicapped and elderly. Filing tax extension Deduction for qualified tertiary injectant expenses. Filing tax extension Certain reforestation expenditures. Filing tax extension Deduction for election to expense qualified advanced mine safety equipment property. Filing tax extension Single purpose agricultural (livestock) or horticultural structures. Filing tax extension Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. Filing tax extension Any railroad grading or tunnel bore. Filing tax extension Buildings and structural components. Filing tax extension   Section 1245 property does not include buildings and structural components. Filing tax extension The term building includes a house, barn, warehouse, or garage. Filing tax extension The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. Filing tax extension   Do not treat a structure that is essentially machinery or equipment as a building or structural component. Filing tax extension Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. Filing tax extension   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. Filing tax extension Structures such as oil and gas storage tanks, grain storage bins, silos, fractionating towers, blast furnaces, basic oxygen furnaces, coke ovens, brick kilns, and coal tipples are not treated as buildings, but as section 1245 property. Filing tax extension Facility for bulk storage of fungible commodities. Filing tax extension   This term includes oil or gas storage tanks and grain storage bins. Filing tax extension Bulk storage means the storage of a commodity in a large mass before it is used. Filing tax extension For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. Filing tax extension To be fungible, a commodity must be such that one part may be used in place of another. Filing tax extension   Stored materials that vary in composition, size, and weight are not fungible. Filing tax extension Materials are not fungible if one part cannot be used in place of another part and the materials cannot be estimated and replaced by simple reference to weight, measure, and number. Filing tax extension For example, the storage of different grades and forms of aluminum scrap is not storage of fungible commodities. Filing tax extension Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. Filing tax extension The depreciation and amortization allowed or allowable on the property. Filing tax extension The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). Filing tax extension A limit on this amount for gain on like-kind exchanges and involuntary conversions is explained later. Filing tax extension For any other disposition of section 1245 property, ordinary income is the lesser of (1) earlier or the amount by which its fair market value is more than its adjusted basis. Filing tax extension See Gifts and Transfers at Death, later. Filing tax extension Use Part III of Form 4797 to figure the ordinary income part of the gain. Filing tax extension Depreciation taken on other property or taken by other taxpayers. Filing tax extension   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. Filing tax extension Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. Filing tax extension Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift). Filing tax extension Depreciation and amortization. Filing tax extension   Depreciation and amortization that must be recaptured as ordinary income include (but are not limited to) the following items. Filing tax extension Ordinary depreciation deductions. Filing tax extension Any special depreciation allowance you claimed. Filing tax extension Amortization deductions for all the following costs. Filing tax extension Acquiring a lease. Filing tax extension Lessee improvements. Filing tax extension Certified pollution control facilities. Filing tax extension Certain reforestation expenses. Filing tax extension Section 197 intangibles. Filing tax extension Childcare facility expenses made before 1982, if in effect before the repeal of IRC 188. Filing tax extension Franchises, trademarks, and trade names acquired before August 11, 1993. Filing tax extension The section 179 deduction. Filing tax extension Deductions for all the following costs. Filing tax extension Removing barriers to the disabled and the elderly. Filing tax extension Tertiary injectant expenses. Filing tax extension Depreciable clean-fuel vehicles and refueling property (minus the amount of any recaptured deduction). Filing tax extension Environmental cleanup costs. Filing tax extension Certain reforestation expenses. Filing tax extension Qualified disaster expenses. Filing tax extension Any basis reduction for the investment credit (minus any basis increase for credit recapture). Filing tax extension Any basis reduction for the qualified electric vehicle credit (minus any basis increase for credit recapture). Filing tax extension Example. Filing tax extension You file your returns on a calendar year basis. Filing tax extension In February 2011, you bought and placed in service for 100% use in your business a light-duty truck (5-year property) that cost $10,000. Filing tax extension You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2011 and $3,200 in 2012. Filing tax extension You did not take the section 179 deduction. Filing tax extension You sold the truck in May 2013 for $7,000. Filing tax extension The MACRS deduction in 2013, the year of sale, is $960 (½ of $1,920). Filing tax extension Figure the gain treated as ordinary income as follows. Filing tax extension 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $2,000 + $3,200 + $960) 6,160   4) Adjusted basis (subtract line 3 from line 2) $3,840 5) Gain realized (subtract line 4 from line 1) $3,160 6) Gain treated as ordinary income (lesser of line 3 or line 5) $3,160 Depreciation on other tangible property. Filing tax extension   You must take into account depreciation during periods when the property was not used as an integral part of an activity or did not constitute a research or storage facility, as described earlier under Section 1245 property. Filing tax extension   For example, if depreciation deductions taken on certain storage facilities amounted to $10,000, of which $6,000 is from the periods before their use in a prescribed business activity, you must use the entire $10,000 in determining ordinary income from depreciation. Filing tax extension Depreciation allowed or allowable. Filing tax extension   The greater of the depreciation allowed or allowable is generally the amount to use in figuring the part of gain to report as ordinary income. Filing tax extension However, if in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. Filing tax extension If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. Filing tax extension   This treatment applies only when figuring what part of gain is treated as ordinary income under the rules for section 1245 depreciation recapture. Filing tax extension Multiple asset accounts. Filing tax extension   In figuring ordinary income from depreciation, you can treat any number of units of section 1245 property in a single depreciation account as one item if the total ordinary income from depreciation figured by using this method is not less than it would be if depreciation on each unit were figured separately. Filing tax extension Example. Filing tax extension In one transaction you sold 50 machines, 25 trucks, and certain other property that is not section 1245 property. Filing tax extension All of the depreciation was recorded in a single depreciation account. Filing tax extension After dividing the total received among the various assets sold, you figured that each unit of section 1245 property was sold at a gain. Filing tax extension You can figure the ordinary income from depreciation as if the 50 machines and 25 trucks were one item. Filing tax extension However, if five of the trucks had been sold at a loss, only the 50 machines and 20 of the trucks could be treated as one item in determining the ordinary income from depreciation. Filing tax extension Normal retirement. Filing tax extension   The normal retirement of section 1245 property in multiple asset accounts does not require recognition of gain as ordinary income from depreciation if your method of accounting for asset retirements does not require recognition of that gain. Filing tax extension Section 1250 Property Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable on the property. Filing tax extension To determine the additional depreciation on section 1250 property, see Additional Depreciation, below. Filing tax extension Section 1250 property defined. Filing tax extension   This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. Filing tax extension It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. Filing tax extension A fee simple interest in land is not included because it is not depreciable. Filing tax extension   If your section 1250 property becomes section 1245 property because you change its use, you can never again treat it as section 1250 property. Filing tax extension Additional Depreciation If you hold section 1250 property longer than 1 year, the additional depreciation is the actual depreciation adjustments that are more than the depreciation figured using the straight line method. Filing tax extension For a list of items treated as depreciation adjustments, see Depreciation and amortization under Gain Treated as Ordinary Income, earlier. Filing tax extension For the treatment of unrecaptured section 1250 gain, see Capital Gains Tax Rate, later. Filing tax extension If you hold section 1250 property for 1 year or less, all the depreciation is additional depreciation. Filing tax extension You will not have additional depreciation if any of the following conditions apply to the property disposed of. Filing tax extension You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method; you held the property longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Filing tax extension In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction for property placed in service before January 1, 2010. Filing tax extension The property was residential low-income rental property you held for 162/3 years or longer. Filing tax extension For low-income rental housing on which the special 60-month depreciation for rehabilitation expenses was allowed, the 162/3 years start when the rehabilitated property is placed in service. Filing tax extension You chose the alternate ACRS method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. Filing tax extension The property was residential rental property or nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made); you held it longer than 1 year; and, if the property was qualified property, you made a timely election not to claim any special depreciation allowance. Filing tax extension These properties are depreciated using the straight line method. Filing tax extension In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction. Filing tax extension Depreciation taken by other taxpayers or on other property. Filing tax extension   Additional depreciation includes all depreciation adjustments to the basis of section 1250 property whether allowed to you or another person (as carryover basis property). Filing tax extension Example. Filing tax extension Larry Johnson gives his son section 1250 property on which he took $2,000 in depreciation deductions, of which $500 is additional depreciation. Filing tax extension Immediately after the gift, the son's adjusted basis in the property is the same as his father's and reflects the $500 additional depreciation. Filing tax extension On January 1 of the next year, after taking depreciation deductions of $1,000 on the property, of which $200 is additional depreciation, the son sells the property. Filing tax extension At the time of sale, the additional depreciation is $700 ($500 allowed the father plus $200 allowed the son). Filing tax extension Depreciation allowed or allowable. Filing tax extension   The greater of depreciation allowed or allowable (to any person who held the property if the depreciation was used in figuring its adjusted basis in your hands) generally is the amount to use in figuring the part of the gain to be reported as ordinary income. Filing tax extension If you can show that the deduction allowed for any tax year was less than the amount allowable, the lesser figure will be the depreciation adjustment for figuring additional depreciation. Filing tax extension Retired or demolished property. Filing tax extension   The adjustments reflected in adjusted basis generally do not include deductions for depreciation on retired or demolished parts of section 1250 property unless these deductions are reflected in the basis of replacement property that is section 1250 property. Filing tax extension Example. Filing tax extension A wing of your building is totally destroyed by fire. Filing tax extension The depreciation adjustments figured in the adjusted basis of the building after the wing is destroyed do not include any deductions for depreciation on the destroyed wing unless it is replaced and the adjustments for depreciation on it are reflected in the basis of the replacement property. Filing tax extension Figuring straight line depreciation. Filing tax extension   The useful life and salvage value you would have used to figure straight line depreciation are the same as those used under the depreciation method you actually used. Filing tax extension If you did not use a useful life under the depreciation method actually used (such as with the units-of-production method) or if you did not take salvage value into account (such as with the declining balance method), the useful life or salvage value for figuring what would have been the straight line depreciation is the useful life and salvage value you would have used under the straight line method. Filing tax extension   Salvage value and useful life are not used for the ACRS method of depreciation. Filing tax extension Figure straight line depreciation for ACRS real property by using its 15-, 18-, or 19-year recovery period as the property's useful life. Filing tax extension   The straight line method is applied without any basis reduction for the investment credit. Filing tax extension Property held by lessee. Filing tax extension   If a lessee makes a leasehold improvement, the lease period for figuring what would have been the straight line depreciation adjustments includes all renewal periods. Filing tax extension This inclusion of the renewal periods cannot extend the lease period taken into account to a period that is longer than the remaining useful life of the improvement. Filing tax extension The same rule applies to the cost of acquiring a lease. Filing tax extension   The term renewal period means any period for which the lease may be renewed, extended, or continued under an option exercisable by the lessee. Filing tax extension However, the inclusion of renewal periods cannot extend the lease by more than two-thirds of the period that was the basis on which the actual depreciation adjustments were allowed. Filing tax extension Applicable Percentage The applicable percentage used to figure the ordinary income because of additional depreciation depends on whether the real property you disposed of is nonresidential real property, residential rental property, or low-income housing. Filing tax extension The percentages for these types of real property are as follows. Filing tax extension Nonresidential real property. Filing tax extension   For real property that is not residential rental property, the applicable percentage for periods after 1969 is 100%. Filing tax extension For periods before 1970, the percentage is zero and no ordinary income because of additional depreciation before 1970 will result from its disposition. Filing tax extension Residential rental property. Filing tax extension   For residential rental property (80% or more of the gross income is from dwelling units) other than low-income housing, the applicable percentage for periods after 1975 is 100%. Filing tax extension The percentage for periods before 1976 is zero. Filing tax extension Therefore, no ordinary income because of additional depreciation before 1976 will result from a disposition of residential rental property. Filing tax extension Low-income housing. Filing tax extension    Low-income housing includes all the following types of residential rental property. Filing tax extension Federally assisted housing projects if 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. Filing tax extension Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed. Filing tax extension 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 provisions of state or local laws that authorize similar subsidies for low-income families. Filing tax extension Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Filing tax extension   The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. Filing tax extension If you have held low-income housing at least 16 years and 8 months, the percentage is zero and no ordinary income will result from its disposition. Filing tax extension Foreclosure. Filing tax extension   If low-income housing is disposed of because of foreclosure or similar proceedings, the monthly applicable percentage reduction is figured as if you disposed of the property on the starting date of the proceedings. Filing tax extension Example. Filing tax extension On June 1, 2001, you acquired low-income housing property. Filing tax extension On April 3, 2012 (130 months after the property was acquired), foreclosure proceedings were started on the property and on December 3, 2013 (150 months after the property was acquired), the property was disposed of as a result of the foreclosure proceedings. Filing tax extension The property qualifies for a reduced applicable percentage because it was held more than 100 full months. Filing tax extension The applicable percentage reduction is 30% (130 months minus 100 months) rather than 50% (150 months minus 100 months) because it does not apply after April 3, 2012, the starting date of the foreclosure proceedings. Filing tax extension Therefore, 70% of the additional depreciation is treated as ordinary income. Filing tax extension Holding period. Filing tax extension   The holding period used to figure the applicable percentage for low-income housing generally starts on the day after you acquired it. Filing tax extension For example, if you bought low-income housing on January 1, 1997, the holding period starts on January 2, 1997. Filing tax extension If you sold it on January 2, 2013, the holding period is exactly 192 full months. Filing tax extension The applicable percentage for additional depreciation is 8%, or 100% minus 1% for each full month the property was held over 100 full months. Filing tax extension Holding period for constructed, reconstructed, or erected property. Filing tax extension   The holding period used to figure the applicable percentage for low-income housing you constructed, reconstructed, or erected starts on the first day of the month it is placed in service in a trade or business, in an activity for the production of income, or in a personal activity. Filing tax extension Property acquired by gift or received in a tax-free transfer. Filing tax extension   For low-income housing you acquired by gift or in a tax-free transfer the basis of which is figured by reference to the basis in the hands of the transferor, the holding period for the applicable percentage includes the holding period of the transferor. Filing tax extension   If the adjusted basis of the property in your hands just after acquiring it is more than its adjusted basis to the transferor just before transferring it, the holding period of the difference is figured as if it were a separate improvement. Filing tax extension See Low-Income Housing With Two or More Elements, next. Filing tax extension Low-Income Housing With Two or More Elements If you dispose of low-income housing property that has two or more separate elements, the applicable percentage used to figure ordinary income because of additional depreciation may be different for each element. Filing tax extension The gain to be reported as ordinary income is the sum of the ordinary income figured for each element. Filing tax extension The following are the types of separate elements. Filing tax extension A separate improvement (defined below). Filing tax extension The basic section 1250 property plus improvements not qualifying as separate improvements. Filing tax extension The units placed in service at different times before all the section 1250 property is finished. Filing tax extension For example, this happens when a taxpayer builds an apartment building of 100 units and places 30 units in service (available for renting) on January 4, 2011, 50 on July 18, 2011, and the remaining 20 on January 18, 2012. Filing tax extension As a result, the apartment house consists of three separate elements. Filing tax extension The 36-month test for separate improvements. Filing tax extension   A separate improvement is any improvement (qualifying under The 1-year test, below) added to the capital account of the property, but only if the total of the improvements during the 36-month period ending on the last day of any tax year is more than the greatest of the following amounts. Filing tax extension Twenty-five percent of the adjusted basis of the property at the start of the first day of the 36-month period, or the first day of the holding period of the property, whichever is later. Filing tax extension Ten percent of the unadjusted basis (adjusted basis plus depreciation and amortization adjustments) of the property at the start of the period determined in (1). Filing tax extension $5,000. Filing tax extension The 1-year test. Filing tax extension   An addition to the capital account for any tax year (including a short tax year) is treated as an improvement only if the sum of all additions for the year is more than the greater of $2,000 or 1% of the unadjusted basis of the property. Filing tax extension The unadjusted basis is figured as of the start of that tax year or the holding period of the property, whichever is later. Filing tax extension In applying the 36-month test, improvements in any one of the 3 years are omitted entirely if the total improvements in that year do not qualify under the 1-year test. Filing tax extension Example. Filing tax extension The unadjusted basis of a calendar year taxpayer's property was $300,000 on January 1 of this year. Filing tax extension During the year, the taxpayer made improvements A, B, and C, which cost $1,000, $600, and $700, respectively. Filing tax extension The sum of the improvements, $2,300, is less than 1% of the unadjusted basis ($3,000), so the improvements do not satisfy the 1-year test and are not treated as improvements for the 36-month test. Filing tax extension However, if improvement C had cost $1,500, the sum of these improvements would have been $3,100. Filing tax extension Then, it would be necessary to apply the 36-month test to figure if the improvements must be treated as separate improvements. Filing tax extension Addition to the capital account. Filing tax extension   Any addition to the capital account made after the initial acquisition or completion of the property by you or any person who held the property during a period included in your holding period is to be considered when figuring the total amount of separate improvements. Filing tax extension   The addition to the capital account of depreciable real property is the gross addition not reduced by amounts attributable to replaced property. Filing tax extension For example, if a roof with an adjusted basis of $20,000 is replaced by a new roof costing $50,000, the improvement is the gross addition to the account, $50,000, and not the net addition of $30,000. Filing tax extension The $20,000 adjusted basis of the old roof is no longer reflected in the basis of the property. Filing tax extension The status of an addition to the capital account is not affected by whether it is treated as a separate property for determining depreciation deductions. Filing tax extension   Whether an expense is treated as an addition to the capital account may depend on the final disposition of the entire property. Filing tax extension If the expense item property and the basic property are sold in two separate transactions, the entire section 1250 property is treated as consisting of two distinct properties. Filing tax extension Unadjusted basis. Filing tax extension   In figuring the unadjusted basis as of a certain date, include the actual cost of all previous additions to the capital account plus those that did not qualify as separate improvements. Filing tax extension However, the cost of components retired before that date is not included in the unadjusted basis. Filing tax extension Holding period. Filing tax extension   Use the following guidelines for figuring the applicable percentage for property with two or more elements. Filing tax extension The holding period of a separate element placed in service before the entire section 1250 property is finished starts on the first day of the month that the separate element is placed in service. Filing tax extension The holding period for each separate improvement qualifying as a separate element starts on the day after the improvement is acquired or, for improvements constructed, reconstructed, or erected, the first day of the month that the improvement is placed in service. Filing tax extension The holding period for each improvement not qualifying as a separate element takes the holding period of the basic property. Filing tax extension   If an improvement by itself does not meet the 1-year test (greater of $2,000 or 1% of the unadjusted basis), but it does qualify as a separate improvement that is a separate element (when grouped with other improvements made during the tax year), determine the start of its holding period as follows. Filing tax extension Use the first day of a calendar month that is closest to the middle of the tax year. Filing tax extension If there are two first days of a month that are equally close to the middle of the year, use the earlier date. Filing tax extension Figuring ordinary income attributable to each separate element. Filing tax extension   Figure ordinary income attributable to each separate element as follows. Filing tax extension   Step 1. Filing tax extension Divide the element's additional depreciation after 1975 by the sum of all the elements' additional depreciation after 1975 to determine the percentage used in Step 2. Filing tax extension   Step 2. Filing tax extension Multiply the percentage figured in Step 1 by the lesser of the additional depreciation after 1975 for the entire property or the gain from disposition of the entire property (the difference between the fair market value or amount realized and the adjusted basis). Filing tax extension   Step 3. Filing tax extension Multiply the result in Step 2 by the applicable percentage for the element. Filing tax extension Example. Filing tax extension You sold at a gain of $25,000 low-income housing property subject to the ordinary income rules of section 1250. Filing tax extension The property consisted of four elements (W, X, Y, and Z). Filing tax extension Step 1. Filing tax extension The additional depreciation for each element is: W-$12,000; X-None; Y-$6,000; and Z-$6,000. Filing tax extension The sum of the additional depreciation for all the elements is $24,000. Filing tax extension Step 2. Filing tax extension The depreciation deducted on element X was $4,000 less than it would have been under the straight line method. Filing tax extension Additional depreciation on the property as a whole is $20,000 ($24,000 − $4,000). Filing tax extension $20,000 is lower than the $25,000 gain on the sale, so $20,000 is used in Step 2. Filing tax extension Step 3. Filing tax extension The applicable percentages to be used in Step 3 for the elements are: W-68%; X-85%; Y-92%; and Z-100%. Filing tax extension From these facts, the sum of the ordinary income for each element is figured as follows. Filing tax extension   Step 1 Step 2 Step 3 Ordinary Income W . Filing tax extension 50 $10,000 68% $ 6,800 X -0- -0- 85% -0- Y . Filing tax extension 25 5,000 92% 4,600 Z . Filing tax extension 25 5,000 100% 5,000 Sum of ordinary income of separate elements $16,400 Gain Treated as Ordinary Income To find what part of the gain from the disposition of section 1250 property is treated as ordinary income, follow these steps. Filing tax extension In a sale, exchange, or involuntary conversion of the property, figure the amount realized that is more than the adjusted basis of the property. Filing tax extension In any other disposition of the property, figure the fair market value that is more than the adjusted basis. Filing tax extension Figure the additional depreciation for the periods after 1975. Filing tax extension Multiply the lesser of (1) or (2) by the applicable percentage, discussed earlier under Applicable Percentage. Filing tax extension Stop here if this is residential rental property or if (2) is equal to or more than (1). Filing tax extension This is the gain treated as ordinary income because of additional depreciation. Filing tax extension Subtract (2) from (1). Filing tax extension Figure the additional depreciation for periods after 1969 but before 1976. Filing tax extension Add the lesser of (4) or (5) to the result in (3). Filing tax extension This is the gain treated as ordinary income because of additional depreciation. Filing tax extension A limit on the amount treated as ordinary income for gain on like-kind exchanges and involuntary conversions is explained later. Filing tax extension Use Form 4797, Part III, to figure the ordinary income part of the gain. Filing tax extension Corporations. Filing tax extension   Corporations, other than S corporations, must recognize an additional amount as ordinary income on the sale or other disposition of section 1250 property. Filing tax extension The additional amount treated as ordinary income is 20% of the excess of the amount that would have been ordinary income if the property were section 1245 property over the amount treated as ordinary income under section 1250. Filing tax extension Report this additional ordinary income on Form 4797, Part III, line 26 (f). Filing tax extension Installment Sales If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. Filing tax extension This applies even if no payments are received in that year. Filing tax extension If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. Filing tax extension For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. Filing tax extension If you dispose of more than one asset in a single transaction, you must figure the gain on each asset separately so that it may be properly reported. Filing tax extension To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Filing tax extension Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. Filing tax extension For a detailed discussion of installment sales, see Publication 537. Filing tax extension Gifts If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. Filing tax extension However, if the person who receives it (donee) sells or otherwise disposes of the property in a disposition subject to recapture, the donee must take into account the depreciation you deducted in figuring the gain to be reported as ordinary income. Filing tax extension For low-income housing, the donee must take into account the donor's holding period to figure the applicable percentage. Filing tax extension See Applicable Percentage and its discussion Holding period under Section 1250 Property, earlier. Filing tax extension Part gift and part sale or exchange. Filing tax extension   If you transfer depreciable personal property or real property for less than its fair market value in a transaction considered to be partly a gift and partly a sale or exchange and you have a gain because the amount realized is more than your adjusted basis, you must report ordinary income (up to the amount of gain) to recapture depreciation. Filing tax extension If the depreciation (additional depreciation, if section 1250 property) is more than the gain, the balance is carried over to the transferee to be taken into account on any later disposition of the property. Filing tax extension However, see Bargain sale to charity, later. Filing tax extension Example. Filing tax extension You transferred depreciable personal property to your son for $20,000. Filing tax extension When transferred, the property had an adjusted basis to you of $10,000 and a fair market value of $40,000. Filing tax extension You took depreciation of $30,000. Filing tax extension You are considered to have made a gift of $20,000, the difference between the $40,000 fair market value and the $20,000 sale price to your son. Filing tax extension You have a taxable gain on the transfer of $10,000 ($20,000 sale price minus $10,000 adjusted basis) that must be reported as ordinary income from depreciation. Filing tax extension You report $10,000 of your $30,000 depreciation as ordinary income on the transfer of the property, so the remaining $20,000 depreciation is carried over to your son for him to take into account on any later disposition of the property. Filing tax extension Gift to charitable organization. Filing tax extension   If you give property to a charitable organization, you figure your deduction for your charitable contribution by reducing the fair market value of the property by the ordinary income and short-term capital gain that would have resulted had you sold the property at its fair market value at the time of the contribution. Filing tax extension Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation. Filing tax extension   You also may have to reduce the fair market value of the contributed property by the long-term capital gain (including any section 1231 gain) that would have resulted had the property been sold. Filing tax extension For more information, see Giving Property That Has Increased in Value in Publication 526. Filing tax extension Bargain sale to charity. Filing tax extension   If you transfer section 1245 or section 1250 property to a charitable organization for less than its fair market value and a deduction for the contribution part of the transfer is allowable, your ordinary income from depreciation is figured under different rules. Filing tax extension First, figure the ordinary income as if you had sold the property at its fair market value. Filing tax extension Then, allocate that amount between the sale and the contribution parts of the transfer in the same proportion that you allocated your adjusted basis in the property to figure your gain. Filing tax extension See Bargain Sale under Gain or Loss From Sales and Exchanges in chapter 1. Filing tax extension Report as ordinary income the lesser of the ordinary income allocated to the sale or your gain from the sale. Filing tax extension Example. Filing tax extension You sold section 1245 property in a bargain sale to a charitable organization and are allowed a deduction for your contribution. Filing tax extension Your gain on the sale was $1,200, figured by allocating 20% of your adjusted basis in the property to the part sold. Filing tax extension If you had sold the property at its fair market value, your ordinary income would have been $5,000. Filing tax extension Your ordinary income is $1,000 ($5,000 × 20%) and your section 1231 gain is $200 ($1,200 – $1,000). Filing tax extension Transfers at Death When a taxpayer dies, no gain is reported on depreciable personal property or real property transferred to his or her estate or beneficiary. Filing tax extension For information on the tax liability of a decedent, see Publication 559, Survivors, Executors, and Administrators. Filing tax extension However, if the decedent disposed of the property while alive and, because of his or her method of accounting or for any other reason, the gain from the disposition is reportable by the estate or beneficiary, it must be reported in the same way the decedent would have had to report it if he or she were still alive. Filing tax extension Ordinary income due to depreciation must be reported on a transfer from an executor, administrator, or trustee to an heir, beneficiary, or other individual if the transfer is a sale or exchange on which gain is realized. Filing tax extension Example 1. Filing tax extension Janet Smith owned depreciable property that, upon her death, was inherited by her son. Filing tax extension No ordinary income from depreciation is reportable on the transfer, even though the value used for estate tax purposes is more than the adjusted basis of the property to Janet when she died. Filing tax extension However, if she sold the property before her death and realized a gain and if, because of her method of accounting, the proceeds from the sale are income in respect of a decedent reportable by her son, he must report ordinary income from depreciation. Filing tax extension Example 2. Filing tax extension The trustee of a trust created by a will transfers depreciable property to a beneficiary in satisfaction of a specific bequest of $10,000. Filing tax extension If the property had a value of $9,000 at the date used for estate tax valuation purposes, the $1,000 increase in value to the date of distribution is a gain realized by the trust. Filing tax extension Ordinary income from depreciation must be reported by the trust on the transfer. Filing tax extension Like-Kind Exchanges and Involuntary Conversions A like-kind exchange of your depreciable property or an involuntary conversion of the property into similar or related property will not result in your having to report ordinary income from depreciation unless money or property other than like-kind, similar, or related property is also received in the transaction. Filing tax extension For information on like-kind exchanges and involuntary conversions, see chapter 1. Filing tax extension Depreciable personal property. Filing tax extension   If you have a gain from either a like-kind exchange or an involuntary conversion of your depreciable personal property, the amount to be reported as ordinary income from depreciation is the amount figured under the rules explained earlier (see Section 1245 Property), limited to the sum of the following amounts. Filing tax extension The gain that must be included in income under the rules for like-kind exchanges or involuntary conversions. Filing tax extension The fair market value of the like-kind, similar, or related property other than depreciable personal property acquired in the transaction. Filing tax extension Example 1. Filing tax extension You bought a new machine for $4,300 cash plus your old machine for which you were allowed a $1,360 trade-in. Filing tax extension The old machine cost you $5,000 two years ago. Filing tax extension You took depreciation deductions of $3,950. Filing tax extension Even though you deducted depreciation of $3,950, the $310 gain ($1,360 trade-in allowance minus $1,050 adjusted basis) is not reported because it is postponed under the rules for like-kind exchanges and you received only depreciable personal property in the exchange. Filing tax extension Example 2. Filing tax extension You bought office machinery for $1,500 two years ago and deducted $780 depreciation. Filing tax extension This year a fire destroyed the machinery and you received $1,200 from your fire insurance, realizing a gain of $480 ($1,200 − $720 adjusted basis). Filing tax extension You choose to postpone reporting gain, but replacement machinery cost you only $1,000. Filing tax extension Your taxable gain under the rules for involuntary conversions is limited to the remaining $200 insurance payment. Filing tax extension All your replacement property is depreciable personal property, so your ordinary income from depreciation is limited to $200. Filing tax extension Example 3. Filing tax extension A fire destroyed office machinery you bought for $116,000. Filing tax extension The depreciation deductions were $91,640 and the machinery had an adjusted basis of $24,360. Filing tax extension You received a $117,000 insurance payment, realizing a gain of $92,640. Filing tax extension You immediately spent $105,000 of the insurance payment for replacement machinery and $9,000 for stock that qualifies as replacement property and you choose to postpone reporting the gain. Filing tax extension $114,000 of the $117,000 insurance payment was used to buy replacement property, so the gain that must be included in income under the rules for involuntary conversions is the part not spent, or $3,000. Filing tax extension The part of the insurance payment ($9,000) used to buy the nondepreciable property (the stock) also must be included in figuring the gain from depreciation. Filing tax extension The amount you must report as ordinary income on the transaction is $12,000, figured as follows. Filing tax extension 1) Gain realized on the transaction ($92,640) limited to depreciation ($91,640) $91,640 2) Gain includible in income (amount not spent) 3,000     Plus: fair market value of property other than depreciable personal property (the stock) 9,000 12,000 Amount reportable as ordinary income (lesser of (1) or (2)) $12,000   If, instead of buying $9,000 in stock, you bought $9,000 worth of depreciable personal property similar or related in use to the destroyed property, you would only report $3,000 as ordinary income. Filing tax extension Depreciable real property. Filing tax extension   If you have a gain from either a like-kind exchange or involuntary conversion of your depreciable real property, ordinary income from additional depreciation is figured under the rules explained earlier (see Section 1250 Property), limited to the greater of the following amounts. Filing tax extension The gain that must be reported under the rules for like-kind exchanges or involuntary conversions plus the fair market value of stock bought as replacement property in acquiring control of a corporation. Filing tax extension The gain you would have had to report as ordinary income from additional depreciation had the transaction been a cash sale minus the cost (or fair market value in an exchange) of the depreciable real property acquired. Filing tax extension   The ordinary income not reported for the year of the disposition is carried over to the depreciable real property acquired in the like-kind exchange or involuntary conversion as additional depreciation from the property disposed of. Filing tax extension Further, to figure the applicable percentage of additional depreciation to be treated as ordinary income, the holding period starts over for the new property. Filing tax extension Example. Filing tax extension The state paid you $116,000 when it condemned your depreciable real property for public use. Filing tax extension You bought other real property similar in use to the property condemned for $110,000 ($15,000 for depreciable real property and $95,000 for land). Filing tax extension You also bought stock for $5,000 to get control of a corporation owning property similar in use to the property condemned. Filing tax extension You choose to postpone reporting the gain. Filing tax extension If the transaction had been a sale for cash only, under the rules described earlier, $20,000 would have been reportable as ordinary income because of additional depreciation. Filing tax extension The ordinary income to be reported is $6,000, which is the greater of the following amounts. Filing tax extension The gain that must be reported under the rules for involuntary conversions, $1,000 ($116,000 − $115,000) plus the fair market value of stock bought as qualified replacement property, $5,000, for a total of $6,000. Filing tax extension The gain you would have had to report as ordinary income from additional depreciation ($20,000) had this transaction been a cash sale minus the cost of the depreciable real property bought ($15,000), or $5,000. Filing tax extension   The ordinary income not reported, $14,000 ($20,000 − $6,000), is carried over to the depreciable real property you bought as additional depreciation. Filing tax extension Basis of property acquired. Filing tax extension   If the ordinary income you have to report because of additional depreciation is limited, the total basis of the property you acquired is its fair market value (its cost, if bought to replace property involuntarily converted into money) minus the gain postponed. Filing tax extension   If you acquired more than one item of property, allocate the total basis among the properties in proportion to their fair market value (their cost, in an involuntary conversion into money). Filing tax extension However, if you acquired both depreciable real property and other property, allocate the total basis as follows. Filing tax extension Subtract the ordinary income because of additional depreciation that you do not have to report from the fair market value (or cost) of the depreciable real property acquired. Filing tax extension Add the fair market value (or cost) of the other property acquired to the result in (1). Filing tax extension Divide the result in (1) by the result in (2). Filing tax extension Multiply the total basis by the result in (3). Filing tax extension This is the basis of the depreciable real property acquired. Filing tax extension If you acquired more than one item of depreciable real property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Filing tax extension Subtract the result in (4) from the total basis. Filing tax extension This is the basis of the other property acquired. Filing tax extension If you acquired more than one item of other property, allocate this basis amount among the properties in proportion to their fair market value (or cost). Filing tax extension Example 1. Filing tax extension In 1988, low-income housing property that you acquired and placed in service in 1983 was destroyed by fire and you received a $90,000 insurance payment. Filing tax extension The property's adjusted basis was $38,400, with additional depreciation of $14,932. Filing tax extension On December 1, 1988, you used the insurance payment to acquire and place in service replacement low-income housing property. Filing tax extension Your realized gain from the involuntary conversion was $51,600 ($90,000 − $38,400). Filing tax extension You chose to postpone reporting the gain under the involuntary conversion rules. Filing tax extension Under the rules for depreciation recapture on real property, the ordinary gain was $14,932, but you did not have to report any of it because of the limit for involuntary conversions. Filing tax extension The basis of the replacement low-income housing property was its $90,000 cost minus the $51,600 gain you postponed, or $38,400. Filing tax extension The $14,932 ordinary gain you did not report is treated as additional depreciation on the replacement property. Filing tax extension If you sold the property in 2013, your holding period for figuring the applicable percentage of additional depreciation to report as ordinary income will have begun December 2, 1988, the day after you acquired the property. Filing tax extension Example 2. Filing tax extension John Adams received a $90,000 fire insurance payment for depreciable real property (office building) with an adjusted basis of $30,000. Filing tax extension He uses the whole payment to buy property similar in use, spending $42,000 for depreciable real property and $48,000 for land. Filing tax extension He chooses to postpone reporting the $60,000 gain realized on the involuntary conversion. Filing tax extension Of this gain, $10,000 is ordinary income from additional depreciation but is not reported because of the limit for involuntary conversions of depreciable real property. Filing tax extension The basis of the property bought is $30,000 ($90,000 − $60,000), allocated as follows. Filing tax extension The $42,000 cost of depreciable real property minus $10,000 ordinary income not reported is $32,000. Filing tax extension The $48,000 cost of other property (land) plus the $32,000 figured in (1) is $80,000. Filing tax extension The $32,000 figured in (1) divided by the $80,000 figured in (2) is 0. Filing tax extension 4. Filing tax extension The basis of the depreciable real property is $12,000. Filing tax extension This is the $30,000 total basis multiplied by the 0. Filing tax extension 4 figured in (3). Filing tax extension The basis of the other property (land) is $18,000. Filing tax extension This is the $30,000 total basis minus the $12,000 figured in (4). Filing tax extension The ordinary income that is not reported ($10,000) is carried over as additional depreciation to the depreciable real property that was bought and may be taxed as ordinary income on a later disposition. Filing tax extension Multiple Properties If you dispose of depreciable property and other property in one transaction and realize a gain, you must allocate the amount realized between the two types of property in proportion to their respective fair market values to figure the part of your gain to be reported as ordinary income from depreciation. Filing tax extension Different rules may apply to the allocation of the amount realized on the sale of a business that includes a group of assets. Filing tax extension See chapter 2. Filing tax extension In general, if a buyer and seller have adverse interests as to the allocation of the amount realized between the depreciable property and other property, any arm's length agreement between them will establish the allocation. Filing tax extension In the absence of an agreement, the allocation should be made by taking into account the appropriate facts and circumstances. Filing tax extension These include, but are not limited to, a comparison between the depreciable property and all the other property being disposed of in the transaction. Filing tax extension The comparison should take into account all the following facts and circumstances. Filing tax extension The original cost and reproduction cost of construction, erection, or production. Filing tax extension The remaining economic useful life. Filing tax extension The state of obsolescence. Filing tax extension The anticipated expenditures required to maintain, renovate, or modernize the properties. Filing tax extension Like-kind exchanges and involuntary conversions. Filing tax extension   If you dispose of and acquire depreciable personal property and other property (other than depreciable real property) in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Filing tax extension The amount allocated to the depreciable personal property disposed of is treated as consisting of, first, the fair market value of the depreciable personal property acquired and, second (to the extent of any remaining balance), the fair market value of the other property acquired. Filing tax extension The amount allocated to the other property disposed of is treated as consisting of the fair market value of all property acquired that has not already been taken into account. Filing tax extension   If you dispose of and acquire depreciable real property and other property in a like-kind exchange or involuntary conversion, the amount realized is allocated in the following way. Filing tax extension The amount allocated to each of the three types of property (depreciable real property, depreciable personal property, or other property) disposed of is treated as consisting of, first, the fair market value of that type of property acquired and, second (to the extent of any remaining balance), any excess fair market value of the other types of property acquired. Filing tax extension If the excess fair market value is more than the remaining balance of the amount realized and is from both of the other two types of property, you can apply the unallocated amount in any manner you choose. Filing tax extension Example. Filing tax extension A fire destroyed your property with a total fair market value of $50,000. Filing tax extension It consisted of machinery worth $30,000 and nondepreciable property worth $20,000. Filing tax extension You received an insurance payment of $40,000 and immediately used it with $10,000 of your own funds (for a total of $50,000) to buy machinery with a fair market value of $15,000 and nondepreciable property with a fair market value of $35,000. Filing tax extension The adjusted basis of the destroyed machinery was $5,000 and your depreciation on it was $35,000. Filing tax extension You choose to postpone reporting your gain from the involuntary conversion. Filing tax extension You must report $9,000 as ordinary income from depreciation arising from this transaction, figured as follows. Filing tax extension The $40,000 insurance payment must be allocated between the machinery and the other property destroyed in proportion to the fair market value of each. Filing tax extension The amount allocated to the machinery is 30,000/50,000 × $40,000, or $24,000. Filing tax extension The amount allocated to the other property is 20,000/50,000 × $40,000, or $16,000. Filing tax extension Your gain on the involuntary conversion of the machinery is $24,000 minus $5,000 adjusted basis, or $19,000. Filing tax extension The $24,000 allocated to the machinery disposed of is treated as consisting of the $15,000 fair market value of the replacement machinery bought and $9,000 of the fair market value of other property bought in the transaction. Filing tax extension All $16,000 allocated to the other property disposed of is treated as consisting of the fair market value of the other property that was bought. Filing tax extension Your potential ordinary income from depreciation is $19,000, the gain on the machinery, because it is less than the $35,000 depreciation. Filing tax extension However, the amount you must report as ordinary income is limited to the $9,000 included in the amount realized for the machinery that represents the fair market value of property other than the depreciable property you bought. 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