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Form 1040 Es

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Form 1040 Es

Form 1040 es Index A Additional Medicare Tax, Step 5. Form 1040 es , Line 18. Form 1040 es Address change, Change of address. Form 1040 es Adjustments to income Estimated tax, Adjustments to income. Form 1040 es Withholding allowances, Adjustments to income (worksheet line 4). Form 1040 es Worksheet instructions, Deductions and Adjustments Worksheet, Net deductions and adjustments (worksheet line 8). Form 1040 es AGI, AGI. Form 1040 es Expected AGI, Expected AGI—Line 1 Aliens Nonresident aliens, Aliens Amended returns, Form Received After Filing, Amended returns. Form 1040 es Annualized estimated tax worksheets, Worksheet 2-9. Form 1040 es 2014 Annualized Estimated Tax Worksheet, Worksheet 2-9. Form 1040 es 2014 Annualized Estimated Tax Worksheet(Continued) Annualized - Capital gains, Worksheet 2-12. Form 1040 es 2014 Annualized Estimated Tax Worksheet—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Annualized - Foreign Earned Income, Worksheet 2-13. Form 1040 es 2014 Annualized Estimated Tax Worksheet—Line 12 Foreign Earned Income Tax Worksheet Annualized - Phaseout of itemized deductions, Worksheet 2-10. Form 1040 es 2014 Annualized Estimated Tax Worksheet—Line 6 Phaseout of Itemized Deductions Annualized - Qualified dividends, Worksheet 2-12. Form 1040 es 2014 Annualized Estimated Tax Worksheet—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Annualized - Reduction of exemption amount, Worksheet 2-11. Form 1040 es 2014 Annualized Estimated Tax Worksheet—Line 10 Reduction of Exemption Amount Annualized income installment method, Annualized Income Installment Method Capital gains worksheet, underpayment penalty, Worksheet 4-1. Form 1040 es 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Form 2210, Schedule AI, Annualized Income Installment Method (Schedule AI) Qualified dividends worksheet, underpayment penalty, Worksheet 4-1. Form 1040 es 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Underpayment penalty, (Schedule AI), Annualized Income Installment Method (Schedule AI) Annuities, Pensions and Annuities Assistance (see Tax help) B Backup withholding, Backup Withholding, Penalties. Form 1040 es Credit against income tax, Backup withholding. Form 1040 es C Capital gains and losses Annualized estimated tax, Tax on net capital gain. Form 1040 es Estimated tax on net capital gain, Tax on net capital gain. Form 1040 es Qualified dividends, Tax on qualified dividends and capital gains. Form 1040 es Casualty and theft losses, Itemized deductions (worksheet line 1). Form 1040 es Waiver of penalty, Waiver of Penalty Change of address, Change of address. Form 1040 es Change of name, Name changed. Form 1040 es Charitable contributions, Itemized deductions (worksheet line 1). Form 1040 es Child and dependent care credit Personal Allowances Worksheet (Form W-4), Child and dependent care credit (worksheet line F). Form 1040 es Child tax credit Personal Allowances Worksheet (Form W-4), Child tax credit (worksheet line G). Form 1040 es Claim of right, Itemized deductions (worksheet line 1). Form 1040 es Commodity credit corporation loans, Federal Payments Community property states, Community property states. Form 1040 es Compensation, Salaries and Wages Independent contractors, backup withholding, Backup Withholding Supplemental wages, Supplemental Wages Tips, Tips Wages and salaries, Salaries and Wages Crediting of overpayment, Credit an Overpayment Credits 2013 withholding and estimated taxes, Credit for Withholding and Estimated Tax for 2013 Deductions and Adjustments Worksheet (Form W-4), Tax credits (worksheet line 5). Form 1040 es Estimated tax against income tax, Estimated Tax Excess withholding on social security or railroad retirement taxes, Excess Social Security or Railroad Retirement Tax Withholding Expected taxes and credits, Expected Taxes and Credits— Lines 6–13c Withholding allowances, Tax credits (worksheet line 5). Form 1040 es Withholding tax, credit for, Withholding Criminal penalties Willfully false or fraudulent Form W-4, Penalties Crop insurance payments, Federal Payments Cumulative wage method of withholding, Cumulative Wage Method D Deductions Home mortgage interest, Itemized deductions (worksheet line 1). Form 1040 es Worksheet instructions, Deductions and Adjustments Worksheet Dependents Exemptions, Dependents. Form 1040 es Disabled persons Impairment-related work expenses, Itemized deductions (worksheet line 1). Form 1040 es Disaster Waiver of penalty, Waiver of Penalty Dividends Backup withholding, Backup Withholding Underreported, Underreported interest or dividends. Form 1040 es Divorced taxpayers Estimated tax credit, Divorced Taxpayers Form W-4, Single. Form 1040 es Domestic help, Household workers. Form 1040 es Definition, Household workers. Form 1040 es Withholding, Household workers. Form 1040 es E Earned income credit (EIC), What's New for 2014 Eligible rollover distributions, Eligible Rollover Distributions Employee business expenses Accountable plans, Accountable plan. Form 1040 es Nonaccountable plans, Nonaccountable plan. Form 1040 es Reimbursements, Expense allowances. Form 1040 es Employer Identification Numbers (EINs), Taxpayer identification number. Form 1040 es Employers Excess withholding on social security and railroad retirement taxes, Two or more employers. Form 1040 es , Employer's error. Form 1040 es Repaying withheld tax, Repaying withheld tax. Form 1040 es Tips, Tips Withholding rules, Rules Your Employer Must Follow Estate beneficiaries Underpayment penalty, Estate or trust payments of estimated tax. Form 1040 es Estate tax Income in respect of a decedent, Itemized deductions (worksheet line 1). Form 1040 es Estates Estimated tax, Estates and Trusts Estimated tax Adjustments to income, Adjustments to income. Form 1040 es Aliens, Aliens, Nonresident aliens. Form 1040 es Amended tax, Regular Installment Method Annualized income installment method, Annualized Income Installment Method Change in amount, Change in estimated tax. Form 1040 es Change of address, Change of address. Form 1040 es Change of name, Name changed. Form 1040 es Credit against income tax, Estimated Tax Crediting of overpayment, Credit an Overpayment Divorced taxpayers, Divorced Taxpayers Estates and trusts, Estates and Trusts Exemptions, Exemptions—line 4. Form 1040 es Expected AGI, Expected AGI—Line 1 Expected taxable income, Expected Taxable Income— Lines 2–5 Expected taxes and credits, Expected Taxes and Credits— Lines 6–13c Farmers and fishermen, Farmers and Fishermen, Farmers and fishermen. Form 1040 es , Farmers and Fishermen Fiscal year taxpayers, Fiscal year taxpayers. Form 1040 es Higher income individuals, Higher income taxpayers. Form 1040 es How to figure, How To Figure Estimated Tax, How To Figure Each Payment How to pay, How To Pay Estimated Tax Instructions for Worksheet 2-9, annualized estimated tax, Instructions for the 2014 Annualized Estimated Tax Worksheet (Worksheet 2-9) Itemized deductions, Itemized deductions—line 2. Form 1040 es Married taxpayers, Married Taxpayers Net capital gain, Tax on net capital gain. Form 1040 es , Tax on net capital gain. Form 1040 es No standard deduction, No standard deduction. Form 1040 es Nonresident aliens, Nonresident aliens. Form 1040 es Overpayment, Credit an Overpayment Payment vouchers, Pay by Check or Money Order Using the Estimated Tax Payment Voucher Payments not required, Estimated Tax Payments Not Required Regular installment method, Regular Installment Method Required annual payment, Required Annual Payment— Line 14c Self-employment income, Self-employment income. Form 1040 es Separate returns, Separate Returns Sick pay, Estimated tax. Form 1040 es Standard deduction, Standard deduction—line 2. Form 1040 es , Line 7. Form 1040 es Total estimated tax payments, Total Estimated Tax Payments Needed—Line 16a Types of taxes included, Introduction Underpayment penalty, Underpayment penalty. Form 1040 es , Underpayment Penalty for 2013 When to pay, When To Pay Estimated Tax When to start payments, When To Start Who does not have to pay, Who Does Not Have To Pay Estimated Tax Who must pay, Who Must Pay Estimated Tax Estimated tax worksheets, Worksheets for Chapter 2, Worksheet 2-1. Form 1040 es 2014 Estimated Tax Worksheet, Worksheet 2-2. Form 1040 es 2014 Estimated Tax Worksheet—Line 1 Estimated Taxable Social Security and Railroad Retirement Benefits 2014 annualized estimated tax worksheet, Worksheet 2-9. Form 1040 es 2014 Annualized Estimated Tax Worksheet Capital gains, tax on, Tax on net capital gain. Form 1040 es Foreign earned income, Worksheet 2-8. Form 1040 es 2014 Estimated Tax Worksheet—Line 6 Foreign Earned Income Tax Worksheet Form 1040-ES, Worksheet 2-1. Form 1040 es 2014 Estimated Tax Worksheet Phaseout of itemized deductions, Worksheet 2-5. Form 1040 es 2014 Estimated Tax Worksheet—Line 2 Phaseout of Itemized Deductions Railroad retirement benefits, Worksheet 2-2. Form 1040 es 2014 Estimated Tax Worksheet—Line 1 Estimated Taxable Social Security and Railroad Retirement Benefits Reduction of exemption amount, Worksheet 2-6. Form 1040 es 2014 Estimated Tax Worksheet—Line 4 Reduction of Exemption Amount Self-employment tax, Worksheet 2-3. Form 1040 es 2014 Estimated Tax Worksheet—Lines 1 and 11 Estimated Self-Employment Tax and Deduction Worksheet Social security benefits, Worksheet 2-2. Form 1040 es 2014 Estimated Tax Worksheet—Line 1 Estimated Taxable Social Security and Railroad Retirement Benefits Standard deduction, Worksheet 2-4. Form 1040 es 2014 Estimated Tax Worksheet—Line 2 Standard Deduction Worksheet Excess social security or railroad retirement tax withholding, Excess Social Security or Railroad Retirement Tax Withholding, How to claim refund of excess tier 2 RRTA. Form 1040 es Nonrailroad employees worksheet, Worksheet for Nonrailroad Employees Railroad employees worksheets, Worksheets for Railroad Employees Exemption from withholding, Exemption From Withholding Claiming, Claiming exemption from withholding. Form 1040 es Good for only one year, An exemption is good for only 1 year. Form 1040 es Itemized deductions, Itemizing deductions or claiming exemptions or credits. Form 1040 es Students, Students. Form 1040 es Exemptions, Line 10. Form 1040 es Dependents, Dependents. Form 1040 es Expected taxable income, Exemptions—line 4. Form 1040 es Personal Allowances Worksheet, Exemptions (worksheet lines A, C, and D). Form 1040 es Self, Self. Form 1040 es Spouse, Spouse. Form 1040 es Withholding allowances, Withholding Allowances Expenses, Itemized deductions (worksheet line 1). Form 1040 es Allowances, Expense allowances. Form 1040 es F Farmers Estimated tax, Special Rules, Farmers and fishermen. Form 1040 es , Farmers and Fishermen Fiscal years, Fiscal year farmers and fishermen. Form 1040 es Gross income, Gross income from farming. Form 1040 es Joint returns, Joint returns. Form 1040 es Required annual payment, Farmers and fishermen. Form 1040 es Underpayment penalty, Farmers and fishermen. Form 1040 es , Farmers and Fishermen Waiver of underpayment penalty, Farmers and fishermen. Form 1040 es Withholding for farmworkers, Farmworkers. Form 1040 es Figures Tables and figures (see Tables and figures) Fiscal years Estimated tax, Fiscal year taxpayers. Form 1040 es Farmers and fishermen, Fiscal year farmers and fishermen. Form 1040 es Withholding tax credit, Fiscal Years (FY) Fishermen Estimated tax, Special Rules, Farmers and fishermen. Form 1040 es , Farmers and Fishermen Fiscal years, Fiscal year farmers and fishermen. Form 1040 es Gross income, Gross income from fishing. Form 1040 es Joint returns, Joint returns. Form 1040 es Required annual payment, Farmers and fishermen. Form 1040 es Underpayment penalty, Farmers and fishermen. Form 1040 es , Farmers and Fishermen Waiver of underpayment penalty, Farmers and fishermen. Form 1040 es Form 1040-ES, Introduction, How To Pay Estimated Tax Form 1040-ES (NR), Aliens Form 1040X, Form Received After Filing Form 1041-ES, Estates and Trusts Form 1099 series, Backup Withholding, The 1099 Series Form 2210, Form 2210. Form 1040 es , Figuring Your Required Annual Payment (Part I) Form 2210-F, Form 2210-F. Form 1040 es Form W-2, Form W-2 Form W-2c, Form Not Correct Form W-2G, Form W-2G. Form 1040 es , Form W-2G Form W-4 worksheets, Completing Form W-4 and Worksheets Completing of, Completing Form W-4 and Worksheets Deductions and adjustments worksheet, Deductions and Adjustments Worksheet IRS withholding calculator, IRS Withholding Calculator. Form 1040 es Number of allowances claimed, Only one job (worksheet line B). Form 1040 es Two-Earners/Multiple Jobs Worksheet, Two-Earners/Multiple Jobs Worksheet Withholding allowances, Completing Form W-4 and Worksheets, Form W-4 worksheets. Form 1040 es Form W-4, Employee's Allowance Withholding Certificate, Determining Amount of Tax Withheld Using Form W-4 Form W-4P, Periodic Payments Form W-4S, Form W-4S. Form 1040 es Form W-4V, Unemployment Compensation Form W-7, Taxpayer identification number. Form 1040 es Form W-9, Withholding rules. Form 1040 es Fraud Form W-4 statements, Penalties Free tax services, Free help with your tax return. Form 1040 es Fringe benefits, Taxable Fringe Benefits, More information. Form 1040 es G Gambling Form W-2G, Form W-2G Losses, Itemized deductions (worksheet line 1). Form 1040 es , Form W-2G Winnings, Form W-2G Gross income, Gross income. Form 1040 es Farming, Gross income from farming. Form 1040 es Fishing, Gross income from fishing. Form 1040 es H Head of household Personal Allowances Worksheet, Head of household filing status (worksheet line E). Form 1040 es Withholding allowance, Head of household filing status (worksheet line E). Form 1040 es Help (see Tax help) Higher income individuals Required annual payment, Higher income taxpayers. Form 1040 es Underpayment penalty, Higher income taxpayers. Form 1040 es Household workers, Household workers. Form 1040 es I Individual retirement arrangements (IRAs), Pensions and Annuities (see also Pensions) Interest income Backup withholding, Backup Withholding Underreported, Underreported interest or dividends. Form 1040 es IRS withholding calculator, IRS Withholding Calculator. Form 1040 es Itemized deductions Deductions and Adjustments Worksheet, Itemized deductions (worksheet line 1). Form 1040 es Estimated tax, expected taxable income, Itemized deductions—line 2. Form 1040 es Exemption from withholding, Itemizing deductions or claiming exemptions or credits. Form 1040 es Gambling losses, Itemized deductions (worksheet line 1). Form 1040 es , Form W-2G J Joint returns Excess withholding on social security and railroad retirement taxes, Joint returns. Form 1040 es Farmers and fishermen, Joint returns. Form 1040 es Underpayment penalty, 2012 separate returns and 2013 joint return. Form 1040 es M Marital status Form W-4 worksheet, Marital Status Withholding rate, Marital Status Married taxpayers, Joint returns. Form 1040 es (see also Joint returns) Estimated tax, Married Taxpayers Marital status, Married. Form 1040 es Withholding allowances, Married individuals. Form 1040 es Medical and dental expenses, Itemized deductions (worksheet line 1). Form 1040 es Military retirement pay, Military retirees. Form 1040 es , Periodic Payments Missing children, photographs of, Reminders Multiple jobs Excess social security and railroad retirement withholding, Excess Social Security or Railroad Retirement Tax Withholding Withholding allowances, Multiple jobs. Form 1040 es N Name change, Name changed. Form 1040 es Net investment income tax, Step 5. Form 1040 es , Line 18. Form 1040 es NIIT, Step 5. Form 1040 es , Line 18. Form 1040 es Noncitizens Estimated tax, Aliens Withholding, Single. Form 1040 es , Employees who are not citizens or residents. Form 1040 es Nonqualified deferred compensation, Periodic Payments Nonresident aliens Estimated tax, Aliens, Nonresident aliens. Form 1040 es Individual taxpayer identification numbers (ITINs), Taxpayer identification number. Form 1040 es O Overpayment Crediting to estimated tax, Credit an Overpayment P Part-year method of withholding, Part-Year Method Patronage dividends Backup withholding, Backup Withholding Payment vouchers, Pay by Check or Money Order Using the Estimated Tax Payment Voucher Penalties Backup withholding, Penalties. Form 1040 es Underpayment of estimated tax, Underpayment Penalty for 2013 Waiver of underpayment penalty, Waiver of Penalty Willfully false or fraudulent Form W-4, Penalties Withholding allowances, Penalties Pensions, Pensions and Annuities New job, Employee also receiving pension income. Form 1040 es Rollovers, Eligible Rollover Distributions Wages and salaries withholding rules compared, Withholding rules. Form 1040 es Personal Allowances Worksheet, Personal Allowances Worksheet, Total personal allowances (worksheet line H). Form 1040 es Publications (see Tax help) R Railroad retirement benefits Choosing to withhold, Federal Payments Railroad retirement tax Excess withholding, Excess Social Security or Railroad Retirement Tax Withholding, Worksheets for Railroad Employees Refund claims (tier 2), How to claim refund of excess tier 2 RRTA. Form 1040 es Regular installment method, estimated tax, Regular Installment Method Reimbursements, Expense allowances. Form 1040 es Excess, Accountable plan. Form 1040 es Reporting Fringe benefits, How your employer reports your benefits. Form 1040 es Gambling winnings, Information to give payer. Form 1040 es Tips to employer, Reporting tips to your employer. Form 1040 es Required annual payment, Required Annual Payment— Line 14c, Example. Form 1040 es Retirement plans Pension plans, Pensions and Annuities Pensions, Pensions and Annuities Rollovers, Eligible Rollover Distributions State or local deferred compensation plan payments, Periodic Payments Rollovers, Eligible Rollover Distributions Royalties Backup withholding, Backup Withholding S Salaries, Salaries and Wages Saturday, Sunday, holiday rule, Saturday, Sunday, holiday rule. Form 1040 es Self-employment tax, Self-employment income. Form 1040 es Separate returns Estimated tax credit, Separate Returns Underpayment penalty, 2012 joint return and 2013 separate returns. Form 1040 es Withholding tax credit, Separate Returns Sick pay, Sick Pay, Estimated tax. Form 1040 es Single marital status, Single. Form 1040 es Social security benefits Choosing to withhold, Federal Payments Social security taxes Excess withholding, Excess Social Security or Railroad Retirement Tax Withholding Taxpayer identification numbers (TINs), Taxpayer identification number. Form 1040 es Withholding obligation, Reminders Spouse, Marital Status (see also Married taxpayers) Exemption, Spouse. Form 1040 es Marital status, Marital Status Personal Allowances Worksheet, Spouse. Form 1040 es Standard deduction, Standard deduction—line 2. Form 1040 es , Line 7. Form 1040 es State and local income taxes and property taxes, Itemized deductions (worksheet line 1). Form 1040 es State or local deferred compensation plan payments, Periodic Payments Students, Students. Form 1040 es Supplemental wages, Supplemental Wages T Tables and figures Do you have to pay estimated tax? (Figure 2-A), Exemption from withholding on Form W-4 (Figure 1-A), Railroad retirement, maximum withholding (Table 3-2), Table 3-2. Form 1040 es Maximum Social Security and RRTA Withholding for 2013 Social security, maximum withholding (Table 3-2), Table 3-2. Form 1040 es Maximum Social Security and RRTA Withholding for 2013 Worksheets, where to find, Worksheets for Chapter 2 Tax help, How To Get Tax Help Tax Rate Schedules, 2014 Tax Rate Schedules Taxpayer identification numbers (TINs), Taxpayer identification number. Form 1040 es Tips, Tips, More information. Form 1040 es Total income, Total income. Form 1040 es Trust beneficiaries Underpayment penalty, Estate or trust payments of estimated tax. Form 1040 es TTY/TDD information, How To Get Tax Help Two-Earners/Multiple Jobs Worksheet, Two-Earners/Multiple Jobs Worksheet U Underpayment penalty, Underpayment Penalty for 2013, Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Actual withholding method, Actual withholding method. Form 1040 es Amended estimated tax, Underpayment penalty. Form 1040 es Amended returns, Amended returns. Form 1040 es Annualized income installment method, Annualized Income Installment Method (Schedule AI) Beneficiaries of estates and trusts, Estate or trust payments of estimated tax. Form 1040 es Capital gains (Worksheet 4-1), Worksheet 4-1. Form 1040 es 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Exceptions, Exceptions Farmers and fishermen, Farmers and fishermen. Form 1040 es , Farmers and Fishermen, Farmers and fishermen. Form 1040 es Figuring, IRS can figure the penalty for you. Form 1040 es , Short Method for Figuring the Penalty (Part III), Regular Method for Figuring the Penalty (Part IV) Higher income individuals, Higher income taxpayers. Form 1040 es Joint returns, 2012 separate returns and 2013 joint return. Form 1040 es Lowering or eliminating, Lowering or eliminating the penalty. Form 1040 es Minimum required each period, Minimum required each period. Form 1040 es No penalty, No penalty. Form 1040 es No tax liability last year exception, No Tax Liability Last Year Paid through withholding, Paid through withholding. Form 1040 es , Actual withholding method. Form 1040 es Penalty figured for each period, Penalty figured separately for each period. Form 1040 es Penalty thresholds, General Rule Qualified dividends (Worksheet 4-1), Worksheet 4-1. Form 1040 es 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Required annual payment, Figuring Your Required Annual Payment (Part I) Schedule AI, Annualized Income Installment Method (Schedule AI) Separate returns, 2012 joint return and 2013 separate returns. Form 1040 es Waiver, Waiver of Penalty When charged, When penalty is charged. Form 1040 es Unemployment compensation, Unemployment Compensation, Form 1099-G. Form 1040 es W Wages and salaries, Salaries and Wages Waiver of penalty, Waiver of Penalty Withholding Allowances, Withholding Allowances, Alternative method of figuring withholding allowances. Form 1040 es , Only one job (worksheet line B). Form 1040 es Personal Allowances Worksheet, Personal Allowances Worksheet Amended returns, Form Received After Filing Amount of tax withheld, Form W-4, Determining Amount of Tax Withheld Using Form W-4 Annuities, Pensions and Annuities Backup withholding, Backup Withholding Changing, Changing Your Withholding Checking amount of, Checking Your Withholding Choosing not to withhold, Choosing Not To Have Income Tax Withheld Community property states, Community property states. Form 1040 es Credit against income tax, Withholding Cumulative wage method, Cumulative Wage Method Deductions and adjustments worksheet, Deductions and Adjustments Worksheet Divorced taxpayers, Single. Form 1040 es Domestic help, Household workers. Form 1040 es Employers' rules, Rules Your Employer Must Follow Estimated tax, Withholding—line 15. Form 1040 es Excess social security and railroad retirement taxes, Excess Social Security or Railroad Retirement Tax Withholding Exemption from, Exemption From Withholding Farmworkers, Farmworkers. Form 1040 es Fiscal years, Fiscal Years (FY) Form received after filing, Form Received After Filing Form W-2, Form W-2 Form W-2c, Form Not Correct Form W-2G, Form W-2G. Form 1040 es , Form W-2G Form W-4, Determining Amount of Tax Withheld Using Form W-4 Fringe benefits, Taxable Fringe Benefits Gambling winnings, Gambling Winnings, Backup withholding on gambling winnings. Form 1040 es , Form W-2G Getting right amount of tax withheld, Getting the Right Amount of Tax Withheld, IRS Withholding Calculator. Form 1040 es Household workers, Household workers. Form 1040 es Marital status, Marital Status Married taxpayers, Married. Form 1040 es , Married individuals. Form 1040 es Multiple jobs, Multiple jobs. Form 1040 es Noncitizens, Single. Form 1040 es , Employees who are not citizens or residents. Form 1040 es Nonperiodic payments, Nonperiodic Payments Part-year method, Part-Year Method Penalties, Penalties Pensions, Pensions and Annuities Periodic payments, Periodic Payments Railroad retirement benefits, Federal Payments Repaying withheld tax, Repaying withheld tax. Form 1040 es Rollovers, Eligible Rollover Distributions Salaries and wages, Salaries and Wages Separate returns, Separate Returns Sick pay, Sick Pay Single taxpayers, Single. Form 1040 es Social security (FICA) tax, Reminders, Federal Payments Tips, Tips Types of income, Introduction, Salaries and Wages Underpayment penalty, Paid through withholding. Form 1040 es , Actual withholding method. Form 1040 es Unemployment compensation, Unemployment Compensation Worksheet for Form 2210, Part IV, Section B-Figure the Penalty Penalty Worksheet, Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Worksheets (blank) Annualized - Capital gains (Worksheet 2-12), Worksheet 2-12. Form 1040 es 2014 Annualized Estimated Tax Worksheet—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Annualized - Foreign Earned Income (Worksheet 2-13), Worksheet 2-13. Form 1040 es 2014 Annualized Estimated Tax Worksheet—Line 12 Foreign Earned Income Tax Worksheet Annualized - Phaseout of itemized deductions (Worksheet 2-10), Worksheet 2-10. Form 1040 es 2014 Annualized Estimated Tax Worksheet—Line 6 Phaseout of Itemized Deductions Annualized - Qualified dividends (Worksheet 2-12), Worksheet 2-12. Form 1040 es 2014 Annualized Estimated Tax Worksheet—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Annualized - Reduction of exemption amount (Worksheet 2-11), Worksheet 2-11. Form 1040 es 2014 Annualized Estimated Tax Worksheet—Line 10 Reduction of Exemption Amount Annualized estimated tax (Worksheet 2-9), Worksheet 2-9. Form 1040 es 2014 Annualized Estimated Tax Worksheet, Worksheet 2-9. Form 1040 es 2014 Annualized Estimated Tax Worksheet(Continued) Capital gains tax worksheet Worksheet 4-1, Worksheet 4-1. Form 1040 es 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Dependents (age 65 or older or blind) exemption from withholding (Worksheet 1-4), Worksheet 1-4. Form 1040 es Exemption From Withholding for Dependents Age 65 or Older or Blind Estimated tax worksheets (Worksheet 2-1), Worksheet 2-1. Form 1040 es 2014 Estimated Tax Worksheet Foreign earned income (Worksheet 2-8), Worksheet 2-8. Form 1040 es 2014 Estimated Tax Worksheet—Line 6 Foreign Earned Income Tax Worksheet Phaseout of itemized deductions (Worksheet 2-5), Worksheet 2-5. Form 1040 es 2014 Estimated Tax Worksheet—Line 2 Phaseout of Itemized Deductions Qualified dividends Worksheet 4-1, Worksheet 4-1. Form 1040 es 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Railroad retirement benefits (Worksheet 2-2), Worksheet 2-2. Form 1040 es 2014 Estimated Tax Worksheet—Line 1 Estimated Taxable Social Security and Railroad Retirement Benefits Reduction of exemption amount (Worksheet 2-6), Worksheet 2-6. Form 1040 es 2014 Estimated Tax Worksheet—Line 4 Reduction of Exemption Amount Self-employment tax and deduction (Worksheet 2-3), Worksheet 2-3. Form 1040 es 2014 Estimated Tax Worksheet—Lines 1 and 11 Estimated Self-Employment Tax and Deduction Worksheet Social security benefits (Worksheet 2-2), Worksheet 2-2. Form 1040 es 2014 Estimated Tax Worksheet—Line 1 Estimated Taxable Social Security and Railroad Retirement Benefits Standard deduction (Worksheet 2-4), Worksheet 2-4. 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IRS Implements Changes to ITIN Application Requirement

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Effective January 1, 2013, the IRS implemented new procedures for issuing new Individual Taxpayer Identification Numbers (ITINs). Designed specifically for tax-administration purposes, ITINs are only issued to people who are not eligible to obtain a Social Security Number.

Specifically, the new procedures apply to most applicants submitting Forms W-7, Application for IRS Individual Taxpayer Identification Number. ITINs for individuals in these categories generally are issued during the tax filing season with the submission of a Form 1040, U.S. Individual Income Tax Return.

Questions and Answers

Some Applicants Not Impacted By Changes

Some categories of applicants are not impacted by these changes:

  • Military spouses and dependents without an SSN who need an ITIN (Military spouses use box e on Form W-7 and dependents use box d). Exceptions to the new document standards will be made for military family members satisfying the documentation requirements by providing a copy of the spouse or parent’s U.S. military identification, or applying from an overseas APO/FPO address.
  • Nonresident aliens applying for ITINs for the purpose of claiming tax treaty benefits (use boxes a and h on Form W-7). Non-resident alien applicants generally need ITINs for reasons besides filing a U.S. tax return. This is necessary for nonresident aliens who may be subject to third-party withholding for various income, such as certain gambling winnings or pension income, or need an ITIN for information reporting purposes. While existing documentation standards will be maintained only for these applicants, scrutiny of the documents will be heightened. ITIN applications of this category that are accompanied by a U.S. tax return will be subject to the new interim document standards.

The October 2, 2012 procedures put into place for the following groups will remain in effect:

  • Student and Exchange Visitor Program (SEVP) participants. SEVP participants already provide documentation to the Department of Homeland Security under the requirements of that program. Individuals studying under the SEVP will be required to apply through a university, college or other SEVP-approved institution. These are individuals admitted to the U.S. under an F, J or M visa who receive taxable scholarship, fellowship or other grants reportable by the school on Form W-2 or Form 1042-S. These procedures cover applications for the primary applicant, their spouse and dependents.
  • Non-citizens with approved Tax Year 2011 extensions to file their tax returns. These are noncitizens who requested an extension of time to file a 2011 federal income tax return for resident and nonresident aliens and choose to not submit originals documents or copies.
Page Last Reviewed or Updated: 12-Dec-2013

The Form 1040 Es

Form 1040 es 3. Form 1040 es   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. Form 1040 es 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. Form 1040 es Its treatment as ordinary or capital is determined under rules for section 1231 transactions. Form 1040 es 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. Form 1040 es Any remaining gain is a section 1231 gain. Form 1040 es 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. Form 1040 es Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (discussed below). Form 1040 es Their treatment as ordinary or capital depends on whether you have a net gain or a net loss from all your section 1231 transactions. Form 1040 es 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). Form 1040 es Do not take that gain into account as section 1231 gain. Form 1040 es Section 1231 transactions. Form 1040 es   The following transactions result in gain or loss subject to section 1231 treatment. Form 1040 es Sales or exchanges of real property or depreciable personal property. Form 1040 es This property must be used in a trade or business and held longer than 1 year. Form 1040 es Generally, property held for the production of rents or royalties is considered to be used in a trade or business. Form 1040 es Depreciable personal property includes amortizable section 197 intangibles (described in chapter 2 under Other Dispositions). Form 1040 es Sales or exchanges of leaseholds. Form 1040 es The leasehold must be used in a trade or business and held longer than 1 year. Form 1040 es Sales or exchanges of cattle and horses. Form 1040 es The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 2 years or longer. Form 1040 es Sales or exchanges of other livestock. Form 1040 es This livestock does not include poultry. Form 1040 es It must be held for draft, breeding, dairy, or sporting purposes and held for 1 year or longer. Form 1040 es Sales or exchanges of unharvested crops. Form 1040 es 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. Form 1040 es 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). Form 1040 es Growing crops sold with a lease on the land, though sold to the same person in the same transaction, are not included. Form 1040 es Cutting of timber or disposal of timber, coal, or iron ore. Form 1040 es The cutting or disposal must be treated as a sale, as described in chapter 2 under Timber and Coal and Iron Ore. Form 1040 es Condemnations. Form 1040 es The condemned property must have been held longer than 1 year. Form 1040 es 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. Form 1040 es It cannot be property held for personal use. Form 1040 es Casualties and thefts. Form 1040 es 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). Form 1040 es You must have held the property longer than 1 year. Form 1040 es 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. Form 1040 es For more information on casualties and thefts, see Publication 547. Form 1040 es Property for sale to customers. Form 1040 es   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. Form 1040 es 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. Form 1040 es Example. Form 1040 es You manufacture and sell steel cable, which you deliver on returnable reels that are depreciable property. Form 1040 es Customers make deposits on the reels, which you refund if the reels are returned within a year. Form 1040 es If they are not returned, you keep each deposit as the agreed-upon sales price. Form 1040 es Most reels are returned within the 1-year period. Form 1040 es You keep adequate records showing depreciation and other charges to the capitalized cost of the reels. Form 1040 es Under these conditions, the reels are not property held for sale to customers in the ordinary course of your business. Form 1040 es Any gain or loss resulting from their not being returned may be capital or ordinary, depending on your section 1231 transactions. Form 1040 es Copyrights. Form 1040 es    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). Form 1040 es The sale of such property results in ordinary income and generally is reported in Part II of Form 4797. Form 1040 es Treatment as ordinary or capital. Form 1040 es   To determine the treatment of section 1231 gains and losses, combine all your section 1231 gains and losses for the year. Form 1040 es If you have a net section 1231 loss, it is ordinary loss. Form 1040 es 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. Form 1040 es The rest, if any, is long-term capital gain. Form 1040 es Nonrecaptured section 1231 losses. Form 1040 es   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. Form 1040 es 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. Form 1040 es These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Form 1040 es Example. Form 1040 es In 2013, Ben has a $2,000 net section 1231 gain. Form 1040 es 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. Form 1040 es From 2008 through 2012 he had the following section 1231 gains and losses. Form 1040 es 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. Form 1040 es 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. Form 1040 es 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. Form 1040 es This includes the date and manner of acquisition, cost or other basis, depreciation or amortization, and all other adjustments that affect basis. Form 1040 es On property you acquired in a nontaxable exchange or as a gift, your records also must indicate the following information. Form 1040 es Whether the adjusted basis was figured using depreciation or amortization you claimed on other property. Form 1040 es Whether the adjusted basis was figured using depreciation or amortization another person claimed. Form 1040 es Corporate distributions. Form 1040 es   For information on property distributed by corporations, see Distributions to Shareholders in Publication 542, Corporations. Form 1040 es General asset accounts. Form 1040 es   Different rules apply to dispositions of property you depreciated using a general asset account. Form 1040 es For information on these rules, see Publication 946. Form 1040 es 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. Form 1040 es See Gain Treated as Ordinary Income, later. Form 1040 es Any gain recognized that is more than the part that is ordinary income from depreciation is a section 1231 gain. Form 1040 es See Treatment as ordinary or capital under Section 1231 Gains and Losses, earlier. Form 1040 es Section 1245 property defined. Form 1040 es   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. Form 1040 es Personal property (either tangible or intangible). Form 1040 es Other tangible property (except buildings and their structural components) used as any of the following. Form 1040 es See Buildings and structural components below. Form 1040 es An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services. Form 1040 es A research facility in any of the activities in (a). Form 1040 es A facility in any of the activities in (a) for the bulk storage of fungible commodities (discussed on the next page). Form 1040 es That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. Form 1040 es Amortization of certified pollution control facilities. Form 1040 es The section 179 expense deduction. Form 1040 es Deduction for clean-fuel vehicles and certain refueling property. Form 1040 es Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations. Form 1040 es Deduction for certain qualified refinery property. Form 1040 es Deduction for qualified energy efficient commercial building property. Form 1040 es Amortization of railroad grading and tunnel bores, if in effect before the repeal by the Revenue Reconciliation Act of 1990. Form 1040 es (Repealed by Public Law 99-514, Tax Reform Act of 1986, section 242(a). Form 1040 es ) 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). Form 1040 es Expenditures to remove architectural and transportation barriers to the handicapped and elderly. Form 1040 es Deduction for qualified tertiary injectant expenses. Form 1040 es Certain reforestation expenditures. Form 1040 es Deduction for election to expense qualified advanced mine safety equipment property. Form 1040 es Single purpose agricultural (livestock) or horticultural structures. Form 1040 es Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. Form 1040 es Any railroad grading or tunnel bore. Form 1040 es Buildings and structural components. Form 1040 es   Section 1245 property does not include buildings and structural components. Form 1040 es The term building includes a house, barn, warehouse, or garage. Form 1040 es The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. Form 1040 es   Do not treat a structure that is essentially machinery or equipment as a building or structural component. Form 1040 es 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. Form 1040 es   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. Form 1040 es 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. Form 1040 es Facility for bulk storage of fungible commodities. Form 1040 es   This term includes oil or gas storage tanks and grain storage bins. Form 1040 es Bulk storage means the storage of a commodity in a large mass before it is used. Form 1040 es For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. Form 1040 es To be fungible, a commodity must be such that one part may be used in place of another. Form 1040 es   Stored materials that vary in composition, size, and weight are not fungible. Form 1040 es 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. Form 1040 es For example, the storage of different grades and forms of aluminum scrap is not storage of fungible commodities. Form 1040 es 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. Form 1040 es The depreciation and amortization allowed or allowable on the property. Form 1040 es The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). Form 1040 es A limit on this amount for gain on like-kind exchanges and involuntary conversions is explained later. Form 1040 es 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. Form 1040 es See Gifts and Transfers at Death, later. Form 1040 es Use Part III of Form 4797 to figure the ordinary income part of the gain. Form 1040 es Depreciation taken on other property or taken by other taxpayers. Form 1040 es   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. Form 1040 es Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. Form 1040 es 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). Form 1040 es Depreciation and amortization. Form 1040 es   Depreciation and amortization that must be recaptured as ordinary income include (but are not limited to) the following items. Form 1040 es Ordinary depreciation deductions. Form 1040 es Any special depreciation allowance you claimed. Form 1040 es Amortization deductions for all the following costs. Form 1040 es Acquiring a lease. Form 1040 es Lessee improvements. Form 1040 es Certified pollution control facilities. Form 1040 es Certain reforestation expenses. Form 1040 es Section 197 intangibles. Form 1040 es Childcare facility expenses made before 1982, if in effect before the repeal of IRC 188. Form 1040 es Franchises, trademarks, and trade names acquired before August 11, 1993. Form 1040 es The section 179 deduction. Form 1040 es Deductions for all the following costs. Form 1040 es Removing barriers to the disabled and the elderly. Form 1040 es Tertiary injectant expenses. Form 1040 es Depreciable clean-fuel vehicles and refueling property (minus the amount of any recaptured deduction). Form 1040 es Environmental cleanup costs. Form 1040 es Certain reforestation expenses. Form 1040 es Qualified disaster expenses. Form 1040 es Any basis reduction for the investment credit (minus any basis increase for credit recapture). Form 1040 es Any basis reduction for the qualified electric vehicle credit (minus any basis increase for credit recapture). Form 1040 es Example. Form 1040 es You file your returns on a calendar year basis. Form 1040 es 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. Form 1040 es You used the half-year convention and your MACRS deductions for the truck were $2,000 in 2011 and $3,200 in 2012. Form 1040 es You did not take the section 179 deduction. Form 1040 es You sold the truck in May 2013 for $7,000. Form 1040 es The MACRS deduction in 2013, the year of sale, is $960 (½ of $1,920). Form 1040 es Figure the gain treated as ordinary income as follows. Form 1040 es 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. Form 1040 es   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. Form 1040 es   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. Form 1040 es Depreciation allowed or allowable. Form 1040 es   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. Form 1040 es 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. Form 1040 es 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. Form 1040 es   This treatment applies only when figuring what part of gain is treated as ordinary income under the rules for section 1245 depreciation recapture. Form 1040 es Multiple asset accounts. Form 1040 es   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. Form 1040 es Example. Form 1040 es In one transaction you sold 50 machines, 25 trucks, and certain other property that is not section 1245 property. Form 1040 es All of the depreciation was recorded in a single depreciation account. Form 1040 es After dividing the total received among the various assets sold, you figured that each unit of section 1245 property was sold at a gain. Form 1040 es You can figure the ordinary income from depreciation as if the 50 machines and 25 trucks were one item. Form 1040 es 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. Form 1040 es Normal retirement. Form 1040 es   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. Form 1040 es 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. Form 1040 es To determine the additional depreciation on section 1250 property, see Additional Depreciation, below. Form 1040 es Section 1250 property defined. Form 1040 es   This includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property. Form 1040 es It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. Form 1040 es A fee simple interest in land is not included because it is not depreciable. Form 1040 es   If your section 1250 property becomes section 1245 property because you change its use, you can never again treat it as section 1250 property. Form 1040 es 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. Form 1040 es For a list of items treated as depreciation adjustments, see Depreciation and amortization under Gain Treated as Ordinary Income, earlier. Form 1040 es For the treatment of unrecaptured section 1250 gain, see Capital Gains Tax Rate, later. Form 1040 es If you hold section 1250 property for 1 year or less, all the depreciation is additional depreciation. Form 1040 es You will not have additional depreciation if any of the following conditions apply to the property disposed of. Form 1040 es 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. Form 1040 es 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. Form 1040 es The property was residential low-income rental property you held for 162/3 years or longer. Form 1040 es 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. Form 1040 es 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. Form 1040 es 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. Form 1040 es These properties are depreciated using the straight line method. Form 1040 es In addition, if the property was in a renewal community, you must not have elected to claim a commercial revitalization deduction. Form 1040 es Depreciation taken by other taxpayers or on other property. Form 1040 es   Additional depreciation includes all depreciation adjustments to the basis of section 1250 property whether allowed to you or another person (as carryover basis property). Form 1040 es Example. Form 1040 es Larry Johnson gives his son section 1250 property on which he took $2,000 in depreciation deductions, of which $500 is additional depreciation. Form 1040 es 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. Form 1040 es 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. Form 1040 es At the time of sale, the additional depreciation is $700 ($500 allowed the father plus $200 allowed the son). Form 1040 es Depreciation allowed or allowable. Form 1040 es   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. Form 1040 es 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. Form 1040 es Retired or demolished property. Form 1040 es   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. Form 1040 es Example. Form 1040 es A wing of your building is totally destroyed by fire. Form 1040 es 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. Form 1040 es Figuring straight line depreciation. Form 1040 es   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. Form 1040 es 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. Form 1040 es   Salvage value and useful life are not used for the ACRS method of depreciation. Form 1040 es Figure straight line depreciation for ACRS real property by using its 15-, 18-, or 19-year recovery period as the property's useful life. Form 1040 es   The straight line method is applied without any basis reduction for the investment credit. Form 1040 es Property held by lessee. Form 1040 es   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. Form 1040 es 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. Form 1040 es The same rule applies to the cost of acquiring a lease. Form 1040 es   The term renewal period means any period for which the lease may be renewed, extended, or continued under an option exercisable by the lessee. Form 1040 es 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. Form 1040 es 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. Form 1040 es The percentages for these types of real property are as follows. Form 1040 es Nonresidential real property. Form 1040 es   For real property that is not residential rental property, the applicable percentage for periods after 1969 is 100%. Form 1040 es For periods before 1970, the percentage is zero and no ordinary income because of additional depreciation before 1970 will result from its disposition. Form 1040 es Residential rental property. Form 1040 es   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%. Form 1040 es The percentage for periods before 1976 is zero. Form 1040 es Therefore, no ordinary income because of additional depreciation before 1976 will result from a disposition of residential rental property. Form 1040 es Low-income housing. Form 1040 es    Low-income housing includes all the following types of residential rental property. Form 1040 es 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. Form 1040 es Low-income rental housing for which a depreciation deduction for rehabilitation expenses was allowed. Form 1040 es 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. Form 1040 es Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. Form 1040 es   The applicable percentage for low-income housing is 100% minus 1% for each full month the property was held over 100 full months. Form 1040 es 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. Form 1040 es Foreclosure. Form 1040 es   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. Form 1040 es Example. Form 1040 es On June 1, 2001, you acquired low-income housing property. Form 1040 es 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. Form 1040 es The property qualifies for a reduced applicable percentage because it was held more than 100 full months. Form 1040 es 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. Form 1040 es Therefore, 70% of the additional depreciation is treated as ordinary income. Form 1040 es Holding period. Form 1040 es   The holding period used to figure the applicable percentage for low-income housing generally starts on the day after you acquired it. Form 1040 es For example, if you bought low-income housing on January 1, 1997, the holding period starts on January 2, 1997. Form 1040 es If you sold it on January 2, 2013, the holding period is exactly 192 full months. Form 1040 es The applicable percentage for additional depreciation is 8%, or 100% minus 1% for each full month the property was held over 100 full months. Form 1040 es Holding period for constructed, reconstructed, or erected property. Form 1040 es   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. Form 1040 es Property acquired by gift or received in a tax-free transfer. Form 1040 es   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. Form 1040 es   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. Form 1040 es See Low-Income Housing With Two or More Elements, next. Form 1040 es 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. Form 1040 es The gain to be reported as ordinary income is the sum of the ordinary income figured for each element. Form 1040 es The following are the types of separate elements. Form 1040 es A separate improvement (defined below). Form 1040 es The basic section 1250 property plus improvements not qualifying as separate improvements. Form 1040 es The units placed in service at different times before all the section 1250 property is finished. Form 1040 es 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. Form 1040 es As a result, the apartment house consists of three separate elements. Form 1040 es The 36-month test for separate improvements. Form 1040 es   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. Form 1040 es 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. Form 1040 es 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). Form 1040 es $5,000. Form 1040 es The 1-year test. Form 1040 es   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. Form 1040 es The unadjusted basis is figured as of the start of that tax year or the holding period of the property, whichever is later. Form 1040 es 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. Form 1040 es Example. Form 1040 es The unadjusted basis of a calendar year taxpayer's property was $300,000 on January 1 of this year. Form 1040 es During the year, the taxpayer made improvements A, B, and C, which cost $1,000, $600, and $700, respectively. Form 1040 es 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. Form 1040 es However, if improvement C had cost $1,500, the sum of these improvements would have been $3,100. Form 1040 es Then, it would be necessary to apply the 36-month test to figure if the improvements must be treated as separate improvements. Form 1040 es Addition to the capital account. Form 1040 es   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. Form 1040 es   The addition to the capital account of depreciable real property is the gross addition not reduced by amounts attributable to replaced property. Form 1040 es 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. Form 1040 es The $20,000 adjusted basis of the old roof is no longer reflected in the basis of the property. Form 1040 es 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. Form 1040 es   Whether an expense is treated as an addition to the capital account may depend on the final disposition of the entire property. Form 1040 es 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. Form 1040 es Unadjusted basis. Form 1040 es   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. Form 1040 es However, the cost of components retired before that date is not included in the unadjusted basis. Form 1040 es Holding period. Form 1040 es   Use the following guidelines for figuring the applicable percentage for property with two or more elements. Form 1040 es 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. Form 1040 es 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. Form 1040 es The holding period for each improvement not qualifying as a separate element takes the holding period of the basic property. Form 1040 es   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. Form 1040 es Use the first day of a calendar month that is closest to the middle of the tax year. Form 1040 es If there are two first days of a month that are equally close to the middle of the year, use the earlier date. Form 1040 es Figuring ordinary income attributable to each separate element. Form 1040 es   Figure ordinary income attributable to each separate element as follows. Form 1040 es   Step 1. Form 1040 es 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. Form 1040 es   Step 2. Form 1040 es 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). Form 1040 es   Step 3. Form 1040 es Multiply the result in Step 2 by the applicable percentage for the element. Form 1040 es Example. Form 1040 es You sold at a gain of $25,000 low-income housing property subject to the ordinary income rules of section 1250. Form 1040 es The property consisted of four elements (W, X, Y, and Z). Form 1040 es Step 1. Form 1040 es The additional depreciation for each element is: W-$12,000; X-None; Y-$6,000; and Z-$6,000. Form 1040 es The sum of the additional depreciation for all the elements is $24,000. Form 1040 es Step 2. Form 1040 es The depreciation deducted on element X was $4,000 less than it would have been under the straight line method. Form 1040 es Additional depreciation on the property as a whole is $20,000 ($24,000 − $4,000). Form 1040 es $20,000 is lower than the $25,000 gain on the sale, so $20,000 is used in Step 2. Form 1040 es Step 3. Form 1040 es The applicable percentages to be used in Step 3 for the elements are: W-68%; X-85%; Y-92%; and Z-100%. Form 1040 es From these facts, the sum of the ordinary income for each element is figured as follows. Form 1040 es   Step 1 Step 2 Step 3 Ordinary Income W . Form 1040 es 50 $10,000 68% $ 6,800 X -0- -0- 85% -0- Y . Form 1040 es 25 5,000 92% 4,600 Z . Form 1040 es 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. Form 1040 es In a sale, exchange, or involuntary conversion of the property, figure the amount realized that is more than the adjusted basis of the property. Form 1040 es In any other disposition of the property, figure the fair market value that is more than the adjusted basis. Form 1040 es Figure the additional depreciation for the periods after 1975. Form 1040 es Multiply the lesser of (1) or (2) by the applicable percentage, discussed earlier under Applicable Percentage. Form 1040 es Stop here if this is residential rental property or if (2) is equal to or more than (1). Form 1040 es This is the gain treated as ordinary income because of additional depreciation. Form 1040 es Subtract (2) from (1). Form 1040 es Figure the additional depreciation for periods after 1969 but before 1976. Form 1040 es Add the lesser of (4) or (5) to the result in (3). Form 1040 es This is the gain treated as ordinary income because of additional depreciation. Form 1040 es A limit on the amount treated as ordinary income for gain on like-kind exchanges and involuntary conversions is explained later. Form 1040 es Use Form 4797, Part III, to figure the ordinary income part of the gain. Form 1040 es Corporations. Form 1040 es   Corporations, other than S corporations, must recognize an additional amount as ordinary income on the sale or other disposition of section 1250 property. Form 1040 es 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. Form 1040 es Report this additional ordinary income on Form 4797, Part III, line 26 (f). Form 1040 es 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. Form 1040 es This applies even if no payments are received in that year. Form 1040 es If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. Form 1040 es For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. Form 1040 es 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. Form 1040 es To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Form 1040 es Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. Form 1040 es For a detailed discussion of installment sales, see Publication 537. Form 1040 es Gifts If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. Form 1040 es 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. Form 1040 es For low-income housing, the donee must take into account the donor's holding period to figure the applicable percentage. Form 1040 es See Applicable Percentage and its discussion Holding period under Section 1250 Property, earlier. Form 1040 es Part gift and part sale or exchange. Form 1040 es   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. Form 1040 es 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. Form 1040 es However, see Bargain sale to charity, later. Form 1040 es Example. Form 1040 es You transferred depreciable personal property to your son for $20,000. Form 1040 es When transferred, the property had an adjusted basis to you of $10,000 and a fair market value of $40,000. Form 1040 es You took depreciation of $30,000. Form 1040 es 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. Form 1040 es 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. Form 1040 es 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. Form 1040 es Gift to charitable organization. Form 1040 es   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. Form 1040 es Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation. Form 1040 es   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. Form 1040 es For more information, see Giving Property That Has Increased in Value in Publication 526. Form 1040 es Bargain sale to charity. Form 1040 es   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. Form 1040 es First, figure the ordinary income as if you had sold the property at its fair market value. Form 1040 es 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. Form 1040 es See Bargain Sale under Gain or Loss From Sales and Exchanges in chapter 1. Form 1040 es Report as ordinary income the lesser of the ordinary income allocated to the sale or your gain from the sale. Form 1040 es Example. Form 1040 es You sold section 1245 property in a bargain sale to a charitable organization and are allowed a deduction for your contribution. Form 1040 es Your gain on the sale was $1,200, figured by allocating 20% of your adjusted basis in the property to the part sold. Form 1040 es If you had sold the property at its fair market value, your ordinary income would have been $5,000. Form 1040 es Your ordinary income is $1,000 ($5,000 × 20%) and your section 1231 gain is $200 ($1,200 – $1,000). Form 1040 es 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. Form 1040 es For information on the tax liability of a decedent, see Publication 559, Survivors, Executors, and Administrators. Form 1040 es 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. Form 1040 es 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. Form 1040 es Example 1. Form 1040 es Janet Smith owned depreciable property that, upon her death, was inherited by her son. Form 1040 es 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. Form 1040 es 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. Form 1040 es Example 2. Form 1040 es The trustee of a trust created by a will transfers depreciable property to a beneficiary in satisfaction of a specific bequest of $10,000. Form 1040 es 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. Form 1040 es Ordinary income from depreciation must be reported by the trust on the transfer. Form 1040 es 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. Form 1040 es For information on like-kind exchanges and involuntary conversions, see chapter 1. Form 1040 es Depreciable personal property. Form 1040 es   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. Form 1040 es The gain that must be included in income under the rules for like-kind exchanges or involuntary conversions. Form 1040 es The fair market value of the like-kind, similar, or related property other than depreciable personal property acquired in the transaction. Form 1040 es Example 1. Form 1040 es You bought a new machine for $4,300 cash plus your old machine for which you were allowed a $1,360 trade-in. Form 1040 es The old machine cost you $5,000 two years ago. Form 1040 es You took depreciation deductions of $3,950. Form 1040 es 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. Form 1040 es Example 2. Form 1040 es You bought office machinery for $1,500 two years ago and deducted $780 depreciation. Form 1040 es 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). Form 1040 es You choose to postpone reporting gain, but replacement machinery cost you only $1,000. Form 1040 es Your taxable gain under the rules for involuntary conversions is limited to the remaining $200 insurance payment. Form 1040 es All your replacement property is depreciable personal property, so your ordinary income from depreciation is limited to $200. Form 1040 es Example 3. Form 1040 es A fire destroyed office machinery you bought for $116,000. Form 1040 es The depreciation deductions were $91,640 and the machinery had an adjusted basis of $24,360. Form 1040 es You received a $117,000 insurance payment, realizing a gain of $92,640. Form 1040 es 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. Form 1040 es $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. Form 1040 es 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. Form 1040 es The amount you must report as ordinary income on the transaction is $12,000, figured as follows. Form 1040 es 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. Form 1040 es Depreciable real property. Form 1040 es   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. Form 1040 es 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. Form 1040 es 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. Form 1040 es   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. Form 1040 es Further, to figure the applicable percentage of additional depreciation to be treated as ordinary income, the holding period starts over for the new property. Form 1040 es Example. Form 1040 es The state paid you $116,000 when it condemned your depreciable real property for public use. Form 1040 es 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). Form 1040 es You also bought stock for $5,000 to get control of a corporation owning property similar in use to the property condemned. Form 1040 es You choose to postpone reporting the gain. Form 1040 es 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. Form 1040 es The ordinary income to be reported is $6,000, which is the greater of the following amounts. Form 1040 es 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. Form 1040 es 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. Form 1040 es   The ordinary income not reported, $14,000 ($20,000 − $6,000), is carried over to the depreciable real property you bought as additional depreciation. Form 1040 es Basis of property acquired. Form 1040 es   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. Form 1040 es   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). Form 1040 es However, if you acquired both depreciable real property and other property, allocate the total basis as follows. Form 1040 es 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. Form 1040 es Add the fair market value (or cost) of the other property acquired to the result in (1). Form 1040 es Divide the result in (1) by the result in (2). Form 1040 es Multiply the total basis by the result in (3). Form 1040 es This is the basis of the depreciable real property acquired. Form 1040 es 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). Form 1040 es Subtract the result in (4) from the total basis. Form 1040 es This is the basis of the other property acquired. Form 1040 es 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). Form 1040 es Example 1. Form 1040 es 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. Form 1040 es The property's adjusted basis was $38,400, with additional depreciation of $14,932. Form 1040 es On December 1, 1988, you used the insurance payment to acquire and place in service replacement low-income housing property. Form 1040 es Your realized gain from the involuntary conversion was $51,600 ($90,000 − $38,400). Form 1040 es You chose to postpone reporting the gain under the involuntary conversion rules. Form 1040 es 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. Form 1040 es The basis of the replacement low-income housing property was its $90,000 cost minus the $51,600 gain you postponed, or $38,400. Form 1040 es The $14,932 ordinary gain you did not report is treated as additional depreciation on the replacement property. Form 1040 es 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. Form 1040 es Example 2. Form 1040 es John Adams received a $90,000 fire insurance payment for depreciable real property (office building) with an adjusted basis of $30,000. Form 1040 es He uses the whole payment to buy property similar in use, spending $42,000 for depreciable real property and $48,000 for land. Form 1040 es He chooses to postpone reporting the $60,000 gain realized on the involuntary conversion. Form 1040 es 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. Form 1040 es The basis of the property bought is $30,000 ($90,000 − $60,000), allocated as follows. Form 1040 es The $42,000 cost of depreciable real property minus $10,000 ordinary income not reported is $32,000. Form 1040 es The $48,000 cost of other property (land) plus the $32,000 figured in (1) is $80,000. Form 1040 es The $32,000 figured in (1) divided by the $80,000 figured in (2) is 0. Form 1040 es 4. Form 1040 es The basis of the depreciable real property is $12,000. Form 1040 es This is the $30,000 total basis multiplied by the 0. Form 1040 es 4 figured in (3). Form 1040 es The basis of the other property (land) is $18,000. Form 1040 es This is the $30,000 total basis minus the $12,000 figured in (4). Form 1040 es 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. Form 1040 es 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. Form 1040 es Different rules may apply to the allocation of the amount realized on the sale of a business that includes a group of assets. Form 1040 es See chapter 2. Form 1040 es 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. Form 1040 es In the absence of an agreement, the allocation should be made by taking into account the appropriate facts and circumstances. Form 1040 es These include, but are not limited to, a comparison between the depreciable property and all the other property being disposed of in the transaction. Form 1040 es The comparison should take into account all the following facts and circumstances. Form 1040 es The original cost and reproduction cost of construction, erection, or production. Form 1040 es The remaining economic useful life. Form 1040 es The state of obsolescence. Form 1040 es The anticipated expenditures required to maintain, renovate, or modernize the properties. Form 1040 es Like-kind exchanges and involuntary conversions. Form 1040 es   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. Form 1040 es 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. Form 1040 es 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. Form 1040 es   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. Form 1040 es 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. Form 1040 es 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. Form 1040 es Example. Form 1040 es A fire destroyed your property with a total fair market value of $50,000. Form 1040 es It consisted of machinery worth $30,000 and nondepreciable property worth $20,000. Form 1040 es 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. Form 1040 es The adjusted basis of the destroyed machinery was $5,000 and your depreciation on it was $35,000. Form 1040 es You choose to postpone reporting your gain from the involuntary conversion. Form 1040 es You must report $9,000 as ordinary income from depreciation arising from this transaction, figured as follows. Form 1040 es 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. Form 1040 es The amount allocated to the machinery is 30,000/50,000 × $40,000, or $24,000. Form 1040 es The amount allocated to the other property is 20,000/50,000 × $40,000, or $16,000. Form 1040 es Your gain on the involuntary conversion of the machinery is $24,000 minus $5,000 adjusted basis, or $19,000. Form 1040 es 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. Form 1040 es 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. Form 1040 es Your potential ordinary income from depreciation is $19,000, the gain on the machinery, because it is less than the $35,000 depreciation. Form 1040 es 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. Form 1040 es Prev  Up  Next   Home   More Online Publications