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Free State And Federal Tax Preparation

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Free State And Federal Tax Preparation

Free state and federal tax preparation 6. Free state and federal tax preparation   How To Get Tax Help Table of Contents Low Income Taxpayer Clinics Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Free state and federal tax preparation Free help with your tax return. Free state and federal tax preparation   You can get free help preparing your return nationwide from IRS-certified volunteers. Free state and federal tax preparation The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Free state and federal tax preparation The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Free state and federal tax preparation Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Free state and federal tax preparation In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Free state and federal tax preparation To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Free state and federal tax preparation gov, download the IRS2Go app, or call 1-800-906-9887. Free state and federal tax preparation   As part of the TCE program, AARP offers the Tax-Aide counseling program. Free state and federal tax preparation To find the nearest AARP Tax-Aide site, visit AARP's website at www. Free state and federal tax preparation aarp. Free state and federal tax preparation org/money/taxaide or call 1-888-227-7669. Free state and federal tax preparation For more information on these programs, go to IRS. Free state and federal tax preparation gov and enter “VITA” in the search box. Free state and federal tax preparation Internet. Free state and federal tax preparation    IRS. Free state and federal tax preparation gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Free state and federal tax preparation Download the free IRS2Go app from the iTunes app store or from Google Play. Free state and federal tax preparation Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Free state and federal tax preparation Check the status of your 2013 refund with the Where's My Refund? application on IRS. Free state and federal tax preparation gov or download the IRS2Go app and select the Refund Status option. Free state and federal tax preparation The IRS issues more than 9 out of 10 refunds in less than 21 days. Free state and federal tax preparation Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Free state and federal tax preparation You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Free state and federal tax preparation The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Free state and federal tax preparation Use the Interactive Tax Assistant (ITA) to research your tax questions. Free state and federal tax preparation No need to wait on the phone or stand in line. Free state and federal tax preparation The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Free state and federal tax preparation When you reach the response screen, you can print the entire interview and the final response for your records. Free state and federal tax preparation New subject areas are added on a regular basis. Free state and federal tax preparation  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Free state and federal tax preparation gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Free state and federal tax preparation You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Free state and federal tax preparation The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Free state and federal tax preparation When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Free state and federal tax preparation Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Free state and federal tax preparation You can also ask the IRS to mail a return or an account transcript to you. Free state and federal tax preparation Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Free state and federal tax preparation gov or by calling 1-800-908-9946. Free state and federal tax preparation Tax return and tax account transcripts are generally available for the current year and the past three years. Free state and federal tax preparation Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Free state and federal tax preparation Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Free state and federal tax preparation If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Free state and federal tax preparation Check the status of your amended return using Where's My Amended Return? Go to IRS. Free state and federal tax preparation gov and enter Where's My Amended Return? in the search box. Free state and federal tax preparation You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Free state and federal tax preparation It can take up to 3 weeks from the date you mailed it to show up in our system. Free state and federal tax preparation Make a payment using one of several safe and convenient electronic payment options available on IRS. Free state and federal tax preparation gov. Free state and federal tax preparation Select the Payment tab on the front page of IRS. Free state and federal tax preparation gov for more information. Free state and federal tax preparation Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Free state and federal tax preparation Figure your income tax withholding with the IRS Withholding Calculator on IRS. Free state and federal tax preparation gov. Free state and federal tax preparation Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Free state and federal tax preparation Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Free state and federal tax preparation gov. Free state and federal tax preparation Request an Electronic Filing PIN by going to IRS. Free state and federal tax preparation gov and entering Electronic Filing PIN in the search box. Free state and federal tax preparation Download forms, instructions and publications, including accessible versions for people with disabilities. Free state and federal tax preparation Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Free state and federal tax preparation gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Free state and federal tax preparation An employee can answer questions about your tax account or help you set up a payment plan. Free state and federal tax preparation Before you visit, check the Office Locator on IRS. Free state and federal tax preparation gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Free state and federal tax preparation If you have a special need, such as a disability, you can request an appointment. Free state and federal tax preparation Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Free state and federal tax preparation Apply for an Employer Identification Number (EIN). Free state and federal tax preparation Go to IRS. Free state and federal tax preparation gov and enter Apply for an EIN in the search box. Free state and federal tax preparation Read the Internal Revenue Code, regulations, or other official guidance. Free state and federal tax preparation Read Internal Revenue Bulletins. Free state and federal tax preparation Sign up to receive local and national tax news and more by email. Free state and federal tax preparation Just click on “subscriptions” above the search box on IRS. Free state and federal tax preparation gov and choose from a variety of options. Free state and federal tax preparation Phone. Free state and federal tax preparation    You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Free state and federal tax preparation Download the free IRS2Go app from the iTunes app store or from Google Play. Free state and federal tax preparation Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Free state and federal tax preparation gov, or download the IRS2Go app. Free state and federal tax preparation Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Free state and federal tax preparation The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Free state and federal tax preparation Most VITA and TCE sites offer free electronic filing. Free state and federal tax preparation Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Free state and federal tax preparation Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Free state and federal tax preparation Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Free state and federal tax preparation If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Free state and federal tax preparation The IRS issues more than 9 out of 10 refunds in less than 21 days. Free state and federal tax preparation Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Free state and federal tax preparation Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Free state and federal tax preparation The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Free state and federal tax preparation Note, the above information is for our automated hotline. Free state and federal tax preparation Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Free state and federal tax preparation Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Free state and federal tax preparation You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Free state and federal tax preparation It can take up to 3 weeks from the date you mailed it to show up in our system. Free state and federal tax preparation Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Free state and federal tax preparation You should receive your order within 10 business days. Free state and federal tax preparation Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Free state and federal tax preparation If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Free state and federal tax preparation Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Free state and federal tax preparation The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Free state and federal tax preparation These individuals can also contact the IRS through relay services such as the Federal Relay Service. Free state and federal tax preparation Walk-in. Free state and federal tax preparation   You can find a selection of forms, publications and services — in-person. Free state and federal tax preparation Products. Free state and federal tax preparation You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Free state and federal tax preparation Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Free state and federal tax preparation Services. Free state and federal tax preparation You can walk in to your local TAC for face-to-face tax help. Free state and federal tax preparation An employee can answer questions about your tax account or help you set up a payment plan. Free state and federal tax preparation Before visiting, use the Office Locator tool on IRS. Free state and federal tax preparation gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Free state and federal tax preparation Mail. Free state and federal tax preparation   You can send your order for forms, instructions, and publications to the address below. Free state and federal tax preparation You should receive a response within 10 business days after your request is received. Free state and federal tax preparation Internal Revenue Service 1201 N. Free state and federal tax preparation Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. Free state and federal tax preparation The Taxpayer Advocate Service (TAS) is your voice at the IRS. Free state and federal tax preparation Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Free state and federal tax preparation   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Free state and federal tax preparation We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Free state and federal tax preparation You face (or your business is facing) an immediate threat of adverse action. Free state and federal tax preparation You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Free state and federal tax preparation   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Free state and federal tax preparation Here's why we can help: TAS is an independent organization within the IRS. Free state and federal tax preparation Our advocates know how to work with the IRS. Free state and federal tax preparation Our services are free and tailored to meet your needs. Free state and federal tax preparation We have offices in every state, the District of Columbia, and Puerto Rico. Free state and federal tax preparation   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. Free state and federal tax preparation   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Free state and federal tax preparation If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. Free state and federal tax preparation Low Income Taxpayer Clinics Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals and tax collection disputes. Free state and federal tax preparation Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Free state and federal tax preparation Visit Taxpayer Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. Free state and federal tax preparation Prev  Up  Next   Home   More Online Publications
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Tax Information for Members of the Military

Special EITC Rules
Special rules apply for calculating Earned Income Tax Credit or EITC for members of the military, ministers or members of the clergy.

Tax Information for Members of the U.S. Armed Forces
Members of the U.S. Armed Forces, especially those serving in combat zones, face some special tax situations and are entitled to some special tax benefits.

Special Tax Considerations for Veterans
Special tax considerations for disabled veterans occasionally result in a need for amended returns

2013 Publ3 (PDF)
Armed Forces' Tax Guide

Employers with Employees in a Combat Zone
FAQs for employers whose workers deploy to a combat zone

Extension of Deadlines — Combat Zone Service
Extension of deadlines for combat zone service

Retirement Plans FAQs regarding USERRA and SSCRA
Insights into the re-employment of veterans and the restoration of retirement plan benefits, as affected by the Uniformed Services and Reemployment Rights Act (USERRA) and the Veterans and Sailors Civil Relief Act (SSCRA).

Miscellaneous Provisions — Combat Zone Service
Miscellaneous provisions related to combat zone service

1040 Central
1040 Central has been updated for the last few weeks of Filing Season 2014.

Page Last Reviewed or Updated: 27-Mar-2014

The Free State And Federal Tax Preparation

Free state and federal tax preparation 2. Free state and federal tax preparation   Depreciation of Rental Property Table of Contents The BasicsWhat Rental Property Can Be Depreciated? When Does Depreciation Begin and End? Depreciation Methods Basis of Depreciable Property Claiming the Special Depreciation Allowance MACRS DepreciationDepreciation Systems Property Classes Under GDS Recovery Periods Under GDS Conventions Figuring Your Depreciation Deduction Figuring MACRS Depreciation Under ADS Claiming the Correct Amount of Depreciation You recover the cost of income producing property through yearly tax deductions. Free state and federal tax preparation You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Free state and federal tax preparation Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Free state and federal tax preparation You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. Free state and federal tax preparation You can deduct depreciation only on the part of your property used for rental purposes. Free state and federal tax preparation Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Free state and federal tax preparation You may have to use Form 4562 to figure and report your depreciation. Free state and federal tax preparation See Which Forms To Use in chapter 3. Free state and federal tax preparation Also see Publication 946. Free state and federal tax preparation Section 179 deduction. Free state and federal tax preparation   The section 179 deduction is a means of recovering part or all of the cost of certain qualifying property in the year you place the property in service. Free state and federal tax preparation This deduction is not allowed for property used in connection with residential rental property. Free state and federal tax preparation See chapter 2 of Publication 946. Free state and federal tax preparation Alternative minimum tax (AMT). Free state and federal tax preparation   If you use accelerated depreciation, you may be subject to the AMT. Free state and federal tax preparation Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Free state and federal tax preparation   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. Free state and federal tax preparation However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). Free state and federal tax preparation   To find out if you are subject to the AMT, see the Instructions for Form 6251. Free state and federal tax preparation The Basics The following section discusses the information you will need to have about the rental property and the decisions to be made before figuring your depreciation deduction. Free state and federal tax preparation What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. Free state and federal tax preparation You own the property. Free state and federal tax preparation You use the property in your business or income-producing activity (such as rental property). Free state and federal tax preparation The property has a determinable useful life. Free state and federal tax preparation The property is expected to last more than one year. Free state and federal tax preparation Property you own. Free state and federal tax preparation   To claim depreciation, you usually must be the owner of the property. Free state and federal tax preparation You are considered as owning property even if it is subject to a debt. Free state and federal tax preparation Rented property. Free state and federal tax preparation   Generally, if you pay rent for property, you cannot depreciate that property. Free state and federal tax preparation Usually, only the owner can depreciate it. Free state and federal tax preparation However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. Free state and federal tax preparation See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Free state and federal tax preparation Cooperative apartments. Free state and federal tax preparation   If you are a tenant-stockholder in a cooperative housing corporation and rent your cooperative apartment to others, you can deduct depreciation on your stock in the corporation. Free state and federal tax preparation See chapter 4, Special Situations. Free state and federal tax preparation Property having a determinable useful life. Free state and federal tax preparation   To be depreciable, your property must have a determinable useful life. Free state and federal tax preparation This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Free state and federal tax preparation What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. Free state and federal tax preparation This includes land and certain excepted property. Free state and federal tax preparation Land. Free state and federal tax preparation   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Free state and federal tax preparation But if it does, the loss is accounted for upon disposition. Free state and federal tax preparation The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Free state and federal tax preparation   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Free state and federal tax preparation These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Free state and federal tax preparation Example. Free state and federal tax preparation You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. Free state and federal tax preparation Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. Free state and federal tax preparation If you replace the house, you would have to destroy the bushes and trees right next to it. Free state and federal tax preparation These bushes and trees are closely associated with the house, so they have a determinable useful life. Free state and federal tax preparation Therefore, you can depreciate them. Free state and federal tax preparation Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Free state and federal tax preparation Excepted property. Free state and federal tax preparation   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. Free state and federal tax preparation Property placed in service and disposed of (or taken out of business use) in the same year. Free state and federal tax preparation Equipment used to build capital improvements. Free state and federal tax preparation You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Free state and federal tax preparation For more information, see chapter 1 of Publication 946. Free state and federal tax preparation When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. Free state and federal tax preparation You stop depreciating it either when you have fully recovered your cost or other basis, or when you retire it from service, whichever happens first. Free state and federal tax preparation Placed in Service You place property in service in a rental activity when it is ready and available for a specific use in that activity. Free state and federal tax preparation Even if you are not using the property, it is in service when it is ready and available for its specific use. Free state and federal tax preparation Example 1. Free state and federal tax preparation On November 22 of last year, you purchased a dishwasher for your rental property. Free state and federal tax preparation The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. Free state and federal tax preparation Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. Free state and federal tax preparation If the appliance had been installed and ready for use when it was delivered in December of last year, it would have been considered placed in service in December, even if it was not actually used until this year. Free state and federal tax preparation Example 2. Free state and federal tax preparation On April 6, you purchased a house to use as residential rental property. Free state and federal tax preparation You made extensive repairs to the house and had it ready for rent on July 5. Free state and federal tax preparation You began to advertise the house for rent in July and actually rented it beginning September 1. Free state and federal tax preparation The house is considered placed in service in July when it was ready and available for rent. Free state and federal tax preparation You can begin to depreciate the house in July. Free state and federal tax preparation Example 3. Free state and federal tax preparation You moved from your home in July. Free state and federal tax preparation During August and September you made several repairs to the house. Free state and federal tax preparation On October 1, you listed the property for rent with a real estate company, which rented it on December 1. Free state and federal tax preparation The property is considered placed in service on October 1, the date when it was available for rent. Free state and federal tax preparation Conversion to business use. Free state and federal tax preparation   If you place property in service in a personal activity, you cannot claim depreciation. Free state and federal tax preparation However, if you change the property's use to business or the production of income, you can begin to depreciate it at the time of the change. Free state and federal tax preparation You place the property in service for business or income-producing use on the date of the change. Free state and federal tax preparation Example. Free state and federal tax preparation You bought a house and used it as your personal home several years before you converted it to rental property. Free state and federal tax preparation Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Free state and federal tax preparation You can begin to claim depreciation in the year you converted it to rental property because at that time its use changed to the production of income. Free state and federal tax preparation Idle Property Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). Free state and federal tax preparation For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent. Free state and federal tax preparation Cost or Other Basis Fully Recovered You must stop depreciating property when the total of your yearly depreciation deductions equals your cost or other basis of your property. Free state and federal tax preparation For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. Free state and federal tax preparation See Basis of Depreciable Property , later. Free state and federal tax preparation Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Free state and federal tax preparation You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Free state and federal tax preparation You sell or exchange the property. Free state and federal tax preparation You convert the property to personal use. Free state and federal tax preparation You abandon the property. Free state and federal tax preparation The property is destroyed. Free state and federal tax preparation Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. Free state and federal tax preparation If you placed rental property in service before 1987, you are using one of the following methods. Free state and federal tax preparation ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. Free state and federal tax preparation Straight line or declining balance method over the useful life of property placed in service before 1981. Free state and federal tax preparation See MACRS Depreciation , later, for more information. Free state and federal tax preparation Rental property placed in service before 2013. Free state and federal tax preparation   Continue to use the same method of figuring depreciation that you used in the past. Free state and federal tax preparation Use of real property changed. Free state and federal tax preparation   Generally, you must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Free state and federal tax preparation This includes your residence that you changed to rental use. Free state and federal tax preparation See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. Free state and federal tax preparation Improvements made after 1986. Free state and federal tax preparation   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Free state and federal tax preparation As a result, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Free state and federal tax preparation For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. Free state and federal tax preparation This publication discusses MACRS depreciation only. Free state and federal tax preparation If you need information about depreciating property placed in service before 1987, see Publication 534. Free state and federal tax preparation Basis of Depreciable Property The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. Free state and federal tax preparation This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity. Free state and federal tax preparation If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and credits with respect to the property. Free state and federal tax preparation Basis and adjusted basis are explained in the following discussions. Free state and federal tax preparation If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its fair market value when you change it to rental use. Free state and federal tax preparation See Basis of Property Changed to Rental Use in chapter 4. Free state and federal tax preparation Cost Basis The basis of property you buy is usually its cost. Free state and federal tax preparation The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. Free state and federal tax preparation Your cost also includes amounts you pay for: Sales tax charged on the purchase (but see Exception next), Freight charges to obtain the property, and Installation and testing charges. Free state and federal tax preparation Exception. Free state and federal tax preparation   If you deducted state and local general sales taxes as an itemized deduction on Schedule A (Form 1040), do not include those sales taxes as part of your cost basis. Free state and federal tax preparation Such taxes were deductible before 1987 and after 2003. Free state and federal tax preparation Loans with low or no interest. Free state and federal tax preparation   If you buy property on any time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, less the amount considered to be unstated interest. Free state and federal tax preparation See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Free state and federal tax preparation Real property. Free state and federal tax preparation   If you buy real property, such as a building and land, certain fees and other expenses you pay are part of your cost basis in the property. Free state and federal tax preparation Real estate taxes. Free state and federal tax preparation   If you buy real property and agree to pay real estate taxes on it that were owed by the seller and the seller does not reimburse you, the taxes you pay are treated as part of your basis in the property. Free state and federal tax preparation You cannot deduct them as taxes paid. Free state and federal tax preparation   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. Free state and federal tax preparation Do not include that amount in your basis in the property. Free state and federal tax preparation Settlement fees and other costs. Free state and federal tax preparation   The following settlement fees and closing costs for buying the property are part of your basis in the property. Free state and federal tax preparation Abstract fees. Free state and federal tax preparation Charges for installing utility services. Free state and federal tax preparation Legal fees. Free state and federal tax preparation Recording fees. Free state and federal tax preparation Surveys. Free state and federal tax preparation Transfer taxes. Free state and federal tax preparation Title insurance. Free state and federal tax preparation Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Free state and federal tax preparation   The following are settlement fees and closing costs you cannot include in your basis in the property. Free state and federal tax preparation Fire insurance premiums. Free state and federal tax preparation Rent or other charges relating to occupancy of the property before closing. Free state and federal tax preparation Charges connected with getting or refinancing a loan, such as: Points (discount points, loan origination fees), Mortgage insurance premiums, Loan assumption fees, Cost of a credit report, and Fees for an appraisal required by a lender. Free state and federal tax preparation   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Free state and federal tax preparation Assumption of a mortgage. Free state and federal tax preparation   If you buy property and become liable for an existing mortgage on the property, your basis is the amount you pay for the property plus the amount remaining to be paid on the mortgage. Free state and federal tax preparation Example. Free state and federal tax preparation You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. Free state and federal tax preparation Your basis is $300,000. Free state and federal tax preparation Separating cost of land and buildings. Free state and federal tax preparation   If you buy buildings and your cost includes the cost of the land on which they stand, you must divide the cost between the land and the buildings to figure the basis for depreciation of the buildings. Free state and federal tax preparation The part of the cost that you allocate to each asset is the ratio of the fair market value of that asset to the fair market value of the whole property at the time you buy it. Free state and federal tax preparation   If you are not certain of the fair market values of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes. Free state and federal tax preparation Example. Free state and federal tax preparation You buy a house and land for $200,000. Free state and federal tax preparation The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. Free state and federal tax preparation The latest real estate tax assessment on the property was based on an assessed value of $160,000, of which $136,000 was for the house and $24,000 was for the land. Free state and federal tax preparation You can allocate 85% ($136,000 ÷ $160,000) of the purchase price to the house and 15% ($24,000 ÷ $160,000) of the purchase price to the land. Free state and federal tax preparation Your basis in the house is $170,000 (85% of $200,000) and your basis in the land is $30,000 (15% of $200,000). Free state and federal tax preparation Basis Other Than Cost You cannot use cost as a basis for property that you received: In return for services you performed; In an exchange for other property; As a gift; From your spouse, or from your former spouse as the result of a divorce; or As an inheritance. Free state and federal tax preparation If you received property in one of these ways, see Publication 551 for information on how to figure your basis. Free state and federal tax preparation Adjusted Basis To figure your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service for business or the production of income. Free state and federal tax preparation The result of these adjustments to the basis is the adjusted basis. Free state and federal tax preparation Increases to basis. Free state and federal tax preparation   You must increase the basis of any property by the cost of all items properly added to a capital account. Free state and federal tax preparation These include the following. Free state and federal tax preparation The cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year. Free state and federal tax preparation Amounts spent after a casualty to restore the damaged property. Free state and federal tax preparation The cost of extending utility service lines to the property. Free state and federal tax preparation Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. Free state and federal tax preparation Additions or improvements. Free state and federal tax preparation   Add to the basis of your property the amount an addition or improvement actually cost you, including any amount you borrowed to make the addition or improvement. Free state and federal tax preparation This includes all direct costs, such as material and labor, but does not include your own labor. Free state and federal tax preparation It also includes all expenses related to the addition or improvement. Free state and federal tax preparation   For example, if you had an architect draw up plans for remodeling your property, the architect's fee is a part of the cost of the remodeling. Free state and federal tax preparation Or, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. Free state and federal tax preparation   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. Free state and federal tax preparation For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Free state and federal tax preparation    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. Free state and federal tax preparation However, see What Rental Property Cannot Be Depreciated, earlier. Free state and federal tax preparation Assessments for local improvements. Free state and federal tax preparation   Assessments for items which tend to increase the value of property, such as streets and sidewalks, must be added to the basis of the property. Free state and federal tax preparation For example, if your city installs curbing on the street in front of your house, and assesses you and your neighbors for its cost, you must add the assessment to the basis of your property. Free state and federal tax preparation Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. Free state and federal tax preparation You cannot deduct these items as taxes or depreciate them. Free state and federal tax preparation    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. Free state and federal tax preparation Do not add them to your basis in the property. Free state and federal tax preparation Deducting vs. Free state and federal tax preparation capitalizing costs. Free state and federal tax preparation   Do not add to your basis costs you can deduct as current expenses. Free state and federal tax preparation However, there are certain costs you can choose either to deduct or to capitalize. Free state and federal tax preparation If you capitalize these costs, include them in your basis. Free state and federal tax preparation If you deduct them, do not include them in your basis. Free state and federal tax preparation   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. Free state and federal tax preparation   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. Free state and federal tax preparation Decreases to basis. Free state and federal tax preparation   You must decrease the basis of your property by any items that represent a return of your cost. Free state and federal tax preparation These include the following. Free state and federal tax preparation Insurance or other payment you receive as the result of a casualty or theft loss. Free state and federal tax preparation Casualty loss not covered by insurance for which you took a deduction. Free state and federal tax preparation Amount(s) you receive for granting an easement. Free state and federal tax preparation Residential energy credits you were allowed before 1986, or after 2005, if you added the cost of the energy items to the basis of your home. Free state and federal tax preparation Exclusion from income of subsidies for energy conservation measures. Free state and federal tax preparation Special depreciation allowance claimed on qualified property. Free state and federal tax preparation Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Free state and federal tax preparation If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. Free state and federal tax preparation   If your rental property was previously used as your main home, you must also decrease the basis by the following. Free state and federal tax preparation Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. Free state and federal tax preparation District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. Free state and federal tax preparation Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. Free state and federal tax preparation Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. Free state and federal tax preparation This allowance is figured before you figure your regular depreciation deduction. Free state and federal tax preparation See Publication 946, chapter 3, for details. Free state and federal tax preparation Also see the Instructions for Form 4562, Line 14. Free state and federal tax preparation If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. Free state and federal tax preparation The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. Free state and federal tax preparation MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. Free state and federal tax preparation This section explains how to determine which MACRS depreciation system applies to your property. Free state and federal tax preparation It also discusses other information you need to know before you can figure depreciation under MACRS. Free state and federal tax preparation This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. Free state and federal tax preparation Depreciation Systems MACRS consists of two systems that determine how you depreciate your property—the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Free state and federal tax preparation You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Free state and federal tax preparation Excluded Property You cannot use MACRS for certain personal property (such as furniture or appliances) placed in service in your rental property in 2013 if it had been previously placed in service before 1987 when MACRS became effective. Free state and federal tax preparation In most cases, personal property is excluded from MACRS if you (or a person related to you) owned or used it in 1986 or if your tenant is a person (or someone related to the person) who owned or used it in 1986. Free state and federal tax preparation However, the property is not excluded if your 2013 deduction under MACRS (using a half-year convention) is less than the deduction you would have under ACRS. Free state and federal tax preparation For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. Free state and federal tax preparation Electing ADS If you choose, you can use the ADS method for most property. Free state and federal tax preparation Under ADS, you use the straight line method of depreciation. Free state and federal tax preparation The election of ADS for one item in a class of property generally applies to all property in that class that is placed in service during the tax year of the election. Free state and federal tax preparation However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. Free state and federal tax preparation If you choose to use ADS for your residential rental property, the election must be made in the first year the property is placed in service. Free state and federal tax preparation Once you make this election, you can never revoke it. Free state and federal tax preparation For property placed in service during 2013, you make the election to use ADS by entering the depreciation on Form 4562, Part III, Section C, line 20c. Free state and federal tax preparation Property Classes Under GDS Each item of property that can be depreciated under MACRS is assigned to a property class, determined by its class life. Free state and federal tax preparation The property class generally determines the depreciation method, recovery period, and convention. Free state and federal tax preparation The property classes under GDS are: 3-year property, 5-year property, 7-year property, 10-year property, 15-year property, 20-year property, Nonresidential real property, and Residential rental property. Free state and federal tax preparation Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. Free state and federal tax preparation 5-year property. Free state and federal tax preparation This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. Free state and federal tax preparation ), automobiles, and light trucks. Free state and federal tax preparation This class also includes appliances, carpeting, furniture, etc. Free state and federal tax preparation , used in a residential rental real estate activity. Free state and federal tax preparation Depreciation on automobiles, other property used for transportation, computers and related peripheral equipment, and property of a type generally used for entertainment, recreation, or amusement is limited. Free state and federal tax preparation See chapter 5 of Publication 946. Free state and federal tax preparation 7-year property. Free state and federal tax preparation This class includes office furniture and equipment (desks, file cabinets, etc. Free state and federal tax preparation ). Free state and federal tax preparation This class also includes any property that does not have a class life and that has not been designated by law as being in any other class. Free state and federal tax preparation 15-year property. Free state and federal tax preparation This class includes roads, fences, and shrubbery (if depreciable). Free state and federal tax preparation Residential rental property. Free state and federal tax preparation This class includes any real property that is a rental building or structure (including a mobile home) for which 80% or more of the gross rental income for the tax year is from dwelling units. Free state and federal tax preparation It does not include a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis. Free state and federal tax preparation If you live in any part of the building or structure, the gross rental income includes the fair rental value of the part you live in. Free state and federal tax preparation The other property classes do not generally apply to property used in rental activities. Free state and federal tax preparation These classes are not discussed in this publication. Free state and federal tax preparation See Publication 946 for more information. Free state and federal tax preparation Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. Free state and federal tax preparation The recovery periods are generally longer under ADS than GDS. Free state and federal tax preparation The recovery period of property depends on its property class. Free state and federal tax preparation Under GDS, the recovery period of an asset is generally the same as its property class. Free state and federal tax preparation Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. Free state and federal tax preparation See Table 2-1 for recovery periods of property commonly used in residential rental activities. Free state and federal tax preparation Qualified Indian reservation property. Free state and federal tax preparation   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. Free state and federal tax preparation For more information, see chapter 4 of Publication 946. Free state and federal tax preparation Additions or improvements to property. Free state and federal tax preparation   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. Free state and federal tax preparation   The property class and recovery period of the addition or improvement is the one that would apply to the original property if you had placed it in service at the same time as the addition or improvement. Free state and federal tax preparation   The recovery period for an addition or improvement to property begins on the later of: The date the addition or improvement is placed in service, or The date the property to which the addition or improvement was made is placed in service. Free state and federal tax preparation Example. Free state and federal tax preparation You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. Free state and federal tax preparation You built an addition onto the house and placed it in service in 2013. Free state and federal tax preparation You must use MACRS for the addition. Free state and federal tax preparation Under GDS, the addition is depreciated as residential rental property over 27. Free state and federal tax preparation 5 years. Free state and federal tax preparation Table 2-1. Free state and federal tax preparation MACRS Recovery Periods for Property Used in Rental Activities   MACRS Recovery Period   Type of Property General Depreciation System Alternative Depreciation System   Computers and their peripheral equipment 5 years 5 years   Office machinery, such as: Typewriters Calculators Copiers 5 years 6 years   Automobiles 5 years 5 years   Light trucks 5 years 5 years   Appliances, such as: Stoves Refrigerators 5 years 9 years   Carpets 5 years 9 years   Furniture used in rental property 5 years 9 years   Office furniture and equipment, such as: Desks Files 7 years 10 years   Any property that does not have a class life and that has not been designated by law as being in any other class 7 years 12 years   Roads 15 years 20 years   Shrubbery 15 years 20 years   Fences 15 years 20 years   Residential rental property (buildings or structures) and structural components such as furnaces, waterpipes, venting, etc. Free state and federal tax preparation 27. Free state and federal tax preparation 5 years 40 years   Additions and improvements, such as a new roof The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement. Free state and federal tax preparation   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. Free state and federal tax preparation The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. Free state and federal tax preparation Mid-month convention. Free state and federal tax preparation    A mid-month convention is used for all residential rental property and nonresidential real property. Free state and federal tax preparation Under this convention, you treat all property placed in service, or disposed of, during any month as placed in service, or disposed of, at the midpoint of that month. Free state and federal tax preparation Mid-quarter convention. Free state and federal tax preparation   A mid-quarter convention must be used if the mid-month convention does not apply and the total depreciable basis of MACRS property placed in service in the last 3 months of a tax year (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) is more than 40% of the total basis of all such property you place in service during the year. Free state and federal tax preparation   Under this convention, you treat all property placed in service, or disposed of, during any quarter of a tax year as placed in service, or disposed of, at the midpoint of the quarter. Free state and federal tax preparation Example. Free state and federal tax preparation During the tax year, Tom Martin purchased the following items to use in his rental property. Free state and federal tax preparation He elects not to claim the special depreciation allowance discussed earlier. Free state and federal tax preparation A dishwasher for $400 that he placed in service in January. Free state and federal tax preparation Used furniture for $100 that he placed in service in September. Free state and federal tax preparation A refrigerator for $800 that he placed in service in October. Free state and federal tax preparation Tom uses the calendar year as his tax year. Free state and federal tax preparation The total basis of all property placed in service that year is $1,300. Free state and federal tax preparation The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). Free state and federal tax preparation Tom must use the mid-quarter convention instead of the half-year convention for all three items. Free state and federal tax preparation Half-year convention. Free state and federal tax preparation    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. Free state and federal tax preparation Under this convention, you treat all property placed in service, or disposed of, during a tax year as placed in service, or disposed of, at the midpoint of that tax year. Free state and federal tax preparation   If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. Free state and federal tax preparation You deduct a full year of depreciation for any other year during the recovery period. Free state and federal tax preparation Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. Free state and federal tax preparation The deduction is substantially the same both ways. Free state and federal tax preparation You can either: Actually compute the deduction using the depreciation method and convention that apply over the recovery period of the property, or Use the percentage from the MACRS percentage tables. Free state and federal tax preparation In this publication we will use the percentage tables. Free state and federal tax preparation For instructions on how to compute the deduction, see chapter 4 of Publication 946. Free state and federal tax preparation Residential rental property. Free state and federal tax preparation   You must use the straight line method and a mid-month convention for residential rental property. Free state and federal tax preparation In the first year that you claim depreciation for residential rental property, you can claim depreciation only for the number of months the property is in use, and you must use the mid-month convention (explained under Conventions , earlier). Free state and federal tax preparation 5-, 7-, or 15-year property. Free state and federal tax preparation   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. Free state and federal tax preparation However, in limited cases you must use the mid-quarter convention, if it applies. Free state and federal tax preparation For property in the 15-year class, use the 150% declining balance method and a half-year convention. Free state and federal tax preparation   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. Free state and federal tax preparation The choice to use the 150% method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Free state and federal tax preparation You make this election on Form 4562. Free state and federal tax preparation In Part III, column (f), enter “150 DB. Free state and federal tax preparation ” Once you make this election, you cannot change to another method. Free state and federal tax preparation   If you use either the 200% or 150% declining balance method, you figure your deduction using the straight line method in the first tax year that the straight line method gives you an equal or larger deduction. Free state and federal tax preparation   You can also choose to use the straight line method with a half-year or mid-quarter convention for 5-, 7-, or 15-year property. Free state and federal tax preparation The choice to use the straight line method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Free state and federal tax preparation You elect the straight line method on Form 4562. Free state and federal tax preparation In Part III, column (f), enter “S/L. Free state and federal tax preparation ” Once you make this election, you cannot change to another method. Free state and federal tax preparation MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. Free state and federal tax preparation The tables show the percentages for the first few years or until the change to the straight line method is made. Free state and federal tax preparation See Appendix A of Publication 946 for complete tables. Free state and federal tax preparation The percentages in Tables 2-2a, 2-2b, and 2-2c make the change from declining balance to straight line in the year that straight line will give a larger deduction. Free state and federal tax preparation If you elect to use the straight line method for 5-, 7-, or 15-year property, or the 150% declining balance method for 5- or 7-year property, use the tables in Appendix A of Publication 946. Free state and federal tax preparation How to use the percentage tables. Free state and federal tax preparation   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. Free state and federal tax preparation   Once you begin using a percentage table to figure depreciation, you must continue to use it for the entire recovery period unless there is an adjustment to the basis of your property for a reason other than: Depreciation allowed or allowable, or An addition or improvement that is depreciated as a separate item of property. Free state and federal tax preparation   If there is an adjustment for any reason other than (1) or (2), for example, because of a deductible casualty loss, you can no longer use the table. Free state and federal tax preparation For the year of the adjustment and for the remaining recovery period, figure depreciation using the property's adjusted basis at the end of the year and the appropriate depreciation method, as explained earlier under Figuring Your Depreciation Deduction . Free state and federal tax preparation See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. Free state and federal tax preparation Unadjusted basis. Free state and federal tax preparation   This is the same basis you would use to figure gain on a sale (see Basis of Depreciable Property , earlier), but without reducing your original basis by any MACRS depreciation taken in earlier years. Free state and federal tax preparation   However, you do reduce your original basis by other amounts claimed on the property, including: Any amortization, Any section 179 deduction, and Any special depreciation allowance. Free state and federal tax preparation For more information, see chapter 4 of Publication 946. Free state and federal tax preparation Please click here for the text description of the image. Free state and federal tax preparation Table 2-2 Tables 2-2a, 2-2b, and 2-2c. Free state and federal tax preparation   The percentages in these tables take into account the half-year and mid-quarter conventions. Free state and federal tax preparation Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. Free state and federal tax preparation Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). Free state and federal tax preparation If you must use the mid-quarter convention, use the column that corresponds to the calendar year quarter in which you placed the property in service. Free state and federal tax preparation Example 1. Free state and federal tax preparation You purchased a stove and refrigerator and placed them in service in June. Free state and federal tax preparation Your basis in the stove is $600 and your basis in the refrigerator is $1,000. Free state and federal tax preparation Both are 5-year property. Free state and federal tax preparation Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. Free state and federal tax preparation For that year your depreciation deduction is $120 ($600 × . Free state and federal tax preparation 20) for the stove and $200 ($1,000 × . Free state and federal tax preparation 20) for the refrigerator. Free state and federal tax preparation For Year 2, the depreciation percentage is 32%. Free state and federal tax preparation That year's depreciation deduction will be $192 ($600 × . Free state and federal tax preparation 32) for the stove and $320 ($1,000 × . Free state and federal tax preparation 32) for the refrigerator. Free state and federal tax preparation Example 2. Free state and federal tax preparation Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. Free state and federal tax preparation Since the refrigerator was placed in service in the last 3 months of the tax year, and its basis ($1,000) is more than 40% of the total basis of all property placed in service during the year ($1,600 × . Free state and federal tax preparation 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. Free state and federal tax preparation Because you placed the refrigerator in service in October, you use the fourth quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 5%. Free state and federal tax preparation Your depreciation deduction for the refrigerator is $50 ($1,000 x . Free state and federal tax preparation 05). Free state and federal tax preparation Because you placed the stove in service in June, you use the second quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 25%. Free state and federal tax preparation For that year, your depreciation deduction for the stove is $150 ($600 x . Free state and federal tax preparation 25). Free state and federal tax preparation Table 2-2d. Free state and federal tax preparation    Use this table when you are using the GDS 27. Free state and federal tax preparation 5 year option for residential rental property. Free state and federal tax preparation Find the row for the month that you placed the property in service. Free state and federal tax preparation Use the percentages listed for that month to figure your depreciation deduction. Free state and federal tax preparation The mid-month convention is taken into account in the percentages shown in the table. Free state and federal tax preparation Continue to use the same row (month) under the column for the appropriate year. Free state and federal tax preparation Example. Free state and federal tax preparation You purchased a single family rental house for $185,000 and placed it in service on February 8. Free state and federal tax preparation The sales contract showed that the building cost $160,000 and the land cost $25,000. Free state and federal tax preparation Your basis for depreciation is its original cost, $160,000. Free state and federal tax preparation This is the first year of service for your residential rental property and you decide to use GDS which has a recovery period of 27. Free state and federal tax preparation 5 years. Free state and federal tax preparation Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. Free state and federal tax preparation 182%. Free state and federal tax preparation That year's depreciation deduction is $5,091 ($160,000 x . Free state and federal tax preparation 03182). Free state and federal tax preparation Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. Free state and federal tax preparation See Appendix B in Publication 946 for other property. Free state and federal tax preparation If your property is not listed in Appendix B, it is considered to have no class life. Free state and federal tax preparation Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. Free state and federal tax preparation Use the mid-month convention for residential rental property and nonresidential real property. Free state and federal tax preparation For all other property, use the half-year or mid-quarter convention, as appropriate. Free state and federal tax preparation See Publication 946 for ADS depreciation tables. Free state and federal tax preparation Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. Free state and federal tax preparation If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Free state and federal tax preparation For more information, see Depreciation under Decreases to Basis in Publication 551. Free state and federal tax preparation If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Free state and federal tax preparation S. Free state and federal tax preparation Individual Income Tax Return. Free state and federal tax preparation If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Free state and federal tax preparation Filing an amended return. Free state and federal tax preparation   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Free state and federal tax preparation You claimed the incorrect amount because of a mathematical error made in any year. Free state and federal tax preparation You claimed the incorrect amount because of a posting error made in any year. Free state and federal tax preparation You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Free state and federal tax preparation You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Free state and federal tax preparation   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return for the property used in your rental activity. Free state and federal tax preparation This also occurs when you use the same impermissible method of determining depreciation (for example, using the wrong MACRS recovery period) in two or more consecutively filed tax returns. Free state and federal tax preparation   If an amended return is allowed, you must file it by the later of the following dates. Free state and federal tax preparation 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Free state and federal tax preparation A return filed before an unextended due date is considered filed on that due date. Free state and federal tax preparation 2 years from the time you paid your tax for that year. Free state and federal tax preparation Changing your accounting method. Free state and federal tax preparation   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Free state and federal tax preparation In some instances, that consent is automatic. Free state and federal tax preparation For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. 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