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H&r Block Tax Cut

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H&r Block Tax Cut

H&r block tax cut 4. H&r block tax cut   Figuring Depreciation Under MACRS Table of Contents Introduction Useful Items - You may want to see: Which Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS?Rent-to-own dealer. H&r block tax cut Rent-to-own contract. H&r block tax cut What Is the Placed in Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies?Recovery Periods Under GDS Recovery Periods Under ADS Additions and Improvements Which Convention Applies? Which Depreciation Method Applies?Depreciation Methods for Farm Property Electing a Different Method How Is the Depreciation Deduction Figured?Using the MACRS Percentage Tables Figuring the Deduction Without Using the Tables Figuring the Deduction for Property Acquired in a Nontaxable Exchange Figuring the Deduction for a Short Tax Year How Do You Use General Asset Accounts?Grouping Property Figuring Depreciation for a GAA Disposing of GAA Property Terminating GAA Treatment Electing To Use a GAA When Do You Recapture MACRS Depreciation? Introduction The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. H&r block tax cut MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). H&r block tax cut Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. H&r block tax cut To be sure you can use MACRS to figure depreciation for your property, see What Method Can You Use To Depreciate Your Property in chapter 1. H&r block tax cut This chapter explains how to determine which MACRS depreciation system applies to your property. H&r block tax cut It also discusses other information you need to know before you can figure depreciation under MACRS. H&r block tax cut This information includes the property's recovery class, placed in service date, and basis, as well as the applicable recovery period, convention, and depreciation method. H&r block tax cut It explains how to use this information to figure your depreciation deduction and how to use a general asset account to depreciate a group of properties. H&r block tax cut Finally, it explains when and how to recapture MACRS depreciation. H&r block tax cut Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 463 Travel, Entertainment, Gift, and Car  Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. H&r block tax cut Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. H&r block tax cut You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. H&r block tax cut If you placed your property in service in 2013, complete Part III of Form 4562 to report depreciation using MACRS. H&r block tax cut Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. H&r block tax cut If you placed your property in service before 2013 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III. H&r block tax cut Required use of ADS. H&r block tax cut   You must use ADS for the following property. H&r block tax cut Listed property used 50% or less in a qualified business use. H&r block tax cut See chapter 5 for information on listed property. H&r block tax cut Any tangible property used predominantly outside the United States during the year. H&r block tax cut Any tax-exempt use property. H&r block tax cut Any tax-exempt bond-financed property. H&r block tax cut All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. H&r block tax cut Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. H&r block tax cut If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3) for the property. H&r block tax cut Electing ADS. H&r block tax cut   Although your property may qualify for GDS, you can elect to use ADS. H&r block tax cut The election generally must cover all property in the same property class that you placed in service during the year. H&r block tax cut However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. H&r block tax cut Once you make this election, you can never revoke it. H&r block tax cut   You make the election by completing line 20 in Part III of Form 4562. H&r block tax cut Which Property Class Applies Under GDS? The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. H&r block tax cut These property classes are also listed under column (a) in section B, Part III, of Form 4562. H&r block tax cut For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication. H&r block tax cut 3-year property. H&r block tax cut Tractor units for over-the-road use. H&r block tax cut Any race horse over 2 years old when placed in service. H&r block tax cut (All race horses placed in service after December 31, 2008, and before January 1, 2014, are deemed to be 3-year property, regardless of age. H&r block tax cut ) Any other horse (other than a race horse) over 12 years old when placed in service. H&r block tax cut Qualified rent-to-own property (defined later). H&r block tax cut 5-year property. H&r block tax cut Automobiles, taxis, buses, and trucks. H&r block tax cut Computers and peripheral equipment. H&r block tax cut Office machinery (such as typewriters, calculators, and copiers). H&r block tax cut Any property used in research and experimentation. H&r block tax cut Breeding cattle and dairy cattle. H&r block tax cut Appliances, carpets, furniture, etc. H&r block tax cut , used in a residential rental real estate activity. H&r block tax cut Certain geothermal, solar, and wind energy property. H&r block tax cut 7-year property. H&r block tax cut Office furniture and fixtures (such as desks, files, and safes). H&r block tax cut Agricultural machinery and equipment. H&r block tax cut Any property that does not have a class life and has not been designated by law as being in any other class. H&r block tax cut Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2014. H&r block tax cut Any natural gas gathering line placed in service after April 11, 2005. H&r block tax cut See Natural gas gathering line and electric transmission property , later. H&r block tax cut 10-year property. H&r block tax cut Vessels, barges, tugs, and similar water transportation equipment. H&r block tax cut Any single purpose agricultural or horticultural structure. H&r block tax cut Any tree or vine bearing fruits or nuts. H&r block tax cut Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008. H&r block tax cut 15-year property. H&r block tax cut Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges). H&r block tax cut Any retail motor fuels outlet (defined later), such as a convenience store. H&r block tax cut Any municipal wastewater treatment plant. H&r block tax cut Any qualified leasehold improvement property (defined later) placed in service before January 1, 2014. H&r block tax cut Any qualified restaurant property (defined later) placed in service before January 1, 2014. H&r block tax cut Initial clearing and grading land improvements for gas utility property. H&r block tax cut Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005. H&r block tax cut See Natural gas gathering line and electric transmission property , later. H&r block tax cut Any natural gas distribution line placed in service after April 11, 2005 and before January 1, 2011. H&r block tax cut Any qualified retail improvement property placed in service before January 1, 2014. H&r block tax cut 20-year property. H&r block tax cut Farm buildings (other than single purpose agricultural or horticultural structures). H&r block tax cut Municipal sewers not classified as 25-year property. H&r block tax cut Initial clearing and grading land improvements for electric utility transmission and distribution plants. H&r block tax cut 25-year property. H&r block tax cut This class is water utility property, which is either of the following. H&r block tax cut Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property. H&r block tax cut Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996. H&r block tax cut Residential rental property. H&r block tax cut This is any building or structure, such as a rental home (including a mobile home), if 80% or more of its gross rental income for the tax year is from dwelling units. H&r block tax cut A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. H&r block tax cut It does not include a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis. H&r block tax cut If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy. H&r block tax cut Nonresidential real property. H&r block tax cut This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27. H&r block tax cut 5 years. H&r block tax cut Qualified rent-to-own property. H&r block tax cut   Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. H&r block tax cut It is tangible personal property generally used in the home for personal use. H&r block tax cut It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. H&r block tax cut Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. H&r block tax cut   If some of the property you rent to others under a rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you still can treat this property as qualified property as long as it does not represent a significant portion of your leasing property. H&r block tax cut However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property. H&r block tax cut Rent-to-own dealer. H&r block tax cut   You are a rent-to-own dealer if you meet all the following requirements. H&r block tax cut You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property. H&r block tax cut A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership. H&r block tax cut The property is tangible personal property of a type generally used within the home for personal use. H&r block tax cut Rent-to-own contract. H&r block tax cut   This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which— Is titled “Rent-to-Own Agreement,” “Lease Agreement with Ownership Option,” or other similar language. H&r block tax cut Provides a beginning date and a maximum period of time, not to exceed 156 weeks or 36 months from the beginning date, for which the contract can be in effect (including renewals or options to extend). H&r block tax cut Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. H&r block tax cut If the payments are decreasing, no payment can be less than 40% of the largest payment. H&r block tax cut Provides for total payments that generally exceed the normal retail price of the property plus interest. H&r block tax cut Provides for total payments that do not exceed $10,000 for each item of property. H&r block tax cut Provides that the customer has no legal obligation to make all payments outlined in the contract and that, at the end of each weekly or monthly payment period, the customer can either continue to use the property by making the next payment or return the property in good working order with no further obligations and no entitlement to a return of any prior payments. H&r block tax cut Provides that legal title to the property remains with the rent-to-own dealer until the customer makes either all the required payments or the early purchase payments required under the contract to acquire legal title. H&r block tax cut Provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, or otherwise dispose of the property until all contract payments have been made. H&r block tax cut Motorsports entertainment complex. H&r block tax cut   This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. H&r block tax cut The events must be open to the public for the price of admission. H&r block tax cut Qualified smart electric grid system. H&r block tax cut   A qualified smart electric grid system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. H&r block tax cut Smart grid property includes electronics and related equipment that is capable of: Sensing, collecting, and monitoring data of or from all portions of a utility's electric distribution grid, Providing real-time, two-way communications to monitor or to manage the grid, and Providing real-time analysis of an event prediction based on collected data that can be used to provide electric distribution system reliability, quality, and performance. H&r block tax cut Retail motor fuels outlet. H&r block tax cut   Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests. H&r block tax cut It is not larger than 1,400 square feet. H&r block tax cut 50% or more of the gross revenues generated from the property are derived from petroleum sales. H&r block tax cut 50% or more of the floor space in the property is devoted to petroleum marketing sales. H&r block tax cut A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines. H&r block tax cut Qualified leasehold improvement property. H&r block tax cut    Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. H&r block tax cut   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions. H&r block tax cut A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or reacquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. H&r block tax cut Examples include the following. H&r block tax cut A complete liquidation of a subsidiary. H&r block tax cut A transfer to a corporation controlled by the transferor. H&r block tax cut An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. H&r block tax cut Qualified restaurant property. H&r block tax cut   Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2014. H&r block tax cut Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premises consumption of prepared meals. H&r block tax cut Qualified smart electric meter. H&r block tax cut   A qualified smart electric meter is any time-based meter and related communication equipment which is placed in service by a supplier of electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that: Measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day; Provides for the exchange of information between the supplier or provider and the customer's smart electric meter in support of time-based rates or other forms of demand response; Provides data to the supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and Provides all commercial and residential customers of such supplier or provider with net metering. H&r block tax cut Net metering means allowing a customer a credit, if any, as complies with applicable federal and state laws and regulations for providing electricity to the supplier or provider. H&r block tax cut Natural gas gathering line and electric transmission property. H&r block tax cut   Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met. H&r block tax cut The original use of the property must have begun with you after April 11, 2005. H&r block tax cut Original use means the first use to which the property is put, whether or not by you. H&r block tax cut Therefore, property used by any person before April 12, 2005, is not original use. H&r block tax cut Original use includes additional capital expenditures you incurred to recondition or rebuild your property. H&r block tax cut However, original use does not include the cost of reconditioned or rebuilt property you acquired. H&r block tax cut Property containing used parts will not be treated as reconditioned or rebuilt if the cost of the used parts is not more than 20% of the total cost of the property. H&r block tax cut The property must not be placed in service under a binding contract in effect before April 12, 2005. H&r block tax cut The property must not be self-constructed property (property you manufacture, construct, or produce for your own use), if you began the manufacture, construction, or production of the property before April 12, 2005. H&r block tax cut Property that is manufactured, constructed, or produced for your use by another person under a written binding contract entered into by you or a related party before the manufacture, construction, or production of the property is considered to be manufactured, constructed, or produced by you. H&r block tax cut What Is the Placed in Service Date? You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. H&r block tax cut The placed in service date for your property is the date the property is ready and available for a specific use. H&r block tax cut It is therefore not necessarily the date it is first used. H&r block tax cut If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. H&r block tax cut See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service. H&r block tax cut What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. H&r block tax cut For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . H&r block tax cut Reduce that amount by any credits and deductions allocable to the property. H&r block tax cut The following are examples of some credits and deductions that reduce basis. H&r block tax cut Any deduction for section 179 property. H&r block tax cut Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations. H&r block tax cut Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005, and before January 1, 2014. H&r block tax cut Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005, and before January 1, 2014. H&r block tax cut Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006, and before January 1, 2014 . H&r block tax cut Any deduction for removal of barriers to the disabled and the elderly. H&r block tax cut Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. H&r block tax cut Any special depreciation allowance. H&r block tax cut Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. H&r block tax cut For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. H&r block tax cut Enter the basis for depreciation under column (c) in Part III of Form 4562. H&r block tax cut For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . H&r block tax cut Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. H&r block tax cut It is determined based on the depreciation system (GDS or ADS) used. H&r block tax cut Recovery Periods Under GDS Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods. H&r block tax cut Property Class Recovery Period 3-year property   3 years 1   5-year property   5 years     7-year property   7 years     10-year property   10 years     15-year property   15 years 2   20-year property   20 years     25-year property   25 years 3   Residential rental property   27. H&r block tax cut 5 years     Nonresidential real property   39 years 4   15 years for qualified rent-to-own property placed in service before August 6, 1997. H&r block tax cut 239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31. H&r block tax cut 5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. H&r block tax cut 320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. H&r block tax cut 431. H&r block tax cut 5 years for property placed in service before May 13, 1993 (or before January 1, 1994, if the purchase or construction of the property is under a binding contract in effect before May 13, 1993, or if construction began before May 13, 1993). H&r block tax cut The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. H&r block tax cut Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies. H&r block tax cut Enter the appropriate recovery period on Form 4562 under column (d) in section B of Part III, unless already shown (for 25-year property, residential rental property, and nonresidential real property). H&r block tax cut Office in the home. H&r block tax cut   If your home is a personal-use single family residence and you begin to use part of your home as an office, depreciate that part of your home as nonresidential real property over 39 years (31. H&r block tax cut 5 years if you began using it for business before May 13, 1993). H&r block tax cut However, if your home is an apartment in an apartment building that you own and the building is residential rental property as defined earlier under Which Depreciation System (GDS or ADS) Applies , depreciate the part used as an office as residential rental property over 27. H&r block tax cut 5 years. H&r block tax cut See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home. H&r block tax cut Home changed to rental use. H&r block tax cut   If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27. H&r block tax cut 5 years. H&r block tax cut Indian Reservation Property The recovery periods for qualified property you placed in service on an Indian reservation after 1993 and before 2014 are shorter than those listed earlier. H&r block tax cut The following table shows these shorter recovery periods. H&r block tax cut Property Class Recovery  Period 3-year property 2 years 5-year property 3 years 7-year property 4 years 10-year property 6 years 15-year property 9 years 20-year property 12 years Nonresidential real property 22 years Nonresidential real property is defined earlier under Which Property Class Applies Under GDS . H&r block tax cut Use this chart to find the correct percentage table to use for qualified Indian reservation property. H&r block tax cut IF your recovery period is: THEN use the following table in Appendix A: 2 years A-21 3 years A-1, A-2, A-3, A-4, or A-5 4 years A-22 6 years A-23 9 years A-14, A-15, A-16, A-17, or A-18 12 years A-14, A-15, A-16, A-17, or A-18 22 years A-24 Qualified property. H&r block tax cut   Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. H&r block tax cut You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. H&r block tax cut The rental of real property that is located on an Indian reservation is treated as the active conduct of a trade or business within an Indian reservation. H&r block tax cut   The following property is not qualified property. H&r block tax cut Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property. H&r block tax cut Property acquired directly or indirectly from a related person. H&r block tax cut Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. H&r block tax cut These activities are defined in section 4 of the Indian Regulatory Act (25 U. H&r block tax cut S. H&r block tax cut C. H&r block tax cut 2703). H&r block tax cut Any property you must depreciate under ADS. H&r block tax cut Determine whether property is qualified without regard to the election to use ADS and after applying the special rules for listed property not used predominantly for qualified business use (discussed in chapter 5). H&r block tax cut Qualified infrastructure property. H&r block tax cut   Item (1) above does not apply to qualified infrastructure property located outside the reservation that is used to connect with qualified infrastructure property within the reservation. H&r block tax cut Qualified infrastructure property is property that meets all the following rules. H&r block tax cut It is qualified property, as defined earlier, except that it is outside the reservation. H&r block tax cut It benefits the tribal infrastructure. H&r block tax cut It is available to the general public. H&r block tax cut It is placed in service in connection with the active conduct of a trade or business within a reservation. H&r block tax cut Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities. H&r block tax cut Related person. H&r block tax cut   For purposes of item (2) above, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 for a description of related persons. H&r block tax cut Indian reservation. H&r block tax cut   The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U. H&r block tax cut S. H&r block tax cut C. H&r block tax cut 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U. H&r block tax cut S. H&r block tax cut C. H&r block tax cut 1903(10)). H&r block tax cut Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. H&r block tax cut For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35. H&r block tax cut Recovery Periods Under ADS The recovery periods for most property generally are longer under ADS than they are under GDS. H&r block tax cut The following table shows some of the ADS recovery periods. H&r block tax cut Property Recovery  Period Rent-to-own property 4 years Automobiles and light duty trucks 5 years Computers and peripheral equipment 5 years High technology telephone station equipment installed on customer premises 5 years High technology medical equipment 5 years Personal property with no class life 12 years Natural gas gathering lines 14 years Single purpose agricultural and horticultural structures 15 years Any tree or vine bearing fruit or nuts 20 years Initial clearing and grading land  improvements for gas utility property 20 years Initial clearing and grading land  improvements for electric utility  transmission and distribution plants 25 years Electric transmission property used in the transmission at 69 or more kilovolts of electricity 30 years Natural gas distribution lines 35 years Any qualified leasehold improvement property 39 years Any qualified restaurant property 39 years Nonresidential real property 40 years Residential rental property 40 years Section 1245 real property not listed in Appendix B 40 years Railroad grading and tunnel bore 50 years The ADS recovery periods for property not listed above can be found in the tables in Appendix B. H&r block tax cut Rent-to-own property, qualified leasehold improvement property, qualified restaurant property, residential rental property, and nonresidential real property are defined earlier under Which Property Class Applies Under GDS . H&r block tax cut Tax-exempt use property subject to a lease. H&r block tax cut   The ADS recovery period for any property leased under a lease agreement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership) cannot be less than 125% of the lease term. H&r block tax cut Additions and Improvements An addition or improvement you make to depreciable property is treated as separate depreciable property. H&r block tax cut See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. H&r block tax cut Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. H&r block tax cut The recovery period begins on the later of the following dates. H&r block tax cut The date you place the addition or improvement in service. H&r block tax cut The date you place in service the property to which you made the addition or improvement. H&r block tax cut If the improvement you make is qualified leasehold improvement property, qualified restaurant property, or qualified retail improvement property, the GDS recovery period is 15 years (39 years under ADS). H&r block tax cut Example. H&r block tax cut You own a rental home that you have been renting out since 1981. H&r block tax cut If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. H&r block tax cut Under GDS, the property class for the addition is residential rental property and its recovery period is 27. H&r block tax cut 5 years because the home to which the addition is made would be residential rental property if you had placed it in service this year. H&r block tax cut Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. H&r block tax cut 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. H&r block tax cut The mid-month convention. H&r block tax cut   Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore. H&r block tax cut   Under this convention, you treat all property placed in service or disposed of during a month as placed in service or disposed of at the midpoint of the month. H&r block tax cut This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of. H&r block tax cut   Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562. H&r block tax cut The mid-quarter convention. H&r block tax cut   Use this convention if the mid-month convention does not apply and the total depreciable bases of MACRS property you placed in service during the last 3 months of the tax year (excluding nonresidential real property, residential rental property, any railroad grading or tunnel bore, property placed in service and disposed of in the same year, and property that is being depreciated under a method other than MACRS) are more than 40% of the total depreciable bases of all MACRS property you placed in service during the entire year. H&r block tax cut   Under this convention, you treat all property placed in service or disposed of during any quarter of the tax year as placed in service or disposed of at the midpoint of that quarter. H&r block tax cut This means that 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of. H&r block tax cut   If you use this convention, enter “MQ” under column (e) in Part III of Form 4562. H&r block tax cut    For purposes of determining whether the mid-quarter convention applies, the depreciable basis of property you placed in service during the tax year reflects the reduction in basis for amounts expensed under section 179 and the part of the basis of property attributable to personal use. H&r block tax cut However, it does not reflect any reduction in basis for any special depreciation allowance. H&r block tax cut The half-year convention. H&r block tax cut   Use this convention if neither the mid-quarter convention nor the mid-month convention applies. H&r block tax cut   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 the year. H&r block tax cut This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of. H&r block tax cut   If you use this convention, enter “HY” under column (e) in Part III of Form 4562. H&r block tax cut Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. H&r block tax cut The 200% declining balance method over a GDS recovery period. H&r block tax cut The 150% declining balance method over a GDS recovery period. H&r block tax cut The straight line method over a GDS recovery period. H&r block tax cut The straight line method over an ADS recovery period. H&r block tax cut For property placed in service before 1999, you could have elected the 150% declining balance method using the ADS recovery periods for certain property classes. H&r block tax cut If you made this election, continue to use the same method and recovery period for that property. H&r block tax cut Table 4–1 lists the types of property you can depreciate under each method. H&r block tax cut It also gives a brief explanation of the method, including any benefits that may apply. H&r block tax cut Depreciation Methods for Farm Property If you place personal property in service in a farming business after 1988, you generally must depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under GDS or ADS using the straight line method. H&r block tax cut You can depreciate real property using the straight line method under either GDS or ADS. H&r block tax cut Fruit or nut trees and vines. H&r block tax cut   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years. H&r block tax cut ADS required for some farmers. H&r block tax cut   If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. H&r block tax cut You must use ADS for all property you place in service in any year the election is in effect. H&r block tax cut See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property. H&r block tax cut Electing a Different Method As shown in Table 4–1 , you can elect a different method for depreciation for certain types of property. H&r block tax cut You must make the election by the due date of the return (including extensions) for the year you placed the property in service. H&r block tax cut However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). H&r block tax cut Attach the election to the amended return and write “Filed pursuant to section 301. H&r block tax cut 9100-2” on the election statement. H&r block tax cut File the amended return at the same address you filed the original return. H&r block tax cut Once you make the election, you cannot change it. H&r block tax cut If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. H&r block tax cut However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. H&r block tax cut 150% election. H&r block tax cut   Instead of using the 200% declining balance method over the GDS recovery period for nonfarm property in the 3-, 5-, 7-, and 10-year property classes, you can elect to use the 150% declining balance method. H&r block tax cut Make the election by entering “150 DB” under column (f) in Part III of Form 4562. H&r block tax cut Straight line election. H&r block tax cut   Instead of using either the 200% or 150% declining balance methods over the GDS recovery period, you can elect to use the straight line method over the GDS recovery period. H&r block tax cut Make the election by entering  “S/L” under column (f) in Part III of Form 4562. H&r block tax cut Election of ADS. H&r block tax cut   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. H&r block tax cut ADS uses the straight line method of depreciation over fixed ADS recovery periods. H&r block tax cut Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier. H&r block tax cut   Make the election by completing line 20 in Part III of Form 4562. H&r block tax cut Farm property. H&r block tax cut   Instead of using the 150% declining balance method over a GDS recovery period for property you use in a farming business (other than real property), you can elect to depreciate it using either of the following methods. H&r block tax cut The straight line method over a GDS recovery period. H&r block tax cut The straight line method over an ADS recovery period. H&r block tax cut Table 4-1. H&r block tax cut Depreciation Methods Note. H&r block tax cut The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. H&r block tax cut Method Type of Property Benefit GDS using 200% DB • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction GDS using 150% DB • All farm property (except real property) • All 15- and 20-year property (except qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service before January 1, 2014) • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction1 GDS using SL • Nonresidential real property • Qualified leasehold improvement property placed in service before January 1, 2014 • Qualified restaurant property placed in service before January 1, 2014 • Qualified retail improvement property placed in service before January 1, 2014 • Residential rental property • Trees or vines bearing fruit or nuts • Water utility property • All 3-, 5-, 7-, 10-, 15-, and 20-year property2 • Property for which you elected section 168(k)(4) • Provides for equal yearly deductions (except for the first and last years) ADS using SL • Listed property used 50% or less for business • Property used predominantly outside the U. H&r block tax cut S. H&r block tax cut  • Tax-exempt property • Tax-exempt bond-financed property • Farm property used when an election not to apply the uniform capitalization rules is in effect • Imported property3 • Any property for which you elect to use this method4 • Provides for equal yearly deductions (except for the first and last years) 1The MACRS percentage tables in Appendix A have the switch to the straight line method built into their rates 2See section 168(b)(5) of the Internal Revenue Code. H&r block tax cut 3See section 168(g)(6) of the Internal Revenue Code 4See section 168(g)(7) of the Internal Revenue Code How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that applies to your property. H&r block tax cut Then, you are ready to figure your depreciation deduction. H&r block tax cut You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table. H&r block tax cut Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. H&r block tax cut These percentage tables are in Appendix A near the end of this publication. H&r block tax cut Which table to use. H&r block tax cut    Appendix A contains the MACRS Percentage Table Guide, which is designed to help you locate the correct percentage table to use for depreciating your property. H&r block tax cut The percentage tables immediately follow the guide. H&r block tax cut Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. H&r block tax cut You must apply the rates in the percentage tables to your property's unadjusted basis. H&r block tax cut You cannot use the percentage tables for a short tax year. H&r block tax cut See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules. H&r block tax cut Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the property. H&r block tax cut You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to that property that is depreciated as a separate item of property. H&r block tax cut Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss. H&r block tax cut Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. H&r block tax cut   If you increase the basis of your property because of the recapture of part or all of a deduction for clean-fuel vehicles or the credit for clean-fuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. H&r block tax cut For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. H&r block tax cut See Figuring the Deduction Without Using the Tables, later. H&r block tax cut Basis adjustment due to casualty loss. H&r block tax cut   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. H&r block tax cut For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. H&r block tax cut See Figuring the Deduction Without Using the Tables, later. H&r block tax cut Example. H&r block tax cut On October 26, 2012, Sandra Elm, a calendar year taxpayer, bought and placed in service in her business a new item of 7-year property. H&r block tax cut It cost $39,000 and she elected a section 179 deduction of $24,000. H&r block tax cut She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. H&r block tax cut Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). H&r block tax cut She figured her MACRS depreciation deduction using the percentage tables. H&r block tax cut For 2012, her MACRS depreciation deduction was $268. H&r block tax cut In July 2013, the property was vandalized and Sandra had a deductible casualty loss of $3,000. H&r block tax cut She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. H&r block tax cut Her adjusted basis at the end of 2013, before figuring her 2013 depreciation, is $4,232. H&r block tax cut She figures that amount by subtracting the 2012 MACRS depreciation of $268 and the casualty loss of $3,000 from the unadjusted basis of $7,500. H&r block tax cut She must now figure her depreciation for 2013 without using the percentage tables. H&r block tax cut Figuring the Unadjusted Basis of Your Property You must apply the table rates to your property's unadjusted basis each year of the recovery period. H&r block tax cut Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. H&r block tax cut However, you do reduce your original basis by other amounts, including the following. H&r block tax cut Any amortization taken on the property. H&r block tax cut Any section 179 deduction claimed. H&r block tax cut Any special depreciation allowance taken on the property. H&r block tax cut For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. H&r block tax cut If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments. H&r block tax cut MACRS Worksheet You can use this worksheet to help you figure your depreciation deduction using the percentage tables. H&r block tax cut Use a separate worksheet for each item of property. H&r block tax cut Then, use the information from this worksheet to prepare Form 4562. H&r block tax cut Do not use this worksheet for automobiles. H&r block tax cut Use the Depreciation Worksheet for Passenger Automobiles in chapter 5. H&r block tax cut MACRS Worksheet Part I   1. H&r block tax cut MACRS system (GDS or ADS)   2. H&r block tax cut Property class   3. H&r block tax cut Date placed in service   4. H&r block tax cut Recovery period   5. H&r block tax cut Method and convention   6. H&r block tax cut Depreciation rate (from tables)   Part II   7. H&r block tax cut Cost or other basis* $     8. H&r block tax cut Business/investment use   %   9. H&r block tax cut Multiply line 7 by line 8   $ 10. H&r block tax cut Total claimed for section 179 deduction and other items   $ 11. H&r block tax cut Subtract line 10 from line 9. H&r block tax cut This is your tentative basis for depreciation   $ 12. H&r block tax cut Multiply line 11 by . H&r block tax cut 50 if the 50% special depreciation allowance applies. H&r block tax cut This is your special depreciation allowance. H&r block tax cut Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   $ 13. H&r block tax cut Subtract line 12 from line 11. H&r block tax cut This is your basis for depreciation     14. H&r block tax cut Depreciation rate (from line 6)     15. H&r block tax cut Multiply line 13 by line 14. H&r block tax cut This is your MACRS depreciation deduction   $ *If real estate, do not include cost (basis) of land. H&r block tax cut The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet. H&r block tax cut Example. H&r block tax cut You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2013. H&r block tax cut You use the furniture only for business. H&r block tax cut This is the only property you placed in service this year. H&r block tax cut You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance so your property's unadjusted basis is its cost, $10,000. H&r block tax cut You use GDS and the half-year convention to figure your depreciation. H&r block tax cut You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. H&r block tax cut Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. H&r block tax cut You figure your depreciation deduction using the MACRS worksheet as follows. H&r block tax cut MACRS Worksheet Part I 1. H&r block tax cut MACRS system (GDS or ADS) GDS 2. H&r block tax cut Property class 7-year 3. H&r block tax cut Date placed in service 8/11/13 4. H&r block tax cut Recovery period 7-Year 5. H&r block tax cut Method and convention 200%DB/Half-Year 6. H&r block tax cut Depreciation rate (from tables) . H&r block tax cut 1429 Part II 7. H&r block tax cut Cost or other basis* $10,000     8. H&r block tax cut Business/investment use 100 %   9. H&r block tax cut Multiply line 7 by line 8   $10,000 10. H&r block tax cut Total claimed for section 179 deduction and other items   -0- 11. H&r block tax cut Subtract line 10 from line 9. H&r block tax cut This is your tentative basis for depreciation   $10,000 12. H&r block tax cut Multiply line 11 by . H&r block tax cut 50 if the 50% special depreciation allowance applies. H&r block tax cut This is your special depreciation allowance. H&r block tax cut Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance   -0- 13. H&r block tax cut Subtract line 12 from line 11. H&r block tax cut This is your basis for depreciation   $10,000 14. H&r block tax cut Depreciation rate (from line 6)   . H&r block tax cut 1429 15. H&r block tax cut Multiply line 13 by line 14. H&r block tax cut This is your MACRS depreciation deduction   $1,429 *If real estate, do not include cost (basis) of land. H&r block tax cut If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows. H&r block tax cut Year   Basis Percentage Deduction 2014 $ 10,000 24. H&r block tax cut 49%   $2,449   2015   10,000 17. H&r block tax cut 49   1,749   2016   10,000 12. H&r block tax cut 49   1,249   2017   10,000 8. H&r block tax cut 93   893   2018   10,000 8. H&r block tax cut 92   892   2019   10,000 8. H&r block tax cut 93   893   2020   10,000 4. H&r block tax cut 46   446   Examples The following examples are provided to show you how to use the percentage tables. H&r block tax cut In both examples, assume the following. H&r block tax cut You use the property only for business. H&r block tax cut You use the calendar year as your tax year. H&r block tax cut You use GDS for all the properties. H&r block tax cut Example 1. H&r block tax cut You bought a building and land for $120,000 and placed it in service on March 8. H&r block tax cut The sales contract showed that the building cost $100,000 and the land cost $20,000. H&r block tax cut It is nonresidential real property. H&r block tax cut The building's unadjusted basis is its original cost, $100,000. H&r block tax cut You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. H&r block tax cut March is the third month of your tax year, so multiply the building's unadjusted basis, $100,000, by the percentages for the third month in Table A-7a. H&r block tax cut Your depreciation deduction for each of the first 3 years is as follows: Year   Basis Percentage Deduction 1st $ 100,000 2. H&r block tax cut 033%   $2,033   2nd   100,000 2. H&r block tax cut 564   2,564   3rd   100,000 2. H&r block tax cut 564   2,564   Example 2. H&r block tax cut During the year, you bought a machine (7-year property) for $4,000, office furniture (7-year property) for $1,000, and a computer (5-year property) for $5,000. H&r block tax cut You placed the machine in service in January, the furniture in September, and the computer in October. H&r block tax cut You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance. H&r block tax cut You placed property in service during the last 3 months of the year, so you must first determine if you have to use the mid-quarter convention. H&r block tax cut The total bases of all property you placed in service during the year is $10,000. H&r block tax cut The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. H&r block tax cut Therefore, you must use the mid-quarter convention for all three items. H&r block tax cut You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. H&r block tax cut The machine is 7-year property placed in service in the first quarter, so you use Table A-2. H&r block tax cut The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. H&r block tax cut Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. H&r block tax cut Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows. H&r block tax cut Year Property Basis Percentage Deduction 1st Machine $4,000 25. H&r block tax cut 00 $1,000   2nd Machine 4,000 21. H&r block tax cut 43 857   1st Furniture 1,000 10. H&r block tax cut 71 107   2nd Furniture 1,000 25. H&r block tax cut 51 255   1st Computer 5,000 5. H&r block tax cut 00 250   2nd Computer 5,000 38. H&r block tax cut 00 1,900   Sale or Other Disposition Before the Recovery Period Ends If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. H&r block tax cut You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. H&r block tax cut After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property. H&r block tax cut Half-year convention used. H&r block tax cut   For property for which you used a half-year convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year. H&r block tax cut Mid-quarter convention used. H&r block tax cut   For property for which you used the mid-quarter convention, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter in which you disposed of the property. H&r block tax cut Quarter Percentage First 12. H&r block tax cut 5% Second 37. H&r block tax cut 5 Third 62. H&r block tax cut 5 Fourth 87. H&r block tax cut 5 Example. H&r block tax cut On December 2, 2010, you placed in service an item of 5-year property costing $10,000. H&r block tax cut You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. H&r block tax cut Your unadjusted basis for the property was $10,000. H&r block tax cut You used the mid-quarter convention because this was the only item of business property you placed in service in 2010 and it was placed in service during the last 3 months of your tax year. H&r block tax cut Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. H&r block tax cut Your deductions for 2010, 2011, and 2012 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22. H&r block tax cut 80% of $10,000). H&r block tax cut You disposed of the property on April 6, 2013. H&r block tax cut To determine your depreciation deduction for 2013, first figure the deduction for the full year. H&r block tax cut This is $1,368 (13. H&r block tax cut 68% of $10,000). H&r block tax cut April is in the second quarter of the year, so you multiply $1,368 by 37. H&r block tax cut 5% to get your depreciation deduction of $513 for 2013. H&r block tax cut Mid-month convention used. H&r block tax cut   If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. H&r block tax cut The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. H&r block tax cut The denominator is 12. H&r block tax cut Example. H&r block tax cut On July 2, 2011, you purchased and placed in service residential rental property. H&r block tax cut The property cost $100,000, not including the cost of land. H&r block tax cut You used Table A-6 to figure your MACRS depreciation for this property. H&r block tax cut You sold the property on March 2, 2013. H&r block tax cut You file your tax return based on the calendar year. H&r block tax cut A full year of depreciation for 2013 is $3,636. H&r block tax cut This is $100,000 multiplied by . H&r block tax cut 03636 (the percentage for the seventh month of the third recovery year) from Table A-6 . H&r block tax cut You then apply the mid-month convention for the 2½ months of use in 2013. H&r block tax cut Treat the month of disposition as one-half month of use. H&r block tax cut Multiply $3,636 by the fraction, 2. H&r block tax cut 5 over 12, to get your 2013 depreciation deduction of $757. H&r block tax cut 50. H&r block tax cut Figuring the Deduction Without Using the Tables Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. H&r block tax cut Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year. H&r block tax cut Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables. H&r block tax cut Declining Balance Method When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. H&r block tax cut You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. H&r block tax cut The straight line method is explained later. H&r block tax cut You figure depreciation for the year you place property in service as follows. H&r block tax cut Multiply your adjusted basis in the property by the declining balance rate. H&r block tax cut Apply the applicable convention. H&r block tax cut You figure depreciation for all other years (before the year you switch to the straight line method) as follows. H&r block tax cut Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years. H&r block tax cut Multiply this new adjusted basis by the same declining balance rate used in earlier years. H&r block tax cut If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it. H&r block tax cut Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples. H&r block tax cut Declining balance rate. H&r block tax cut   You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. H&r block tax cut For example, for 3-year property depreciated using the 200% declining balance method, divide 2. H&r block tax cut 00 (200%) by 3 to get 0. H&r block tax cut 6667, or a 66. H&r block tax cut 67% declining balance rate. H&r block tax cut For 15-year property depreciated using the 150% declining balance method, divide 1. H&r block tax cut 50 (150%) by 15 to get 0. H&r block tax cut 10, or a 10% declining balance rate. H&r block tax cut   The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction. H&r block tax cut Property Class Method Declining Balance Rate Year 3-year 200% DB 66. H&r block tax cut 667% 3rd 5-year 200% DB 40. H&r block tax cut 0 4th 7-year 200% DB 28. H&r block tax cut 571 5th 10-year 200% DB 20. H&r block tax cut 0 7th 15-year 150% DB 10. H&r block tax cut 0 7th 20-year 150% DB 7. H&r block tax cut 5 9th Straight Line Method When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. H&r block tax cut You must use the applicable convention in the year you place the property in service and the year you dispose of the property. H&r block tax cut You figure depreciation for the year you place property in service as follows. H&r block tax cut Multiply your adjusted basis in the property by the straight line rate. H&r block tax cut Apply the applicable convention. H&r block tax cut You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows. H&r block tax cut Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method). H&r block tax cut Determine the depreciation rate for the year. H&r block tax cut Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2). H&r block tax cut If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it. H&r block tax cut Straight line rate. H&r block tax cut   You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. H&r block tax cut When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. H&r block tax cut If the number of years remaining is less than 1, the depreciation rate for that tax year is 1. H&r block tax cut 0 (100%). H&r block tax cut Using the Applicable Convention The applicable convention (discussed earlier under Which Convention Applies ) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. H&r block tax cut It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. H&r block tax cut See Straight line rate in the previous discussion. H&r block tax cut Use the applicable convention as explained in the following discussions. H&r block tax cut Half-year convention. H&r block tax cut   If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. H&r block tax cut You deduct a full year of depreciation for any other year during the recovery period. H&r block tax cut   Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. H&r block tax cut If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. H&r block tax cut If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property. H&r block tax cut Mid-quarter convention. H&r block tax cut   If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service. H&r block tax cut   A quarter of a full 12-month tax year is a period of 3 months. H&r block tax cut The first quarter in a year begins on the first day of the tax year. H&r block tax cut The second quarter begins on the first day of the fourth month of the tax year. H&r block tax cut The third quarter begins on the first day of the seventh month of the tax year. H&r block tax cut The fourth quarter begins on the first day of the tenth month of the tax year. H&r block tax cut A calendar year is divided into the following quarters. H&r block tax cut Quarter Months First January, February, March Second April, May, June Third July, August, September Fourth October, November, December   Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service. H&r block tax cut Quarter Percentage First 87. H&r block tax cut 5% Second 62. H&r block tax cut 5 Third 37. H&r block tax cut 5 Fourth 12. H&r block tax cut 5   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property. H&r block tax cut Quarter Percentage First 12. H&r block tax cut 5% Second 37. H&r block tax cut 5 Third 62. H&r block tax cut 5 Fourth 87. H&r block tax cut 5   If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property. H&r block tax cut Mid-month convention. H&r block tax cut   If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. H&r block tax cut Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. H&r block tax cut The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0. H&r block tax cut 5). H&r block tax cut The denominator is 12. H&r block tax cut   If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. H&r block tax cut If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property. H&r block tax cut Example. H&r block tax cut You use the calendar year and place nonresidential real property in service in August. H&r block tax cut The property is in service 4 full months (September, October, November, and December). H&r block tax cut Your numerator is 4. H&r block tax cut 5 (4 full months plus 0. H&r block tax cut 5). H&r block tax cut You multiply the depreciation for a full year by 4. H&r block tax cut 5/12, or 0. H&r block tax cut 375. H&r block tax cut Examples The following examples show how to figure depreciation under MACRS without using the percentage tables. H&r block tax cut Figures are rounded for purposes of the examples. H&r block tax cut Assume for all the examples that you use a calendar year as your tax year. H&r block tax cut Example 1—200% DB method and half-year convention. H&r block tax cut In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. H&r block tax cut You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. H&r block tax cut You use GDS and the 200% declining balance (DB) method to figure your depreciation. H&r block tax cut When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. H&r block tax cut You did not place any property in service in the last 3 months of the year, so you must use the half-year convention. H&r block tax cut First year. H&r block tax cut You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). H&r block tax cut The result is 40%. H&r block tax cut You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. H&r block tax cut You apply the half-year convention by dividing the result ($400) by 2. H&r block tax cut Depreciation for the first year under the 200% DB method is $200. H&r block tax cut You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. H&r block tax cut The result is 20%. H&r block tax cut You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. H&r block tax cut You apply the half-year convention by dividing the result ($200) by 2. H&r block tax cut Depreciation for the first year under the SL method is $100. H&r block tax cut The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method. H&r block tax cut Second year. H&r block tax cut You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). H&r block tax cut You multiply the result ($800) by the DB rate (40%). H&r block tax cut Depreciation for the second year under the 200% DB method is $320. H&r block tax cut You figure the SL depreciation rate by dividing 1 by 4. H&r block tax cut 5, the number of years remaining in the recovery period. H&r block tax cut (Based on the half-year convention, you used only half a year of the recovery period in the first year. H&r block tax cut ) You multiply the reduced adjusted basis ($800) by the result (22. H&r block tax cut 22%). H&r block tax cut Depreciation under the SL method for the second year is $178. H&r block tax cut The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method. H&r block tax cut Third year. H&r block tax cut You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). H&r block tax cut You multiply the result ($480) by the DB rate (40%). H&r block tax cut Depreciation for the third year under the 200% DB method is $192. H&r block tax cut You figure the SL depreciation rate by dividing 1 by 3. H&r block tax cut 5. H&r block tax cut You multiply the reduced adjusted basis ($480) by the result (28. H&r block tax cut 57%). H&r block tax cut Depreciation under the SL method for the third year is $137. H&r block tax cut The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method. H&r block tax cut Fourth year. H&r block tax cut You reduce the adjusted basis ($480) by the de
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Free File: Frequently Asked Questions

Find more information at www.freefile.irs.gov

What is Free File? 
Free File provides free federal tax prep and e-file for taxpayers, either through brand-name software or online fillable forms. This year, you have until April 15, 2014, to file and pay your taxes or request an extension.  

Who can use Free File?
You can, if your  Adjusted Gross Income (AGI) was $58,000 or less in 2013. You can use free brand-name software. You can find the company that’s best for you using the “Help Me Find Free File Software" tool. If your income was higher than $58,000, Free File Fillable Forms is available.

May I also file my state return for free?
Some participating Free File companies offer free state tax prep and e-file. Check the company's Free File home page to learn if free state income tax prep and e-file are available.

Note: AK, FL, NV, NH, SD, TN, TX, WA and WY do not have a state income tax return filing requirement for reporting W2 wage income. Two of these, NH and TN, require taxpayers to file returns for individual interest and dividend income.  

What forms and schedules can I  use to Free File?
Free File offers the most commonly filed forms/schedules. Review the list of most commonly filed forms. If a form/schedule is not listed, check the company's website for more information.

May I use Free File to e-file my prior year return? 
No. We are not set-up to accept prior year Free File returns electronically.    

How do I get a copy of my return? 
Always remember to print your return after you successfully e-file. If you forget to print your return, order a free
transcript from IRS. Depending on the type of transcript your request, you'll get more or less of the information from your return. 

Is customer support service available for Free File?
Yes. Access the Free File company's website to find customer support contact information. Browse the company’s website to find free customer service options such as online assistance, or an e-mail address for technical and/or tax law assistance. Direct specific questions about your individual tax return to the tax software company you are using. Contact the Free File company to resolve issues related to the company’s software. If you are not able to resolve your issue, try another Free File company’s software. 

Where do I enter the six-digit Identity Protection PIN?
If the IRS sent you a letter with an Identity Protection PIN, enter the six-digit PIN in the appropriate place in the Free File software you have selected. 

Where can I find answers to tax law questions? You can get answers to many questions on IRS.gov. Try the Interactive Tax Assistant, use Search in the upper right corner of IRS.gov, and check Tax Topics, Help and Resources and Individuals. If you still don’t find the answer to your question, call our toll-free tax assistance line at 1-800-829-1040 for individual tax questions or 1-800-829-4933 for business tax questions.

What can I do if I am not able to get into a Free File company from the IRS.gov website?
This problem may be due to your Internet service provider, your Internet security software and/or your IT department blocking expected information in the web request from your browser. This information is necessary to protect both you and IRS.gov systems from improper use such as phishing and other security threats. Unfortunately, due to the many differences between Internet browsers and individual computer configurations, we are unable to suggest Internet settings or configurations for you. Try selecting another company, use another computer or another browser. 

Does Free File use secure technologies?
Yes. We approve the Free File companies’ proprietary software. All Free File companies must get third-party privacy and security certificates. Taxpayers enter tax information in a secure session and the Free File companies transmit tax returns using secure technologies. In addition, the Free File tax software companies must comply with all federal rules governing e-filing and regulations covering taxpayer privacy. The companies may not disclose or use tax return information for purposes other than tax return preparation without the knowing, informed and voluntary consent of the taxpayer. These companies are also subject to the Federal Trade Commission Privacy and Safeguards Rules.

What information will the IRS collect or retain about me using Free File?
None. Our policy prohibits the use of permanent Internet cookies. We sometimes use “temporary” or “session” cookies to make sure you are the correct recipient of information you requested. These are deleted when your Internet visit ends.

Can a Free File company share my information with anybody besides the IRS?
No. As part of the agreement, the Free File Alliance companies must comply with our strict privacy standards. In accordance with Treasury regulations, the companies may not disclose your tax return information without your permission.

Page Last Reviewed or Updated: 16-Jan-2014

The H&r Block Tax Cut

H&r block tax cut Publication 531 - Introductory Material Table of Contents Future Developments What's New Reminder IntroductionOrdering forms and publications. H&r block tax cut Tax questions. H&r block tax cut Future Developments For the latest information about developments related to Publication 531, such as legislation enacted after this publication was published, go to www. H&r block tax cut irs. H&r block tax cut gov/pub531. H&r block tax cut What's New Additional Medicare Tax. H&r block tax cut  Beginning in 2013, a 0. H&r block tax cut 9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. H&r block tax cut An employer is required to withhold Additional Medicare Tax on any Medicare wages or RRTA compensation it pays to an employee in excess of $200,000 in a calendar year without regard to the employee's filing status. H&r block tax cut An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages or compensation in excess of $200,000 to an employee and continue to withhold it until the end of the calendar year. H&r block tax cut Additional Medicare Tax is only imposed on the employee. H&r block tax cut There is no employer share of Additional Medicare Tax. H&r block tax cut All wages and compensation that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. H&r block tax cut Tips are subject to Additional Medicare Tax withholding, if, in combination with other wages paid by the employer, they exceed the $200,000 withholding threshold. H&r block tax cut Similarly, tips are subject to Additional Medicare Tax withholding, if, in combination with other RRTA compensation paid by the employer, they exceed the $200,000 withholding threshold. H&r block tax cut For more information on Additional Medicare Tax, go to www. H&r block tax cut irs. H&r block tax cut gov and enter “Additional Medicare Tax” in the search box. H&r block tax cut Reminder Photographs of missing children. H&r block tax cut  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. H&r block tax cut Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. H&r block tax cut You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. H&r block tax cut Introduction This publication is for employees who receive tips. H&r block tax cut All tips you receive are income and are subject to federal income tax. H&r block tax cut You must include in gross income all tips you receive directly, charged tips paid to you by your employer, and your share of any tips you receive under a tip-splitting or tip-pooling arrangement. H&r block tax cut The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to tax. H&r block tax cut Reporting your tip income correctly is not difficult. H&r block tax cut You must do three things. H&r block tax cut Keep a daily tip record. H&r block tax cut Report tips to your employer. H&r block tax cut Report all your tips on your income tax return. H&r block tax cut  This publication will explain these three things and show you what to do on your tax return if you have not done the first two. H&r block tax cut This publication will also show you how to treat allocated tips. H&r block tax cut Comments and suggestions. H&r block tax cut   We welcome your comments about this publication and your suggestions for future editions. H&r block tax cut   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. H&r block tax cut NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. H&r block tax cut Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. H&r block tax cut   You can send your comments from www. H&r block tax cut irs. H&r block tax cut gov/formspubs/. H&r block tax cut Click on “More Information” and then on “Comment on Tax Forms and Publications”. H&r block tax cut   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. H&r block tax cut Ordering forms and publications. H&r block tax cut   Visit www. H&r block tax cut irs. H&r block tax cut gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. H&r block tax cut Internal Revenue Service 1201 N. H&r block tax cut Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. H&r block tax cut   If you have a tax question, check the information available on IRS. H&r block tax cut gov or call 1-800-829-1040. H&r block tax cut We cannot answer tax questions sent to either of the above addresses. H&r block tax cut Prev  Up  Next   Home   More Online Publications