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Tax Act 2012 Return

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Tax Act 2012 Return

Tax act 2012 return Tax Changes for Individuals Table of Contents 2001 ChangesNew 5-Year Carryback Rule for Net Operating Losses (NOLs) Wash Sale Rules Do Not Apply to Section 1256 Contracts Other 2001 Changes 2002 ChangesDeduction for Educator Expenses Personal Credits Still Allowed Against Alternative Minimum Tax Later ChangeChild and Dependent Care Expenses 2001 Changes New 5-Year Carryback Rule for Net Operating Losses (NOLs) If you have an NOL from a tax year ending during 2001 or 2002, you must generally carry back the entire amount of the NOL to the 5 tax years before the NOL year (the carryback period). Tax act 2012 return However, you can still choose to use the previous carryback period. Tax act 2012 return You also can choose not to carry back an NOL and only carry it forward. Tax act 2012 return Individuals, estates, and trusts can file Form 1045, Application for Tentative Refund. Tax act 2012 return The instructions for this form will be revised to reflect the new law. Tax act 2012 return Wash Sale Rules Do Not Apply to Section 1256 Contracts The wash sale rules that generally apply to losses from the sale of stock or securities, do not apply to any loss arising from a section 1256 contract. Tax act 2012 return A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. Tax act 2012 return Wash sales and section 1256 contracts are explained in detail in Publication 550, Investment Income and Expenses. Tax act 2012 return Other 2001 Changes Other changes are discussed in the following chapters. Tax act 2012 return Chapter 4 Car Expenses Chapter 5 Depreciation 2002 Changes Deduction for Educator Expenses If you are an eligible educator, you can deduct as an adjustment to income up to $250 in qualified expenses. Tax act 2012 return You can deduct these expenses even if you do not itemize deductions on Schedule A (Form 1040). Tax act 2012 return This adjustment to income is for expenses paid or incurred in tax years beginning during 2002 or 2003. Tax act 2012 return Previously, these expenses were deductible only as a miscellaneous itemized deduction subject to the 2% of adjusted gross income limit. Tax act 2012 return Eligible educator. Tax act 2012 return   You are an eligible educator if, for the tax year, you meet the following requirements. Tax act 2012 return You are a kindergarten through grade 12: Teacher, Instructor, Counselor, Principal, or Aide. Tax act 2012 return You work at least 900 hours during a school year in a school that provides elementary or secondary education, as determined under state law. Tax act 2012 return Qualified expenses. Tax act 2012 return   These are unreimbursed expenses you paid or incurred for books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom. Tax act 2012 return For courses in health and physical education, expenses for supplies are qualified expenses only if they are related to athletics. Tax act 2012 return   To be deductible as an adjustment to income, the qualified expenses must be more than the following amounts for the tax year. Tax act 2012 return The interest on qualified U. Tax act 2012 return S. Tax act 2012 return savings bonds that you excluded from income because you paid qualified higher education expenses, Any distribution from a qualified tuition program that you excluded from income, or Any tax-free withdrawals from your Coverdell education savings account. Tax act 2012 return Personal Credits Still Allowed Against Alternative Minimum Tax The provision that allowed certain nonrefundable personal credits to reduce both your regular tax and any alternative minimum tax (AMT) has been extended and will be in effect for 2002 and 2003. Tax act 2012 return This provision, as it applies to the AMT, was originally scheduled to expire after 2001. Tax act 2012 return Without the extension, these credits could not have been used to reduce any AMT in 2002 or 2003. Tax act 2012 return Later Change Child and Dependent Care Expenses For the purpose of figuring the child and dependent care credit, your spouse is treated as having at least a minimum amount of earned income for any month that he or she is a full-time student or not able to care for himself or herself. Tax act 2012 return Beginning in 2003, this amount is increased to $250 a month if there is one qualifying person and to $500 a month if there are two or more qualifying persons. Tax act 2012 return Before 2003, the amounts were $200 and $400. Tax act 2012 return The same rule applies for the exclusion of employer-provided dependent care benefits. Tax act 2012 return For more information about the credit and exclusion, see Publication 503, Child and Dependent Care Expenses. Tax act 2012 return Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Maryland Office of the Attorney General

Website: Maryland Office of the Attorney General

Address: Maryland Office of the Attorney General
Consumer Protection Division
200 Saint Paul Pl.
Baltimore, MD 21202

Phone Number: 410-528-8662 (Consumer Mediation) 410-576-6550 (Consumer Information) 410-528-1840 (Medical billing complaints)

Toll-free: 1-888-743-0023 (Switchboard) 1-877-261-8807 (Health plan decision appeals)

TTY: 410-576-6372 (MD)

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Regional Consumer Protection Offices

Maryland Attorney General's Office - Eastern Shore

Website: Maryland Attorney General's Office - Eastern Shore

Address: Maryland Attorney General's Office - Eastern Shore
Consumer Protection Division
201 Baptist St.
Salisbury, MD 21801-4976

Phone Number: 410-713-3620

Toll-free: 1-888-743-0023 (Baltimore office)

TTY: 410-576-6372

Maryland Attorney General's Office - Southern Maryland

Website: Maryland Attorney General's Office - Southern Maryland

Address: Maryland Attorney General's Office - Southern Maryland
15045 Burnt Store Rd.
Hughesville, MD 20637

Phone Number: 301-274-4620

Toll-free: 1-866-366-8343

TTY: 410-576-6372 (Baltimore office)

Maryland Attorney General's Office - Western Maryland

Website: Maryland Attorney General's Office - Western Maryland

Address: Maryland Attorney General's Office - Western Maryland
Consumer Protection Division
44 N. Potomac St., Suite 104
Hagerstown, MD 21740

Phone Number: 301-791-4780

TTY: 410-576-6372 (Baltimore office)

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County Consumer Protection Offices

Howard County Office of Consumer Affairs

Website: Howard County Office of Consumer Affairs

Address: Howard County Office of Consumer Affairs
6751 Columbia Gateway Dr.
Columbia, MD 21046

Phone Number: 410-313-6420

Montgomery County Office of Consumer Protection

Website: Montgomery County Office of Consumer Protection

Address: Montgomery County Office of Consumer Protection
100 Maryland Ave., Suite 330
Rockville, MD 20850

Phone Number: 240-777-3636 240-777-3681 (Anonymous Consumer Tip Line)

TTY: 240-773-3556

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Labor, Licensing and Regulation

Website: Department of Labor, Licensing and Regulation

Address: Department of Labor, Licensing and Regulation
Commissioner of Financial Regulation
500 N. Calvert St., Suite 402
Baltimore, MD 21202

Phone Number: 410-230-6077 (Consumer Services)

Toll-free: 1-888-784-0136 (MD)

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Insurance Administration

Website: Insurance Administration

Address: Insurance Administration
Consumer Division
200 St. Paul Pl.
Suite 2700
Baltimore, MD 21202

Phone Number: 410-468-2000

Toll-free: 1-800-492-6116

TTY: 1-800-735-2258

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Office of the Attorney General

Website: Office of the Attorney General

Address: Office of the Attorney General
Securities Division
200 Saint Paul Pl.
Baltimore, MD 21202-2020

Phone Number: 410-576-6360

Toll-free: 1-888-743-0023 (MD)

TTY: 410-576-6372

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Service Commission

Website: Public Service Commission

Address: Public Service Commission
Six St. Paul St., 16th Floor
Baltimore, MD 21202-6806

Phone Number: 410-767-8028

Toll-free: 1-800-492-0474

TTY: 1-800-201-7165

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The Tax Act 2012 Return

Tax act 2012 return 2. Tax act 2012 return   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. Tax act 2012 return You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Tax act 2012 return 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. Tax act 2012 return You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. Tax act 2012 return You can deduct depreciation only on the part of your property used for rental purposes. Tax act 2012 return Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Tax act 2012 return You may have to use Form 4562 to figure and report your depreciation. Tax act 2012 return See Which Forms To Use in chapter 3. Tax act 2012 return Also see Publication 946. Tax act 2012 return Section 179 deduction. Tax act 2012 return   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. Tax act 2012 return This deduction is not allowed for property used in connection with residential rental property. Tax act 2012 return See chapter 2 of Publication 946. Tax act 2012 return Alternative minimum tax (AMT). Tax act 2012 return   If you use accelerated depreciation, you may be subject to the AMT. Tax act 2012 return 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). Tax act 2012 return   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. Tax act 2012 return However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). Tax act 2012 return   To find out if you are subject to the AMT, see the Instructions for Form 6251. Tax act 2012 return 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. Tax act 2012 return What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. Tax act 2012 return You own the property. Tax act 2012 return You use the property in your business or income-producing activity (such as rental property). Tax act 2012 return The property has a determinable useful life. Tax act 2012 return The property is expected to last more than one year. Tax act 2012 return Property you own. Tax act 2012 return   To claim depreciation, you usually must be the owner of the property. Tax act 2012 return You are considered as owning property even if it is subject to a debt. Tax act 2012 return Rented property. Tax act 2012 return   Generally, if you pay rent for property, you cannot depreciate that property. Tax act 2012 return Usually, only the owner can depreciate it. Tax act 2012 return However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. Tax act 2012 return See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Tax act 2012 return Cooperative apartments. Tax act 2012 return   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. Tax act 2012 return See chapter 4, Special Situations. Tax act 2012 return Property having a determinable useful life. Tax act 2012 return   To be depreciable, your property must have a determinable useful life. Tax act 2012 return This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Tax act 2012 return What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. Tax act 2012 return This includes land and certain excepted property. Tax act 2012 return Land. Tax act 2012 return   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Tax act 2012 return But if it does, the loss is accounted for upon disposition. Tax act 2012 return The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Tax act 2012 return   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Tax act 2012 return 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. Tax act 2012 return Example. Tax act 2012 return You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. Tax act 2012 return Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. Tax act 2012 return If you replace the house, you would have to destroy the bushes and trees right next to it. Tax act 2012 return These bushes and trees are closely associated with the house, so they have a determinable useful life. Tax act 2012 return Therefore, you can depreciate them. Tax act 2012 return Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Tax act 2012 return Excepted property. Tax act 2012 return   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. Tax act 2012 return Property placed in service and disposed of (or taken out of business use) in the same year. Tax act 2012 return Equipment used to build capital improvements. Tax act 2012 return You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Tax act 2012 return For more information, see chapter 1 of Publication 946. Tax act 2012 return When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return Even if you are not using the property, it is in service when it is ready and available for its specific use. Tax act 2012 return Example 1. Tax act 2012 return On November 22 of last year, you purchased a dishwasher for your rental property. Tax act 2012 return The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. Tax act 2012 return Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. Tax act 2012 return 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. Tax act 2012 return Example 2. Tax act 2012 return On April 6, you purchased a house to use as residential rental property. Tax act 2012 return You made extensive repairs to the house and had it ready for rent on July 5. Tax act 2012 return You began to advertise the house for rent in July and actually rented it beginning September 1. Tax act 2012 return The house is considered placed in service in July when it was ready and available for rent. Tax act 2012 return You can begin to depreciate the house in July. Tax act 2012 return Example 3. Tax act 2012 return You moved from your home in July. Tax act 2012 return During August and September you made several repairs to the house. Tax act 2012 return On October 1, you listed the property for rent with a real estate company, which rented it on December 1. Tax act 2012 return The property is considered placed in service on October 1, the date when it was available for rent. Tax act 2012 return Conversion to business use. Tax act 2012 return   If you place property in service in a personal activity, you cannot claim depreciation. Tax act 2012 return 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. Tax act 2012 return You place the property in service for business or income-producing use on the date of the change. Tax act 2012 return Example. Tax act 2012 return You bought a house and used it as your personal home several years before you converted it to rental property. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return 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). Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. Tax act 2012 return See Basis of Depreciable Property , later. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return You sell or exchange the property. Tax act 2012 return You convert the property to personal use. Tax act 2012 return You abandon the property. Tax act 2012 return The property is destroyed. Tax act 2012 return Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. Tax act 2012 return If you placed rental property in service before 1987, you are using one of the following methods. Tax act 2012 return ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. Tax act 2012 return Straight line or declining balance method over the useful life of property placed in service before 1981. Tax act 2012 return See MACRS Depreciation , later, for more information. Tax act 2012 return Rental property placed in service before 2013. Tax act 2012 return   Continue to use the same method of figuring depreciation that you used in the past. Tax act 2012 return Use of real property changed. Tax act 2012 return   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. Tax act 2012 return This includes your residence that you changed to rental use. Tax act 2012 return See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. Tax act 2012 return Improvements made after 1986. Tax act 2012 return   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Tax act 2012 return 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. Tax act 2012 return For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. Tax act 2012 return This publication discusses MACRS depreciation only. Tax act 2012 return If you need information about depreciating property placed in service before 1987, see Publication 534. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return Basis and adjusted basis are explained in the following discussions. Tax act 2012 return 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. Tax act 2012 return See Basis of Property Changed to Rental Use in chapter 4. Tax act 2012 return Cost Basis The basis of property you buy is usually its cost. Tax act 2012 return The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. Tax act 2012 return 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. Tax act 2012 return Exception. Tax act 2012 return   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. Tax act 2012 return Such taxes were deductible before 1987 and after 2003. Tax act 2012 return Loans with low or no interest. Tax act 2012 return   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. Tax act 2012 return See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Tax act 2012 return Real property. Tax act 2012 return   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. Tax act 2012 return Real estate taxes. Tax act 2012 return   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. Tax act 2012 return You cannot deduct them as taxes paid. Tax act 2012 return   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. Tax act 2012 return Do not include that amount in your basis in the property. Tax act 2012 return Settlement fees and other costs. Tax act 2012 return   The following settlement fees and closing costs for buying the property are part of your basis in the property. Tax act 2012 return Abstract fees. Tax act 2012 return Charges for installing utility services. Tax act 2012 return Legal fees. Tax act 2012 return Recording fees. Tax act 2012 return Surveys. Tax act 2012 return Transfer taxes. Tax act 2012 return Title insurance. Tax act 2012 return 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. Tax act 2012 return   The following are settlement fees and closing costs you cannot include in your basis in the property. Tax act 2012 return Fire insurance premiums. Tax act 2012 return Rent or other charges relating to occupancy of the property before closing. Tax act 2012 return 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. Tax act 2012 return   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Tax act 2012 return Assumption of a mortgage. Tax act 2012 return   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. Tax act 2012 return Example. Tax act 2012 return You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. Tax act 2012 return Your basis is $300,000. Tax act 2012 return Separating cost of land and buildings. Tax act 2012 return   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. Tax act 2012 return 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. Tax act 2012 return   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. Tax act 2012 return Example. Tax act 2012 return You buy a house and land for $200,000. Tax act 2012 return The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return 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). Tax act 2012 return 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. Tax act 2012 return If you received property in one of these ways, see Publication 551 for information on how to figure your basis. Tax act 2012 return 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. Tax act 2012 return The result of these adjustments to the basis is the adjusted basis. Tax act 2012 return Increases to basis. Tax act 2012 return   You must increase the basis of any property by the cost of all items properly added to a capital account. Tax act 2012 return These include the following. Tax act 2012 return 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. Tax act 2012 return Amounts spent after a casualty to restore the damaged property. Tax act 2012 return The cost of extending utility service lines to the property. Tax act 2012 return Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. Tax act 2012 return Additions or improvements. Tax act 2012 return   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. Tax act 2012 return This includes all direct costs, such as material and labor, but does not include your own labor. Tax act 2012 return It also includes all expenses related to the addition or improvement. Tax act 2012 return   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. Tax act 2012 return 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. Tax act 2012 return   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. Tax act 2012 return For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Tax act 2012 return    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. Tax act 2012 return However, see What Rental Property Cannot Be Depreciated, earlier. Tax act 2012 return Assessments for local improvements. Tax act 2012 return   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. Tax act 2012 return 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. Tax act 2012 return Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. Tax act 2012 return You cannot deduct these items as taxes or depreciate them. Tax act 2012 return    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. Tax act 2012 return Do not add them to your basis in the property. Tax act 2012 return Deducting vs. Tax act 2012 return capitalizing costs. Tax act 2012 return   Do not add to your basis costs you can deduct as current expenses. Tax act 2012 return However, there are certain costs you can choose either to deduct or to capitalize. Tax act 2012 return If you capitalize these costs, include them in your basis. Tax act 2012 return If you deduct them, do not include them in your basis. Tax act 2012 return   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. Tax act 2012 return   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. Tax act 2012 return Decreases to basis. Tax act 2012 return   You must decrease the basis of your property by any items that represent a return of your cost. Tax act 2012 return These include the following. Tax act 2012 return Insurance or other payment you receive as the result of a casualty or theft loss. Tax act 2012 return Casualty loss not covered by insurance for which you took a deduction. Tax act 2012 return Amount(s) you receive for granting an easement. Tax act 2012 return 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. Tax act 2012 return Exclusion from income of subsidies for energy conservation measures. Tax act 2012 return Special depreciation allowance claimed on qualified property. Tax act 2012 return Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Tax act 2012 return If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. Tax act 2012 return   If your rental property was previously used as your main home, you must also decrease the basis by the following. Tax act 2012 return Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. Tax act 2012 return District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. Tax act 2012 return Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. Tax act 2012 return Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. Tax act 2012 return This allowance is figured before you figure your regular depreciation deduction. Tax act 2012 return See Publication 946, chapter 3, for details. Tax act 2012 return Also see the Instructions for Form 4562, Line 14. Tax act 2012 return If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. Tax act 2012 return The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. Tax act 2012 return MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. Tax act 2012 return This section explains how to determine which MACRS depreciation system applies to your property. Tax act 2012 return It also discusses other information you need to know before you can figure depreciation under MACRS. Tax act 2012 return This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. Tax act 2012 return 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). Tax act 2012 return You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. Tax act 2012 return Electing ADS If you choose, you can use the ADS method for most property. Tax act 2012 return Under ADS, you use the straight line method of depreciation. Tax act 2012 return 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. Tax act 2012 return However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. Tax act 2012 return 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. Tax act 2012 return Once you make this election, you can never revoke it. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return The property class generally determines the depreciation method, recovery period, and convention. Tax act 2012 return 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. Tax act 2012 return Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. Tax act 2012 return 5-year property. Tax act 2012 return This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. Tax act 2012 return ), automobiles, and light trucks. Tax act 2012 return This class also includes appliances, carpeting, furniture, etc. Tax act 2012 return , used in a residential rental real estate activity. Tax act 2012 return 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. Tax act 2012 return See chapter 5 of Publication 946. Tax act 2012 return 7-year property. Tax act 2012 return This class includes office furniture and equipment (desks, file cabinets, etc. Tax act 2012 return ). Tax act 2012 return 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. Tax act 2012 return 15-year property. Tax act 2012 return This class includes roads, fences, and shrubbery (if depreciable). Tax act 2012 return Residential rental property. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return The other property classes do not generally apply to property used in rental activities. Tax act 2012 return These classes are not discussed in this publication. Tax act 2012 return See Publication 946 for more information. Tax act 2012 return Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. Tax act 2012 return The recovery periods are generally longer under ADS than GDS. Tax act 2012 return The recovery period of property depends on its property class. Tax act 2012 return Under GDS, the recovery period of an asset is generally the same as its property class. Tax act 2012 return Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. Tax act 2012 return See Table 2-1 for recovery periods of property commonly used in residential rental activities. Tax act 2012 return Qualified Indian reservation property. Tax act 2012 return   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. Tax act 2012 return For more information, see chapter 4 of Publication 946. Tax act 2012 return Additions or improvements to property. Tax act 2012 return   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. Tax act 2012 return   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. Tax act 2012 return   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. Tax act 2012 return Example. Tax act 2012 return You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. Tax act 2012 return You built an addition onto the house and placed it in service in 2013. Tax act 2012 return You must use MACRS for the addition. Tax act 2012 return Under GDS, the addition is depreciated as residential rental property over 27. Tax act 2012 return 5 years. Tax act 2012 return Table 2-1. Tax act 2012 return 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. Tax act 2012 return 27. Tax act 2012 return 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. Tax act 2012 return   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. Tax act 2012 return 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. Tax act 2012 return Mid-month convention. Tax act 2012 return    A mid-month convention is used for all residential rental property and nonresidential real property. Tax act 2012 return 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. Tax act 2012 return Mid-quarter convention. Tax act 2012 return   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. Tax act 2012 return   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. Tax act 2012 return Example. Tax act 2012 return During the tax year, Tom Martin purchased the following items to use in his rental property. Tax act 2012 return He elects not to claim the special depreciation allowance discussed earlier. Tax act 2012 return A dishwasher for $400 that he placed in service in January. Tax act 2012 return Used furniture for $100 that he placed in service in September. Tax act 2012 return A refrigerator for $800 that he placed in service in October. Tax act 2012 return Tom uses the calendar year as his tax year. Tax act 2012 return The total basis of all property placed in service that year is $1,300. Tax act 2012 return The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). Tax act 2012 return Tom must use the mid-quarter convention instead of the half-year convention for all three items. Tax act 2012 return Half-year convention. Tax act 2012 return    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. Tax act 2012 return 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. Tax act 2012 return   If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. Tax act 2012 return You deduct a full year of depreciation for any other year during the recovery period. Tax act 2012 return Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. Tax act 2012 return The deduction is substantially the same both ways. Tax act 2012 return 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. Tax act 2012 return In this publication we will use the percentage tables. Tax act 2012 return For instructions on how to compute the deduction, see chapter 4 of Publication 946. Tax act 2012 return Residential rental property. Tax act 2012 return   You must use the straight line method and a mid-month convention for residential rental property. Tax act 2012 return 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). Tax act 2012 return 5-, 7-, or 15-year property. Tax act 2012 return   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. Tax act 2012 return However, in limited cases you must use the mid-quarter convention, if it applies. Tax act 2012 return For property in the 15-year class, use the 150% declining balance method and a half-year convention. Tax act 2012 return   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. Tax act 2012 return 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. Tax act 2012 return You make this election on Form 4562. Tax act 2012 return In Part III, column (f), enter “150 DB. Tax act 2012 return ” Once you make this election, you cannot change to another method. Tax act 2012 return   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. Tax act 2012 return   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. Tax act 2012 return 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. Tax act 2012 return You elect the straight line method on Form 4562. Tax act 2012 return In Part III, column (f), enter “S/L. Tax act 2012 return ” Once you make this election, you cannot change to another method. Tax act 2012 return MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. Tax act 2012 return The tables show the percentages for the first few years or until the change to the straight line method is made. Tax act 2012 return See Appendix A of Publication 946 for complete tables. Tax act 2012 return 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. Tax act 2012 return 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. Tax act 2012 return How to use the percentage tables. Tax act 2012 return   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. Tax act 2012 return   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. Tax act 2012 return   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. Tax act 2012 return 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 . Tax act 2012 return See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. Tax act 2012 return Unadjusted basis. Tax act 2012 return   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. Tax act 2012 return   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. Tax act 2012 return For more information, see chapter 4 of Publication 946. Tax act 2012 return Please click here for the text description of the image. Tax act 2012 return Table 2-2 Tables 2-2a, 2-2b, and 2-2c. Tax act 2012 return   The percentages in these tables take into account the half-year and mid-quarter conventions. Tax act 2012 return Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. Tax act 2012 return Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). Tax act 2012 return 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. Tax act 2012 return Example 1. Tax act 2012 return You purchased a stove and refrigerator and placed them in service in June. Tax act 2012 return Your basis in the stove is $600 and your basis in the refrigerator is $1,000. Tax act 2012 return Both are 5-year property. Tax act 2012 return Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. Tax act 2012 return For that year your depreciation deduction is $120 ($600 × . Tax act 2012 return 20) for the stove and $200 ($1,000 × . Tax act 2012 return 20) for the refrigerator. Tax act 2012 return For Year 2, the depreciation percentage is 32%. Tax act 2012 return That year's depreciation deduction will be $192 ($600 × . Tax act 2012 return 32) for the stove and $320 ($1,000 × . Tax act 2012 return 32) for the refrigerator. Tax act 2012 return Example 2. Tax act 2012 return Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. Tax act 2012 return 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 × . Tax act 2012 return 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. Tax act 2012 return 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%. Tax act 2012 return Your depreciation deduction for the refrigerator is $50 ($1,000 x . Tax act 2012 return 05). Tax act 2012 return 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%. Tax act 2012 return For that year, your depreciation deduction for the stove is $150 ($600 x . Tax act 2012 return 25). Tax act 2012 return Table 2-2d. Tax act 2012 return    Use this table when you are using the GDS 27. Tax act 2012 return 5 year option for residential rental property. Tax act 2012 return Find the row for the month that you placed the property in service. Tax act 2012 return Use the percentages listed for that month to figure your depreciation deduction. Tax act 2012 return The mid-month convention is taken into account in the percentages shown in the table. Tax act 2012 return Continue to use the same row (month) under the column for the appropriate year. Tax act 2012 return Example. Tax act 2012 return You purchased a single family rental house for $185,000 and placed it in service on February 8. Tax act 2012 return The sales contract showed that the building cost $160,000 and the land cost $25,000. Tax act 2012 return Your basis for depreciation is its original cost, $160,000. Tax act 2012 return 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. Tax act 2012 return 5 years. Tax act 2012 return Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. Tax act 2012 return 182%. Tax act 2012 return That year's depreciation deduction is $5,091 ($160,000 x . Tax act 2012 return 03182). Tax act 2012 return Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. Tax act 2012 return See Appendix B in Publication 946 for other property. Tax act 2012 return If your property is not listed in Appendix B, it is considered to have no class life. Tax act 2012 return Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. Tax act 2012 return Use the mid-month convention for residential rental property and nonresidential real property. Tax act 2012 return For all other property, use the half-year or mid-quarter convention, as appropriate. Tax act 2012 return See Publication 946 for ADS depreciation tables. Tax act 2012 return Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. Tax act 2012 return 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. Tax act 2012 return For more information, see Depreciation under Decreases to Basis in Publication 551. Tax act 2012 return 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. Tax act 2012 return S. Tax act 2012 return Individual Income Tax Return. Tax act 2012 return 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. Tax act 2012 return Filing an amended return. Tax act 2012 return   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Tax act 2012 return You claimed the incorrect amount because of a mathematical error made in any year. Tax act 2012 return You claimed the incorrect amount because of a posting error made in any year. Tax act 2012 return You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Tax act 2012 return You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Tax act 2012 return   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. Tax act 2012 return 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. Tax act 2012 return   If an amended return is allowed, you must file it by the later of the following dates. Tax act 2012 return 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Tax act 2012 return A return filed before an unextended due date is considered filed on that due date. Tax act 2012 return 2 years from the time you paid your tax for that year. Tax act 2012 return Changing your accounting method. Tax act 2012 return   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Tax act 2012 return In some instances, that consent is automatic. Tax act 2012 return For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. Tax act 2012 return Prev  Up  Next   Home   More Online Publications