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Department of the Treasury Contents

Internal Revenue Service
What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Publication 946
Cat. No. 13081F Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

How To
1. Overview of Depreciation . . . . . . . . . . . . . . . . . . 3
What Property Can Be Depreciated? . . . . . . . . . . . 3
What Property Cannot Be Depreciated? . . . . . . . . . 5

Depreciate
When Does Depreciation Begin and End? . . . . . . . 6
What Method Can You Use To Depreciate
Your Property? . . . . . . . . . . . . . . . . . . . . . . . 7

Property
What Is the Basis of Your Depreciable
Property? . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
How Do You Treat Repairs and
Improvements? . . . . . . . . . . . . . . . . . . . . . . 13
• Section 179 Deduction Do You Have To File Form 4562? . . . . . . . . . . . . . 13
How Do You Correct Depreciation
• Special Depreciation Deductions? . . . . . . . . . . . . . . . . . . . . . . . . . 13

Allowance 2. Electing the Section 179 Deduction . . . . . . . . . . 15

What Property Qualifies? . . . . . . . . . . . . . . . . . . . 15
• MACRS What Property Does Not Qualify? . . . . . . . . . . . . . 17
• Listed Property How Much Can You Deduct? . . . . . . . . . . . . . . . . 18
How Do You Elect the Deduction? . . . . . . . . . . . . 22
When Must You Recapture the Deduction? . . . . . 23
For use in preparing 3. Claiming the Special Depreciation

2009 Returns Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

What Is Qualified Property? . . . . . . . . . . . . . . . . . 24
How Much Can You Deduct? . . . . . . . . . . . . . . . . 33
How Can You Elect Not To Claim an
Allowance? . . . . . . . . . . . . . . . . . . . . . . . . . 33
When Must You Recapture an Allowance? . . . . . . 34
4. Figuring Depreciation Under MACRS . . . . . . . . 34
Which Depreciation System (GDS or ADS)
Applies? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Which Property Class Applies Under GDS? . . . . . 35
What Is the Placed in Service Date? . . . . . . . . . . . 38
What Is the Basis for Depreciation? . . . . . . . . . . . 39
Which Recovery Period Applies? . . . . . . . . . . . . . 39
Which Convention Applies? . . . . . . . . . . . . . . . . . 41
Which Depreciation Method Applies? . . . . . . . . . . 43
How Is the Depreciation Deduction
Figured? . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
How Do You Use General Asset Accounts? . . . . . 54
When Do You Recapture MACRS
Depreciation? . . . . . . . . . . . . . . . . . . . . . . . . 58
5. Additional Rules for Listed Property . . . . . . . . . 59
What Is Listed Property? . . . . . . . . . . . . . . . . . . . 59
Can Employees Claim a Deduction? . . . . . . . . . . . 61
What Is the Business-Use Requirement? . . . . . . . 62
Do the Passenger Automobile Limits Apply? . . . . . 66
What Records Must Be Kept? . . . . . . . . . . . . . . . . 70
How Is Listed Property Information
Reported? . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Get forms and other information
faster and easier by: 6. How To Get Tax Help . . . . . . . . . . . . . . . . . . . . . 73
Internet www.irs.gov Appendix A — MACRS Percentage Table
Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Apr 26, 2010

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Appendix B — Table of Class Lives and

Recovery Periods . . . . . . . . . . . . . . . . . . . . . . . 104 Introduction
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 This publication explains how you can recover the cost of
business or income-producing property through deduc-
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 tions for depreciation (for example, the special deprecia-
tion allowance and deductions under the Modified
Accelerated Cost Recovery System (MACRS)). It also
What’s New explains how you can elect to take a section 179 deduc-
tion, instead of depreciation deductions, for certain prop-
Increased section 179 deduction dollar limits. The erty, and the additional rules for listed property.
maximum amount you can elect to deduct for most section The depreciation methods discussed in this publi-
179 property you placed in service in 2009 is $250,000 ! cation generally do not apply to property placed in
($285,000 for qualified enterprise zone and renewal com- CAUTION service before 1987. For more information, see
munity property). This limit is reduced by the amount by Publication 534, Depreciating Property Placed in Service
which the cost of the property placed in service during the Before 1987.
tax year exceeds $800,000. See Dollar Limits under How
Much Can You Deduct in chapter 2. Definitions. Many of the terms used in this publication are
defined in the Glossary near the end of the publication.
Depreciation limits on business vehicles. The total Glossary terms used in each discussion under the major
section 179 deduction and depreciation you can deduct for headings are listed before the beginning of each discus-
a passenger automobile (that is not a truck or van) you use sion throughout the publication.
in your business and first placed in service in 2009 is
$2,960, if the special depreciation allowance does not Do you need a different publication? The following ta-
apply. The maximum deduction you can take for a truck or ble shows where you can get more detailed information
van you use in your business and first placed in service in when depreciating certain types of property.
2009 is $3,060, if the special depreciation allowance does
not apply. See Maximum Depreciation Deduction in chap- For information See Publication:
ter 5. on depreciating:
A car 463, Travel, Entertainment, Gift, and
Election to accelerate certain credits in lieu of the
Car Expenses
special depreciation allowance. Generally, a corpora-
tion that did not make a section 168(k)(4) election for its Residential rental 527, Residential Rental Property
first tax year after March 31, 2008, may elect to claim property (Including Rental of Vacation Home)
pre-2006 unused research and minimum tax credits in lieu Office space in 587, Business Use of Your Home
of claiming the special depreciation allowance for exten- your home (Including Use by Daycare Providers)
sion property placed in service before January 1, 2010. In
addition, corporations that made the section 168(k)(4) Farm property 225, Farmer’s Tax Guide
election can elect to not apply section 168(k)(4) to exten-
sion property.
Comments and suggestions. We welcome your com-
For the latest information, see www.irs.gov/formspubs. ments about this publication and your suggestions for
future editions.
You can write to us at the following address:
Reminders Internal Revenue Service
Business Forms and Publications Branch
SE:W:CAR:MP:T:B
Photographs of missing children. The Internal Reve- 1111 Constitution Ave. NW, IR-6526
nue Service is a proud partner with the National Center for Washington, DC 20224
Missing and Exploited Children. Photographs of missing
children selected by the Center may appear in this publica-
tion on pages that would otherwise be blank. You can help We respond to many letters by telephone. Therefore, it
bring these children home by looking at the photographs would be helpful if you would include your daytime phone
and calling 1-800-THE-LOST (1-800-843-5678) if you rec- number, including the area code, in your correspondence.
ognize a child. You can email us at *taxforms@irs.gov. The asterisk
must be included in the address. Please put “Publications
Comment” on the subject line. Although we cannot re-
spond individually to each email, we do appreciate your
feedback and will consider your comments as we revise
our tax products.
Ordering forms and publications. Visit www.irs.gov/
formspubs to download forms and publications, call

Page 2 Publication 946 (2009)

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1-800-829-3676, or write to the National Distribution ❏ Sch C-EZ (Form 1040) Net Profit From Business
Center at the address below.
❏ 2106 Employee Business Expenses
Internal Revenue Service
❏ 2106-EZ Unreimbursed Employee Business
1201 N. Mitsubishi Motorway
Expenses
Bloomington, IL 61705-6613
❏ 3115 Application for Change in Accounting Method
Tax questions. If you have a tax question, visit www. ❏ 4562 Depreciation and Amortization
irs.gov or call 1-800-829-1040. We cannot answer tax
questions sent to either of the addresses listed above. See chapter 6 for information about getting publications
and forms.

What Property Can Be

1. Depreciated?
Overview of Terms you may need to know
(see Glossary):
Depreciation Adjusted basis
Basis
Introduction Commuting
Depreciation is an annual income tax deduction that allows Disposition
you to recover the cost or other basis of certain property
over the time you use the property. It is an allowance for Fair market value
the wear and tear, deterioration, or obsolescence of the Intangible property
property.
This chapter discusses the general rules for depreciat- Listed property
ing property and answers the following questions. Placed in service
• What property can be depreciated? Tangible property
• What property cannot be depreciated? Term interest
• When does depreciation begin and end? Useful life
• What method can you use to depreciate your prop-
erty?
You can depreciate most types of tangible property (except
• What is the basis of your depreciable property? land), such as buildings, machinery, vehicles, furniture,
and equipment. You also can depreciate certain intangible
• How do you treat repairs and improvements?
property, such as patents, copyrights, and computer
• Do you have to file Form 4562? software.
• How do you correct depreciation deductions? To be depreciable, the property must meet all the follow-
ing requirements.
• It must be property you own.
Useful Items
You may want to see: • It must be used in your business or in-
come-producing activity.
Publication • It must have a determinable useful life.
❏ 534 Depreciating Property Placed in Service • It must be expected to last more than one year.
Before 1987
The following discussions provide information about these
❏ 535 Business Expenses requirements.
❏ 538 Accounting Periods and Methods
❏ 551 Basis of Assets Property You Own
Form (and Instructions) To claim depreciation, you usually must be the owner of
the property. You are considered as owning property even
❏ Sch C (Form 1040) Profit or Loss From Business if it is subject to a debt.

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Example 1. You made a down payment to purchase a. Multiply your cost per share by the total number of
rental property and assumed the previous owner’s mort- outstanding shares, including any shares held by
gage. You own the property and you can depreciate it. the corporation.
b. Add to the amount figured in (a) any mortgage
Example 2. You bought a new van that you will use only
debt on the property on the date you bought the
for your courier business. You will be making payments on
stock.
the van over the next 5 years. You own the van and you
can depreciate it. c. Subtract from the amount figured in (b) any mort-
gage debt that is not for the depreciable real prop-
Leased property. You can depreciate leased property erty, such as the part for the land.
only if you retain the incidents of ownership in the property
(explained below). This means you bear the burden of 2. Subtract from the amount figured in (1) any deprecia-
exhaustion of the capital investment in the property. There- tion for space owned by the corporation that can be
fore, if you lease property from someone to use in your rented but cannot be lived in by tenant-stockholders.
trade or business or for the production of income, you 3. Divide the number of your shares of stock by the
generally cannot depreciate its cost because you do not total number of outstanding shares, including any
retain the incidents of ownership. You can, however, de- shares held by the corporation.
preciate any capital improvements you make to the prop-
erty. See How Do You Treat Repairs and Improvements 4. Multiply the result of (2) by the percentage you fig-
later in this chapter and Additions and Improvements ured in (3). This is your depreciation on the stock.
under Which Recovery Period Applies in chapter 4. Your depreciation deduction for the year cannot be
If you lease property to someone, you generally can more than the part of your adjusted basis in the stock of the
depreciate its cost even if the lessee (the person leasing corporation that is allocable to your business or in-
from you) has agreed to preserve, replace, renew, and come-producing property. You must also reduce your de-
maintain the property. However, if the lease provides that preciation deduction if only a portion of the property is used
the lessee is to maintain the property and return to you the in a business or for the production of income.
same property or its equivalent in value at the expiration of
the lease in as good condition and value as when leased, Example. You figure your share of the cooperative
you cannot depreciate the cost of the property. housing corporation’s depreciation to be $30,000. Your
Incidents of ownership. Incidents of ownership in adjusted basis in the stock of the corporation is $50,000.
property include the following. You use one half of your apartment solely for business
purposes. Your depreciation deduction for the stock for the
• The legal title to the property. year cannot be more than $25,000 (1/2 of $50,000).
• The legal obligation to pay for the property. Change to business use. If you change your coopera-
• The responsibility to pay maintenance and operating tive apartment to business use, figure your allowable de-
expenses. preciation as explained earlier. The basis of all the
depreciable real property owned by the cooperative hous-
• The duty to pay any taxes on the property. ing corporation is the smaller of the following amounts.
• The risk of loss if the property is destroyed, con- • The fair market value of the property on the date you
demned, or diminished in value through obsoles- change your apartment to business use. This is con-
cence or exhaustion. sidered to be the same as the corporation’s adjusted
basis minus straight line depreciation, unless this
Life tenant. Generally, if you hold business or investment value is unrealistic.
property as a life tenant, you can depreciate it as if you • The corporation’s adjusted basis in the property on
were the absolute owner of the property. However, see that date. Do not subtract depreciation when figuring
Certain term interests in property under Excepted Prop- the corporation’s adjusted basis.
erty, later.
If you bought the stock after its first offering, the corpora-
Cooperative apartments. If you are a tenant-stockholder tion’s adjusted basis in the property is the amount figured
in a cooperative housing corporation and use your cooper- in (1), above. The fair market value of the property is
ative apartment in your business or for the production of considered to be the same as the corporation’s adjusted
income, you can depreciate your stock in the corporation, basis figured in this way minus straight line depreciation,
even though the corporation owns the apartment. unless the value is unrealistic.
Figure your depreciation deduction as follows. For a discussion of fair market value and adjusted basis,
see Publication 551.
1. Figure the depreciation for all the depreciable real
property owned by the corporation in which you have
a proprietary lease or right of tenancy. If you bought
your cooperative stock after its first offering, figure
the depreciable basis of this property as follows.

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Property Used in Your Business or If Maple buys cars at wholesale prices, leases them for
a short time, and then sells them at retail prices or in sales
Income-Producing Activity in which a dealer’s profit is intended, the cars are treated
To claim depreciation on property, you must use it in your as inventory and are not depreciable property. In this
business or income-producing activity. If you use property situation, the cars are held primarily for sale to customers
to produce income (investment use), the income must be in the ordinary course of business.
taxable. You cannot depreciate property that you use Containers. Generally, containers for the products you
solely for personal activities. sell are part of inventory and you cannot depreciate them.
However, you can depreciate containers used to ship your
Partial business or investment use. If you use property products if they have a life longer than one year and meet
for business or investment purposes and for personal the following requirements.
purposes, you can deduct depreciation based only on the
business or investment use. For example, you cannot
• They qualify as property used in your business.
deduct depreciation on a car used only for commuting, • Title to the containers does not pass to the buyer.
personal shopping trips, family vacations, driving children
to and from school, or similar activities. To determine if these requirements are met, consider
the following questions.
You must keep records showing the business,
investment, and personal use of your property. • Does your sales contract, sales invoice, or other
RECORDS For more information on the records you must type of order acknowledgment indicate whether you
keep for listed property, such as a car, see What Records have retained title?
Must Be Kept in chapter 5.
• Does your invoice treat the containers as separate
Although you can combine business and invest- items?
! ment use of property when figuring depreciation
deductions, do not treat investment use as quali-
• Do any of your records state your basis in the con-
CAUTION
tainers?
fied business use when determining whether the busi-
ness-use requirement for listed property is met. For
information about qualified business use of listed property,
see What Is the Business-Use Requirement in chapter 5. Property Having a Determinable
Useful Life
Office in the home. If you use part of your home as an
office, you may be able to deduct depreciation on that part To be depreciable, your property must have a determina-
based on its business use. For information about depreci- ble useful life. This means that it must be something that
ating your home office, see Publication 587. wears out, decays, gets used up, becomes obsolete, or
loses its value from natural causes.
Inventory. You cannot depreciate inventory because it is
not held for use in your business. Inventory is any property Property Lasting More Than One Year
you hold primarily for sale to customers in the ordinary
course of your business. To be depreciable, property must have a useful life that
If you are a rent-to-own dealer, you may be able to treat extends substantially beyond the year you place it in serv-
certain property held in your business as depreciable prop- ice.
erty rather than as inventory. See Rent-to-own dealer
under Which Property Class Applies Under GDS in Example. You maintain a library for use in your profes-
chapter 4. sion. You can depreciate it. However, if you buy technical
In some cases, it is not clear whether property is held for books, journals, or information services for use in your
sale (inventory) or for use in your business. If it is unclear, business that have a useful life of one year or less, you
examine carefully all the facts in the operation of the cannot depreciate them. Instead, you deduct their cost as
particular business. The following example shows how a a business expense.
careful examination of the facts in two similar situations
results in different conclusions.

Example. Maple Corporation is in the business of leas-

What Property Cannot Be
ing cars. At the end of their useful lives, when the cars are Depreciated?
no longer profitable to lease, Maple sells them. Maple does
not have a showroom, used car lot, or individuals to sell the Terms you may need to know
cars. Instead, it sells them through wholesalers or by (see Glossary):
similar arrangements in which a dealer’s profit is not in-
tended or considered. Maple can depreciate the leased Amortization
cars because the cars are not held primarily for sale to
Basis
customers in the ordinary course of business, but are
leased. Goodwill

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Intangible property July 27, 1989, for any period during which the remainder
interest is held, directly or indirectly, by a person related to
Remainder interest
you. A term interest in property means a life interest in
Term interest property, an interest in property for a term of years, or an
income interest in a trust.
Certain property cannot be depreciated. This includes land Related persons. For a description of related persons,
and certain excepted property. see Related persons on page 8. For this purpose, how-
ever, treat as related persons only the relationships listed
in items (1) through (10) of that discussion and substitute
Land “50%” for “10%” each place it appears.
You cannot depreciate the cost of land because land does Basis adjustments. If you would be allowed a depreci-
not wear out, become obsolete, or get used up. The cost of ation deduction for a term interest in property except that
land generally includes the cost of clearing, grading, plant- the holder of the remainder interest is related to you, you
ing, and landscaping. generally must reduce your basis in the term interest by
Although you cannot depreciate land, you can depreci- any depreciation or amortization not allowed.
ate certain land preparation costs, such as landscaping If you hold the remainder interest, you generally must
costs, incurred in preparing land for business use. These increase your basis in that interest by the depreciation not
costs must be so closely associated with other depreciable allowed to the term interest holder. However, do not in-
property that you can determine a life for them along with crease your basis for depreciation not allowed for periods
the life of the associated property. during which either of the following situations applies.
Example. You constructed a new building for use in • The term interest is held by an organization exempt
your business and paid for grading, clearing, seeding, and from tax.
planting bushes and trees. Some of the bushes and trees • The term interest is held by a nonresident alien indi-
were planted right next to the building, while others were vidual or foreign corporation, and the income from
planted around the outer border of the lot. If you replace the term interest is not effectively connected with the
the building, you would have to destroy the bushes and
conduct of a trade or business in the United States.
trees right next to it. These bushes and trees are closely
associated with the building, so they have a determinable
Exceptions. The above rules do not apply to the holder
useful life. Therefore, you can depreciate them. Add your
of a term interest in property acquired by gift, bequest, or
other land preparation costs to the basis of your land
inheritance. They also do not apply to the holder of divi-
because they have no determinable life and you cannot
dend rights that were separated from any stripped pre-
depreciate them.
ferred stock if the rights were purchased after April 30,
1993, or to a person whose basis in the stock is determined
Excepted Property by reference to the basis in the hands of the purchaser.
Even if the requirements explained in the preceding dis-
cussions are met, you cannot depreciate the following
property. When Does Depreciation
• Property placed in service and disposed of in the Begin and End?
same year. Determining when property is placed in
service is explained later. Terms you may need to know
• Equipment used to build capital improvements. You (see Glossary):
must add otherwise allowable depreciation on the
Basis
equipment during the period of construction to the
basis of your improvements. See Uniform Capitaliza- Exchange
tion Rules in Publication 551.
Placed in service
• Section 197 intangibles. You must amortize these
costs. Section 197 intangibles are discussed in detail
in Chapter 8 of Publication 535. Intangible property, You begin to depreciate your property when you place it in
such as certain computer software, that is not sec- service for use in your trade or business or for the produc-
tion 197 intangible property, can be depreciated if it tion of income. You stop depreciating property either when
meets certain requirements. See Intangible Property you have fully recovered your cost or other basis or when
on page 9. you retire it from service, whichever happens first.
• Certain term interests.
Placed in Service
Certain term interests in property. You cannot depreci- You place property in service when it is ready and avail-
ate a term interest in property created or acquired after able for a specific use, whether in a business activity, an

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income-producing activity, a tax-exempt activity, or a per- Retired From Service

sonal activity. Even if you are not using the property, it is in
service when it is ready and available for its specific use. You stop depreciating property when you retire it from
service, even if you have not fully recovered its cost or
Example 1. Donald Steep bought a machine for his other basis. You retire property from service when you
business. The machine was delivered last year. However, permanently withdraw it from use in a trade or business or
it was not installed and operational until this year. It is from use in the production of income because of any of the
considered placed in service this year. If the machine had following events.
been ready and available for use when it was delivered, it
would be considered placed in service last year even if it • You sell or exchange the property.
was not actually used until this year. • You convert the property to personal use.

Example 2. On April 6, Sue Thorn bought a house to • You abandon the property.
use as residential rental property. She made several re- • You transfer the property to a supplies or scrap ac-
pairs and had it ready for rent on July 5. At that time, she count.
began to advertise it for rent in the local newspaper. The
house is considered placed in service in July when it was • The property is destroyed.
ready and available for rent. She can begin to depreciate it
in July.

Example 3. James Elm is a building contractor who What Method Can You Use To
specializes in constructing office buildings. He bought a
truck last year that had to be modified to lift materials to Depreciate Your Property?
second-story levels. The installation of the lifting equip-
ment was completed and James accepted delivery of the Terms you may need to know
modified truck on January 10 of this year. The truck was (see Glossary):
placed in service on January 10, the date it was ready and
available to perform the function for which it was bought. Adjusted basis
Basis
Conversion to business use. If you place property in Convention
service in a personal activity, you cannot claim deprecia-
tion. However, if you change the property’s use to use in a Exchange
business or income-producing activity, then you can begin Fiduciary
to depreciate it at the time of the change. You place the
property in service on the date of the change. Grantor
Intangible property
Example. You bought a home and used it as your
personal home several years before you converted it to Nonresidential real property
rental property. Although its specific use was personal and Placed in service
no depreciation was allowable, you placed the home in
service when you began using it as your home. You can Related persons
begin to claim depreciation in the year you converted it to Residential rental property
rental property because its use changed to an in-
come-producing use at that time. Salvage value
Section 1245 property
Idle Property Section 1250 property
Continue to claim a deduction for depreciation on property Standard mileage rate
used in your business or for the production of income even
if it is temporarily idle (not in use). For example, if you stop Straight line method
using a machine because there is a temporary lack of a Unit-of-production method
market for a product made with that machine, continue to
deduct depreciation on the machine. Useful life

Cost or Other Basis Fully Recovered You must use the Modified Accelerated Cost Recovery
System (MACRS) to depreciate most property. MACRS is
You stop depreciating property when you have fully recov- discussed in chapter 4.
ered your cost or other basis. You recover your basis when
You cannot use MACRS to depreciate the following
your section 179 and allowed or allowable depreciation
property.
deductions equal your cost or investment in the property.
See What Is the Basis of Your Depreciable Property, later. • Property you placed in service before 1987.
Chapter 1 Overview of Depreciation Page 7
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• Certain property owned or used in 1986. 3. You lease the property to a person (or someone
related to this person) who owned or used the prop-
• Intangible property.
erty in 1986.
• Films, video tapes, and recordings.
4. You acquired the property in a transaction in which:
• Certain corporate or partnership property acquired in
a nontaxable transfer. a. The user of the property did not change, and
• Property you elected to exclude from MACRS. b. The property was not MACRS property in the
hands of the person from whom you acquired it
The following discussions describe the property listed because of (2) or (3) above.
above and explain what depreciation method should be
used.
Real property. You generally cannot use MACRS for real
property (section 1250 property) in any of the following
Property You Placed in Service situations.
Before 1987
• You or someone related to you owned the property
You cannot use MACRS for property you placed in service in 1986.
before 1987 (except property you placed in service after • You lease the property to a person who owned the
July 31, 1986, if MACRS was elected). Property placed in property in 1986 (or someone related to that per-
service before 1987 must be depreciated under the meth- son).
ods discussed in Publication 534.
For a discussion of when property is placed in service, • You acquired the property in a like-kind exchange,
see When Does Depreciation Begin and End, earlier. involuntary conversion, or repossession of property
you or someone related to you owned in 1986.
Use of real property changed. You generally must use MACRS applies only to that part of your basis in the
MACRS to depreciate real property that you acquired for acquired property that represents cash paid or unlike
personal use before 1987 and changed to business or property given up. It does not apply to the car-
income-producing use after 1986. ried-over part of the basis.
Improvements made after 1986. You must treat an im-
provement made after 1986 to property you placed in Exceptions. The rules above do not apply to the follow-
service before 1987 as separate depreciable property. ing.
Therefore, you can depreciate that improvement as sepa-
rate property under MACRS if it is the type of property that 1. Residential rental property or nonresidential real
otherwise qualifies for MACRS depreciation. For more property.
information about improvements, see How Do You Treat 2. Any property if, in the first tax year it is placed in
Repairs and Improvements, later and Additions and Im- service, the deduction under the Accelerated Cost
provements under Which Recovery Period Applies in
Recovery System (ACRS) is more than the deduc-
chapter 4.
tion under MACRS using the half-year convention.
For information on how to figure depreciation under
Property Owned or Used in 1986 ACRS, see Publication 534.
You may not be able to use MACRS for property you 3. Property that was MACRS property in the hands of
acquired and placed in service after 1986 if any of the the person from whom you acquired it because of (2)
situations described below apply. If you cannot use above.
MACRS, the property must be depreciated under the
methods discussed in Publication 534. Related persons. For this purpose, the following are re-
For the following discussions, do not treat prop- lated persons.
!
CAUTION
erty as owned before you placed it in service. If
you owned property in 1986 but did not place it in 1. An individual and a member of his or her family,
service until 1987, you do not treat it as owned in 1986. including only a spouse, child, parent, brother, sister,
half-brother, half-sister, ancestor, and lineal descen-
Personal property. You cannot use MACRS for personal dant.
property (section 1245 property) in any of the following 2. A corporation and an individual who directly or indi-
situations. rectly owns more than 10% of the value of the out-
standing stock of that corporation.
1. You or someone related to you owned or used the
property in 1986. 3. Two corporations that are members of the same con-
trolled group.
2. You acquired the property from a person who owned
it in 1986 and as part of the transaction the user of 4. A trust fiduciary and a corporation if more than 10%
the property did not change. of the value of the outstanding stock is directly or

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indirectly owned by or for the trust or grantor of the indirectly own 5% or more of the value of the stock of
trust. the corporation.
5. The grantor and fiduciary, and the fiduciary and ben- 2. An individual is considered to own the stock or part-
eficiary, of any trust. nership interest directly or indirectly owned by or for
6. The fiduciaries of two different trusts, and the fiducia- the individual’s family.
ries and beneficiaries of two different trusts, if the 3. An individual who owns, except by applying rule (2),
same person is the grantor of both trusts. any stock in a corporation is considered to own the
7. A tax-exempt educational or charitable organization stock directly or indirectly owned by or for the individ-
and any person (or, if that person is an individual, a ual’s partner.
member of that person’s family) who directly or indi- 4. For purposes of rules (1), (2), or (3), stock or a
rectly controls the organization. partnership interest considered to be owned by a
8. Two S corporations, and an S corporation and a person under rule (1) is treated as actually owned by
regular corporation, if the same persons own more that person. However, stock or a partnership interest
than 10% of the value of the outstanding stock of considered to be owned by an individual under rule
each corporation. (2) or (3) is not treated as owned by that individual
for reapplying either rule (2) or (3) to make another
9. A corporation and a partnership if the same persons person considered to be the owner of the same stock
own both of the following. or partnership interest.
a. More than 10% of the value of the outstanding
stock of the corporation.
Intangible Property
b. More than 10% of the capital or profits interest in
the partnership. Generally, if you can depreciate intangible property, you
usually use the straight line method of depreciation. How-
10. The executor and beneficiary of any estate. ever, you can choose to depreciate certain intangible prop-
erty under the income forecast method (discussed later).
11. A partnership and a person who directly or indirectly
owns more than 10% of the capital or profits interest You cannot depreciate intangible property that is
in the partnership. !
CAUTION
a section 197 intangible or that otherwise does
not meet all the requirements discussed earlier
12. Two partnerships, if the same persons directly or under What Property Can Be Depreciated.
indirectly own more than 10% of the capital or profits
interest in each.
13. The related person and a person who is engaged in Straight Line Method
trades or businesses under common control. See
section 52(a) and 52(b) of the Internal Revenue This method lets you deduct the same amount of deprecia-
Code. tion each year over the useful life of the property. To figure
your deduction, first determine the adjusted basis, salvage
When to determine relationship. You must determine value, and estimated useful life of your property. Subtract
whether you are related to another person at the time you the salvage value, if any, from the adjusted basis. The
acquire the property. balance is the total depreciation you can take over the
A partnership acquiring property from a terminating useful life of the property.
partnership must determine whether it is related to the Divide the balance by the number of years in the useful
terminating partnership immediately before the event life. This gives you your yearly depreciation deduction.
causing the termination. For this rule, a terminating part- Unless there is a big change in adjusted basis or useful life,
nership is one that sells or exchanges, within 12 months, this amount will stay the same throughout the time you
50% or more of its total interest in partnership capital or depreciate the property. If, in the first year, you use the
profits. property for less than a full year, you must prorate your
Constructive ownership of stock or partnership in- depreciation deduction for the number of months in use.
terest. To determine whether a person directly or indi-
Example. In April, Frank bought a patent for $5,100 that
rectly owns any of the outstanding stock of a corporation or
an interest in a partnership, apply the following rules. is not a section 197 intangible. He depreciates the patent
under the straight line method, using a 17-year useful life
1. Stock or a partnership interest directly or indirectly and no salvage value. He divides the $5,100 basis by 17
owned by or for a corporation, partnership, estate, or years to get his $300 yearly depreciation deduction. He
trust is considered owned proportionately by or for its only used the patent for 9 months during the first year, so
shareholders, partners, or beneficiaries. However, for he multiplies $300 by 9/12 to get his deduction of $225 for
a partnership interest owned by or for a C corpora- the first year. Next year, Frank can deduct $300 for the full
tion, this applies only to shareholders who directly or year.

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Patents and copyrights. If you can depreciate the cost of improvement of real property. For this purpose, real prop-
a patent or copyright, use the straight line method over the erty includes property that will remain attached to the real
useful life. The useful life of a patent or copyright is the property for an indefinite period of time, such as roads,
lesser of the life granted to it by the government or the bridges, tunnels, pavements, and pollution control facili-
remaining life when you acquire it. However, if the patent ties.
or copyright becomes valueless before the end of its useful
life, you can deduct in that year any of its remaining cost or
other basis. Income Forecast Method
Computer software. Computer software is a section 197 You can choose to use the income forecast method in-
intangible and cannot be depreciated if you acquired it in stead of the straight line method to depreciate the following
connection with the acquisition of assets constituting a depreciable intangibles.
business or a substantial part of a business.
However, computer software is not a section 197 intan- • Motion picture films or video tapes.
gible and can be depreciated, even if acquired in connec- • Sound recordings.
tion with the acquisition of a business, if it meets all of the
following tests.
• Copyrights.

• It is readily available for purchase by the general • Books.

public. • Patents.
• It is subject to a nonexclusive license.
Under the income forecast method, each year’s depreci-
• It has not been substantially modified. ation deduction is equal to the cost, of the property, multi-
plied by a fraction. The numerator of the fraction is the
If the software meets the tests above, it may also qualify current year’s net income from the property, and the de-
for the section 179 deduction and the special depreciation nominator is the total income anticipated from the property
allowance, discussed later. If you can depreciate the cost through the end of the 10th taxable year following the
of computer software, use the straight line method over a taxable year the property is placed in service. For more
useful life of 36 months. information, see section 167(g) of the Internal Revenue
Tax-exempt use property subject to a lease. The Code.
useful life of computer software leased under a lease
agreement entered into after March 12, 2004, to a Creating or acquiring musical compositions or copy-
tax-exempt organization, governmental unit, or foreign rights to musical compositions. You can elect to amor-
person or entity (other than a partnership), cannot be less tize all applicable expenses paid or incurred in the current
than 125% of the lease term. year in creating or acquiring musical compositions or copy-
rights to musical compositions placed in service during the
Certain created intangibles. You can amortize certain tax year instead of using the income forecast method. If
intangibles created on or after December 30, 2003, over a you make the election, amortize the expenses ratably over
15-year period using the straight line method and no sal- a 5-year period beginning with the month the property is
vage value, even though they have a useful life that cannot placed in service. This election does not apply to the
be estimated with reasonable accuracy. For example, following.
amounts paid to acquire memberships or privileges of
indefinite duration, such as a trade association member- 1. Expenses that are qualified creative expenses under
ship, are eligible costs. section 263A(h),
The following are not eligible.
2. Property to which a simplified procedure established
• Any intangible asset acquired from another person. under section 263A(i)(2) applies,
• Created financial interests. 3. Property that is an amortizable section 197 intangi-
• Any intangible asset that has a useful life that can be ble, or
estimated with reasonable accuracy. 4. Expenses that would not be allowable as a deduc-
• Any intangible asset that has an amortization period tion.
or limited useful life that is specifically prescribed or For more information, see section 167(g)(8) of the Internal
prohibited by the Code, regulations, or other pub- Revenue Code.
lished IRS guidance.
• Any amount paid to facilitate an acquisition of a Films, video tapes, and recordings. You cannot use
trade or business, a change in the capital structure MACRS for motion picture films, video tapes, and sound
of a business entity, and certain other transactions. recordings. For this purpose, sound recordings are discs,
tapes, or other phonorecordings resulting from the fixation
You must also increase the 15-year safe harbor amorti- of a series of sounds. You can depreciate this property
zation period to a 25-year period for certain intangibles using either the straight line method or the income forecast
related to benefits arising from the provision, production, or method.

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Participations and residuals. You can include participa- filed your return for the year without making the election,
tions and residuals in the adjusted basis of the property for you can still make the election by filing an amended return
purposes of computing your depreciation deduction under within six months of the due date of the return (excluding
the income forecast method. The participations and extensions). Attach the election to the amended return and
residuals must relate to income to be derived from the write “Filed pursuant to section 301.9100-2” on the election
property before the end of the 10th taxable year after the statement. File the amended return at the same address
property is placed in service. For this purpose, participa- you filed the original return.
tions and residuals are defined as costs which by contract
vary with the amount of income earned in connection with Use of standard mileage rate. If you use the standard
the property. mileage rate to figure your tax deduction for your business
automobile, you are treated as having made an election to
Instead of including these amounts in the adjusted basis exclude the automobile from MACRS. See Publication 463
of the property, you can deduct the costs in the taxable for a discussion of the standard mileage rate.
year that they are paid.
Videocassettes. If you are in the business of renting
videocassettes, you can depreciate only those videocas-
settes bought for rental. If the videocassette has a useful
What Is the Basis of Your
life of one year or less, you can currently deduct the cost as Depreciable Property?
a business expense.
Terms you may need to know
Corporate or Partnership Property (see Glossary):
Acquired in a Nontaxable Transfer Abstract fees
MACRS does not apply to property used before 1987 and Adjusted basis
transferred after 1986 to a corporation or partnership (ex- Basis
cept property the transferor placed in service after July 31,
1986, if MACRS was elected) to the extent its basis is Exchange
carried over from the property’s adjusted basis in the Fair market value
transferor’s hands. You must continue to use the same
depreciation method as the transferor and figure deprecia-
tion as if the transfer had not occurred. However, if To figure your depreciation deduction, you must determine
MACRS would otherwise apply, you can use it to depreci- the basis of your property. To determine basis, you need to
ate the part of the property’s basis that exceeds the car- know the cost or other basis of your property.
ried-over basis.
The nontaxable transfers covered by this rule include Cost as Basis
the following.
The basis of property you buy is its cost plus amounts you
• A distribution in complete liquidation of a subsidiary. paid for items such as sales tax (see Exception, below),
• A transfer to a corporation controlled by the trans- freight charges, and installation and testing fees. The cost
feror. includes the amount you pay in cash, debt obligations,
other property, or services.
• An exchange of property solely for corporate stock
or securities in a reorganization. Exception. You can elect to deduct state and local
general sales taxes instead of state and local income taxes
• A contribution of property to a partnership in ex- as an itemized deduction on Schedule A (Form 1040). If
change for a partnership interest. you make that choice, you cannot include those sales
• A partnership distribution of property to a partner. taxes as part of your cost basis.

Assumed debt. If you buy property and assume (or buy

subject to) an existing mortgage or other debt on the
Election To Exclude Property property, your basis includes the amount you pay for the
From MACRS property plus the amount of the assumed debt.

If you can properly depreciate any property under a Example. You make a $20,000 down payment on prop-
method not based on a term of years, such as the erty and assume the seller’s mortgage of $120,000. Your
unit-of-production method, you can elect to exclude that total cost is $140,000, the cash you paid plus the mortgage
property from MACRS. You make the election by reporting you assumed.
your depreciation for the property on line 15 in Part II of
Form 4562 and attaching a statement as described in the Settlement costs. The basis of real property also in-
instructions for Form 4562. You must make this election by cludes certain fees and charges you pay in addition to the
the return due date (including extensions) for the tax year purchase price. These generally are shown on your settle-
you place your property in service. However, if you timely ment statement and include the following.

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• Legal and recording fees. $15,000 was for the land and $165,000 was for the house.
The basis for depreciation on the house is the FMV on the
• Abstract fees.
date of change ($165,000), because it is less than her
• Survey charges. adjusted basis ($178,000).
• Owner’s title insurance.
Property acquired in a nontaxable transaction. Gener-
• Amounts the seller owes that you agree to pay, such
ally, if you receive property in a nontaxable exchange, the
as back taxes or interest, recording or mortgage
fees, charges for improvements or repairs, and sales basis of the property you receive is the same as the
commissions. adjusted basis of the property you gave up. Special rules
apply in determining the basis and figuring the MACRS
For fees and charges you cannot include in the basis of depreciation deduction and special depreciation allowance
property, see Real Property in Publication 551. for property acquired in a like-kind exchange or involuntary
conversion. See Like-kind exchanges and involuntary con-
versions under How Much Can You Deduct in chapter 3
Property you construct or build. If you construct, build,
and Figuring the Deduction for Property Acquired in a
or otherwise produce property for use in your business,
you may have to use the uniform capitalization rules to Nontaxable Exchange in chapter 4.
determine the basis of your property. For information about There are also special rules for determining the basis of
the uniform capitalization rules, see Publication 551 and MACRS property involved in a like-kind exchange or invol-
the regulations under section 263A of the Internal Reve- untary conversion when the property is contained in a
nue Code. general asset account. See How Do You Use General
Asset Accounts in chapter 4.
Other Basis
Adjusted Basis
Other basis usually refers to basis that is determined by
the way you received the property. For example, your To find your property’s basis for depreciation, you may
basis is other than cost if you acquired the property in have to make certain adjustments (increases and de-
exchange for other property, as payment for services you creases) to the basis of the property for events occurring
performed, as a gift, or as an inheritance. If you acquired between the time you acquired the property and the time
property in this or some other way, see Publication 551 to you placed it in service. These events could include the
determine your basis. following.
• Installing utility lines.
Property changed from personal use. If you held prop-
erty for personal use and later use it in your business or • Paying legal fees for perfecting the title.
income-producing activity, your depreciable basis is the • Settling zoning issues.
lesser of the following.
• Receiving rebates.
1. The fair market value (FMV) of the property on the
date of the change in use. • Incurring a casualty or theft loss.

2. Your original cost or other basis adjusted as follows. For a discussion of adjustments to the basis of your prop-
erty, see Adjusted Basis in Publication 551.
a. Increased by the cost of any permanent improve- If you depreciate your property under MACRS, you also
ments or additions and other costs that must be
may have to reduce your basis by certain deductions and
added to basis.
credits with respect to the property. For more information,
b. Decreased by any deductions you claimed for see What Is the Basis For Depreciation in chapter 4.
casualty and theft losses and other items that
reduced your basis. Basis adjustment for depreciation allowed or allowa-
ble. You must reduce the basis of property by the depreci-
ation allowed or allowable, whichever is greater.
Example. Several years ago, Nia paid $160,000 to
Depreciation allowed is depreciation you actually deducted
have her home built on a lot that cost her $25,000. Before
(from which you received a tax benefit). Depreciation al-
changing the property to rental use last year, she paid
$20,000 for permanent improvements to the house and lowable is depreciation you are entitled to deduct.
claimed a $2,000 casualty loss deduction for damage to If you do not claim depreciation you are entitled to
the house. Land is not depreciable, so she includes only deduct, you must still reduce the basis of the property by
the cost of the house when figuring the basis for deprecia- the full amount of depreciation allowable.
tion. If you deduct more depreciation than you should, you
Nia’s adjusted basis in the house when she changed its must reduce your basis by any amount deducted from
use was $178,000 ($160,000 + $20,000 − $2,000). On the which you received a tax benefit (the depreciation al-
same date, her property had an FMV of $180,000, of which lowed).

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• Depreciation or amortization on any asset on a cor-

How Do You Treat Repairs and porate income tax return (other than Form 1120S,
U.S. Income Tax Return for an S Corporation) re-
Improvements? gardless of when it was placed in service.

If you improve depreciable property, you must treat the

You must submit a separate Form 4562 for each
improvement as separate depreciable property. Improve-
ment means an addition to or partial replacement of prop- !
CAUTION
business or activity on your return for which a
Form 4562 is required.
erty that adds to its value, appreciably lengthens the time
you can use it, or adapts it to a different use. Table 1-1 presents an overview of the purpose of the
You generally deduct the cost of repairing business various parts of Form 4562.
property in the same way as any other business expense.
However, if a repair or replacement increases the value of Employee. Do not use Form 4562 if you are an employee
your property, makes it more useful, or lengthens its life, and you deduct job-related vehicle expenses using either
you must treat it as an improvement and depreciate it. actual expenses (including depreciation) or the standard
mileage rate. Instead, use either Form 2106 or Form
Example. You repair a small section on one corner of 2106-EZ. Use Form 2106-EZ if you are claiming the stan-
the roof of a rental house. You deduct the cost of the repair dard mileage rate and you are not reimbursed by your
as a rental expense. However, if you completely replace employer for any expenses.
the roof, the new roof is an improvement because it in-
creases the value and lengthens the life of the property.
You depreciate the cost of the new roof. How Do You Correct
Improvements to rented property. You can depreciate Depreciation Deductions?
permanent improvements you make to business property
you rent from someone else. If you deducted an incorrect amount of depreciation in any
year, you may be able to make a correction by filing an
amended return for that year. See Filing an Amended
Do You Have To File Return, next. If you are not allowed to make the correction
on an amended return, you may be able to change your
Form 4562? accounting method to claim the correct amount of depreci-
ation. See Changing Your Accounting Method, later.
Terms you may need to know
(see Glossary): Filing an Amended Return
Amortization You can file an amended return to correct the amount of
Listed property depreciation claimed for any property in any of the follow-
ing situations.
Placed in service
• You claimed the incorrect amount because of a
Standard mileage rate mathematical error made in any year.
• You claimed the incorrect amount because of a post-
Use Form 4562 to figure your deduction for depreciation ing error made in any year.
and amortization. Attach Form 4562 to your tax return for
the current tax year if you are claiming any of the following
• You have not adopted a method of accounting for
property placed in service by you in tax years ending
items.
after December 29, 2003.
• A section 179 deduction for the current year or a • You claimed the incorrect amount on property
section 179 carryover from a prior year. See chapter
placed in service by you in tax years ending before
2 for information on the section 179 deduction.
December 30, 2003.
• Depreciation for property placed in service during
the current year.
Adoption of accounting method defined. Generally,
• Depreciation on any vehicle or other listed property, you adopt a method of accounting for depreciation by
regardless of when it was placed in service. See using a permissible method of determining depreciation
chapter 5 for information on listed property. when you file your first tax return, or by using the same
impermissible method of determining depreciation in two
• A deduction for any vehicle if the deduction is re- or more consecutively filed tax returns. For an exception to
ported on a form other than Schedule C (Form 1040)
this 2-year rule, see Revenue Procedure 2008-52, on page
or Schedule C-EZ (Form 1040).
587 of Internal Revenue Bulletin 2008-36, available at
• Amortization of costs if the current year is the first www.irs.gov/pub/irs-irbs/irb08-36.pdf, as modified by Rev-
year of the amortization period. enue Procedure 2009-39 on page 371 of Internal Revenue

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Table 1-1. Purpose of Form 4562

This table describes the purpose of the various parts of Form 4562. For more information, see Form 4562
and its instructions.

Part Purpose
I • Electing the section 179 deduction
• Figuring the maximum section 179 deduction for the current year
• Figuring any section 179 deduction carryover to the next year
II • Reporting the special depreciation allowance for property (other than listed property) placed in
service during the tax year
• Reporting depreciation deductions on property being depreciated under any method other than
Modified Accelerated Cost Recovery System (MACRS)
III •Reporting MACRS depreciation deductions for property placed in service before this year
•Reporting MACRS depreciation deductions for property (other than listed property) placed in
service during the current year
IV • Summarizing other parts
V • Reporting the special depreciation allowance for automobiles and other listed property
• Reporting MACRS depreciation on automobiles and other listed property
• Reporting the section 179 cost elected for automobiles and other listed property
• Reporting information on the use of automobiles and other transportation vehicles
VI • Reporting amortization deductions

Bulletin 2009-38, available at www.irs.gov/pub/irs-irbs/ • A change in the depreciation method, period of re-
irb09-38.pdf. For a safe harbor method of accounting to covery, or convention of a depreciable asset.
treat rotable spare parts as depreciable assets and proce-
dures to obtain automatic consent to change to the safe
• A change from not claiming to claiming the special
depreciation allowance if you did not make the elec-
harbor method of accounting, see Revenue Procedure
tion to not claim any special allowance.
2007-48 on page 110 of Internal Revenue Bulletin
2007-29, available at www.irs.gov/pub/irs-irbs/irb07-29. • A change from claiming a 50% special depreciation
pdf. allowance to claiming a 30% special depreciation
allowance for qualified property (including property
When to file. If an amended return is allowed, you must
that is included in a class of property for which you
file it by the later of the following.
elected a 30% special allowance instead of a 50%
• 3 years from the date you filed your original return special allowance).
for the year in which you did not deduct the correct
amount. A return filed before an unextended due Changes in depreciation that are not a change in method
date is considered filed on that due date. of accounting (and may only be made on an amended
• 2 years from the time you paid your tax for that year. return) include the following.
• An adjustment in the useful life of a depreciable
asset for which depreciation is determined under
Changing Your Accounting Method section 167.
• A change in use of an asset in the hands of the
Generally, you must get IRS approval to change your same taxpayer.
method of accounting. You generally must file Form 3115,
Application for Change in Accounting Method, to request a • Making a late depreciation election or revoking a
change in your method of accounting for depreciation. timely valid depreciation election (including the elec-
The following are examples of a change in method of tion not to deduct the special depreciation allow-
accounting for depreciation. ance). If you elected not to claim any special
allowance, a change from not claiming to claiming
• A change from an impermissible method of deter- the special allowance is a revocation of the election
mining depreciation for depreciable property, if the
and is not an accounting method change. Generally,
impermissible method was used in two or more con-
you must get IRS approval to make a late deprecia-
secutively filed tax returns.
tion election or revoke a depreciation election. You
• A change in the treatment of an asset from nonde- must submit a request for a letter ruling to make a
preciable to depreciable or vice versa. late election or revoke an election.

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• Any change in the placed in service date of a depre-

ciable asset.

See section 1.446-1(e)(2)(ii)(d) of the regulations for

2.
more information and examples.
Electing the Section
IRS approval. In some instances, you may be able to get
approval from the IRS to change your method of account- 179 Deduction
ing for depreciation under the automatic change request
procedures generally covered in Revenue Procedure
2008-52. If you do not qualify to use the automatic proce- Introduction
dures to get approval, you must use the advance consent You can elect to recover all or part of the cost of certain
request procedures generally covered in Revenue Proce- qualifying property, up to a limit, by deducting it in the year
dure 97-27, 1997-1 C.B. 680. Also see the Instructions for you place the property in service. This is the section 179
Form 3115 for more information on getting approval, in- deduction. You can elect the section 179 deduction in-
cluding lists of scope limitations and automatic accounting stead of recovering the cost by taking depreciation deduc-
method changes. tions.
Additional guidance. For additional guidance and Estates and trusts cannot elect the section 179
special procedures for changing your accounting method, ! deduction.
automatic change procedures, amending your return, and CAUTION

filing Form 3115, see Revenue Procedure 2008-52, on

page 587 of Internal Revenue Bulletin 2008-36, available This chapter explains what property does and does not
at www.irs.gov/pub/irs-irbs/irb08-36.pdf, as modified by qualify for the section 179 deduction, what limits apply to
Revenue Procedure 2009-39 on page 371 of Internal Rev- the deduction (including special rules for partnerships and
enue Bulletin 2009-39, available at www.irs.gov/pub/ corporations), and how to elect it. It also explains when and
irs-irbs/irb09-39.pdf. how to recapture the deduction.
For a safe harbor method of accounting to treat rotable
spare parts as depreciable assets, see Revenue Proce- Useful Items
dure 2007-48 on page 110 of Internal Revenue Bulletin You may want to see:
2007-29, available at www.irs.gov/pub/irs-irbs/irb07-29.
pdf. Publication
❏ 537 Installment Sales
Section 481(a) adjustment. If you file Form 3115 and ❏ 544 Sales and Other Dispositions of Assets
change from an impermissible method to a permissible
❏ 954 Tax Incentives for Distressed Communities
method of accounting for depreciation, you can make a
section 481(a) adjustment for any unclaimed or excess
Form (and Instructions)
amount of allowable depreciation. The adjustment is the
difference between the total depreciation actually de- ❏ 4562 Depreciation and Amortization
ducted for the property and the total amount allowable prior ❏ 4797 Sales of Business Property
to the year of change. If no depreciation was deducted, the
See chapter 6 for information about getting publications
adjustment is the total depreciation allowable prior to the
and forms.
year of change. A negative section 481(a) adjustment
results in a decrease in taxable income. It is taken into
account in the year of change and is reported on your
business tax returns as “other expenses.” A positive sec- What Property Qualifies?
tion 481(a) adjustment results in an increase in taxable
income. It is generally taken into account over 4 tax years Terms you may need to know
and is reported on your business tax returns as “other (see Glossary):
income.” However, you can elect to use a one-year adjust-
Adjusted basis
ment period and report the adjustment in the year of
change if the total adjustment is less than $25,000. Make Basis
the election by completing the appropriate line on Class life
Form 3115.
Structural components
If you file a Form 3115 and change from one permissible
method to another permissible method, the section 481(a) Tangible property
adjustment is zero.

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To qualify for the section 179 deduction, your property tangible personal property for the deduction even if treated
must meet all the following requirements. so under local law, and some property (such as fixtures)
may be tangible personal property for the deduction even if
• It must be eligible property.
treated as real property under local law.
• It must be acquired for business use.
• It must have been acquired by purchase. Off-the-shelf computer software. Off-the-shelf com-
puter software placed in service during the tax year is
• It must not be property described later under What qualifying property for purposes of the section 179 deduc-
Property Does Not Qualify. tion. This is computer software that is readily available for
purchase by the general public, is subject to a nonexclu-
The following discussions provide information about sive license, and has not been substantially modified. It
these requirements and exceptions. includes any program designed to cause a computer to
perform a desired function. However, a database or similar
Eligible Property item is not considered computer software unless it is in the
public domain and is incidental to the operation of other-
To qualify for the section 179 deduction, your property wise qualifying software.
must be one of the following types of depreciable property.
1. Tangible personal property. Property Acquired for Business Use
2. Other tangible property (except buildings and their To qualify for the section 179 deduction, your property
structural components) used as: must have been acquired for use in your trade or business.
Property you acquire only for the production of income,
a. An integral part of manufacturing, production, or such as investment property, rental property (if renting
extraction or of furnishing transportation, commu- property is not your trade or business), and property that
nications, electricity, gas, water, or sewage dispo- produces royalties, does not qualify.
sal services,
b. A research facility used in connection with any of Partial business use. When you use property for both
the activities in (a) above, or business and nonbusiness purposes, you can elect the
section 179 deduction only if you use the property more
c. A facility used in connection with any of the activi-
than 50% for business in the year you place it in service. If
ties in (a) for the bulk storage of fungible com-
you use the property more than 50% for business, multiply
modities.
the cost of the property by the percentage of business use.
3. Single purpose agricultural (livestock) or horticultural Use the resulting business cost to figure your section 179
structures. See chapter 7 of Publication 225 for defi- deduction.
nitions and information regarding the use require-
ments that apply to these structures. Example. May Oak bought and placed in service an
item of section 179 property costing $11,000. She used the
4. Storage facilities (except buildings and their struc- property 80% for her business and 20% for personal pur-
tural components) used in connection with distribut- poses. The business part of the cost of the property is
ing petroleum or any primary product of petroleum. $8,800 (80% × $11,000).
5. Off-the-shelf computer software.
Property Acquired by Purchase
Tangible personal property. Tangible personal property To qualify for the section 179 deduction, your property
is any tangible property that is not real property. It includes must have been acquired by purchase. For example, prop-
the following property. erty acquired by gift or inheritance does not qualify.
• Machinery and equipment. Property is not considered acquired by purchase in the
following situations.
• Property contained in or attached to a building (other
than structural components), such as refrigerators, 1. It is acquired by one member of a controlled group
grocery store counters, office equipment, printing from another member of the same group.
presses, testing equipment, and signs.
2. Its basis is determined either—
• Gasoline storage tanks and pumps at retail service
stations. a. In whole or in part by its adjusted basis in the
hands of the person from whom it was acquired,
• Livestock, including horses, cattle, hogs, sheep, or
goats, and mink and other furbearing animals.
b. Under the stepped-up basis rules for property ac-
The treatment of property as tangible personal property quired from a decedent.
for the section 179 deduction is not controlled by its treat-
ment under local law. For example, property may not be 3. It is acquired from a related person.

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Related persons. Related persons are described under Leased property. Generally, you cannot claim a section
Related persons on page 8. However, to determine 179 deduction based on the cost of property you lease to
whether property qualifies for the section 179 deduction, someone else. This rule does not apply to corporations.
treat as an individual’s family only his or her spouse, However, you can claim a section 179 deduction for the
ancestors, and lineal descendants and substitute ‘‘50%’’ cost of the following property.
for ‘‘10%’’ each place it appears.
1. Property you manufacture or produce and lease to
Example. Ken Larch is a tailor. He bought two industrial others.
sewing machines from his father. He placed both ma-
chines in service in the same year he bought them. They 2. Property you purchase and lease to others if both the
do not qualify as section 179 property because Ken and his following tests are met.
father are related persons. He cannot claim a section 179 a. The term of the lease (including options to renew)
deduction for the cost of these machines.
is less than 50% of the property’s class life.
b. For the first 12 months after the property is trans-
What Property Does Not ferred to the lessee, the total business deductions
you are allowed on the property (other than rents
Qualify? and reimbursed amounts) are more than 15% of
the rental income from the property.
Terms you may need to know
(see Glossary):
Property used for lodging. Generally, you cannot claim
Basis
a section 179 deduction for property used predominantly to
Class life furnish lodging or in connection with the furnishing of
lodging. However, this does not apply to the following
types of property.
Certain property does not qualify for the section 179 de-
duction. This includes the following. • Nonlodging commercial facilities that are available to
those not using the lodging facilities on the same
Land and Improvements basis as they are available to those using the lodg-
ing facilities.
Land and land improvements, such as buildings and other
permanent structures and their components, are real prop- • Property used by a hotel or motel in connection with
erty, not personal property and do not qualify as section the trade or business of furnishing lodging where the
179 property. Land improvements include swimming predominant portion of the accommodations is used
pools, paved parking areas, wharves, docks, bridges, and by transients.
fences. • Any certified historic structure to the extent its basis
is due to qualified rehabilitation expenditures.
Excepted Property • Any energy property.
Even if the requirements explained earlier under What
Property Qualifies are met, you cannot elect the section Energy property. Energy property is property that
179 deduction for the following property. meets the following requirements.

• Certain property you lease to others (if you are a 1. It is one of the following types of property.
noncorporate lessor).
a. Equipment that uses solar energy to generate
• Certain property used predominantly to furnish lodg- electricity, to heat or cool a structure, to provide
ing or in connection with the furnishing of lodging. hot water for use in a structure, or to provide solar
• Air conditioning or heating units. process heat, except for equipment used to gen-
erate energy to heat a swimming pool.
• Property used predominantly outside the United
States, except property described in section b. Equipment placed in service after December 31,
168(g)(4) of the Internal Revenue Code. 2005, and before January 1, 2017, that uses solar
• Property used by certain tax-exempt organizations, energy to illuminate the inside of a structure using
except property used in connection with the produc- fiber-optic distributed sunlight.
tion of income subject to the tax on unrelated trade c. Equipment used to produce, distribute, or use en-
or business income. ergy derived from a geothermal deposit. For elec-
• Property used by governmental units or foreign per- tricity generated by geothermal power, this
sons or entities, except property used under a lease includes equipment up to (but not including) the
with a term of less than 6 months. electrical transmission stage.

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d. Qualified fuel cell property or qualified Dollar Limits

microturbine property placed in service after De-
cember 31, 2005, and before January 1, 2017. The total amount you can elect to deduct under section
179 for most property placed in service in 2009 generally
2. The construction, reconstruction, or erection of the cannot be more than $250,000. If you acquire and place in
property must be completed by you. service more than one item of qualifying property during
3. For property you acquire, the original use of the the year, you can allocate the section 179 deduction
property must begin with you. among the items in any way, as long as the total deduction
is not more than $250,000. You do not have to claim the full
4. The property must meet the performance and quality $250,000.
standards, if any, prescribed by Income Tax Regula-
tions in effect at the time you get the property. The amount you can elect to deduct is not af-
TIP fected if you place qualifying property in service in
For periods before February 14, 2008, energy property a short tax year or if you place qualifying property
does not include any property that is public utility property in service for only a part of a 12-month tax year.
as defined by section 46(f)(5) of the Internal Revenue
Code (as in effect on November 4, 1990). After you apply the dollar limit to determine a
!
CAUTION
tentative deduction, you must apply the business
income limit (described later) to determine your
How Much Can You Deduct? actual section 179 deduction.

Terms you may need to know Example. In 2009, you bought and placed in service a
$275,000 tractor and a $25,000 circular saw for your busi-
(see Glossary):
ness. You elect to deduct $225,000 for the tractor and the
Adjusted basis entire $25,000 for the saw, a total of $250,000. This is the
maximum amount you can deduct. Your $25,000 deduc-
Basis tion for the saw completely recovered its cost. Your basis
Placed in service for depreciation is zero. The basis for depreciation of your
tractor is $50,000. You figure this by subtracting your
$225,000 section 179 deduction for the tractor from the
Your section 179 deduction is generally the cost of the $275,000 cost of the tractor.
qualifying property. However, the total amount you can
elect to deduct under section 179 is subject to a dollar limit Situations affecting dollar limit. Under certain circum-
and a business income limit. These limits apply to each stances, the general dollar limits on the section 179 deduc-
taxpayer, not to each business. However, see Married tion may be reduced or increased or there may be
Individuals under Dollar Limits, later. Also, see the special additional dollar limits. The general dollar limit is affected
rules for applying the limits for partnerships and S corpora- by any of the following situations.
tions later. For a passenger automobile, the total section • The cost of your section 179 property placed in serv-
179 deduction and depreciation deduction are limited. See ice exceeds $800,000.
Do the Passenger Automobile Limits Apply in chapter 5.
If you deduct only part of the cost of qualifying property
• Your business is an enterprise zone business or a
renewal community business.
as a section 179 deduction, you can generally depreciate
the cost you do not deduct. • You placed in service a sport utility or certain other
vehicles.
Trade-in of other property. If you buy qualifying property
with cash and a trade-in, its cost for purposes of the section • You are married filing a joint or separate return.
179 deduction includes only the cash you paid.
Costs exceeding $800,000
Example. Silver Leaf, a retail bakery, traded two ovens
having a total adjusted basis of $680 for a new oven If the cost of your qualifying section 179 property placed in
costing $1,320. They received an $800 trade-in allowance service in a year is more than $800,000, you generally
for the old ovens and paid $520 in cash for the new oven. must reduce the dollar limit (but not below zero) by the
The bakery also traded a used van with an adjusted basis amount of cost over $800,000. If the cost of your section
of $4,500 for a new van costing $9,000. They received a 179 property placed in service during 2009 is $1,050,000
$4,800 trade-in allowance on the used van and paid or more, you cannot take a section 179 deduction.
$4,200 in cash for the new van.
Only the portion of the new property’s basis paid by Example. In 2009 Jane Ash placed in service machin-
cash qualifies for the section 179 deduction. Therefore, ery costing $875,000. This cost is $75,000 more than
Silver Leaf’s qualifying costs for the section 179 deduction $800,000, so she must reduce her dollar limit to $175,000
are $4,720 ($520 + $4,200). ($250,000 − $75,000).

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Enterprise Zone and Renewal Community The amount for which you can make an election is
Businesses reduced if the cost of all section 179 property placed in
service during the 2009 tax year exceeds $800,000, in-
An increased section 179 deduction is available to enter- creased by the smaller of:
prise zone businesses and renewal community busi- • $600,000, or
nesses for qualified zone property or qualified renewal
property placed in service before January 1, 2010, in an • The cost of qualified section 179 Disaster Assistance
empowerment zone or renewal community. For definitions property placed in service during the tax year.
of “enterprise zone business,” “renewal community busi-
ness,” “qualified zone property,” and “qualified renewal
property,” see Publication 954, Tax Incentives for Dis-
Sport Utility and Certain Other Vehicles
tressed Communities. You cannot elect to expense more than $25,000 of the cost
The dollar limit on the section 179 deduction is in- of any heavy sport utility vehicle (SUV) and certain other
creased by the smaller of: vehicles placed in service during the tax year. This rule
• $35,000, or applies to any 4-wheeled vehicle primarily designed or
used to carry passengers over public streets, roads, or
• The cost of section 179 property that is also qualified highways, that is rated at more than 6,000 pounds gross
zone property or qualified renewal property placed in vehicle weight and not more than 14,000 pounds gross
service before January 1, 2010 (including such prop- vehicle weight. However, the $25,000 limit does not apply
erty placed in service by your spouse, even if you to any vehicle:
are filing a separate return).
• Designed to seat more than nine passengers behind
the driver’s seat,
Note. You take into account only 50% (instead of 100%)
of the cost of qualified zone property or qualified renewal
• Equipped with a cargo area (either open or enclosed
by a cap) of at least six feet in interior length that is
property placed in service in a year when figuring the
not readily accessible from the passenger compart-
reduced dollar limit for costs exceeding $800,000 (ex-
ment, or
plained earlier).
• That has an integral enclosure fully enclosing the
For purposes of this increased section 179 de-
driver compartment and load carrying device, does
!
CAUTION
duction, do not treat qualified section 179 Disas-
ter Assistance property, defined next, as qualified
not have seating rearward of the driver’s seat, and
has no body section protruding more than 30 inches
zone property (or qualified renewal property) unless you
ahead of the leading edge of the windshield.
elect not to treat the property as qualified section 179
Disaster Assistance property.
Married Individuals
Disaster Assistance Property If you are married, how you figure your section 179 deduc-
tion depends on whether you file jointly or separately. If
An increased section 179 deduction is available for quali- you file a joint return, you and your spouse are treated as
fied section 179 Disaster Assistance property placed in one taxpayer in determining any reduction to the dollar
service in a federally declared disaster area in which the limit, regardless of which of you purchased the property or
disaster occurred before January 1, 2010. A list of the placed it in service. If you and your spouse file separate
federally declared disaster areas is available at the Federal returns, you are treated as one taxpayer for the dollar limit,
Emergency Management Agency (FEMA) website at including the reduction for costs over $800,000. You must
www.fema.gov. allocate the dollar limit (after any reduction) between you
equally, unless you both elect a different allocation. If the
Qualified section 179 Disaster Assistance property. percentages elected by each of you do not total 100%,
Qualified section 179 Disaster Assistance property is sec- 50% will be allocated to each of you.
tion 179 property (described earlier) placed in service
December 31, 2007 that is also qualified Disaster Assis- Example. Jack Elm is married. He and his wife file
tance property. See Qualified Disaster Assistance Prop- separate returns. Jack bought and placed in service
erty in chapter 3 for a description of qualified Disaster $800,000 of qualified farm machinery in 2009. His wife has
Assistance property. her own business, and she bought and placed in service
$10,000 of qualified business equipment. Their combined
Dollar limits. The dollar limit on the section 179 deduction dollar limit is $240,000. This is because they must figure
is increased by the smaller of: the limit as if they were one taxpayer. They reduce the
$250,000 dollar limit by the $10,000 excess of their costs
• $100,000, or
over $800,000.
• The cost of qualified section 179 Disaster Assistance They elect to allocate the $240,000 dollar limit as fol-
property placed in service during the tax year. lows.

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• $228,000 ($240,000 x 95%) to Mr. Elm’s machinery. • The section 179 deduction.
• $12,000 ($240,000 x 5%) to Mrs. Elm’s equipment. • The self-employment tax deduction.
If they did not make an election to allocate their costs in this • Any net operating loss carryback or carryforward.
way, they would have to allocate $120,000 ($240,000 ×
50%) to each of them.
• Any unreimbursed employee business expenses.

Joint return after filing separate returns. If you and Two different taxable income limits. In addition to the
your spouse elect to amend your separate returns by filing business income limit for your section 179 deduction, you
a joint return after the due date for filing your return, the may have a taxable income limit for some other deduction.
dollar limit on the joint return is the lesser of the following You may have to figure the limit for this other deduction
amounts. taking into account the section 179 deduction. If so, com-
• The dollar limit (after reduction for any cost of sec- plete the following steps.
tion 179 property over $800,000).
Step Action
• The total cost of section 179 property you and your
spouse elected to expense on your separate returns. 1 Figure taxable income without the section 179
deduction or the other deduction.
Example. The facts are the same as in the previous 2 Figure a hypothetical section 179 deduction
example except that Jack elected to deduct $30,000 of the using the taxable income figured in Step 1.
cost of section 179 property on his separate return and his 3 Subtract the hypothetical section 179 deduction
wife elected to deduct $2,000. After the due date of their figured in Step 2 from the taxable income figured
returns, they file a joint return. Their dollar limit for the in Step 1.
section 179 deduction is $32,000. This is the lesser of the
following amounts. 4 Figure a hypothetical amount for the other
deduction using the amount figured in Step 3 as
• $240,000—The dollar limit less the cost of section taxable income.
179 property over $800,000.
5 Subtract the hypothetical other deduction figured
• $32,000—The total they elected to expense on their in Step 4 from the taxable income figured in
separate returns. Step 1.
6 Figure your actual section 179 deduction using
the taxable income figured in Step 5.
Business Income Limit 7 Subtract your actual section 179 deduction
The total cost you can deduct each year after you apply the figured in Step 6 from the taxable income figured
in Step 1.
dollar limit is limited to the taxable income from the active
conduct of any trade or business during the year. Gener- 8 Figure your actual other deduction using the
ally, you are considered to actively conduct a trade or taxable income figured in Step 7.
business if you meaningfully participate in the manage-
ment or operations of the trade or business.
Any cost not deductible in one year under section 179 Example. On February 1, 2009, the XYZ corporation
because of this limit can be carried to the next year. See purchased and placed in service qualifying section 179
Carryover of disallowed deduction, later. property that cost $250,000. It elects to expense the entire
$250,000 cost under section 179. In June, the corporation
Taxable income. In general, figure taxable income for gave a charitable contribution of $10,000. A corporation’s
this purpose by totaling the net income and losses from all limit on charitable contributions is figured after subtracting
trades and businesses you actively conducted during the any section 179 deduction. The business income limit for
year. Net income or loss from a trade or business includes the section 179 deduction is figured after subtracting any
the following items. allowable charitable contributions. XYZ’s taxable income
• Section 1231 gains (or losses). figured without the section 179 deduction or the deduction
for charitable contributions is $270,000. XYZ figures its
• Interest from working capital of your trade or busi-
section 179 deduction and its deduction for charitable
ness.
contributions as follows.
• Wages, salaries, tips, or other pay earned as an
employee. Step 1 – Taxable income figured without either deduc-
tion is $270,000.
For information about section 1231 gains and losses, see
chapter 3 in Publication 544. Step 2 – Using $270,000 as taxable income, XYZ’s
hypothetical section 179 deduction is $250,000.
In addition, figure taxable income without regard to any
of the following. Step 3 – $20,000 ($270,000 − $250,000).

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Step 4 – Using $20,000 (from Step 3) as taxable in- applied, any remaining cost of the partnership and non-
come, XYZ’s hypothetical charitable contribution (lim- partnership section 179 property is subject to the business
ited to 10% of taxable income) is $2,000. income limit.
Step 5 – $268,000 ($270,000 − $2,000). Partnership’s taxable income. For purposes of the busi-
ness income limit, figure the partnership’s taxable income
Step 6 – Using $268,000 (from Step 5) as taxable
by adding together the net income and losses from all
income, XYZ figures the actual section 179 deduction.
trades or businesses actively conducted by the partnership
Because the taxable income is at least $250,000, XYZ
during the year. See the Instructions for Form 1065 for
can take a $250,000 section 179 deduction. information on how to figure partnership net income (or
Step 7 – $20,000 ($270,000 − $250,000). loss). However, figure taxable income without regard to
credits, tax-exempt income, the section 179 deduction,
Step 8 – Using $20,000 (from Step 7) as taxable in- and guaranteed payments under section 707(c) of the
come, XYZ’s actual charitable contribution (limited to Internal Revenue Code.
10% of taxable income) is $2,000.
Partner’s share of partnership’s taxable income. For
purposes of the business income limit, the taxable income
Carryover of disallowed deduction. You can carry over of a partner engaged in the active conduct of one or more
for an unlimited number of years the cost of any section of a partnership’s trades or businesses includes his or her
179 property you elected to expense but were unable to allocable share of taxable income derived from the partner-
because of the business income limit. This disallowed ship’s active conduct of any trade or business.
deduction amount is shown on line 13 of Form 4562. You
use the amount you carry over to determine your section Example. In 2009, Beech Partnership placed in service
179 deduction in the next year. Enter that amount on line section 179 property with a total cost of $825,000. The
10 of your Form 4562 for the next year. partnership must reduce its dollar limit by $25,000
($825,000 − $800,000). Its maximum section 179 deduc-
If you place more than one property in service in a year,
tion is $225,000 ($250,000 − $25,000), and it elects to
you can select the properties for which all or a part of the
expense that amount. The partnership’s taxable income
costs will be carried forward. Your selections must be
from the active conduct of all its trades or businesses for
shown in your books and records. For this purpose, treat the year was $300,000, so it can deduct the full $225,000.
section 179 costs allocated from a partnership or an S It allocates $40,000 of its section 179 deduction and
corporation as one item of section 179 property. If you do $50,000 of its taxable income to Dean, one of its partners.
not make a selection, the total carryover will be allocated In addition to being a partner in Beech Partnership,
equally among the properties you elected to expense for Dean is also a partner in the Cedar Partnership, which
the year. allocated to him a $30,000 section 179 deduction and
If costs from more than one year are carried forward to a $35,000 of its taxable income from the active conduct of its
subsequent year in which only part of the total carryover business. He also conducts a business as a sole proprietor
can be deducted, you must deduct the costs being carried and, in 2009, placed in service in that business qualifying
forward from the earliest year first. section 179 property costing $55,000. He had a net loss of
$5,000 from that business for the year.
If there is a sale or other disposition of your
Dean does not have to include section 179 partnership
TIP property (including a transfer at death) before you
costs to figure any reduction in his dollar limit, so his total
can use the full amount of any outstanding carry-
section 179 costs for the year are not more than $800,000
over of your disallowed section 179 deduction, neither you
and his dollar limit is not reduced. His maximum section
nor the new owner can deduct any of the unused amount.
179 deduction is $250,000. He elects to expense all of the
Instead, you must add it back to the property’s basis.
$70,000 in section 179 deductions allocated from the part-
nerships ($40,000 from Beech Partnership plus $30,000
Partnerships and Partners from Cedar Partnership), plus $55,000 of his sole proprie-
torship’s section 179 costs, and notes that information in
The section 179 deduction limits apply both to the partner- his books and records. However, his deduction is limited to
ship and to each partner. The partnership determines its his business taxable income of $80,000 ($50,000 from
section 179 deduction subject to the limits. It then allocates Beech Partnership, plus $35,000 from Cedar Partnership
the deduction among its partners. minus $5,000 loss from his sole proprietorship). He carries
Each partner adds the amount allocated from partner- over $45,000 ($125,000 − $80,000) of the elected section
ships (shown on Schedule K-1 (Form 1065), Partner’s 179 costs to 2010. He allocates the carryover amount to
Share of Income, Deductions, Credits, etc.) to his or her the cost of section 179 property placed in service in his
nonpartnership section 179 costs and then applies the sole proprietorship, and notes that allocation in his books
dollar limit to this total. To determine any reduction in the and records.
dollar limit for costs over $800,000, the partner does not Different tax years. For purposes of the business in-
include any of the cost of section 179 property placed in come limit, if the partner’s tax year and that of the partner-
service by the partnership. After the dollar limit (reduced ship differ, the partner’s share of the partnership’s taxable
for any nonpartnership section 179 costs over $800,000) is income for a tax year is generally the partner’s distributive

Chapter 2 Electing the Section 179 Deduction Page 21

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share for the partnership tax year that ends with or within Other Corporations
the partner’s tax year.
A corporation’s taxable income from its active conduct of
Example. John and James Oak are equal partners in any trade or business is its taxable income figured with the
Oak Partnership. Oak Partnership uses a tax year ending following changes.
January 31. John and James both use a tax year ending
December 31. For its tax year ending January 31, 2009, 1. It is figured before deducting the section 179 deduc-
Oak Partnership’s taxable income from the active conduct tion, any net operating loss deduction, and special
of its business is $80,000, of which $70,000 was earned deductions (as reported on the corporation’s income
during 2008. John and James each include $40,000 (each tax return).
partner’s entire share) of partnership taxable income in 2. It is adjusted for items of income or deduction in-
computing their business income limit for the 2009 tax cluded in the amount figured in 1, above, not derived
year. from a trade or business actively conducted by the
corporation during the tax year.
Adjustment of partner’s basis in partnership. A partner
must reduce the basis of his or her partnership interest by
the total amount of section 179 expenses allocated from
the partnership even if the partner cannot currently deduct How Do You Elect the
the total amount. If the partner disposes of his or her
partnership interest, the partner’s basis for determining
Deduction?
gain or loss is increased by any outstanding carryover of
disallowed section 179 expenses allocated from the part- Terms you may need to know
nership. (see Glossary):
Listed property
Adjustment of partnership’s basis in section 179 prop-
erty. The basis of a partnership’s section 179 property Placed in service
must be reduced by the section 179 deduction elected by
the partnership. This reduction of basis must be made
You elect to take the section 179 deduction by completing
even if a partner cannot deduct all or part of the section 179
Part I of Form 4562.
deduction allocated to that partner by the partnership be-
cause of the limits. If you elect the deduction for listed property (de-
! scribed in chapter 5), complete Part V of Form
4562 before completing Part I.
S Corporations CAUTION

For property placed in service in 2009, file Form 4562

Generally, the rules that apply to a partnership and its with either of the following.
partners also apply to an S corporation and its sharehold-
ers. The deduction limits apply to an S corporation and to • Your original 2009 tax return, whether or not you file
each shareholder. The S corporation allocates its deduc- it timely.
tion to the shareholders who then take their section 179 • An amended return for 2009 filed within the time
deduction subject to the limits. prescribed by law. An election made on an amended
return must specify the item of section 179 property
Figuring taxable income for an S corporation. To fig- to which the election applies and the part of the cost
ure taxable income (or loss) from the active conduct by an of each such item to be taken into account. The
S corporation of any trade or business, you total the net amended return must also include any resulting ad-
income and losses from all trades or businesses actively justments to taxable income.
conducted by the S corporation during the year.
To figure the net income (or loss) from a trade or You must keep records that show the specific
business actively conducted by an S corporation, you take identification of each piece of qualifying section
into account the items from that trade or business that are RECORDS 179 property. These records must show how you
passed through to the shareholders and used in determin- acquired the property, the person you acquired it from, and
ing each shareholder’s tax liability. However, you do not when you placed it in service.
take into account any credits, tax-exempt income, the
section 179 deduction, and deductions for compensation Revoking an election. An election (or any specification
paid to shareholder-employees. For purposes of determin- made in the election) to take a section 179 deduction for
ing the total amount of S corporation items, treat deduc- 2009 can be revoked without IRS approval by filing an
tions and losses as negative income. In figuring the taxable amended return. The amended return must be filed within
income of an S corporation, disregard any limits on the the time prescribed by law. The amended return must also
amount of an S corporation item that must be taken into include any resulting adjustments to taxable income. Once
account when figuring a shareholder’s taxable income. made, the revocation is irrevocable.

Page 22 Chapter 2 Electing the Section 179 Deduction

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Section 179 deduction claimed (2007) . . . . . . . . . $5,000.00

When Must You Recapture the Minus: Allowable depreciation using Table A-1
(instead of section 179 deduction):
Deduction? 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . $1,666.50
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,222.50
2009 ($740.50 × 40% (business)) . . . . . 296.20 4,185.20
2009 — Recapture amount . . . . . . . . . . . . . . . . $ 814.80
Terms you may need to know
(see Glossary): Paul must include $814.80 in income for 2009.

Disposition If any qualified zone property or qualified renewal

Exchange
!
CAUTION
property placed in service during the year ceases
to be used in an empowerment zone or renewal
Recapture community by an enterprise zone business or a renewal
community business in a later year, the benefit of the
Recovery period increased section 179 deduction must be reported as other
Section 1245 property income on your return. Similar rules apply to qualified
section 179 GO Zone property.

You may have to recapture the section 179 deduction if, in

any year during the property’s recovery period, the per-
centage of business use drops to 50% or less. In the year
the business use drops to 50% or less, you include the
recapture amount as ordinary income in Part IV of Form 3.
4797. You also increase the basis of the property by the
recapture amount. Recovery periods for property are dis-
cussed under Which Recovery Period Applies in chapter 4. Claiming the Special
If you sell, exchange, or otherwise dispose of the Depreciation
!
CAUTION
property, do not figure the recapture amount
under the rules explained in this discussion. In- Allowance
stead, use the rules for recapturing depreciation explained
in chapter 3 of Publication 544 under Section 1245 Prop-
erty. Introduction
If the property is listed property (described in You can take a special depreciation allowance to recover
!
CAUTION
chapter 5), do not figure the recapture amount
under the rules explained in this discussion when
part of the cost of qualified property (defined next), placed
in service during the tax year. The allowance applies only
the percentage of business use drops to 50% or less. for the first year you place the property in service. For
Instead, use the rules for recapturing excess depreciation qualified property placed in service in 2009, you can take
in chapter 5 under What Is the Business-Use Requirement. an additional 50% (or 30%, if applicable) special allow-
ance. The allowance is an additional deduction you can
take after any section 179 deduction and before you figure
Figuring the recapture amount. To figure the amount to regular depreciation under MACRS for the year you place
recapture, take the following steps. the property in service.
1. Figure the depreciation that would have been allowa- This chapter explains what is qualified property. It also
ble on the section 179 deduction you claimed. Begin includes rules regarding how to figure an allowance, how
with the year you placed the property in service and to elect not to claim an allowance, and when you must
include the year of recapture. recapture an allowance.

2. Subtract the depreciation figured in (1) from the sec- Corporations and certain automotive partner-
tion 179 deduction you claimed. The result is the
TIP ships can elect to accelerate certain research and
amount you must recapture. minimum tax credits in lieu of claiming the special
depreciation allowance for eligible qualified property. See
Election to Accelerate Certain Credits in Lieu of the Special
Example. In January 2007, Paul Lamb, a calendar year Depreciation Allowance on page 32.
taxpayer, bought and placed in service section 179 prop- See chapter 6 for information about getting publications
erty costing $10,000. The property is not listed property. and forms.
The property is 3-year property. He elected a $5,000 sec-
tion 179 deduction for the property and also elected not to
claim a special depreciation allowance. He used the prop-
erty only for business in 2007 and 2008. In 2009, he used
the property 40% for business and 60% for personal use.
He figures his recapture amount as follows.

Chapter 3 Claiming the Special Depreciation Allowance Page 23

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then only costs related to replacing the damaged or de-

What Is Qualified Property? stroyed structural components qualify for the special Lib-
erty Zone depreciation allowance
This property must also meet all of the tests that are
Terms you may need to know discussed under Other Tests To Be Met below.
(see Glossary):
Business/investment use Other Tests To Be Met
Improvement To be qualified Liberty Zone property, the property must
also meet all of the following tests.
Nonresidential real property
Placed in service Acquisition date test. You must have acquired the prop-
Residential rental property erty by purchase (as discussed under Property Acquired
by Purchase in chapter 2) after September 10, 2001, and
Structural components there must not have been a binding written contract for the
acquisition in effect before September 11, 2001.
Your property is qualified property if it is one of the follow- Property you manufacture, construct, or produce for
ing. your own use meets this test if you began the manufacture,
construction, or production of the property after September
• Qualified Liberty Zone property. 10, 2001. Property that is manufactured, constructed, or
• Specified Gulf Opportunity Zone (GO Zone) exten- produced for your use by another person under a written
sion property. binding contract entered into before the manufacture, con-
struction, or production of the property, is considered to be
• Qualified Recovery Assistance property. manufactured, constructed, or produced by you.
• Qualified reuse and recycling property.
Placed in service date test. The property must be placed
• Qualified cellulosic biofuel plant property.
in service for use in your trade or business before January
• Qualified disaster assistance property. 1, 2010.
• Certain qualified property placed in service after De- Sale-leaseback. If you sold qualified Liberty Zone prop-
cember 31, 2007, and before January 1, 2010. erty you placed in service after September 10, 2001, and
leased it back within 3 months after you originally placed it
The following discussions provide information about the in service, the property is treated as originally placed in
types of qualified property listed above for which you can service no earlier than the date it is used by you under the
take the special depreciation allowance. leaseback.
The property will not qualify for the special allowance if
Qualified Liberty Zone Property the lessee or a related person to the lessee or lessor had a
written binding contract in effect for the acquisition of the
You can take a special depreciation allowance for qualified property before September 11, 2001.
Liberty Zone property placed in service before January 1, Syndicated leasing transactions. If qualified Liberty
2010, that is nonresidential real or residential rental prop- Zone property is originally placed in service by a lessor
erty (defined next). after September 10, 2001, the property is sold within 3
months of the date it was placed in service, and the user of
Nonresidential real property and residential rental the property does not change, then the property is treated
property. This property is qualified Liberty Zone property as originally placed in service by the taxpayer no earlier
only to the extent it rehabilitates real property damaged, or than the date of the last sale.
replaces real property destroyed or condemned, as a re- Multiple units of property subject to the same lease will
sult of the events of September 11, 2001. Property is be treated as originally placed in service no earlier than the
treated as replacing destroyed or condemned property if, date of sale if the property is sold within 3 months after the
as part of an integrated plan, such property replaces real final unit is placed in service and the period between the
property included in a continuous area that includes real times the first and last units are placed in service does not
property destroyed or condemned. exceed 12 months.
For these purposes, real property is considered de- For special rules explaining when property involved in
stroyed (or condemned) only if an entire building or struc- certain other transactions is treated as originally placed in
ture was destroyed (or condemned) as a result of the service, see section 1.168(k)-1(b)(5) of the regulations.
attacks. Otherwise, the property is considered damaged
real property. For example, if certain structural compo- Substantial use test. Substantially all (80% or more) of
nents of a building (such as walls, floors, and plumbing the use of the property must be in the Liberty Zone and in
fixtures) were damaged or destroyed as a result of the the active conduct of your trade or business in the Liberty
attacks, but the building is not destroyed (or condemned), Zone.

Page 24 Chapter 3 Claiming the Special Depreciation Allowance

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If the property is held for the production of in- meet certain tests, explained under Other Tests To Be Met
!
CAUTION
come, the property does not satisfy this substan-
tial use test and does not qualify for the special
on page 26. Also, specified GO Zone extension property
cannot be excepted property, explained under Excepted
depreciation allowance. Property on page 27.

Original use test. The original use of the property in the Specified GO Zone extension property. Specified GO
Liberty Zone must have begun with you after Zone extension property includes any of the following
September 10, 2001. property.
Used property can be qualified Liberty Zone property if it • Nonresidential real property or residential rental
has not previously been used within the Liberty Zone. Also, property placed in service in specified portions of the
additional capital expenditures you incurred after Septem- GO Zone (discussed below) before January 1, 2011,
ber 10, 2001, to recondition or rebuild your property meet or
the original use test if the original use of the property in the
Liberty Zone began with you. However, the cost of recondi- • Any of the following types of property placed in serv-
tioned or rebuilt property you acquired does not meet this ice in a building described above before January 1,
test. Property containing used parts will not be treated as 2011:
reconditioned or rebuilt if the cost of the used parts is not
1. Tangible property depreciated under the modified
more than 20% of the total cost of the property.
accelerated recovery system (MACRS) with a re-
If you sold property you placed in service after Septem-
covery period of 20 years or less. See Which
ber 10, 2001, and you leased it back within 3 months after
Method Can You Use To Depreciate Your Property
you originally placed the property in service, the lessor is
in chapter 1.
considered to be the original user of the property.
For special rules identifying the original user of property 2. Water utility property, which is either (a) property
involved in certain other transactions and the original user that is an integral part of the gathering, treatment,
of fractional interests in property, see section or commercial distribution of water, and that, with-
1.168(k)-1(b)(3) of the regulations. out regard to this provision, would be 20-year
property or (b) any municipal sewer.
Excepted Property 3. Computer software that is readily available for
purchase by the general public, is subject to a
Qualified Liberty Zone property does not include any of the nonexclusive license, and has not been substan-
following. tially modified. The cost of some computer
software is treated as part of the cost of hardware
• Property placed in service and disposed of in the
and is depreciated under MACRS.
same tax year.
4. Qualified leasehold improvement property, defined
• Property converted from business use to personal
below.
use in the same tax year it is acquired. Property
converted from personal use to business use in the
same or later tax year may be qualified Liberty Zone In addition, substantially all (80% or more) of the use of
property. the property described in (1) through (4) above must be in
the building and placed in service no later than 90 days
• Property that also qualified for the special deprecia-
after the building is placed in service.
tion allowance.
Specified portions of the GO Zone are those counties or
• Property required to be depreciated using the Alter- parishes in the GO Zone that are identified by the IRS as
native Depreciation System (ADS). This includes having more than 60% of the occupied housing units dam-
listed property used 50% or less in a qualified busi- aged by the hurricanes occurring during 2005. For gui-
ness use. For other property required to be depreci- dance identifying the affected counties and parishes
ated using ADS, see Required use of ADS under eligible for the extension of the placed in service date, see
Which Depreciation System (GDS or ADS) Applies, Notice 2007-36 on page 1000 of the Internal Revenue
in chapter 4. Bulletin 2007-17, available at www.irs.gov/pub/irs-irbs/
• Property for which you elected not to claim any spe- irb07-17.pdf.
cial depreciation allowance (discussed later).
Qualified leasehold improvement property. Generally,
this is any improvement to an interior part of a building that
is nonresidential real property, if all the following require-
Specified Gulf Opportunity Zone ments are met.
Extension Property • The improvement is made under or according to a
lease by the lessee (or any sublessee) or the lessor
You can take a special depreciation allowance for speci-
of that part of the building.
fied Gulf Opportunity Zone (GO Zone) extension property
(defined below) placed in service in specified portions of • That part of the building is to be occupied exclusively
the GO Zone. Specified GO Zone extension property must by the lessee (or any sublessee) of that part.

Chapter 3 Claiming the Special Depreciation Allowance Page 25

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• The improvement is placed in service more than 3 a. 80% or more of the value of the outstanding stock
years after the date the building was first placed in of the corporation.
service by any person.
b. 80% or more of the capital or profits interest in the
• The improvement is section 1250 property. See partnership.
chapter 3 in Publication 544, Sales and Other Dispo-
sitions of Assets, for the definition of section 1250 11. The executor and beneficiary of any estate.
property.

However, a qualified leasehold improvement does not Other Tests To Be Met

include any improvement for which the expenditure is
attributable to any of the following. To be specified GO Zone extension property, the property
must also meet all of the following tests.
• The enlargement of the building.
• Any elevator or escalator. Acquisition date test. You must have acquired the prop-
erty by purchase (as discussed under Property Acquired
• Any structural component benefiting a common by Purchase in chapter 2) after August 27, 2005, with no
area. binding written contract for the acquisition in effect before
• The internal structural framework of the building. August 28, 2005.
Property you manufacture, construct, or produce for
Generally, a binding commitment to enter into a lease is your own use meets this test if you began the manufacture,
treated as a lease and the parties to the commitment are construction, or production of the property after August 27,
treated as the lessor and lessee. However, a lease be- 2005. Property that is manufactured, constructed, or pro-
tween related persons is not treated as a lease. duced for your use by another person under a written
binding contract entered into before the manufacture, con-
Related persons. For this purpose, the following are struction, or production of the property, is considered to be
related persons. manufactured, constructed, or produced by you.
1. Members of an affiliated group.
Placed in service date test. The property must be placed
2. An individual and a member of his or her family, in service before January 1, 2010, for use in your trade or
including only a spouse, child, parent, brother, sister, business located in specified portions of the GO Zone.
half-brother, half-sister, ancestor, and lineal descen-
Sale-leaseback. If you sold specified GO Zone exten-
dant.
sion property you placed in service after August 27, 2005,
3. A corporation and an individual who directly or indi- and leased it back within 3 months after you originally
rectly owns 80% or more of the value of the out- placed it in service, the property is treated as originally
standing stock of that corporation. placed in service no earlier than the date it is used by you
under the leaseback.
4. Two corporations that are members of the same con-
trolled group. The property will not qualify for the special allowance if
the lessee or a related person to the lessee or lessor had a
5. A trust fiduciary and a corporation if 80% or more of written binding contract in effect for the acquisition of the
the value of the outstanding stock is directly or indi- property before August 28, 2005.
rectly owned by or for the trust or grantor of the trust.
Syndicated leasing transactions. If the property is
6. The grantor and fiduciary, and the fiduciary and ben- originally placed in service by a lessor after August 27,
eficiary, of any trust. 2005, the property is sold within 3 months of the date it was
7. The fiduciaries of two different trusts, and the fiducia- placed in service, and the user of the property does not
ries and beneficiaries of two different trusts, if the change, then the property is treated as originally placed in
same person is the grantor of both trusts. service by the taxpayer no earlier than the date of the last
sale.
8. A tax-exempt educational or charitable organization Multiple units of property subject to the same lease will
and any person (or, if that person is an individual, a be treated as originally placed in service no earlier than the
member of that person’s family) who directly or indi- date of sale if the property is sold within 3 months after the
rectly controls the organization. final unit is placed in service and the period between the
9. Two S corporations, and an S corporation and a times the first and last units are placed in service does not
regular corporation, if the same persons own 80% or exceed 12 months.
more of the value of the outstanding stock of each
Substantial use test. Substantially all (80% or more dur-
corporation.
ing each tax year) of the use of the property must be in the
10. A corporation and a partnership if the same persons specified areas of GO Zone and in the active conduct of
own both of the following. your trade or business in the GO Zone.

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If the property is held for the production of in- • Property placed in service and disposed of in the
! come, the property does not satisfy this substan-
tial use test and does not qualify for the special
same tax year.
• Property converted from business use to personal
CAUTION

depreciation allowance.
use in the same tax year it is acquired. Property
converted from personal use to business use in the
Original use test. The original use of the property in the
same or later tax year may be qualified GO Zone
GO Zone must have begun with you after August 27, 2005.
property.
Used property can be specified GO Zone extension
property if it has not previously been used within the • Other bonus depreciation property to which section
specified portions of the GO Zone. Also, additional capital 168(k) of the Internal Revenue Code applies.
expenditures you incurred after August 27, 2005, to recon-
dition or rebuild your property meet the original use test if
the original use of the property in the GO Zone began with Qualified revitalization building. This is a commercial
you. For further guidance on the original use requirement building and its structural components that you placed in
for the GO Zone additional first year depreciation deduc- service in a renewal community. If the building is new, the
tion, see Notice 2007-36 on page 1000 of Internal Reve- original use of the building must begin with you. If the
nue Bulletin 2007-17. building is not new, you must substantially rehabilitate the
If you sold property you placed in service after August building and then place it in service. For more information,
27, 2005, and you leased it back within 3 months after you including definitions of substantially rehabilitated building
originally placed the property in service, the lessor is con- and qualified revitalization expenditure, see Publication
sidered to be the original user of the property. 954, Tax Incentives for Distressed Communities.
If you acquire new property for personal use and then
use the property in your trade or business or for the Gambling or animal racing property. Gambling or
production of income, you are considered to be the original animal racing property includes the following personal and
user. real property.
For special rules identifying the original user of property
involved in certain other transactions and the original user • Any equipment, furniture, software, or other property
of fractional interests in property, see Regulations section used directly in connection with gambling, the racing
1.168(k)-1(b)(3). of animals, or the on-site viewing of such racing.
• Any real property determined by square footage
Excepted Property (other than any portion that is less than 100 square
feet) that is dedicated to gambling, the racing of
Specified GO Zone extension property does not include animals, or the on-site viewing of such racing.
any of the following.
• Property required to be depreciated using the Alter- Additional guidance. For additional guidance with re-
native Depreciation System (ADS). This includes spect to the 50% additional first-year depreciation deduc-
listed property used 50% or less in a qualified busi- tion for qualified GO Zone property, see Notice 2006-77 on
ness use. For other property required to be depreci- page 590 of Internal Revenue Bulletin 2006-40, available
ated using ADS, see Required use of ADS under at www.irs.gov/pub/irs-irbs/irb06-40.pdf and Notice
Which Depreciation System (GDS or ADS) Applies, 2007-36 on page 1000 of Internal Revenue Bulletin
in chapter 4. 2007-17, available at www.irs.gov/pub/irs-irbs/irb07-17.
• Property any portion of which is financed with the pdf.
proceeds of a tax-exempt obligation under section
103 of the Internal Revenue Code. Qualified Recovery Assistance
• Any qualified revitalization building (described be- Property
low) placed in service before January 1, 2010, for
which you have elected to claim a commercial revi- You can take a special depreciation allowance for qualified
talization deduction for qualified revitalization expen- Recovery Assistance property you acquired after May 4,
ditures. 2007, and placed in service in the Kansas disaster area.
The Kansas disaster area is generally located in Kiowa
• Any property used in connection with any private or County, Kansas, and surrounding areas. For a complete
commercial golf course, country club, massage par- list of the affected areas, see Pub. 4492-A. Your property is
lor, hot tub facility, suntan facility, or any store, the qualified Recovery Assistance property if it meets the fol-
principal business of which is the sale of alcoholic lowing requirements.
beverages for consumption off premises.
• Any gambling or animal racing property (defined be- 1. It is nonresidential real property or residential rental
low). property.
• Property for which you elected not to claim any spe- 2. It is property that meets certain tests (explained next
cial depreciation allowance (discussed later). under Other Tests To Be Met).

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3. It is not excepted property (explained under Ex- you incurred after May 4, 2007, to recondition or rebuild
cepted Property below). your property meet the original use test if the original use of
the property in the Kansas disaster area began with you.
If you sold property you placed in service after May 4,
Other Tests To Be Met 2007, and you leased it back within 3 months after you
originally placed the property in service, the lessor is con-
To be qualified Recovery Assistance property, the property
must also meet all of the following tests. sidered to be the original user of the property.

Acquisition date test. You must have acquired the prop-

erty by purchase (as discussed under Property Acquired Excepted Property
by Purchase in chapter 2) after May 4, 2007, with no
Qualified Recovery Assistance property does not include
binding written contract for the acquisition in effect before
any of the following.
May 5, 2007.
Property you manufacture, construct, or produce for • Property required to be depreciated using the Alter-
your own use meets this test if you began the manufacture, native Depreciation System (ADS). For other prop-
construction, or production of the property after May 4, erty required to be depreciated using ADS, see
2007, and before January 1, 2009. Property that is manu- Required use of ADS under Which Depreciation
factured, constructed, or produced for your use by another System (GDS or ADS) Applies, in chapter 4.
person under a written binding contract entered into before
the manufacture, construction, or production of the prop- • Property any portion of which is financed with the
erty, is considered to be manufactured, constructed, or proceeds of a tax-exempt obligation under section
produced by you. 103 of the Internal Revenue Code.

Placed in service date test. The property must be placed • Any qualified revitalization building (defined earlier
in service for use in your trade or business before January under Qualified revitalization building on page 27)
1, 2010. placed in service before January 1, 2010, for which
you have elected to claim a commercial revitalization
Sale-leaseback. If you sold qualified Recovery Assis- deduction for qualified revitalization expenditures.
tance property you placed in service after May 4, 2007,
and leased it back within 3 months after you originally • Property for which you elected not to claim any spe-
placed it in service, the property is treated as originally cial depreciation allowance (discussed later).
placed in service no earlier than the date it is used by you • Property placed in service and disposed of in the
under the leaseback.
same tax year.
The property will not qualify for the special allowance if
the lessee or a related person to the lessee or lessor had a • Property converted from business use to personal
written binding contract in effect for the acquisition of the use in the same tax year acquired. Property con-
property before May 5, 2007. verted from personal use to business use in the
same or later tax year may be qualified Recovery
Syndicated leasing transactions. If qualified Recovery
Assistance property is originally placed in service by a Assistance property.
lessor after May 4, 2007, the property is sold within 3 • Other bonus depreciation property to which section
months of the date it was placed in service, and the user of 168(k) of the Internal Revenue Code applies.
the property does not change, then the property is treated
as originally placed in service by the taxpayer no earlier
than the date of the last sale.
Multiple units of property subject to the same lease will
Qualified Reuse and Recycling
be treated as originally placed in service no earlier than the Property
date of sale if the property is sold within 3 months after the
final unit is placed in service and the period between times You can take a special depreciation allowance for qualified
the first and last units are placed in service does not reuse and recycling property. Qualified reuse and re-
exceed 12 months. cycling property is any machinery or equipment (not includ-
ing buildings or real estate), along with any appurtenance,
Substantial use test. Substantially all (80% or more) of that is used exclusively to collect, distribute, or recycle
the use of the property must be in the Kansas disaster area qualified reuse and recyclable materials (as defined in
and in the active conduct of your trade or business in the section 168(m)(3)(B) of the Internal Revenue Code). Qual-
Kansas disaster area.
ified reuse and recycling property also includes software
Original use test. The original use of the property in the necessary to operate such equipment. The property must
Kansas disaster area must have begun with you after May meet the following requirements.
4, 2007.
• The property must be depreciated under MACRS.
Used property can be qualified Recovery Assistance
property if it has not previously been used within the • The property must have a useful life of at least 5
Kansas disaster area. Also, additional capital expenditures years.

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• The original use of the property must begin with you cane), corn stalks, and switchgrass. The property must
after August 31, 2008. meet the following requirements.
• You must have acquired the property by purchase 1. The property is used in the United States solely to
(as discussed under Property Acquired by Purchase produce cellulosic biofuel.
in chapter 2) after August 31, 2008, with no binding
2. The original use of the property must begin with you
written contract for the acquisition in effect before
after December 20, 2006.
September 1, 2008.
3. You must have acquired the property by purchase
• The property must be placed in service for use in (as discussed under Property Acquired by Purchase
your trade or business after August 31, 2008. in chapter 2) after December 20, 2006, with no bind-
ing written contract for acquisition in effect before
Special Rules December 21, 2006.
4. The property must be placed in service for use in
Self-constructed property. Property you manufacture, your trade or business or for the production of in-
construct, or produce for your own use meets this test if come after October 3, 2008, and before January 1,
you began the manufacture, construction, or production of 2013.
the property after August 31, 2008. Property that is manu-
factured, constructed, or produced for your use by another
person under a written binding contract entered into before Special Rules
the manufacture, construction, or production of the prop-
erty, is considered to be manufactured, constructed, or Self-constructed property. Property you manufacture,
produced by you. construct, or produce for your own use meets this test if
you began the manufacture, construction, or production of
the property after December 20, 2006. Property that is
Excepted Property manufactured, constructed, or produced for your use by
another person under a written binding contract entered
Qualified reuse and recycling property does not include
into before the manufacture, construction, or production of
any of the following. the property, is considered to be manufactured, con-
• Any rolling stock or other equipment used to trans- structed, or produced by you.
port reuse or recyclable materials.
Sale-leaseback. If you sold qualified cellulosic biofuel
• Property required to be depreciated using the Alter- plant property you placed in service after October 3, 2008,
native Depreciation System (ADS). For other prop- and leased it back within 3 months after you originally
erty required to be depreciated using ADS, see placed it in service, the property is treated as originally
Required use of ADS under Which Depreciation placed in service no earlier than the date it is used by you
System (GDS or ADS) Applies, in chapter 4. under the leaseback.
• Other bonus depreciation property to which section The property will not qualify for the special allowance if
168(k) of the Internal Revenue Code applies. the lessee or a related person to the lessee or lessor had a
written binding contract in effect for the acquisition of the
• Property for which you elected not to claim any spe- property before December 21, 2006.
cial depreciation allowance (discussed later).
• Property placed in service and disposed of in the Syndicated leasing transactions. If qualified cellulosic
same tax year. biofuel plant property is originally placed in service by a
lessor after October 3, 2008, the property is sold within 3
• Property converted from business use to personal months of the date it was placed in service, and the user of
use in the same tax year acquired. Property con- the property does not change, then the property is treated
verted from personal use to business use in the as originally placed in service by the taxpayer no earlier
same or later tax year may be qualified reuse and than the date of the last sale.
recycling property. Multiple units of property subject to the same lease will
be treated as originally placed in service no earlier than the
date of sale if the property is sold within 3 months after the
Qualified Cellulosic Biofuel Plant final unit is placed in service and the period between the
times the first and last units are placed in service does not
Property exceed 12 months.
You can take a special depreciation allowance for qualified
cellulosic biofuel plant property. Cellulosic biofuel is any Excepted Property
liquid fuel which is produced from any lignocellulosic or
hemicellulosic matter that is available on a renewable or Qualified cellulosic biofuel plant property does not include
recurring basis. Examples include bagasse (from sugar any of the following.

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• Property placed in service and disposed of in the with no binding written contract for the acquisition in
same tax year. effect before the applicable disaster date.
• Property converted from business use to personal 3. The property must rehabilitate property damaged, or
use in the same tax year it is acquired. Property replace property destroyed or condemned, as a re-
converted from personal use to business use in the sult of the applicable federally declared disaster.
same or later tax year may be qualified cellulosic 4. The property must be similar in nature to, and lo-
biomass ethanol plant property. cated in the same county as, the rehabilitated or
• Property required to be depreciated using the Alter- replaced property.
native Depreciation System (ADS). For other prop- 5. The original use of the property within the applicable
erty required to be depreciated using ADS, see disaster area must have begun with you on or after
Required use of ADS under Which Depreciation the applicable disaster date.
System (GDS or ADS) Applies, in chapter 4.
6. The property is placed in service by you on or before
• Property any portion of which is financed with the the date which is the last day of the third calendar
proceeds of any obligation the interest on which is year following the applicable disaster date (the fourth
exempt from tax under section 103 of the Internal calendar year in the case of nonresidential real prop-
Revenue Code. erty and residential rental property).
• Property for which you elected not to claim any spe- 7. Substantially all (80% or more) of the use of the
cial depreciation allowance (discussed later). property must be in the active conduct of your trade
or business in a federally declared disaster area,
• Property for which a deduction was taken under sec- occurring before January 1, 2010.
tion 179C for certain qualified refinery property.
8. It is not excepted property (explained later in Ex-
• Other bonus depreciation property to which section cepted Property).
168(k) of the Internal Revenue Code applies.

Special Rules
Qualified Disaster Assistance
Property Self-constructed property. Property you manufacture,
construct, or produce for your own use meets this test if
You can take a special depreciation allowance for qualified you began the manufacture, construction, or production of
disaster assistance property placed in service in federally the property after the applicable disaster date. Property
declared disaster areas in which the disaster occurred that is manufactured, constructed, or produced for your
before January 1, 2010. A list of the federally declared use by another person under a written binding contract
disaster areas is available at the FEMA website at www. entered into before the manufacture, construction, or pro-
fema.gov. Your property is qualified disaster assistance duction of the property, is considered to be manufactured,
property if it meets the following requirements. constructed, or produced by you.

1. It is one of the following types of property. Sale-leaseback. If you sold qualified disaster assistance
property you placed in service after the applicable disaster
a. Tangible property depreciated under MACRS with date and leased it back within 3 months after you originally
a recovery period of 20 years or less. placed it in service, the property is treated as originally
b. Water utility property. placed in service no earlier than the date it is used by you
under the leaseback.
c. Computer software that is readily available for The property will not qualify for the special allowance if
purchase by the general public, is subject to a the lessee or a related person to the lessee or lessor had a
nonexclusive license, and has not been substan- written binding contract in effect for the acquisition of the
tially modified. (The cost of some computer property before the applicable disaster date.
software is treated as part of the cost of hardware
and is depreciated under MACRS.) Syndicated leasing transactions. If qualified disaster
d. Qualified leasehold improvement property (de- assistance property is originally placed in service by a
lessor after the applicable disaster date, the property is
fined under Qualified leasehold improvement
sold within 3 months of the date it was placed in service,
property on page 25).
and the user of the property does not change, then the
e. Nonresidential real property and residential rental property is treated as originally placed in service by the
property. taxpayer no earlier than the date of the last sale.
Multiple units of property subject to the same lease will
2. You must have acquired the property by purchase be treated as originally placed in service no earlier than the
(as discussed under Property Acquired by Purchase date of sale if the property is sold within 3 months after the
in chapter 2) on or after the applicable disaster date, final unit is placed in service and the period between the

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times the first and last units are placed in service does not c. Computer software that is readily available for
exceed 12 months. purchase by the general public, is subject to a
nonexclusive license, and has not been substan-
tially modified. (The cost of some computer
Excepted Property software is treated as part of the cost of hardware
and is depreciated under MACRS.)
Qualified disaster assistance property does not include
any of the following. d. Qualified leasehold improvement property (de-
fined under Qualified leasehold improvement
• Property required to be depreciated using the Alter- property on page 25).
native Depreciation System (ADS). For other prop-
erty required to be depreciated using ADS, see 2. You must have acquired the property by purchase
Required use of ADS under Which Depreciation after December 31, 2007, with no binding written
System (GDS or ADS) Applies, in chapter 4. contract for the acquisition of in effect before January
• Property any portion of which is financed with the 1, 2008.
proceeds of a tax-exempt obligation under section 3. The property must be placed in service for use in
103 of the Internal Revenue Code. your trade or business or for the production of in-
• Any qualified revitalization building (defined earlier come before January 1, 2010 (before January 1,
2011, for certain property with a long production pe-
under Qualified revitalization building on page 27)
riod and certain aircraft (defined next)).
placed in service before January 1, 2010, for which
you have elected to claim a commercial revitalization 4. The original use of the property must begin with you
deduction for qualified revitalization expenditures. after December 31, 2007.
• Any property used in connection with any private or 5. It is not excepted property (explained later in Ex-
commercial golf course, country club, massage par- cepted Property).
lor, hot tub facility, suntan facility, or any store, the
principal business of which is the sale of alcoholic
beverages for consumption off premises. Long Production Period Property
• Any property for which the special allowance under To be qualified property, long production period property
section 168(k) or section 1400N(d) of the Internal must meet the following requirements.
Revenue Code applies.
• It must meet the requirements of (2)–(5), above.
• Property for which you elected not to claim any spe-
cial depreciation allowance (discussed later).
• The property has a recovery period of at least 10
years or is transportation property. Transportation
• Property placed in service and disposed of in the property is tangible personal property used in the
same tax year. trade or business of transporting persons or prop-
erty.
• Property converted from business use to personal
use in the same tax year acquired. Property con- • The property is subject to section 263A of the Inter-
verted from personal use to business use in the nal Revenue Code.
same or later tax year may be qualified disaster • The property has an estimated production period
assistance property. exceeding 1 year and an estimated production cost
• Any gambling or animal racing property (defined ear- exceeding $1,000,000.
lier under Excepted Property on page 27).
Noncommercial Aircraft
Certain Qualified Property Acquired To be qualified property, noncommercial aircraft must
meet the following requirements.
After December 31, 2007
• It must meet the requirements in (2)-(5), above.
You can take a special depreciation deduction allowance
for certain qualified property acquired after December 31, • The aircraft must not be tangible personal property
2007. Your property is qualified property if it meets the used in the trade or business of transporting persons
or property (except for agricultural or firefighting pur-
following requirements.
poses).
1. It is one of the following types of property. • The aircraft must be purchased (as discussed under
Property Acquired by Purchase in chapter 2) by a
a. Tangible property depreciated under MACRS with
purchaser who at the time of the contract for
a recovery period of 20 years or less.
purchase, makes a nonrefundable deposit of the
b. Water utility property. lesser of 10% of the cost or $100,000.

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• The aircraft must have an estimated production pe- • Qualified retail improvement property (as defined in
riod exceeding four months and a cost exceeding section 168(e)(8) of the Internal Revenue Code)
$200,000. placed in service before January 1, 2010.
• Property for which you elected not to claim any spe-
Special Rules cial depreciation allowance (discussed later).
• Property for which you elected to accelerate certain
Self-constructed property. Property you manufacture, credits in lieu of the special depreciation allowance
construct, or produce for your own use meets this test if (discussed next).
you began the manufacture, construction, or production of
the property after December 31, 2007, and before January
1, 2010. Property that is manufactured, constructed, or
produced for your use by another person under a written Election to Accelerate Certain
binding contract entered into before the manufacture, con-
struction, or production of the property, is considered to be Credits in Lieu of the Special
manufactured, constructed, or produced by you.
Depreciation Allowance
Sale-leaseback. If you sold qualified property you placed
in service after December 31, 2007, and leased it back Corporations and certain automotive partnerships can
within 3 months after you originally placed in service, the elect for their first tax year ending after March 31, 2008, to
property is treated as originally placed in service no earlier accelerate pre-2006 unused research credits or minimum
than the date it is used by you under the leaseback. tax credits in lieu of claiming the special depreciation
The property will not qualify for the special depreciation allowance for certain eligible qualified property (as defined
allowance if the lessee or a related person to the lessee or in section 168(k)(4)(D) of the Internal Revenue Code) (the
lessor had a written binding contract in effect for the acqui- ‘‘section 168(k)(4) election’’). Generally, this election ap-
sition of the property before January 1, 2008. plies to eligible qualified property acquired after March 31,
2008, and placed in service before January 1, 2009 (before
Syndicated leasing transactions. If qualified property is January 1, 2010, for long production period property and
originally placed in service by a lessor after December 31, noncommercial aircraft (defined earlier)).
2007, the property is sold within 3 months of the date it was A section 168(k)(4) election made by a corporation for
placed in service, and the user of the property does not its first tax year ending after March 31, 2008, continues to
change, then the property is treated as originally placed in apply to extension property (as defined in section
service by the taxpayer no earlier than the date of the last 168(k)(4)(H) of the Internal Revenue Code) unless the
sale. corporation makes an election not to apply the section
Multiple units of property subject to the same lease will 168(k)(4) election to extension property. Generally, exten-
be treated as originally placed in service no earlier than the sion property is eligible qualified property acquired after
date of the last sale if the property is sold within 3 months March 31, 2008, and placed in service after December 31,
after the final unit is placed in service and the period 2008, and before January 1, 2010. Long production period
between the time the first and last units are placed in property and noncommercial aircraft are extension prop-
service does not exceed 12 months. erty if acquired after March 31, 2008, and placed in service
after December 31, 2009, and before January 1, 2011. If a
Excepted Property corporation did not make a section 168(k)(4) election for its
first tax year ending after March 31, 2008, the corporation
Qualified property does not include any of the following. can elect for its first take year ending after December 31,
2008, to claim pre-2006 unused research credits or mini-
• Property placed in service and disposed of in the mum tax credits in lieu of claiming the special depreciation
same tax year.
allowance for only extension property. A section 168(k)(4)
• Property converted from business use to personal election made by a certain automotive partnership does
use in the same tax year acquired. Property con- not apply to extension property.
verted from personal use to business use in the If you make an election to accelerate these credits in
same or later tax year may be qualified property. lieu of claiming the special depreciation allowance for
eligible property, you must not take the 50% special depre-
• Property required to be depreciated under the Alter-
ciation allowance for the property and must depreciate the
native Depreciation System (ADS). This includes
basis in the property under MACRS using the straight line
listed property used 50% or less in a qualified busi-
method. See Which Depreciation Method Applies in chap-
ness use. For other property required to be depreci-
ter 4.
ated using ADS, see Required use of ADS under
Which Depreciation System (GDS or ADS) Applies, Once made, the election cannot be revoked without IRS
in Chapter 4. consent.

• Qualified restaurant property (as defined in section Additional guidance. For additional guidance on the
168(e)(7) of the Internal Revenue Code) placed in election to accelerate the research or minimum tax credit in
service before January 1, 2010. lieu of claiming the special depreciation allowance, see

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Rev. Proc. 2008-65 on page 1082 of Internal Revenue For information about how to determine the cost or other
Bulletin 2008-44, available at www.irs.gov/pub/irs-irbs/ basis of property, see What Is the Basis of Your Deprecia-
irb08-44.pdf, Rev. Proc. 2009-16 on page 449 of Internal ble Property in chapter 1. For a discussion of business/
Revenue Bulletin 2009-06, available at www.irs.gov/pub/ investment use, see Partial business or investment use
irs-irbs/irb09-06.pdf, and Rev. Proc. 2009-33 on page 150 under Property Used in Your Business or In-
of Internal Revenue Bulletin 2009-29, available at www.irs. come-Producing Activity in chapter 1.
gov/pub/irs-irbs/irb09-29.pdf. Also, see Form 3800, Gen-
eral Business Credit; Form 8827, Credit for Prior Year Depreciating the remaining cost. After you figure your
Minimum Tax — Corporations; and related instructions. special depreciation allowance for your qualified property,
Additional guidance may also be available in later Inter- you can use the remaining cost to figure your regular
nal Revenue Bulletins available at www.irs.gov/irb. MACRS depreciation deduction (discussed in chapter 4).
Therefore, you must reduce the depreciable basis of the
property by the special depreciation allowance before fig-
How Much Can You Deduct? uring your regular MACRS depreciation deduction.

Terms you may need to know Example 1. On November 1, 2009, Tom Brown bought
and placed in service in his business qualified Recovery
(see Glossary):
Assistance property that cost $450,000. He did not elect to
Adjusted basis claim a section 179 deduction. He deducts 50% of the cost
($225,000) as a special depreciation allowance for 2009.
Basis He uses the remaining $225,000 of cost to figure his
Placed in service regular MACRS depreciation deduction for 2009 and later
years.

Figure the special depreciation allowance by multiplying Example 2. The facts are the same as in Example 1,
the depreciable basis of the qualified property by 50% (or except that Tom elects to deduct $325,000 ($250,000 +
30% if applicable). For qualified Liberty Zone property, the increased dollar limit of $100,000 for qualified Recov-
multiply the depreciable basis by 30%. For qualified GO ery Assistance property) of the property’s cost as a section
Zone property, qualified Recovery Assistance property, 179 deduction. He uses the remaining $125,000 of cost to
qualified reuse and recycling property, qualified cellulosic figure his special depreciation allowance of $62,500
biofuel plant property, qualified disaster assistance prop- ($125,000 × 50%). He uses the remaining $62,500 of cost
erty, and certain qualified property acquired after Decem-
to figure his regular MACRS depreciation deduction for
ber 31, 2007, multiply the depreciable basis by 50%.
2009 and later years.
For qualified property other than listed property, enter
the special allowance on line 14 in Part II of Form 4562. For Like-kind exchanges and involuntary conversions. If
qualified property that is listed property, enter the special you acquire qualified property in a like-kind exchange or
allowance on line 25 in Part V of Form 4562. involuntary conversion, the carryover basis of the acquired
If you place qualified property in service in a short property is eligible for a special depreciation allowance.
TIP tax year, you can take the full amount of a special After you figure your special allowance, you can use the
depreciation allowance. remaining carryover basis to figure your regular MACRS
depreciation deduction. In the year you claim the allow-
Depreciable basis. This is the property’s cost or other ance (the year you place in service the property received in
basis multiplied by the percentage of business/investment the exchange or dispose of involuntarily converted prop-
use, reduced by the total amount of any credits and deduc- erty), you must reduce the carryover basis of the property
tions allocable to the property. by the allowance before figuring your regular MACRS
depreciation deduction. See Figuring the Deduction for
The following are examples of some credits and deduc-
Property Acquired in a Nontaxable Exchange, in chapter 4,
tions that reduce depreciable basis.
under How Is the Depreciation Deduction Figured. The
• Any section 179 deduction. excess basis (the part of the acquired property’s basis that
• Any deduction for removal of barriers to the disabled exceeds its carryover basis) is also eligible for a special
and the elderly. depreciation allowance.

• Any disabled access credit, enhanced oil recovery

credit, and credit for employer-provided childcare fa-
cilities and services. How Can You Elect Not To
• Basis adjustment to investment credit property under Claim an Allowance?
section 50(c) of the Internal Revenue Code.
You can elect, for any class of property, not to deduct any
For additional credits and deductions that affect basis, special allowances for all property in such class placed in
see section 1016 of the Internal Revenue Code. service during the tax year.

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To make an election, attach a statement to your return the special depreciation allowance. For additional gui-
indicating what election you are making and the class of dance, see Notice 2008-67 on page 307 of Internal Reve-
property for which you are making the election. nue Bulletin 2008-32.
When to make election. Generally, you must make the Recapture of allowance for qualified disaster assis-
election on a timely filed tax return (including extensions) tance property. If, in any year after the year you claim the
for the year in which you place the property in service. special depreciation allowance for qualified disaster assis-
However, if you timely filed your return for the year tance property, the property ceases to be used in the
without making the election, you can still make the election applicable disaster area, you may have to recapture as
by filing an amended return within 6 months of the due date ordinary income the excess benefit you received from
of the original return (not including extensions). Attach the claiming the special depreciation allowance.
election statement to the amended return. On the For additional guidance, see Notice 2008-67 on page
amended return, write “Filed pursuant to section 307 of Internal Revenue Bulletin 2008-32.
301.9100-2.”
Revoking an election. Once you elect not to deduct a
special depreciation allowance for a class of property, you
cannot revoke the election without IRS consent. A request
to revoke the election is a request for a letter ruling. 4.
If you elect not to have any special allowance
!
CAUTION
apply, the property may be subject to an alterna-
tive minimum tax adjustment for depreciation. Figuring Depreciation
Under MACRS
When Must You Recapture an
Introduction
Allowance? The Modified Accelerated Cost Recovery System
When you dispose of property for which you claimed a (MACRS) is used to recover the basis of most business
special depreciation allowance, any gain on the disposition and investment property placed in service after 1986.
is generally recaptured (included in income) as ordinary MACRS consists of two depreciation systems, the General
income up to the amount of the special depreciation allow- Depreciation System (GDS) and the Alternative Deprecia-
ance previously allowed or allowable. See When Do You tion System (ADS). Generally, these systems provide dif-
Recapture MACRS Depreciation in chapter 4 for more ferent methods and recovery periods to use in figuring
information. depreciation deductions.
To be sure you can use MACRS to figure depreci-
Recapture of allowance deducted for qualified GO
Zone property. If, in any year after the year you claim the !
CAUTION
ation for your property, see Which Method Can
You Use To Depreciate Your Property in
special depreciation allowance for qualified GO Zone prop- chapter 1.
erty (including specified GO Zone extension property), the
property ceases to be used in the GO Zone, you may have This chapter explains how to determine which MACRS
to recapture as ordinary income the excess benefit you depreciation system applies to your property. It also dis-
received from claiming the special depreciation allowance. cusses other information you need to know before you can
For additional guidance, see Notice 2008-25 on page 484 figure depreciation under MACRS. This information in-
of Internal Revenue Bulletin 2008-9. cludes the property’s recovery class, placed in service
date, and basis, as well as the applicable recovery period,
Qualified cellulosic biomass ethanol plant property convention, and depreciation method. It explains how to
and qualified cellulosic biofuel plant property. If, in use this information to figure your depreciation deduction
any year after the year you claim the special depreciation and how to use a general asset account to depreciate a
allowance for any qualified cellulosic biomass ethanol group of properties. Finally, it explains when and how to
plant property or qualified biofuel plant property, the prop- recapture MACRS depreciation.
erty ceases to be qualified cellulosic biomass ethanol plant
property or qualified biofuel plant property, you may have Useful Items
to recapture as ordinary income the excess benefit you You may want to see:
received from claiming the special depreciation allowance.
Publication
Recapture of allowance for qualified Recovery Assis-
tance property. If, in any year after the year you claim the ❏ 225 Farmer’s Tax Guide
special depreciation allowance for qualified Recovery As-
❏ 463 Travel, Entertainment, Gift, and Car
sistance property, the property ceases to be used in the
Expenses
Kansas disaster area, you may have to recapture as ordi-
nary income the excess benefit you received from claiming ❏ 544 Sales and Other Dispositions of Assets

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❏ 551 Basis of Assets • All property used predominantly in a farming busi-

ness and placed in service in any tax year during
❏ 587 Business Use of Your Home (Including Use
which an election not to apply the uniform capitaliza-
by Daycare Providers)
tion rules to certain farming costs is in effect.
Form (and Instructions) • Any property imported from a foreign country for
which an Executive Order is in effect because the
❏ 2106 Employee Business Expenses
country maintains trade restrictions or engages in
❏ 2106-EZ Unreimbursed Employee Business other discriminatory acts.
Expenses
❏ 4562 Depreciation and Amortization If you are required to use ADS to depreciate your
See chapter 6 for information about getting publications !
CAUTION
property, you cannot claim any special deprecia-
tion allowance (discussed in chapter 3) for the
and forms. property.

Electing ADS. Although your property may qualify for

Which Depreciation System GDS, you can elect to use ADS. The election generally
must cover all property in the same property class that you
(GDS or ADS) Applies? placed in service during the year. However, the election for
residential rental property and nonresidential real property
Terms you may need to know can be made on a property-by-property basis. Once you
(see Glossary): make this election, you can never revoke it.
You make the election by completing line 20 in Part III of
Listed property Form 4562.
Nonresidential real property
Placed in service
Which Property Class Applies
Property class
Recovery period
Under GDS?
Residential rental property Terms you may need to know
(see Glossary):
Tangible property
Tax exempt Class life
Nonresidential real property
Your use of either the General Depreciation System (GDS) Placed in service
or the Alternative Depreciation System (ADS) to depreci- Property class
ate property under MACRS determines what depreciation
method and recovery period you use. You generally must Recovery period
use GDS unless you are specifically required by law to use Residential rental property
ADS or you elect to use ADS.
Section 1245 property
If you placed your property in service in 2009, complete
Part III of Form 4562 to report depreciation using MACRS. Section 1250 property
Complete section B of Part III to report depreciation using
GDS, and complete section C of Part III to report deprecia-
tion using ADS. If you placed your property in service The following is a list of the nine property classifications
before 2009 and are required to file Form 4562, report under GDS and examples of the types of property included
depreciation using either GDS or ADS on line 17 in Part III. in each class. These property classes are also listed under
column (a) in section B, Part III, of Form 4562. For detailed
Required use of ADS. You must use ADS for the follow- information on property classes, see Appendix B, Table of
ing property. Class Lives and Recovery Periods, in this publication.
• Listed property used 50% or less in a qualified busi- 1. 3-year property.
ness use. See chapter 5 for information on listed
property. a. Tractor units for over-the-road use.
• Any tangible property used predominantly outside b. Any race horse over 2 years old when placed in
the United States during the year. service. (All race horses placed in service after
December 31, 2008, and before January 1, 2014,
• Any tax-exempt use property. are deemed to be 3-year property, regardless of
• Any tax-exempt bond-financed property. age.)

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c. Any other horse (other than a race horse) over 12 c. Any municipal wastewater treatment plant.
years old when placed in service.
d. Any qualified leasehold improvement property
d. Qualified rent-to-own property (defined later). (defined later) placed in service before January 1,
2010.
2. 5-year property.
e. Any qualified restaurant property (defined later)
a. Automobiles, taxis, buses, and trucks. placed in service before January 1, 2010.
b. Computers and peripheral equipment. f. Initial clearing and grading land improvements for
gas utility property.
c. Office machinery (such as typewriters, calcula-
tors, and copiers). g. Electric transmission property (that is section
1245 property) used in the transmission at 69 or
d. Any property used in research and experimenta- more kilovolts of electricity placed in service after
tion. April 11, 2005. See Natural gas gathering line,
e. Breeding cattle and dairy cattle. natural gas distribution line, and electric transmis-
sion property, later.
f. Appliances, carpets, furniture, etc., used in a resi-
dential rental real estate activity. h. Any natural gas distribution line placed in service
after April 11, 2005. See Natural gas gathering
g. Certain geothermal, solar, and wind energy prop-
line, natural gas distribution line, and electric
erty.
transmission property, later.
h. Certain farm machinery or equipment (defined
i. Any qualified retail improvement property placed
later) placed in service before January 1, 2010.
in service before January 1, 2010.
3. 7-year property.
6. 20-year property.
a. Office furniture and fixtures (such as desks, files,
a. Farm buildings (other than single purpose agricul-
and safes).
tural or horticultural structures).
b. Agricultural machinery and equipment.
b. Municipal sewers not classified as 25-year prop-
c. Any property that does not have a class life and erty.
has not been designated by law as being in any
c. Initial clearing and grading land improvements for
other class.
electric utility transmission and distribution plants.
d. Certain motorsports entertainment complex prop-
erty placed in service before January 1, 2010 (de- 7. 25-year property. This class is water utility property,
fined later). which is either of the following.
e. Any natural gas gathering line placed in service a. Property that is an integral part of the gathering,
after April 11, 2005. See Natural gas gathering treatment, or commercial distribution of water, and
line, natural gas distribution line, and electric that, without regard to this provision, would be
transmission property, later. 20-year property.
4. 10-year property. b. Municipal sewers other than property placed in
service under a binding contract in effect at all
a. Vessels, barges, tugs, and similar water transpor- times since June 9, 1996.
tation equipment.
b. Any single purpose agricultural or horticultural 8. Residential rental property. This is any building or
structure. structure, such as a rental home (including a mobile
home), if 80% or more of its gross rental income for
c. Any tree or vine bearing fruits or nuts. the tax year is from dwelling units. A dwelling unit is
d. Qualified small electric meter and qualified smart a house or apartment used to provide living accom-
electric grid system (defined later) placed in serv- modations in a building or structure. It does not in-
ice on or after October 3, 2008. clude a unit in a hotel, motel, or other establishment
where more than half the units are used on a tran-
5. 15-year property. sient basis. If you occupy any part of the building or
structure for personal use, its gross rental income
a. Certain improvements made directly to land or includes the fair rental value of the part you occupy.
added to it (such as shrubbery, fences, roads,
9. Nonresidential real property. This is section 1250
sidewalks, and bridges).
property, such as an office building, store, or ware-
b. Any retail motor fuels outlet (defined later), such house, that is neither residential rental property nor
as a convenience store. property with a class life of less than 27.5 years.

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If your property is not listed above, you can determine its property in good working order with no further obli-
property class from the Table of Class Lives and Recovery gations and no entitlement to a return of any prior
Periods in Appendix B. The property class is generally the payments.
same as the GDS recovery period indicated in the table.
• Provides that legal title to the property remains with
Qualified rent-to-own property. Qualified rent-to-own the rent-to-own dealer until the customer makes ei-
property is property held by a rent-to-own dealer for pur- ther all the required payments or the early purchase
poses of being subject to a rent-to-own contract. It is payments required under the contract to acquire le-
tangible personal property generally used in the home for gal title.
personal use. It includes computers and peripheral equip- • Provides that the customer has no right to sell, sub-
ment, televisions, videocassette recorders, stereos, lease, mortgage, pawn, pledge, or otherwise dispose
camcorders, appliances, furniture, washing machines and of the property until all contract payments have been
dryers, refrigerators, and other similar consumer durable made.
property. Consumer durable property does not include real
property, aircraft, boats, motor vehicles, or trailers.
If some of the property you rent to others under a Certain farm machinery or equipment. Any machinery
rent-to-own agreement is of a type that may be used by the or equipment (other than grain bins, cotton ginning assets,
renters for either personal or business purposes, you still fences, or other land improvements) used in a farming
can treat this property as qualified property as long as it business (as defined in section 263A(e)(4) of the Internal
does not represent a significant portion of your leasing Revenue Code) where the original use begins with you
property. However, if this dual-use property does repre- after December 31, 2008, and is placed in service before
sent a significant portion of your leasing property, you must January 1, 2010.
prove that this property is qualified rent-to-own property. Motorsports entertainment complex. This is a racing
Rent-to-own dealer. You are a rent-to-own dealer if track facility permanently situated on land that hosts one or
you meet all the following requirements. more racing events for automobiles, trucks, or motorcycles
during the 36-month period after the first day of the month
• You regularly enter into rent-to-own contracts in the in which the facility is placed in service. The events must
ordinary course of your business for the use of con- be open to the public for the price of admission.
sumer property.
Qualified smart electric grid system. A qualified smart
• A substantial portion of these contracts end with the electric grid system means any smart grid property used as
customer returning the property before making all
part of a system for electric distribution grid communica-
the payments required to transfer ownership.
tions, monitoring, and management placed in service after
• The property is tangible personal property of a type October 3, 2008, by a taxpayer who is a supplier of electri-
generally used within the home for personal use. cal energy or a provider of electrical energy services.
Smart grid property includes electronics and related equip-
Rent-to-own contract. This is any lease for the use of ment that is capable of:
consumer property between a rent-to-own dealer and a
customer who is an individual which—
• Sensing, collecting, and monitoring data of or from
all portions of a utility’s electric distribution grid,
• Is titled “Rent-to-Own Agreement,” “Lease Agree- • Providing real-time, two-way communications to
ment with Ownership Option,” or other similar lan-
monitor or to manage the grid, and
guage.
• Provides a beginning date and a maximum period of • Providing real-time analysis of an event prediction
based on collected data that can be used to provide
time, not to exceed 156 weeks or 36 months from
electric distribution system reliability, quality, and
the beginning date, for which the contract can be in
performance.
effect (including renewals or options to extend).
• Provides for regular periodic (weekly or monthly) Retail motor fuels outlet. Real property is a retail motor
payments that can be either level or decreasing. If
fuels outlet if it is used to a substantial extent in the retail
the payments are decreasing, no payment can be
marketing of petroleum or petroleum products (whether or
less than 40% of the largest payment.
not it is also used to sell food or other convenience items)
• Provides for total payments that generally exceed and meets any one of the following three tests.
the normal retail price of the property plus interest.
• It is not larger than 1,400 square feet.
• Provides for total payments that do not exceed • 50% or more of the gross revenues generated from
$10,000 for each item of property.
the property are derived from petroleum sales.
• Provides that the customer has no legal obligation to • 50% or more of the floor space in the property is
make all payments outlined in the contract and that,
devoted to petroleum marketing sales.
at the end of each weekly or monthly payment pe-
riod, the customer can either continue to use the A retail motor fuels outlet does not include any facility
property by making the next payment or return the related to petroleum and natural gas trunk pipelines.

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Qualified leasehold improvement property. Generally, • Provides all commercial and residential customers of
this is any improvement to an interior part of a building such supplier or provider with net metering. Net me-
(placed in service before January 1, 2010) that is nonresi- tering means allowing a customer a credit, if any, as
dential real property, provided all of the requirements dis- complies with applicable federal and state laws and
cussed in chapter 3 under Qualified leasehold regulations for providing electricity to the supplier or
improvement property are met. provider.
In addition, an improvement made by the lessor does
not qualify as qualified leasehold improvement property to
Natural gas gathering line, natural gas distribution
any subsequent owner unless it is acquired from the origi-
line, and electric transmission property. Any natural
nal lessor by reason of the lessor’s death or in any of the
gas gathering line placed in service after April 11, 2005, is
following types of transactions.
treated as 7-year property, and electric transmission prop-
1. A transaction to which section 381(a) applies, erty (that is section 1245 property) used in the transmis-
sion at 69 or more kilovolts of electricity and any natural
2. A mere change in the form of conducting the trade or gas distribution line placed in service after April 11, 2005,
business so long as the property is retained in the are treated as 15-year property, if the following require-
trade or business as qualified leasehold improve- ments are met.
ment property and the taxpayer retains a substantial
interest in the trade or business, • The original use of the property must have begun
with you after April 11, 2005. Original use means the
3. A like-kind exchange, involuntary conversion, or re- first use to which the property is put, whether or not
acquisition of real property to the extent that the by you. Therefore, property used by any person
basis in the property represents the carryover basis, before April 12, 2005, is not original use. Original
or use includes additional capital expenditures you in-
4. Certain nonrecognition transactions to the extent that curred to recondition or rebuild your property. How-
your basis in the property is determined by reference ever, original use does not include the cost of
to the transferor’s or distributor’s basis in the prop- reconditioned or rebuilt property you acquired. Prop-
erty. Examples include the following. erty containing used parts will not be treated as
reconditioned or rebuilt if the cost of the used parts
a. A complete liquidation of a subsidiary. is not more than 20% of the total cost of the prop-
erty.
b. A transfer to a corporation controlled by the trans-
feror. • The property must not be placed in service under a
binding contract in effect before April 12, 2005.
c. An exchange of property by a corporation solely
for stock or securities in another corporation in a • The property must not be self-constructed property
reorganization. (property you manufacture, construct, or produce for
your own use), if you began the manufacture, con-
struction, or production of the property before April
Qualified restaurant property. Qualified restaurant 12, 2005. Property that is manufactured, con-
property is any section 1250 property that is a building structed, or produced for your use by another person
placed in service after December 31, 2008, and before under a written binding contract entered into by you
January 1, 2010. Also, more than 50% of the building’s or a related party before the manufacture, construc-
square footage must be devoted to preparation of meals tion, or production of the property, is considered to
and seating for on-premise consumption of prepared be manufactured, constructed, or produced by you.
meals.
Qualified smart electric meter. A qualified smart electric
meter is any time-based meter and related communication
equipment which is placed in service by a supplier of What Is the Placed in Service
electric energy or a provider of electric energy services and
which is capable of being used by you as part of a system
Date?
that: Terms you may need to know
• Measures and records electricity usage data on a (see Glossary):
time-differentiated basis in at least 24 separate time
segments per day; Placed in service

• Provides for the exchange of information between

the supplier or provider and the customer’s smart
You begin to claim depreciation when your property is
electric meter in support of time-based rates or other
placed in service for either use in a trade or business or the
forms of demand response;
production of income. The placed in service date for your
• Provides data to the supplier or provider so that the property is the date the property is ready and available for
supplier or provider can provide energy usage infor- a specific use. It is therefore not necessarily the date it is
mation to customers electronically, and first used. If you converted property held for personal use

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to use in a trade or business or for the production of

income, treat the property as being placed in service on the Which Recovery Period
conversion date. See Placed in Service under When Does
Depreciation Begin and End in chapter 1 for examples Applies?
illustrating when property is placed in service.
Terms you may need to know
(see Glossary):
What Is the Basis for Active conduct of a trade or business
Depreciation? Basis

Terms you may need to know Improvement

(see Glossary): Listed property

Basis Nonresidential real property

Placed in service
Property class
The basis for depreciation of MACRS property is the prop-
erty’s cost or other basis multiplied by the percentage of Recovery period
business/investment use. For a discussion of business/ Residential rental property
investment use, see Partial business or investment use
under Property Used in Your Business or In- Section 1245 property
come-Producing Activity in chapter 1. Reduce that amount
by any credits and deductions allocable to the property.
The following are examples of some credits and deduc- The recovery period of property is the number of years
tions that reduce basis. over which you recover its cost or other basis. It is deter-
mined based on the depreciation system (GDS or ADS)
• Any deduction for section 179 property. used.
• Any deduction under section 179B of the Internal
Revenue Code for capital costs to comply with Envi- Recovery Periods Under GDS
ronmental Protection Agency sulfur regulations.
• Any deduction under section 179C of the Internal Under GDS, property that is not qualified Indian reserva-
Revenue Code for certain qualified refinery property tion property is depreciated over one of the following re-
placed in service after August 8, 2005. covery periods.

• Any deduction under section 179D of the Internal

Property Class Recovery Period
Revenue Code for certain energy efficient commer-
cial building property placed in service after Decem- 3-year property . . . . . . . . . . . . . . . . 3 years1
ber 31, 2005. 5-year property . . . . . . . . . . . . . . . . 5 years
7-year property . . . . . . . . . . . . . . . . 7 years
• Any deduction under section 179E of the Internal 10-year property . . . . . . . . . . . . . . . 10 years
Revenue Code for qualified advanced mine safety 15-year property . . . . . . . . . . . . . . . 15 years2
equipment property placed in service after Decem- 20-year property . . . . . . . . . . . . . . . 20 years
ber 20, 2006. 25-year property . . . . . . . . . . . . . . . 25 years3
• Any deduction for removal of barriers to the disabled Residential rental property . . . . . . . 27.5 years
and the elderly. Nonresidential real property . . . . . . 39 years4
15 years for qualified rent-to-own property placed in service
• Any disabled access credit, enhanced oil recovery before August 6, 1997.
credit, and credit for employer-provided childcare fa- 239
cilities and services. years for property that is a retail motor fuels outlet placed in
service before August 20, 1996 (31.5 years if placed in
• Any special depreciation allowance. service before May 13, 1993), unless you elected to
depreciate it over 15 years.
• Basis adjustment for investment credit property 320
under section 50(c) of the Internal Revenue Code. years for property placed in service before June 13, 1996,
or under a binding contract in effect before June 10, 1996.
431.5 years for property placed in service before May 13, 1993
For additional credits and deductions that affect basis,
see section 1016 of the Internal Revenue Code. (or before January 1, 1994, if the purchase or construction of
the property is under a binding contract in effect before May
Enter the basis for depreciation under column (c) in Part 13, 1993, or if construction began before May 13, 1993).
III of Form 4562. For information about how to determine
the cost or other basis of property, see What Is the Basis of The GDS recovery periods for property not listed above
Your Depreciable Property in chapter 1. can be found in Appendix B, Table of Class Lives and

Chapter 4 Figuring Depreciation Under MACRS Page 39

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Recovery Periods. Residential rental property and nonresi-

dential real property are defined earlier under Which Prop- Qualified property. Property eligible for the shorter re-
erty Class Applies Under GDS. covery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property
Enter the appropriate recovery period on Form 4562 and nonresidential real property. You must use this prop-
under column (d) in section B of Part III, unless already erty predominantly in the active conduct of a trade or
shown (for 25-year property, residential rental property, business within an Indian reservation. The rental of real
and nonresidential real property). property that is located on an Indian reservation is treated
as the active conduct of a trade or business within an
Office in the home. If your home is a personal-use single
Indian reservation.
family residence and you begin to use part of your home as
an office, depreciate that part of your home as nonresiden- The following property is not qualified property.
tial real property over 39 years (31.5 years if you began 1. Property used or located outside an Indian reserva-
using it for business before May 13, 1993). However, if
tion on a regular basis, other than qualified infra-
your home is an apartment in an apartment building that
structure property.
you own and the building is residential rental property as
defined earlier under Which Property Class Applies Under 2. Property acquired directly or indirectly from a related
GDS, depreciate the part used as an office as residential person.
rental property over 27.5 years. See Publication 587 for a
3. Property placed in service for purposes of conducting
discussion of the tests you must meet to claim expenses,
or housing class I, II, or III gaming activities. These
including depreciation, for the business use of your home.
activities are defined in section 4 of the Indian Regu-
Home changed to rental use. If you begin to rent a home latory Act (25 U.S.C. 2703).
that was your personal home before 1987, you depreciate 4. Any property you must depreciate under ADS. Deter-
it as residential rental property over 27.5 years. mine whether property is qualified without regard to
the election to use ADS and after applying the spe-
Indian Reservation Property cial rules for listed property not used predominantly
for qualified business use (discussed in chapter 5).
The recovery periods for qualified property you placed in
service on an Indian reservation after 1993 and before Qualified infrastructure property. Item (1) above
2010 are shorter than those listed earlier. The following does not apply to qualified infrastructure property located
table shows these shorter recovery periods. outside the reservation that is used to connect with quali-
fied infrastructure property within the reservation. Qualified
Recovery infrastructure property is property that meets all the follow-
Property Class Period ing rules.
3-year property . . . . . . . . . . . . . . . . . 2 years • It is qualified property, as defined earlier, except that
5-year property . . . . . . . . . . . . . . . . . 3 years it is outside the reservation.
7-year property . . . . . . . . . . . . . . . . . 4 years
10-year property . . . . . . . . . . . . . . . . 6 years
• It benefits the tribal infrastructure.
15-year property . . . . . . . . . . . . . . . . 9 years • It is available to the general public.
20-year property . . . . . . . . . . . . . . . . 12 years
Nonresidential real property . . . . . . . 22 years • It is placed in service in connection with the active
conduct of a trade or business within a reservation.
Nonresidential real property is defined earlier under
Which Property Class Applies Under GDS. Infrastructure property includes, but is not limited to, roads,
Use this chart to find the correct percentage table to use power lines, water systems, railroad spurs, and communi-
for qualified Indian reservation property. cations facilities.
Related person. For purposes of item (2) above, see
IF your recovery period is: THEN use the following Related persons in the discussion on property owned or
table in Appendix A:
used in 1986 under Which Method Can You Use To Depre-
2 years A-21 ciate Your Property in chapter 1 for a description of related
persons.
3 years A-1, A-2, A-3, A-4, or A-5
4 years A-22 Indian reservation. The term Indian reservation means a
6 years A-23 reservation as defined in section 3(d) of the Indian Financ-
ing Act of 1974 (25 U.S.C. 1452(d)) or section 4(10) of the
9 years A-14, A-15, A-16, A-17, or Indian Child Welfare Act of 1978 (25 U.S.C. 1903(10)).
A-18 Section 3(d) of the Indian Financing Act of 1974 defines
12 years A-14, A-15, A-16, A-17, or reservation to include former Indian reservations in
A-18 Oklahoma. For a definition of the term “former Indian
reservations in Oklahoma,” see Notice 98-45 in Internal
22 years A-24
Revenue Bulletin 1998-35.

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Recovery Periods Under ADS • The date you place the addition or improvement in
service.
The recovery periods for most property generally are • The date you place in service the property to which
longer under ADS than they are under GDS. The following you made the addition or improvement.
table shows some of the ADS recovery periods.

Recovery If the improvement you make is qualified lease-

Property Period !
CAUTION
hold improvement property or qualified restaurant
property (defined earlier under Which Property
Rent-to-own property . . . . . . . . . . . . . . . . 4 years
Automobiles and light duty trucks . . . . . . . 5 years Class Applies Under GDS), the GDS recovery period is 15
Computers and peripheral equipment . . . . 5 years years (39 years under ADS).
High technology telephone station
equipment installed on customer Example. You own a rental home that you have been
premises . . . . . . . . . . . . . . . . . . . . . . . . 5 years renting out since 1981. If you put an addition on the home
High technology medical equipment . . . . . 5 years and place the addition in service this year, you would use
Personal property with no class life . . . . . . 12 years MACRS to figure your depreciation deduction for the addi-
Natural gas gathering lines . . . . . . . . . . . . 14 years tion. Under GDS, the property class for the addition is
Single purpose agricultural and horticultural residential rental property and its recovery period is 27.5
structures . . . . . . . . . . . . . . . . . . . . . . . 15 years years because the home to which the addition is made
Any tree or vine bearing fruit or nuts . . . . . 20 years would be residential rental property if you had placed it in
Initial clearing and grading land service this year.
improvements for gas utility property . . . 20 years
Initial clearing and grading land
improvements for electric utility
transmission and distribution plants . . . . 25 years Which Convention Applies?
Electric transmission property used in the
transmission at 69 or more kilovolts of Terms you may need to know
electricity . . . . . . . . . . . . . . . . . . . . . . . . 30 years (see Glossary):
Natural gas distribution lines . . . . . . . . . . . 35 years
Any qualified leasehold improvement Basis
property . . . . . . . . . . . . . . . . . . . . . . . . 39 years Convention
Any qualified restaurant property . . . . . . . 39 years
Nonresidential real property . . . . . . . . . . . 40 years Disposition
Residential rental property . . . . . . . . . . . . 40 years
Section 1245 real property not listed in Nonresidential real property
Appendix B . . . . . . . . . . . . . . . . . . . . . . 40 years Placed in service
Railroad grading and tunnel bore . . . . . . . 50 years
Recovery period
The ADS recovery periods for property not listed above Residential rental property
can be found in the tables in Appendix B. Rent-to-own
property, qualified leasehold improvement property, quali-
fied restaurant property, residential rental property, and Under MACRS, averaging conventions establish when the
nonresidential real property are defined earlier under recovery period begins and ends. The convention you use
Which Property Class Applies Under GDS. determines the number of months for which you can claim
depreciation in the year you place property in service and
Tax-exempt use property subject to a lease. The ADS in the year you dispose of the property.
recovery period for any property leased under a lease
agreement to a tax-exempt organization, governmental The mid-month convention. Use this convention for
unit, or foreign person or entity (other than a partnership) nonresidential real property, residential rental property,
cannot be less than 125% of the lease term. and any railroad grading or tunnel bore.
Under this convention, you treat all property placed in
Additions and Improvements service or disposed of during a month as placed in service
or disposed of at the midpoint of the month. This means
An addition or improvement you make to depreciable prop- that a one-half month of depreciation is allowed for the
erty is treated as separate depreciable property. See How month the property is placed in service or disposed of.
Do You Treat Repairs and Improvements in chapter 1 for a Your use of the mid-month convention is indicated by
definition of improvements. Its property class and recovery the “MM” already shown under column (e) in Part III of
period are the same as those that would apply to the Form 4562.
original property if you had placed it in service at the same
time you placed the addition or improvement in service. The mid-quarter convention. Use this convention if the
The recovery period begins on the later of the following mid-month convention does not apply and the total depre-
dates. ciable bases of MACRS property you placed in service

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during the last 3 months of the tax year (excluding nonresi- For purposes of determining whether the
dential real property, residential rental property, any rail- ! mid-quarter convention applies, the depreciable
basis of property you placed in service during the
road grading or tunnel bore, property placed in service and CAUTION

disposed of in the same year, and property that is being tax year reflects the reduction in basis for amounts ex-
depreciated under a method other than MACRS) are more pensed under section 179 and the part of the basis of
than 40% of the total depreciable bases of all MACRS property attributable to personal use. However, it does not
reflect any reduction in basis for any special depreciation
property you placed in service during the entire year.
allowance.
Under this convention, you treat all property placed in
service or disposed of during any quarter of the tax year as The half-year convention. Use this convention if neither
placed in service or disposed of at the midpoint of that the mid-quarter convention nor the mid-month convention
quarter. This means that 11/2 months of depreciation is applies.
allowed for the quarter the property is placed in service or Under this convention, you treat all property placed in
service or disposed of during a tax year as placed in
disposed of.
service or disposed of at the midpoint of the year. This
If you use this convention, enter “MQ” under column (e) means that a one-half year of depreciation is allowed for
in Part III of Form 4562. the year the property is placed in service or disposed of.

Table 4-1. Depreciation Methods

Note. The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL.

Method Type of Property Benefit

GDS using 200% • Nonfarm 3-, 5-, 7-, and 10-year property • Provides a greater deduction during the
DB earlier recovery years
• Changes to SL when that method provides
an equal or greater deduction
GDS using 150% • All farm property (except real property) • Provides a greater deduction during the
DB • All 15- and 20-year property (except qualified earlier recovery years
leasehold improvement property and qualified • Changes to SL when that method provides
restaurant property placed in service before an equal or greater deduction1
January 1, 2010)
• Nonfarm 3-, 5-, 7-, and 10-year property

GDS using SL • Nonresidential real property • Provides for equal yearly deductions (except
• Qualified leasehold improvement property for the first and last years)
placed in service before January 1, 2010
• Qualified restaurant property placed in service
before January 1, 2010
• 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)
ADS using SL • Listed property used 50% or less for business • Provides for equal yearly deductions
• Property used predominantly outside the U.S.
• Qualified leasehold improvement property
placed in service before January 1, 2010
• Qualified restaurant property placed in service
before January 1, 2010
• 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
method2
1The MACRS percentage tables in Appendix A have the switch to the straight line method built into their rates
2See section 168(g)(7) of the Internal Revenue Code.
3See section 168(g)(6) of the Internal Revenue Code

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If you use this convention, enter “HY” under column (e) Fruit or nut trees and vines. Depreciate trees and vines
in Part III of Form 4562. bearing fruit or nuts under GDS using the straight line
method over a recovery period of 10 years.

ADS required for some farmers. If you elect not to apply

Which Depreciation Method the uniform capitalization rules to any plant produced in
Applies? your farming business, you must use ADS. You must use
ADS for all property you place in service in any year the
election is in effect. See the regulations under section
Terms you may need to know 263A of the Internal Revenue Code for information on the
(see Glossary): uniform capitalization rules that apply to farm property.

Declining balance method

Electing a Different Method
Listed property
As shown in Table 4-1, you can elect a different method for
Nonresidential real property depreciation for certain types of property. You must make
Placed in service the election by the due date of the return (including exten-
sions) for the year you placed the property in service.
Property class However, if you timely filed your return for the year without
Recovery period making the election, you still can make the election by filing
an amended return within 6 months of the due date of the
Residential rental property return (excluding extensions). Attach the election to the
Straight line method amended return and write “Filed pursuant to section
301.9100-2” on the election statement. File the amended
Tax exempt return at the same address you filed the original return.
Once you make the election, you cannot change it.
MACRS provides three depreciation methods under GDS If you elect to use a different method for one item
and one depreciation method under ADS. ! in a property class, you must apply the same
method to all property in that class placed in
• The 200% declining balance method over a GDS CAUTION

recovery period. service during the year of the election. However, you can
make the election on a property-by-property basis for non-
• The 150% declining balance method over a GDS residential real and residential rental property.
recovery period.
• The straight line method over a GDS recovery pe- 150% election. Instead of using the 200% declining bal-
riod. ance method over the GDS recovery period for nonfarm
property in the 3-, 5-, 7-, and 10-year property classes, you
• The straight line method over an ADS recovery pe- can elect to use the 150% declining balance method. Make
riod. the election by entering “150 DB” under column (f) in Part
III of Form 4562.
For property placed in service before 1999, you
! could have elected the 150% declining balance Straight line election. Instead of using either the 200% or
CAUTION method using the ADS recovery periods for cer- 150% declining balance methods over the GDS recovery
tain property classes. If you made this election, continue to period, you can elect to use the straight line method over
use the same method and recovery period for that prop- the GDS recovery period. Make the election by entering
erty. “S/L” under column (f) in Part III of Form 4562.
Table 4-1 lists the types of property you can depreciate
Election of ADS. As explained earlier under Which De-
under each method. It also gives a brief explanation of the
preciation System (GDS or ADS) Applies, you can elect to
method, including any benefits that may apply.
use ADS even though your property may come under
GDS. ADS uses the straight line method of depreciation
Depreciation Methods for Farm over fixed ADS recovery periods. Most ADS recovery peri-
Property ods are listed in Appendix B, or see the table under Recov-
ery Periods Under ADS, earlier.
If you place personal property in service in a farming Make the election by completing line 20 in Part III of
business after 1988, you generally must depreciate it Form 4562.
under GDS using the 150% declining balance method
unless you are a farmer who must depreciate the property Farm property. Instead of using the 150% declining bal-
under ADS using the straight line method or you elect to ance method over a GDS recovery period for property you
depreciate the property under GDS or ADS using the use in a farming business (other than real property), you
straight line method. You can depreciate real property can elect to depreciate it using either of the following
using the straight line method under either GDS or ADS. methods.

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• The straight line method over a GDS recovery pe- 1. You must apply the rates in the percentage tables to
riod. your property’s unadjusted basis.
• The straight line method over an ADS recovery pe- 2. You cannot use the percentage tables for a short tax
riod. year. See Figuring the Deduction for a Short Tax
Year, later, for information on the short tax year
rules.

How Is the Depreciation 3. Once you start using the percentage tables for any
item of property, you generally must continue to use
Deduction Figured? them for the entire recovery period of the property.
4. You must stop using the tables if you adjust the basis
Terms you may need to know of the property for any reason other than—
(see Glossary):
a. Depreciation allowed or allowable, or
Adjusted basis b. An addition or improvement to that property that is
Amortization depreciated as a separate item of property.
Basis Basis adjustments other than those made due to the
Business/investment use items listed in (4) include an increase in basis for the
recapture of a clean-fuel deduction or credit and a reduc-
Convention tion in basis for a casualty loss.
Declining balance method
Basis adjustment due to recapture of clean-fuel vehi-
Disposition cle deduction or credit. If you increase the basis of your
Exchange property because of the recapture of part or all of a deduc-
tion for clean-fuel vehicles or the credit for clean-fuel vehi-
Nonresidential real property cle refueling property placed in service before January 1,
Placed in service 2006, you cannot continue to use the percentage tables.
For the year of the adjustment and the remaining recovery
Property class period, you must figure the depreciation deduction yourself
Recovery period using the property’s adjusted basis at the end of the year.
See Figuring the Deduction Without Using the Tables,
Straight line method later.

Basis adjustment due to casualty loss. If you reduce

To figure your depreciation deduction under MACRS, you
the basis of your property because of a casualty, you
first determine the depreciation system, property class,
cannot continue to use the percentage tables. For the year
placed in service date, basis amount, recovery period,
of the adjustment and the remaining recovery period, you
convention, and depreciation method that applies to your
must figure the depreciation yourself using the property’s
property. Then, you are ready to figure your depreciation
adjusted basis at the end of the year. See Figuring the
deduction. You can figure it using a percentage table
Deduction Without Using the Tables, later.
provided by the IRS, or you can figure it yourself without
using the table.
Example. On October 26, 2008, Sandra Elm, a calen-
dar year taxpayer, bought and placed in service in her
Using the MACRS Percentage Tables business in the GO Zone a new item of 7-year property. It
cost $39,000 and she elected a section 179 deduction of
To help you figure your deduction under MACRS, the IRS $24,000. She also took a special depreciation allowance of
has established percentage tables that incorporate the $7,500 [50% of $15,000 ($39,000 − $24,000)]. Her unad-
applicable convention and depreciation method. These justed basis after the section 179 deduction and special
percentage tables are in Appendix A near the end of this depreciation allowance was $7,500 ($15,000 − $7,500).
publication. She figured her MACRS depreciation deduction using the
percentage tables. For 2008, her MACRS depreciation
Which table to use. Appendix A contains the MACRS deduction was $268.
Percentage Table Guide, which is designed to help you
In July 2009, the property was vandalized and Sandra
locate the correct percentage table to use for depreciating
had a deductible casualty loss of $3,000. She must adjust
your property. The percentage tables immediately follow
the property’s basis for the casualty loss, so she can no
the guide.
longer use the percentage tables. Her adjusted basis at the
end of 2009, before figuring her 2009 depreciation, is
Rules Covering the Use of the Tables $4,232. She figures that amount by subtracting the 2008
MACRS depreciation of $268 and the casualty loss of
The following rules cover the use of the percentage tables. $3,000 from the unadjusted basis of $7,500. She must now

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figure her depreciation for 2009 without using the percent- 11. Subtract line 10 from line 9. This is your
age tables. tentative basis for depreciation . . . . . . . . . . $
12. Multiply line 11 by .30 if the 30% special
depreciation allowance applies. Multiply line
Figuring the Unadjusted Basis of 11 by .50 if the 50% special depreciation
Your Property allowance applies. This is your special
depreciation allowance. Enter -0- if this is not
You must apply the table rates to your property’s unad- the year you placed the property in service,
justed basis each year of the recovery period. Unadjusted the property is not qualified property, or you
basis is the same basis amount you would use to figure elected not to claim a special allowance . . . $
gain on a sale, but you figure it without reducing your 13. Subtract line 12 from line 11. This is your
original basis by any MACRS depreciation taken in earlier basis for depreciation . . . . . . . . . . . . . . . . .
years. However, you do reduce your original basis by other 14. Depreciation rate (from line 6) . . . . . . . . . . .
amounts, including the following. 15. Multiply line 13 by line 14. This is your
• Any amortization taken on the property. MACRS depreciation deduction . . . . . . . . . . $
*If real estate, do not include cost (basis) of land.
• Any section 179 deduction claimed.
• Any special depreciation allowance taken on the The following example shows how to figure your
property. MACRS depreciation deduction using the percentage ta-
bles and the MACRS worksheet.
For business property you purchase during the year, the
unadjusted basis is its cost minus these and other applica- Example. You bought office furniture (7-year property)
ble adjustments. If you trade property, your unadjusted for $10,000 and placed it in service on August 11, 2009.
basis in the property received is the cash paid plus the You use the furniture only for business. This is the only
adjusted basis of the property traded minus these adjust- property you placed in service this year. You did not elect a
ments. section 179 deduction and the property is not qualified
property for purposes of claiming a special depreciation
MACRS Worksheet allowance so your property’s unadjusted basis is its cost,
$10,000. You use GDS and the half-year convention to
You can use this worksheet to help you figure your depre- figure your depreciation. You refer to the MACRS Percent-
ciation deduction using the percentage tables. Use a sepa- age Table Guide in Appendix A and find that you should
rate worksheet for each item of property. Then, use the use Table A-1. Multiply your property’s unadjusted basis
information from this worksheet to prepare Form 4562. each year by the percentage for 7-year property given in
Table A-1. You figure your depreciation deduction using
Do not use this worksheet for automobiles. Use
the MACRS worksheet as follows.
!
CAUTION
the Depreciation Worksheet for Passenger Auto-
mobiles in chapter 5.
MACRS Worksheet
Keep for Your Records
MACRS Worksheet
Keep for Your Records Part I
1. MACRS system (GDS or ADS) GDS
Part I
2. Property class . . . . . . . . . . . . . . 7-year
1. MACRS system (GDS or ADS) . . . . 3. Date placed in service . . . . . . . . 8/11/09
2. Property class . . . . . . . . . . . . . . . . . 4. Recovery period . . . . . . . . . . . . 7-Year
3. Date placed in service . . . . . . . . . . . 5. Method and convention . . . . . . . 200%DB/Half-Year
4. Recovery period . . . . . . . . . . . . . . . 6. Depreciation rate (from tables) .1429
5. Method and convention . . . . . . . . . .
Part II
6. Depreciation rate (from tables) . . . .
7. Cost or other basis* . . . . . . . . . . $10,000
Part II 8. Business/investment use . . . . . . 100%
7. Cost or other basis* . . . . . . . . . . . . . $ 9. Multiply line 7 by line 8 . . . . . . . . . . . . . $10,000
8. Business/investment use . . . . . . . . . % 10. Total claimed for section 179 deduction
9. Multiply line 7 by line 8 . . . . . . . . . . . . . . . . $ and other items . . . . . . . . . . . . . . . . . . . -0-
10. Total claimed for section 179 deduction and 11. Subtract line 10 from line 9. This is your
other items . . . . . . . . . . . . . . . . . . . . . . . . . $ tentative basis for depreciation . . . . . . . $10,000

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12. Multiply line 11 by .30 if the 30% special Example 2. During the year, you bought a machine
depreciation allowance applies. Multiply (7-year property) for $4,000, office furniture (7-year prop-
line 11 by .50 if the 50% special erty) for $1,000, and a computer (5-year property) for
depreciation allowance applies. This is $5,000. You placed the machine in service in January, the
your special depreciation allowance. furniture in September, and the computer in October. You
Enter -0- if this is not the year you do not elect a section 179 deduction and none of these
placed the property in service, the items is qualified property for purposes of claiming a spe-
property is not qualified property, or you cial depreciation allowance.
elected not to claim a special allowance -0- You placed property in service during the last three
13. Subtract line 12 from line 11. This is months of the year, so you must first determine if you have
your basis for depreciation . . . . . . . . . . $10,000 to use the mid-quarter convention. The total bases of all
14. Depreciation rate (from line 6) . . . . . . . . .1429 property you placed in service during the year is $10,000.
15. Multiply line 13 by line 14. This is your The $5,000 basis of the computer, which you placed in
MACRS depreciation deduction . . . . . . . $1,429 service during the last 3 months (the fourth quarter) of your
*If real estate, do not include cost (basis) of land. tax year, is more than 40% of the total bases of all property
($10,000) you placed in service during the year. Therefore,
If there are no adjustments to the basis of the property you must use the mid-quarter convention for all three
other than depreciation, your depreciation deduction for items.
each subsequent year of the recovery period will be as You refer to the MACRS Percentage Table Guide in
follows. Appendix A to determine which table you should use under
the mid-quarter convention. The machine is 7-year prop-
Year Basis Percentage Deduction
erty placed in service in the first quarter, so you use Table
2010 . . . . . . . . . . . $10,000 24.49% $2,449 A-2. The furniture is 7-year property placed in service in
2011 . . . . . . . . . . . 10,000 17.49 1,749 the third quarter, so you use Table A-4. Finally, because
2012 . . . . . . . . . . . 10,000 12.49 1,249 the computer is 5-year property placed in service in the
2013 . . . . . . . . . . . 10,000 8.93 893 fourth quarter, you use Table A-5. Knowing what table to
2014 . . . . . . . . . . . 10,000 8.92 892 use for each property, you figure the depreciation for the
2015 . . . . . . . . . . . 10,000 8.93 893 first 2 years as follows.
2016 . . . . . . . . . . . 10,000 4.46 446
Year Property Basis Percentage Deduction

Examples 1st Machine $4,000 25.00 $1,000

2nd Machine 4,000 21.43 857
The following examples are provided to show you how to
use the percentage tables. In both examples, assume the 1st Furniture 1,000 10.71 107
following. 2nd Furniture 1,000 25.51 255
• You use the property only for business.
1st Computer 5,000 5.00 250
• You use the calendar year as your tax year. 2nd Computer 5,000 38.00 1,900
• You use GDS for all the properties.

Example 1. You bought a building and land for Sale or Other Disposition Before the
$120,000 and placed it in service on March 8. The sales Recovery Period Ends
contract showed that the building cost $100,000 and the
land cost $20,000. It is nonresidential real property. The If you sell or otherwise dispose of your property before the
building’s unadjusted basis is its original cost, $100,000. end of its recovery period, your depreciation deduction for
the year of the disposition will be only part of the deprecia-
You refer to the MACRS Percentage Table Guide in
tion amount for the full year. You have disposed of your
Appendix A and find that you should use Table A-7a.
property if you have permanently withdrawn it from use in
March is the third month of your tax year, so multiply the
your business or income-producing activity because of its
building’s unadjusted basis, $100,000, by the percentages
sale, exchange, retirement, abandonment, involuntary
for the third month in Table A-7a. Your depreciation deduc-
conversion, or destruction. After you figure the full-year
tion for each of the first 3 years is as follows:
depreciation amount, figure the deductible part using the
convention that applies to the property.
Year Basis Percentage Deduction
1st . . . . . . . . . . . . $100,000 2.033% $2,033 Half-year convention used. For property for which you
2nd . . . . . . . . . . . . 100,000 2.564 2,564 used a half-year convention, the depreciation deduction for
3rd . . . . . . . . . . . . 100,000 2.564 2,564 the year of the disposition is half the depreciation deter-
mined for the full year.

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Mid-quarter convention used. For property for which Before making the computation each year, you must re-
you used the mid-quarter convention, figure your deprecia- duce your adjusted basis in the property by the deprecia-
tion deduction for the year of the disposition by multiplying tion claimed the previous year.
a full year of depreciation by the percentage listed below Figuring MACRS deductions without using the
for the quarter in which you disposed of the property.
!
CAUTION
tables generally will result in a slightly different
amount than using the tables.
Quarter Percentage
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5%
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.5
Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.5 Declining Balance Method
Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87.5
When using a declining balance method, you apply the
same depreciation rate each year to the adjusted basis of
Example. On December 2, 2006, you placed in service your property. You must use the applicable convention for
an item of 5-year property costing $10,000. You did not the first tax year and you must switch to the straight line
claim a section 179 deduction and the property does not method beginning in the first year for which it will give an
qualify for a special depreciation allowance. Your unad- equal or greater deduction. The straight line method is
justed basis for the property was $10,000. You used the explained later.
mid-quarter convention because this was the only item of You figure depreciation for the year you place property
business property you placed in service in 2006 and it was in service as follows.
placed in service during the last 3 months of your tax year. 1. Multiply your adjusted basis in the property by the
Your property is in the 5-year property class, so you used declining balance rate.
Table A-5 to figure your depreciation deduction. Your de-
ductions for 2006, 2007, and 2008 were $500 (5% of 2. Apply the applicable convention.
$10,000), $3,800 (38% of $10,000), and $2,280 (22.80% You figure depreciation for all other years (before the
of $10,000). You disposed of the property on April 6, 2009. year you switch to the straight line method) as follows.
To determine your depreciation deduction for 2009, first
figure the deduction for the full year. This is $1,368 1. Reduce your adjusted basis in the property by the
(13.68% of $10,000). April is in the second quarter of the depreciation allowed or allowable in earlier years.
year, so you multiply $1,368 by 37.5% to get your depreci- 2. Multiply this new adjusted basis by the same declin-
ation deduction of $513 for 2009. ing balance rate used in earlier years.

Mid-month convention used. If you dispose of residen- If you dispose of property before the end of its recovery
tial rental or nonresidential real property, figure your depre- period, see Using the Applicable Convention, later, for
information on how to figure depreciation for the year you
ciation deduction for the year of the disposition by
dispose of it.
multiplying a full year of depreciation by a fraction. The
Figuring depreciation under the declining balance
numerator of the fraction is the number of months (includ-
method and switching to the straight line method is illus-
ing partial months) in the year that the property is consid-
trated in Example 1, later, under Examples.
ered in service. The denominator is 12.
Declining balance rate. You figure your declining bal-
Example. On July 2, 2007, you purchased and placed ance rate by dividing the specified declining balance per-
in service residential rental property. The property cost centage (150% or 200% changed to a decimal) by the
$100,000, not including the cost of land. You used Table number of years in the property’s recovery period. For
A-6 to figure your MACRS depreciation for this property. example, for 3-year property depreciated using the 200%
You sold the property on March 2, 2009. You file your tax declining balance method, divide 2.00 (200%) by 3 to get
return based on the calendar year. 0.6667, or a 66.67% declining balance rate. For 15-year
A full year of depreciation for 2009 is $3,636. This is property depreciated using the 150% declining balance
$100,000 multiplied by .03636 (the percentage for the method, divide 1.50 (150%) by 15 to get 0.10, or a 10%
seventh month of the third recovery year) from Table A-6. declining balance rate.
You then apply the mid-month convention for the 21/2 The following table shows the declining balance rate for
months of use in 2009. Treat the month of disposition as each property class and the first year for which the straight
one-half month of use. Multiply $3,636 by the fraction, 2.5 line method gives an equal or greater deduction.
over 12, to get your 2009 depreciation deduction of
$757.50. Property Declining Balance
Class Method Rate Year
Figuring the Deduction Without Using 3-year 200% DB 66.667% 3rd
the Tables 5-year 200% DB 40.0 4th

Instead of using the rates in the percentage tables to figure 7-year 200% DB 28.571 5th
your depreciation deduction, you can figure it yourself.

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Property Declining Balance Half-year convention. If this convention applies, you de-
Class Method Rate Year duct a half-year of depreciation for the first year and the
10-year 200% DB 20.0 7th last year that you depreciate the property. You deduct a full
year of depreciation for any other year during the recovery
15-year 150% DB 10.0 7th period.
20-year 150% DB 7.5 9th Figure your depreciation deduction for the year you
place the property in service by dividing the depreciation
for a full year by 2. If you dispose of the property before the
end of the recovery period, figure your depreciation deduc-
Straight Line Method tion for the year of the disposition the same way. If you hold
the property for the entire recovery period, your deprecia-
When using the straight line method, you apply a different tion deduction for the year that includes the final 6 months
depreciation rate each year to the adjusted basis of your of the recovery period is the amount of your unrecovered
property. You must use the applicable convention in the basis in the property.
year you place the property in service and the year you
dispose of the property. Mid-quarter convention. If this convention applies, the
You figure depreciation for the year you place property depreciation you can deduct for the first year you depreci-
in service as follows. ate the property depends on the quarter in which you place
the property in service.
1. Multiply your adjusted basis in the property by the A quarter of a full 12-month tax year is a period of 3
straight line rate. months. The first quarter in a year begins on the first day of
the tax year. The second quarter begins on the first day of
2. Apply the applicable convention. the fourth month of the tax year. The third quarter begins
You figure depreciation for all other years (including the on the first day of the seventh month of the tax year. The
year you switch from the declining balance method to the fourth quarter begins on the first day of the tenth month of
straight line method) as follows. the tax year. A calendar year is divided into the following
quarters.
1. Reduce your adjusted basis in the property by the
depreciation allowed or allowable in earlier years Quarter Months
(under any method). First . . . . . . . . . . . . . . January, February, March
Second . . . . . . . . . . . . April, May, June
2. Determine the depreciation rate for the year. Third . . . . . . . . . . . . . . July, August, September
3. Multiply the adjusted basis figured in (1) by the de- Fourth . . . . . . . . . . . . . October, November, December
preciation rate figured in (2). Figure your depreciation deduction for the year you
place the property in service by multiplying the deprecia-
If you dispose of property before the end of its recovery tion for a full year by the percentage listed below for the
period, see Using the Applicable Convention, later, for quarter you place the property in service.
information on how to figure depreciation for the year you
dispose of it. Quarter Percentage
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87.5%
Straight line rate. You determine the straight line depre- Second . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.5
ciation rate for any tax year by dividing the number 1 by the Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.5
years remaining in the recovery period at the beginning of Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
that year. When figuring the number of years remaining, If you dispose of the property before the end of the
you must take into account the convention used in the year recovery period, figure your depreciation deduction for the
you placed the property in service. If the number of years year of the disposition by multiplying a full year of deprecia-
remaining is less than 1, the depreciation rate for that tax tion by the percentage listed below for the quarter you
year is 1.0 (100%). dispose of the property.

Quarter Percentage
Using the Applicable Convention First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5%
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.5
The applicable convention (discussed earlier under Which Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.5
Convention Applies) affects how you figure your deprecia- Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87.5
tion deduction for the year you place your property in If you hold the property for the entire recovery period,
service and for the year you dispose of it. It determines your depreciation deduction for the year that includes the
how much of the recovery period remains at the beginning final quarter of the recovery period is the amount of your
of each year, so it also affects the depreciation rate for unrecovered basis in the property.
property you depreciate under the straight line method.
See Straight line rate in the previous discussion. Use the Mid-month convention. If this convention applies, the
applicable convention as explained in the following discus- depreciation you can deduct for the first year that you
sions. depreciate the property depends on the month in which

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you place the property in service. Figure your depreciation You figure the SL depreciation rate by dividing 1 by 4.5,
deduction for the year you place the property in service by the number of years remaining in the recovery period.
multiplying the depreciation for a full year by a fraction. The (Based on the half-year convention, you used only half a
numerator of the fraction is the number of full months in the year of the recovery period in the first year.) You multiply
year that the property is in service plus 1/2 (or 0.5). The the reduced adjusted basis ($800) by the result (22.22%).
denominator is 12. Depreciation under the SL method for the second year is
If you dispose of the property before the end of the $178.
recovery period, figure your depreciation deduction for the The DB method provides a larger deduction, so you
year of the disposition the same way. If you hold the deduct the $320 figured under the 200% DB method.
property for the entire recovery period, your depreciation Third year. You reduce the adjusted basis ($800) by
deduction for the year that includes the final month of the the depreciation claimed in the second year ($320). You
recovery period is the amount of your unrecovered basis in multiply the result ($480) by the DB rate (40%). Deprecia-
the property. tion for the third year under the 200% DB method is $192.
You figure the SL depreciation rate by dividing 1 by 3.5.
Example. You use the calendar year and place non- You multiply the reduced adjusted basis ($480) by the
residential real property in service in August. The property result (28.57%). Depreciation under the SL method for the
is in service 4 full months (September, October, Novem- third year is $137.
ber, and December). Your numerator is 4.5 (4 full months The DB method provides a larger deduction, so you
plus 0.5). You multiply the depreciation for a full year by deduct the $192 figured under the 200% DB method.
4.5/12, or 0.375. Fourth year. You reduce the adjusted basis ($480) by
the depreciation claimed in the third year ($192). You
Examples multiply the result ($288) by the DB rate (40%). Deprecia-
tion for the fourth year under the 200% DB method is $115.
The following examples show how to figure depreciation You figure the SL depreciation rate by dividing 1 by 2.5.
under MACRS without using the percentage tables. You multiply the reduced adjusted basis ($288) by the
Figures are rounded for purposes of the examples. As- result (40%). Depreciation under the SL method for the
sume for all the examples that you use a calendar year as fourth year is $115.
your tax year. The SL method provides an equal deduction, so you
switch to the SL method and deduct the $115.
Example 1—200% DB method and half-year conven- Fifth year. You reduce the adjusted basis ($288) by the
tion. In February, you placed in service depreciable prop- depreciation claimed in the fourth year ($115) to get the
erty with a 5-year recovery period and a basis of $1,000. reduced adjusted basis of $173. You figure the SL depreci-
You do not elect to take the section 179 deduction and the ation rate by dividing 1 by 1.5. You multiply the reduced
property does not qualify for a special depreciation allow- adjusted basis ($173) by the result (66.67%). Depreciation
ance. You use GDS and the 200% declining balance (DB) under the SL method for the fifth year is $115.
method to figure your depreciation. When the straight line Sixth year. You reduce the adjusted basis ($173) by the
(SL) method results in an equal or larger deduction, you depreciation claimed in the fifth year ($115) to get the
switch to the SL method. You did not place any property in reduced adjusted basis of $58. There is less than one year
service in the last 3 months of the year, so you must use remaining in the recovery period, so the SL depreciation
the half-year convention. rate for the sixth year is 100%. You multiply the reduced
First year. You figure the depreciation rate under the adjusted basis ($58) by 100% to arrive at the depreciation
200% DB method by dividing 2 (200%) by 5 (the number of deduction for the sixth year ($58).
years in the recovery period). The result is 40%. You
multiply the adjusted basis of the property ($1,000) by the Example 2 —SL method and mid-month convention.
40% DB rate. You apply the half-year convention by divid- In January, you bought and placed in service a building for
ing the result ($400) by 2. Depreciation for the first year $100,000 that is nonresidential real property with a recov-
under the 200% DB method is $200. ery period of 39 years. The adjusted basis of the building is
You figure the depreciation rate under the straight line its cost of $100,000. You use GDS, the straight line (SL)
(SL) method by dividing 1 by 5, the number of years in the method, and the mid-month convention to figure your de-
recovery period. The result is 20%.You multiply the ad- preciation.
justed basis of the property ($1,000) by the 20% SL rate. First year. You figure the SL depreciation rate for the
You apply the half-year convention by dividing the result building by dividing 1 by 39 years. The result is .02564. The
($200) by 2. Depreciation for the first year under the SL depreciation for a full year is $2,564 ($100,000 × .02564).
method is $100. Under the mid-month convention, you treat the property as
The DB method provides a larger deduction, so you placed in service in the middle of January. You get 11.5
deduct the $200 figured under the 200% DB method. months of depreciation for the year. Expressed as a deci-
Second year. You reduce the adjusted basis ($1,000) mal, the fraction of 11.5 months divided by 12 months is
by the depreciation claimed in the first year ($200). You .958. Your first-year depreciation for the building is $2,456
multiply the result ($800) by the DB rate (40%). Deprecia- ($2,564 × .958).
tion for the second year under the 200% DB method is Second year. You subtract $2,456 from $100,000 to
$320. get your adjusted basis of $97,544 for the second year.

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The SL rate is .02629. This is 1 divided by the remaining First and second year depreciation for computer.
recovery period of 38.042 years (39 years reduced by 11.5 The 200% DB rate for 5-year property is .40. You deter-
months or .958 year). Your depreciation for the building for mine this by dividing 2.00 (200%) by 5 years. The depreci-
the second year is $2,564 ($97,544 × .02629). ation for the computer for a full year is $2,000 ($5,000 ×
Third year. The adjusted basis is $94,980 ($97,544 − .40). You placed the computer in service in the fourth
$2,564). The SL rate is .027 (1 divided by 37.042 remain- quarter of your tax year, so you multiply the $2,000 by
ing years). Your depreciation for the third year is $2,564 12.5% (the mid-quarter percentage for the fourth quarter).
($94,980 × .027). The result, $250, is your deduction for depreciation on the
computer for the first year.
Example 3—200% DB method and mid-quarter con- For the second year, the adjusted basis of the computer
vention. During the year, you bought and placed in serv- is $4,750. You figure this by subtracting the first year’s
ice in your business the following items. depreciation ($250) from the basis of the computer
($5,000). Your depreciation deduction for the second year
Month Placed is $1,900 ($4,750 × .40).
Item in Service Cost
Example 4—200% DB method and half-year conven-
Safe January $4,000 tion. Last year, in July, you bought and placed in service
in your business a new item of 7-year property. This was
Office furniture September 1,000 the only item of property you placed in service last year.
Computer (not listed property) October 5,000 The property cost $39,000 and you elected a $24,000
section 179 deduction. You also took a special deprecia-
tion allowance of $7,500. Your unadjusted basis for the
You do not elect a section 179 deduction and these items property is $7,500. Because you did not place any property
do not qualify for a special depreciation allowance. You in service in the last 3 months of your tax year, you used
use GDS and the 200% declining balance (DB) method to the half-year convention. You figured your deduction using
figure the depreciation. The total bases of all property you the percentages in Table A-1 for 7-year property. Last
placed in service this year is $10,000. The basis of the year, your depreciation was $1,072 ($7,500 × 14.29%).
computer ($5,000) is more than 40% of the total bases of In July of this year, your property was vandalized. You
all property placed in service during the year ($10,000), so had a deductible casualty loss of $3,000. You spent $3,500
you must use the mid-quarter convention. This convention to put the property back in operational order. Your adjusted
applies to all three items of property. The safe and office basis at the end of this year is $6,928. You figured this by
furniture are 7-year property and the computer is 5-year first subtracting the first year’s depreciation ($1,072) and
property. the casualty loss ($3,000) from the unadjusted basis of
First and second year depreciation for safe. The $7,500. To this amount ($3,428), you then added the
200% DB rate for 7-year property is .28571. You determine $3,500 repair cost.
this by dividing 2.00 (200%) by 7 years. The depreciation You cannot use the table percentages to figure your
for the safe for a full year is $1,143 ($4,000 × .28571). You depreciation for this property for this year because of the
placed the safe in service in the first quarter of your tax adjustments to basis. You must figure the deduction your-
year, so you multiply $1,143 by 87.5% (the mid-quarter self. You determine the DB rate by dividing 2.00 (200%) by
percentage for the first quarter). The result, $1,000, is your 7 years. The result is .28571 or 28.571%. You multiply the
deduction for depreciation on the safe for the first year. adjusted basis of your property ($6,928) by the declining
balance rate of .28571 to get your depreciation deduction
For the second year, the adjusted basis of the safe is of $1,979 for this year.
$3,000. You figure this by subtracting the first year’s depre-
ciation ($1,000) from the basis of the safe ($4,000). Your
depreciation deduction for the second year is $857
Figuring the Deduction for Property
($3,000 × .28571). Acquired in a Nontaxable Exchange
First and second year depreciation for furniture. The If your property has a carryover basis because you ac-
furniture is also 7-year property, so you use the same quired it in a nontaxable transfer such as a like-kind ex-
200% DB rate of .28571. You multiply the basis of the change or involuntary conversion, you must generally
furniture ($1,000) by .28571 to get the depreciation of $286 figure depreciation for the property as if the transfer had
for the full year. You placed the furniture in service in the not occurred. However, see Like-kind exchanges and in-
third quarter of your tax year, so you multiply $286 by voluntary conversions, earlier, in chapter 3 under How
37.5% (the mid-quarter percentage for the third quarter). Much Can You Deduct and Property Acquired in a
The result, $107, is your deduction for depreciation on the Like-kind Exchange or Involuntary Conversion, next.
furniture for the first year.
For the second year, the adjusted basis of the furniture
is $893. You figure this by subtracting the first year’s
depreciation ($107) from the basis of the furniture
($1,000). Your depreciation for the second year is $255
($893 × .28571).

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Property Acquired in a Like-kind Exchange For more information and special rules, see the Instruc-
or Involuntary Conversion tions for Form 4562.

You generally must depreciate the carryover basis of prop-

erty acquired in a like-kind exchange or involuntary conver- Property Acquired in a Nontaxable Transfer
sion over the remaining recovery period of the property You must depreciate MACRS property acquired by a cor-
exchanged or involuntarily converted. You also generally poration or partnership in certain nontaxable transfers over
continue to use the same depreciation method and con- the property’s remaining recovery period in the transferor’s
vention used for the exchanged or involuntarily converted hands, as if the transfer had not occurred. You must
property. This applies only to acquired property with the continue to use the same depreciation method and con-
same or a shorter recovery period and the same or more vention as the transferor. You can depreciate the part of
accelerated depreciation method than the property ex- the property’s basis that exceeds its carryover basis (the
changed or involuntarily converted. The excess basis (the transferor’s adjusted basis in the property) as newly pur-
part of the acquired property’s basis that exceeds its carry- chased MACRS property.
over basis), if any, of the acquired property is treated as The nontaxable transfers covered by this rule include
newly placed in service property. the following.
For acquired property that has a longer recovery period
or less accelerated depreciation method than the ex- • A distribution in complete liquidation of a subsidiary.
changed or involuntarily converted property, you generally • A transfer to a corporation controlled by the trans-
must depreciate the carryover basis of the acquired prop- feror.
erty as if it were placed in service in the same tax year as
the exchanged or involuntarily converted property. You • An exchange of property solely for corporate stock
also generally continue to use the longer recovery period or securities in a reorganization.
and less accelerated depreciation method of the acquired • A contribution of property to a partnership in ex-
property. change for a partnership interest.
If the MACRS property you acquired in the exchange or
involuntary conversion is qualified property, discussed ear-
• A partnership distribution of property to a partner.
lier in chapter 3 under What Is Qualified Property, you can
claim a special depreciation allowance on the carryover
basis. Figuring the Deduction for a Short
Special rules apply to vehicles acquired in a trade-in. Tax Year
For information on how to figure depreciation for a vehicle
acquired in a trade-in that is subject to the passenger You cannot use the MACRS percentage tables to deter-
automobile limits, see Deductions For Passenger Automo- mine depreciation for a short tax year. A short tax year is
biles Acquired in a Trade-in under Do the Passenger any tax year with less than 12 full months. This section
Automobile Limits Apply in chapter 5. discusses the rules for determining the depreciation de-
duction for property you place in service or dispose of in a
Election out. Instead of using the above rules, you can short tax year. It also discusses the rules for determining
elect, for depreciation purposes, to treat the adjusted basis depreciation when you have a short tax year during the
of the exchanged or involuntarily converted property as if recovery period (other than the year the property is placed
disposed of at the time of the exchange or involuntary in service or disposed of).
conversion. Treat the carryover basis and excess basis, if For more information on figuring depreciation for a short
any, for the acquired property as if placed in service the tax year, see Revenue Procedure 89-15, 1989-1 C.B. 816.
later of the date you acquired it or the time of the disposi-
tion of the exchanged or involuntarily converted property.
The depreciable basis of the new property is the adjusted Using the Applicable Convention in a Short
basis of the exchanged or involuntarily converted property Tax Year
plus any additional amount you paid for it. The election, if
made, applies to both the acquired property and the ex- The applicable convention establishes the date property is
changed or involuntarily converted property. This election treated as placed in service and disposed of. Depreciation
does not affect the amount of gain or loss recognized on is allowable only for that part of the tax year the property is
the exchange or involuntary conversion. treated as in service. The recovery period begins on the
placed in service date determined by applying the conven-
When to make the election. You must make the elec- tion. The remaining recovery period at the beginning of the
tion on a timely filed return (including extensions) for the next tax year is the full recovery period less the part for
year of replacement. The election must be made sepa- which depreciation was allowable in the first tax year.
rately by each person acquiring replacement property. In The following discussions explain how to use the appli-
the case of a partnership, S corporation, or consolidated cable convention in a short tax year.
group, the election is made by the partnership, by the S
corporation, or by the common parent of a consolidated Mid-month convention. Under the mid-month conven-
group, respectively. Once made, the election may not be tion, you always treat your property as placed in service or
revoked without IRS consent. disposed of on the midpoint of the month it is placed in

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service or disposed of. You apply this rule without regard to For a short tax year of 4 or 8 full calendar months,
your tax year. determine quarters on the basis of whole months. The
midpoint of each quarter is either the first day or the
Half-year convention. Under the half-year convention, midpoint of a month. Treat property as placed in service or
you treat property as placed in service or disposed of on disposed of on this midpoint.
the midpoint of the tax year it is placed in service or To determine the midpoint of a quarter for a short tax
disposed of.
year of other than 4 or 8 full calendar months, complete the
First or last day of month. For a short tax year begin- following steps.
ning on the first day of a month or ending on the last day of
a month, the tax year consists of the number of months in 1. Determine the number of days in your short tax year.
the tax year. If the short tax year includes part of a month, 2. Determine the number of days in each quarter by
you generally include the full month in the number of dividing the number of days in your short tax year
months in the tax year. You determine the midpoint of the
by 4.
tax year by dividing the number of months in the tax year
by 2. For the half-year convention, you treat property as 3. Determine the midpoint of each quarter by dividing
placed in service or disposed of on either the first day or the number of days in each quarter by 2.
the midpoint of a month.
If the result of (3) gives you a midpoint of a quarter that is
For example, a short tax year that begins on June 20 on a day other than the first day or midpoint of a month,
and ends on December 31 consists of 7 months. You use treat the property as placed in service or disposed of on the
only full months for this determination, so you treat the tax
nearest preceding first day or midpoint of that month.
year as beginning on June 1 instead of June 20. The
midpoint of the tax year is the middle of September (31/2
Example. Tara Corporation, a calendar year taxpayer,
months from the beginning of the tax year). You treat
was incorporated and began business on March 15. It has
property as placed in service or disposed of on this mid-
point. a short tax year of 91/2 months, ending on December 31.
During December, it placed property in service for which it
Example. Tara Corporation, a calendar year taxpayer, must use the mid-quarter convention. This is a short tax
was incorporated on March 15. For purposes of the year of other than 4 or 8 full calendar months, so it must
half-year convention, it has a short tax year of 10 months, determine the midpoint of each quarter.
ending on December 31, 2009. During the short tax year,
Tara placed property in service for which it uses the 1. First, it determines that its short tax year beginning
half-year convention. Tara treats this property as placed in March 15 and ending December 31 consists of 292
service on the first day of the sixth month of the short tax days.
year, or August 1, 2009. 2. Next, it divides 292 by 4 to determine the length of
Not on first or last day of month. For a short tax year each quarter, 73 days.
not beginning on the first day of a month and not ending on 3. Finally, it divides 73 by 2 to determine the midpoint of
the last day of a month, the tax year consists of the number each quarter, the 37th day.
of days in the tax year. You determine the midpoint of the
tax year by dividing the number of days in the tax year by 2. The following table shows the quarters of Tara Corpora-
For the half-year convention, you treat property as placed tion’s short tax year, the midpoint of each quarter, and the
in service or disposed of on either the first day or the date in each quarter that Tara must treat its property as
midpoint of a month. If the result of dividing the number of placed in service.
days in the tax year by 2 is not the first day or the midpoint
of a month, you treat the property as placed in service or
Quarter Midpoint Placed in Service
disposed of on the nearest preceding first day or midpoint
of a month. 3/15 – 5/26 4/20 4/15
5/27 – 8/07 7/02 7/01
Mid-quarter convention. To determine if you must use
the mid-quarter convention, compare the basis of property 8/08 – 10/19 9/13 9/01
you place in service in the last 3 months of your tax year to 10/20 – 12/31 11/25 11/15
that of property you place in service during the full tax year.
The length of your tax year does not matter. If you have a
short tax year of 3 months or less, use the mid-quarter The last quarter of the short tax year begins on October
convention for all applicable property you place in service 20, which is 73 days from December 31, the end of the tax
during that tax year. year. The 37th day of the last quarter is November 25,
You treat property under the mid-quarter convention as which is the midpoint of the quarter. November 25 is not
placed in service or disposed of on the midpoint of the the first day or the midpoint of November, so Tara Corpora-
quarter of the tax year in which it is placed in service or tion must treat the property as placed in service in the
disposed of. Divide a short tax year into 4 quarters and middle of November (the nearest preceding first day or
determine the midpoint of each quarter. midpoint of that month).

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Property Placed in Service in a Short Property Placed in Service Before a Short

Tax Year Tax Year
To figure your MACRS depreciation deduction for the short If you have a short tax year after the tax year in which you
tax year, you must first determine the depreciation for a full began depreciating property, you must change the way
tax year. You do this by multiplying your basis in the you figure depreciation for that property. If you were using
property by the applicable depreciation rate. Then, deter- the percentage tables, you can no longer use them. You
mine the depreciation for the short tax year. Do this by must figure depreciation for the short tax year and each
multiplying the depreciation for a full tax year by a fraction. later tax year as explained next.
The numerator (top number) of the fraction is the number
of months (including parts of a month) the property is
Depreciation After a Short Tax Year
treated as in service during the tax year (applying the
applicable convention). The denominator (bottom number) You can use either of the following methods to figure the
is 12. See Depreciation After a Short Tax Year, later, for depreciation for years after a short tax year.
information on how to figure depreciation in later years.
• The simplified method.
Example 1—half-year convention. Tara Corporation, • The allocation method.
with a short tax year beginning March 15 and ending
December 31, placed in service on March 16 an item of You must use the method you choose consistently.
5-year property with a basis of $1,000. This is the only
Using the simplified method for a 12-month year.
property the corporation placed in service during the short
Under the simplified method, you figure the depreciation
tax year. Tara does not elect to claim a section 179 deduc-
for a later 12-month year in the recovery period by multiply-
tion and the property does not qualify for a special depreci-
ing the adjusted basis of your property at the beginning of
ation allowance. The depreciation method for this property
the year by the applicable depreciation rate.
is the 200% declining balance method. The depreciation
rate is 40% and Tara applies the half-year convention. Example. Assume the same facts as in Example 1
Tara treats the property as placed in service on under Property Placed in Service in a Short Tax Year,
August 1. The determination of this August 1 date is ex- earlier. The Tara Corporation claimed depreciation of $167
plained in the example illustrating the half-year convention for its short tax year. The adjusted basis on January 1 of
under Using the Applicable Convention in a Short Tax the next year is $833 ($1,000 − $167). Tara’s depreciation
Year, earlier. Tara is allowed 5 months of depreciation for for that next year is 40% of $833, or $333.
the short tax year that consists of 10 months. The corpora-
tion first multiplies the basis ($1,000) by 40% (the declining Using the simplified method for a short year. If a later
balance rate) to get the depreciation for a full tax year of tax year in the recovery period is a short tax year, you
$400. The corporation then multiplies $400 by 5/12 to get the figure depreciation for that year by multiplying the adjusted
short tax year depreciation of $167. basis of the property at the beginning of the tax year by the
applicable depreciation rate, and then by a fraction. The
Example 2—mid-quarter convention. Tara Corpora- fraction’s numerator is the number of months (including
parts of a month) in the tax year. Its denominator is 12.
tion, with a short tax year beginning March 15 and ending
on December 31, placed in service on October 16 an item Using the simplified method for an early disposition. If
of 5-year property with a basis of $1,000. Tara does not you dispose of property in a later tax year before the end of
elect to claim a section 179 deduction and the property the recovery period, determine the depreciation for the
does not qualify for a special depreciation allowance. The year of disposition by multiplying the adjusted basis of the
depreciation method for this property is the 200% declining property at the beginning of the tax year by the applicable
balance method. The depreciation rate is 40%. The corpo- depreciation rate and then multiplying the result by a frac-
ration must apply the mid-quarter convention because the tion. The fraction’s numerator is the number of months
property was the only item placed in service that year and it (including parts of a month) the property is treated as in
was placed in service in the last 3 months of the tax year. service during the tax year (applying the applicable con-
Tara treats the property as placed in service on Septem- vention). Its denominator is 12.
ber 1. This date is shown in the table provided in the Using the allocation method for a 12-month or short
example illustrating the mid-quarter convention under Us- tax year. Under the allocation method, you figure the
ing the Applicable Convention in a Short Tax Year, earlier, depreciation for each later tax year by allocating to that
for property that Tara Corporation placed in service during year the depreciation attributable to the parts of the recov-
the quarter that begins on August 8 and ends on October ery years that fall within that year. Whether your tax year is
19. Under MACRS, Tara is allowed 4 months of deprecia- a 12-month or short tax year, you figure the depreciation by
tion for the short tax year that consists of 10 months. The determining which recovery years are included in that year.
corporation first multiplies the basis ($1,000) by 40% to get For each recovery year included, multiply the depreciation
the depreciation for a full tax year of $400. The corporation attributable to that recovery year by a fraction. The frac-
then multiplies $400 by 4/12 to get the short tax year depre- tion’s numerator is the number of months (including parts
ciation of $133. of a month) that are included in both the tax year and the

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recovery year. Its denominator is 12. The allowable depre- Unadjusted basis
ciation for the tax year is the sum of the depreciation
figured for each recovery year.
To make it easier to figure MACRS depreciation, you can
Example. Assume the same facts as in Example 1 group separate properties into one or more general asset
under Property Placed in Service in a Short Tax Year, accounts (GAAs). You then can depreciate all the proper-
earlier. The Tara Corporation’s first tax year after the short ties in each account as a single item of property.
tax year is a full year of 12 months, beginning January 1
and ending December 31. The first recovery year for the Property you cannot include. You cannot include prop-
5-year property placed in service during the short tax year erty in a GAA if you use it in both a personal activity and a
extends from August 1 to July 31. Tara deducted 5 months trade or business (or for the production of income) in the
of the first recovery year on its short-year tax return. Seven year in which you first place it in service. If property you
months of the first recovery year and 5 months of the included in a GAA is later used in a personal activity, see
second recovery year fall within the next tax year. The Terminating GAA Treatment, later.
depreciation for the next tax year is $333, which is the sum
of the following. Property generating foreign source income. For infor-
mation on the GAA treatment of property that generates
• $233—The depreciation for the first recovery year foreign source income, see sections 1.168(i)-1(f) of the
($400 × 7/12). regulations.
• $100—The depreciation for the second recovery
year. This is figured by multiplying the adjusted basis Change in use. Special rules apply to figuring deprecia-
of $600 ($1,000 − $400) by 40%, then multiplying tion for property in a GAA for which the use changes during
the $240 result by 5/12. the tax year. Examples include a change in use resulting in
a shorter recovery period and/or more accelerated depre-
ciation method or a change in use resulting in a longer
Using the allocation method for an early disposition. If recovery period and/or a less accelerated depreciation
you dispose of property before the end of the recovery method. See sections 1.168(i)-1(h) and 1.168(i)-4 of the
period in a later tax year, determine the depreciation for the regulations.
year of disposition by multiplying the depreciation figured
for each recovery year or part of a recovery year included
in the tax year by a fraction. The numerator of the fraction Grouping Property
is the number of months (including parts of months) the Each GAA must include only property you placed in serv-
property is treated as in service in the tax year (applying ice in the same year and that has the following in common.
the applicable convention). The denominator is 12. If there
is more than one recovery year in the tax year, you add • Asset class, if any.
together the depreciation for each recovery year. • Recovery period.
• Depreciation method.
How Do You Use General • Convention.

Asset Accounts? The following rules also apply when you establish a
GAA.
Terms you may need to know
(see Glossary): • No asset class. Properties without an asset class,
but with the same depreciation method, recovery
Adjusted basis period, and convention, can be grouped into the
same GAA.
Amortization
Amount realized
• Mid-quarter convention. Property subject to the
mid-quarter convention can only be grouped into a
Basis GAA with property placed in service in the same
quarter of the tax year.
Convention
Disposition
• Mid-month convention. Property subject to the
mid-month convention can only be grouped into a
Exchange GAA with property placed in service in the same
month of the tax year.
Placed in service
Recovery period
• Passenger automobiles. Passenger automobiles
subject to the limits on passenger automobile depre-
Section 1245 property ciation must be grouped into a separate GAA.

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Figuring Depreciation for a GAA The retirement of a structural component of real property is
not a disposition.
After you have set up a GAA, you generally figure the
MACRS depreciation for it by using the applicable depreci- Treatment of amount realized. When you dispose of
ation method, recovery period, and convention for the property in a GAA, you must recognize any amount real-
property in the GAA. For each GAA, record the deprecia- ized from the disposition as ordinary income, up to a limit.
tion allowance in a separate depreciation reserve account. The limit is:

Example. Make & Sell, a calendar-year corporation, set 1. The unadjusted depreciable basis of the GAA plus
up a GAA for ten machines. The machines cost a total of 2. Any expensed costs for property in the GAA that are
$10,000 and were placed in service in June 2009. One of subject to recapture as depreciation (not including
the machines cost $8,200 and the rest cost a total of any expensed costs for property that you removed
$1,800. This GAA is depreciated under the 200% declining from the GAA under the rules discussed later under
balance method with a 5-year recovery period and a Terminating GAA Treatment), minus
half-year convention. Make & Sell did not claim the section
179 deduction on the machines and the machines did not 3. Any amount previously recognized as ordinary in-
qualify for a special depreciation allowance. The deprecia- come upon the disposition of other property from the
tion allowance for 2009 is $2,000 [($10,000 × 40%) ÷ 2]. As GAA.
of January 1, 2010, the depreciation reserve account is
$2,000. Unadjusted depreciable basis. The unadjusted
depreciable basis of a GAA is the total of the unadjusted
Passenger automobiles. To figure depreciation on pas- depreciable bases of all the property in the GAA. The
senger automobiles in a GAA, apply the deduction limits unadjusted depreciable basis of an item of property in a
discussed in chapter 5 under Do the Passenger Automo- GAA is the amount you would use to figure gain or loss on
bile Limits Apply. Multiply the amount determined using its sale, but figured without reducing your original basis by
these limits by the number of automobiles originally in- any depreciation allowed or allowable in earlier years.
cluded in the account, reduced by the total number of However, you do reduce your original basis by other
automobiles removed from the GAA as discussed in Ter- amounts, including any amortization deduction, section
minating GAA Treatment, later. 179 deduction, special depreciation allowance, and elec-
tric vehicle credit.
Disposing of GAA Property Expensed costs. Expensed costs that are subject to
recapture as depreciation include the following.
When you dispose of property included in a GAA, the
following rules generally apply. 1. The section 179 deduction.
• Neither the unadjusted depreciable basis (defined 2. Amortization deductions for the following.
later) nor the depreciation reserve account of the
GAA is affected. You continue to depreciate the ac- a. Pollution control facilities.
count as if the disposition had not occurred. b. Removal of barriers for the elderly and disabled.
• The property is treated as having an adjusted basis c. Tertiary injectants.
of zero, so you cannot realize a loss on the disposi-
tion. If the property is transferred to a supplies, d. Reforestation expenses.
scrap, or similar account, its basis in that account is
zero.
Example 1. The facts are the same as in the example
• Any amount realized on the disposition is treated as under Figuring Depreciation for a GAA, earlier. In February
ordinary income, up to the limit discussed later under 2010, Make & Sell sells the machine that cost $8,200 to an
Treatment of amount realized. unrelated person for $9,000. The machine is treated as
having an adjusted basis of zero.
However, these rules do not apply to any disposition On its 2010 tax return, Make & Sell recognizes the
described later under Terminating GAA Treatment. $9,000 amount realized as ordinary income because it is
not more than the GAA’s unadjusted depreciable basis
Disposition. Property in a GAA is considered disposed of
($10,000) plus any expensed cost (for example, the sec-
when you do any of the following.
tion 179 deduction) for property in the GAA ($0), minus any
• Permanently withdraw it from use in your trade or amounts previously recognized as ordinary income be-
business or from the production of income. cause of dispositions of other property from the GAA ($0).
The unadjusted depreciable basis and depreciation re-
• Transfer it to a supplies, scrap, or similar account. serve of the GAA are not affected by the sale of the
• Sell, exchange, retire, physically abandon, or de- machine. The depreciation allowance for the GAA in 2010
stroy it. is $3,200 [($10,000 − $2,000) × 40%].

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Example 2. Assume the same facts as in Example 1. In • The receipt by one corporation of property distrib-
June 2011, Make & Sell sells seven machines to an unre- uted in complete liquidation of another corporation.
lated person for a total of $1,100. These machines are
treated as having an adjusted basis of zero.
• The transfer of property to a corporation solely in
exchange for stock in that corporation if the trans-
On its 2011 tax return, Make & Sell recognizes $1,000
feror is in control of the corporation immediately after
as ordinary income. This is the GAA’s unadjusted depre-
the exchange.
ciable basis ($10,000) plus the expensed costs ($0), minus
the amount previously recognized as ordinary income • The transfer of property by a corporation that is a
($9,000). The remaining amount realized of $100 ($1,100 party to a reorganization in exchange solely for stock
− $1,000) is section 1231 gain (discussed in chapter 3 of and securities in another corporation that is also a
Publication 544). party to the reorganization.
The unadjusted depreciable basis and depreciation re-
serve of the GAA are not affected by the disposition of the
• The contribution of property to a partnership in ex-
change for an interest in the partnership.
machines. The depreciation allowance for the GAA in 2011
is $1,920 [($10,000 − $5,200) × 40%]. • The distribution of property (including money) from a
partnership to a partner.
Terminating GAA Treatment • Any transaction between members of the same affili-
ated group during any year for which the group
You must remove the following property from a GAA.
makes a consolidated return.
• Property you dispose of in a nonrecognition transac-
tion or an abusive transaction. Rules for recipient (transferee). The recipient of the
• Property you dispose of in a qualifying disposition or property (the person to whom it is transferred) must include
in a disposition of all the property in the GAA, if you your (the transferor’s) adjusted basis in the property in a
choose to terminate GAA treatment. GAA. If you transferred either all of the property or the last
item of property in a GAA, the recipient’s basis in the
• Property you dispose of in a like-kind exchange or property is the result of the following.
an involuntary conversion.
• The adjusted depreciable basis of the GAA as of the
• Property you change to personal use. beginning of your tax year in which the transaction
• Property for which you must recapture any allowable takes place, minus
credit or deduction, such as the investment credit, • The depreciation allowable to you for the year of the
the credit for qualified electric vehicles, the section
transfer.
179 deduction, or the deduction for clean-fuel vehi-
cles and clean-fuel vehicle refueling property placed
For this purpose, the adjusted depreciable basis of a
in service before January 1, 2006.
GAA is the unadjusted depreciable basis of the GAA minus
If you remove property from a GAA, you must make the any depreciation allowed or allowable for the GAA.
following adjustments.
Abusive transactions. If you dispose of GAA property in
1. Reduce the unadjusted depreciable basis of the GAA an abusive transaction, you must remove it from the GAA.
by the unadjusted depreciable basis of the property A disposition is an abusive transaction if it is not a nonrec-
as of the first day of the tax year in which the disposi- ognition transaction (described earlier) or a like-kind ex-
tion, change in use, or recapture event occurs. You change or involuntary conversion and a main purpose for
can use any reasonable method that is consistently
the disposition is to get a tax benefit or a result that would
applied to determine the unadjusted depreciable ba-
not be available without the use of a GAA. Examples of
sis of the property you remove from a GAA.
abusive transactions include the following.
2. Reduce the depreciation reserve account by the de-
preciation allowed or allowable for the property (com- 1. A transaction with a main purpose of shifting income
puted in the same way as computed for the GAA) as or deductions among taxpayers in a way that would
of the end of the tax year immediately preceding the not be possible without choosing to use a GAA to
year in which the disposition, change in use, or re- take advantage of differing effective tax rates.
capture event occurs. 2. A choice to use a GAA with a main purpose of
These adjustments have no effect on the recognition and disposing of property from the GAA so that you can
character of prior dispositions subject to the rules dis- use an expiring net operating loss or credit. For ex-
cussed earlier under Disposing of GAA Property. ample, if you have a net operating loss carryover or a
credit carryover, the following transactions will be
Nonrecognition transactions. If you dispose of GAA considered abusive transactions unless there is
property in a nonrecognition transaction, you must remove strong evidence to the contrary.
it from the GAA. The following are nonrecognition transac-
tions. a. A transfer of GAA property to a related person.

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b. A transfer of GAA property under an agreement Like-kind exchanges and involuntary conversions. If
where the property continues to be used, or is you dispose of GAA property as a result of a like-kind
available for use, by you. exchange or involuntary conversion, you must remove
from the GAA the property that you transferred. See chap-
ter 1 of Publication 544 for information on these transac-
Figuring gain or loss. You must determine the gain,
tions. Figure your gain, loss, or other deduction resulting
loss, or other deduction due to an abusive transaction by
from the disposition in the manner described earlier under
taking into account the property’s adjusted basis. The
Abusive transactions.
adjusted basis of the property at the time of the disposition
is the result of the following:
Example. Sankofa, a calendar-year corporation, main-
• The unadjusted depreciable basis of the property, tains one GAA for 12 machines. Each machine costs
minus $15,000 and was placed in service in 2008. Of the 12
machines, nine cost a total of $135,000 and are used in
• The depreciation allowed or allowable for the prop- Sankofa’s New York plant and three machines cost
erty figured by using the depreciation method, recov-
$45,000 and are used in Sankofa’s New Jersey plant.
ery period, and convention that applied to the GAA
Assume this GAA uses the 200% declining balance depre-
in which the property was included.
ciation method, a 5-year recovery period, and a half-year
convention. Sankofa does not claim the section 179 de-
If there is a gain, the amount subject to recapture as
duction and the machines do not qualify for a special
ordinary income is the smaller of the following.
depreciation allowance. As of January 1, 2010, the depre-
1. The depreciation allowed or allowable for the prop- ciation reserve account for the GAA is $93,600.
erty, including any expensed cost (such as section In May 2010, Sankofa sells its entire manufacturing
179 deductions or the additional depreciation allowed plant in New Jersey to an unrelated person. The sales
or allowable for the property). proceeds allocated to each of the three machines at the
New Jersey plant is $5,000. This transaction is a qualifying
2. The result of the following: disposition, so Sankofa chooses to remove the three ma-
a. The original unadjusted depreciable basis of the chines from the GAA and figure the gain, loss, or other
GAA (plus, for section 1245 property originally deduction by taking into account their adjusted bases.
included in the GAA, any expensed cost), minus For Sankofa’s 2010 return, the depreciation allowance
for the GAA is figured as follows. As of December 31,
b. The total gain previously recognized as ordinary 2009, the depreciation allowed or allowable for the three
income on the disposition of property from the machines at the New Jersey plant is $23,400. As of Janu-
GAA. ary 1, 2010, the unadjusted depreciable basis of the GAA
is reduced from $180,000 to $135,000 ($180,000 minus
the $45,000 unadjusted depreciable bases of the three
Qualifying dispositions. If you dispose of GAA property machines), and the depreciation reserve account is de-
in a qualifying disposition, you can choose to remove the creased from $93,600 to $70,200 ($93,600 minus $23,400
property from the GAA. A qualifying disposition is one that depreciation allowed or allowable for the three machines
does not involve all the property, or the last item of prop- as of December 31, 2009). The depreciation allowance for
erty, remaining in a GAA and that is described by any of the the GAA in 2010 is $25,920 [($135,000 − $70,200) × 40%].
following. For Sankofa’s 2010 return, gain or loss for each of the
three machines at the New Jersey plant is determined as
1. A disposition that is a direct result of fire, storm, follows. The depreciation allowed or allowable in 2010 for
shipwreck, other casualty, or theft. each machine is $1,440 [(($15,000 − $7,800) × 40%) ÷ 2].
2. A charitable contribution for which a deduction is The adjusted basis of each machine is $5,760 (the ad-
allowed. justed depreciable basis of $7,200 removed from the ac-
count less the $1,440 depreciation allowed or allowable in
3. A disposition that is a direct result of a cessation, 2010). As a result, the loss recognized in 2010 for each
termination, or disposition of a business, manufactur- machine is $760 ($5,000 − $5,760). This loss is subject to
ing or other income-producing process, operation, section 1231 treatment. See chapter 3 of Publication 544
facility, plant, or other unit (other than by transfer to a for information on section 1231 losses.
supplies, scrap, or similar account).
4. A nontaxable transaction other than a nonrecognition Disposition of all property in a GAA. If you dispose of all
transaction (described earlier), a like-kind exchange the property, or the last item of property, in a GAA, you can
or involuntary conversion, or a transaction that is choose to end the GAA. If you make this choice, you figure
nontaxable only because it is a disposition from a the gain or loss by comparing the adjusted depreciable
GAA. basis of the GAA with the amount realized.
If there is a gain, the amount subject to recapture as
If you choose to remove the property from the GAA,
ordinary income is limited to the result of the following.
figure your gain, loss, or other deduction resulting from the
disposition in the manner described earlier under Abusive • The depreciation allowed or allowable for the GAA,
transactions. including any expensed cost (such as section 179

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deductions or the additional depreciation allowed or You must maintain records that identify the prop-
allowable for the GAA), minus erty included in each GAA, that establish the
unadjusted depreciable basis and depreciation
• The total gain previously recognized as ordinary in-
RECORDS

reserve of the GAA, and that reflect the amount realized

come on the disposition of property from the GAA.
during the year upon dispositions from each GAA. How-
ever, see chapter 2 for the recordkeeping requirements for
Like-kind exchanges and involuntary conversions.
section 179 property.
If you dispose of all the property or the last item of property
in a GAA as a result of a like-kind exchange or involuntary Revoking an election. You can revoke an election to use
conversion, the GAA terminates. You must figure the gain a GAA only in the following situations.
or loss in the manner described above under Disposition of
all property in a GAA. • You include in the GAA property that generates for-
eign source income, both United States and foreign
Example. Duforcelf, a calendar-year corporation, main- source income, or combined gross income of an
tains a GAA for 1,000 calculators that cost a total of FSC, a DISC, or a possessions corporation and its
$60,000 and were placed in service in 2007. Assume this related supplier, and that inclusion results in a sub-
GAA is depreciated under the 200% declining balance stantial distortion of income.
method, has a recovery period of 5 years, and uses a • You remove property from the GAA as described
half-year convention. Duforcelf does not claim the section under Terminating GAA Treatment, earlier.
179 deduction and the calculators do not qualify for a
special depreciation allowance. In 2009, Duforcelf sells
200 of the calculators to an unrelated person for $10,000.
The $10,000 is recognized as ordinary income. When Do You Recapture
In March 2010, Duforcelf sells the remaining calculators
in the GAA to an unrelated person for $35,000. Duforcelf MACRS Depreciation?
decides to end the GAA.
Terms you may need to know
On the date of the disposition, the adjusted depreciable
basis of the account is $23,040 (unadjusted depreciable
(see Glossary):
basis of $60,000 minus the depreciation allowed or allowa- Disposition
ble of $36,960). In 2010, Duforcelf recognizes a gain of
$11,960. This is the amount realized of $35,000 minus the Nonresidential real property
adjusted depreciable basis of $23,040. The gain subject to Recapture
recapture as ordinary income is limited to the depreciation
allowed or allowable minus the amounts previously recog- Residential rental property
nized as ordinary income ($36,960 − $10,000 = $26,960).
Therefore, the entire gain of $11,960 is recaptured as
When you dispose of property that you depreciated using
ordinary income.
MACRS, any gain on the disposition generally is recap-
tured (included in income) as ordinary income up to the
Electing To Use a GAA amount of the depreciation previously allowed or allowable
for the property. Depreciation, for this purpose, includes
An election to include property in a GAA is made sepa- the following.
rately by each owner of the property. This means that an
election to include property in a GAA must be made by • Any section 179 deduction claimed on the property.
each member of a consolidated group and at the partner- • Any deduction under section 179B of the Internal
ship or S corporation level (and not by each partner or Revenue Code for capital costs to comply with Envi-
shareholder separately). ronmental Protection Agency sulfur regulations.
How to make the election. Make the election by complet- • Any deduction under section 179C of the Internal
ing line 18 of Form 4562. Revenue Code for certain qualified refinery property
placed in service after August 8, 2005.
When to make the election. You must make the election
on a timely filed tax return (including extensions) for the
• Any deduction under section 179D of the Internal
Revenue Code for certain energy efficient commer-
year in which you place in service the property included in
cial building property placed in service after Decem-
the GAA. However, if you timely filed your return for the
ber 31, 2005.
year without making the election, you still can make the
election by filing an amended return within 6 months of the • Any deduction under section 179E of the Internal
due date of the return (excluding extensions). Attach the Revenue Code for qualified advanced mine safety
election to the amended return and write “Filed pursuant to equipment property placed in service after Decem-
section 301.9100-2” on the election statement. ber 20, 2006.

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• Any deduction under section 190 of the Internal Rev- This chapter defines listed property and explains the
enue Code for removal of barriers to the disabled special rules and depreciation deduction limits that apply,
and the elderly. including the special inclusion amount rule for leased prop-
• Any deduction under section 193 of the Internal Rev- erty. It also discusses the recordkeeping rules for listed
enue Code for tertiary injectants. property and explains how to report information about the
property on your tax return.
• Any special depreciation allowance previously al-
lowed or allowable for the property (unless you For information on the limits on depreciation de-
elected not to claim it). !
CAUTION
ductions for listed property placed in service
before 1987, see Publication 534.
There is no recapture for residential rental and nonresiden-
tial real property unless that property is qualified property
for which you claimed a special depreciation allowance. Useful Items
For more information on depreciation recapture, see Publi- You may want to see:
cation 544.
Publication
❏ 463 Travel, Entertainment, Gift, and Car
Expenses

5. ❏ 535 Business Expenses

❏ 587 Business Use of Your Home (Including Use

Additional Rules for by Daycare Providers)

Listed Property Form (and Instructions)

❏ 2106 Employee Business Expenses
❏ 2106-EZ Unreimbursed Employee Business
Introduction Expenses
This chapter discusses the deduction limits and other spe- ❏ 4562 Depreciation and Amortization
cial rules that apply to certain listed property. Listed prop-
❏ 4797 Sales of Business Property
erty includes cars and other property used for
transportation, property used for entertainment, and cer- See chapter 6 for information about getting publications
tain computers and cellular phones. and forms.
Deductions for listed property (other than certain leased
property) are subject to the following special rules and
limits.
What Is Listed Property?
• Deduction for employees. If your use of the prop-
erty is not for your employer’s convenience or is not
required as a condition of your employment, you
Terms you may need to know
cannot deduct depreciation or rent expenses for your (see Glossary):
use of the property as an employee. Capitalized
• Business-use requirement. If the property is not Commuting
used predominantly (more than 50%) for qualified
business use, you cannot claim the section 179 de- Improvement
duction or a special depreciation allowance. In addi- Recovery period
tion, you must figure any depreciation deduction
under the Modified Accelerated Cost Recovery Sys- Straight line method
tem (MACRS) using the straight line method over
the ADS recovery period. You may also have to
recapture (include in income) any excess deprecia- Listed property is any of the following.
tion claimed in previous years. A similar inclusion • Passenger automobiles weighing 6,000 pounds or
amount applies to certain leased property. less.
• Passenger automobile limits and rules. Annual • Any other property used for transportation, unless it
limits apply to depreciation deductions (including is an excepted vehicle.
section 179 deductions and any special depreciation
allowance) for certain passenger automobiles. You • Property generally used for entertainment, recrea-
can continue to deduct depreciation for the unrecov- tion, or amusement (including photographic, phono-
ered basis resulting from these limits after the end of graphic, communication, and video-recording
the recovery period. equipment).

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• Computers and related peripheral equipment, unless Other Property Used

used only at a regular business establishment and
owned or leased by the person operating the estab- for Transportation
lishment. A regular business establishment includes
a portion of a dwelling unit that is used both regularly Although vehicles used to transport persons or
and exclusively for business as discussed in Publi-
cation 587.
!
CAUTION
property for pay or hire and vehicles rated at more
than the 6,000-pound threshold are not passen-
ger automobiles, they are still “other property used for
• Cellular telephones (or similar telecommunication transportation” and are subject to the special rules for
equipment). listed property.
Other property used for transportation includes trucks,
Improvements to listed property. An improvement buses, boats, airplanes, motorcycles, and any other vehi-
made to listed property that must be capitalized is treated cles used to transport persons or goods.
as a new item of depreciable property. The recovery period
and method of depreciation that apply to the listed property Excepted vehicles. Other property used for transporta-
as a whole also apply to the improvement. For example, if tion does not include the following qualified nonpersonal
you must depreciate the listed property using the straight use vehicles (defined earlier under Passenger Automo-
line method, you also must depreciate the improvement biles).
using the straight line method. • Clearly marked police and fire vehicles.
• Unmarked vehicles used by law enforcement officers
Passenger Automobiles if the use is officially authorized.
A passenger automobile is any four-wheeled vehicle made • Ambulances used as such and hearses used as
primarily for use on public streets, roads, and highways such.
and rated at 6,000 pounds or less of unloaded gross
vehicle weight (6,000 pounds or less of gross vehicle
• Any vehicle with a loaded gross vehicle weight of
over 14,000 pounds that is designed to carry cargo.
weight for trucks and vans). It includes any part, compo-
nent, or other item physically attached to the automobile at • Bucket trucks (cherry pickers), cement mixers, dump
the time of purchase or usually included in the purchase trucks (including garbage trucks), flatbed trucks, and
price of an automobile. refrigerated trucks.
The following vehicles are not considered passenger
automobiles for these purposes.
• Combines, cranes and derricks, and forklifts.
• An ambulance, hearse, or combination ambu- • Delivery trucks with seating only for the driver, or
only for the driver plus a folding jump seat.
lance-hearse used directly in a trade or business.
• A vehicle used directly in the trade or business of • Qualified moving vans.
transporting persons or property for pay or hire. • Qualified specialized utility repair trucks.
• A truck or van that is a qualified nonpersonal use • School buses used in transporting students and em-
vehicle. ployees of schools.
• Other buses with a capacity of at least 20 passen-
Qualified nonpersonal use vehicles. Qualified nonper- gers that are used as passenger buses.
sonal use vehicles are vehicles that by their nature are not
likely to be used more than a minimal amount for personal
• Tractors and other special purpose farm vehicles.
purposes. They include the trucks and vans listed as ex-
Clearly marked police and fire vehicle. A clearly
cepted vehicles under Other Property Used for Transpor-
marked police or fire vehicle is a vehicle that meets all the
tation, next. They also include trucks and vans that have
following requirements.
been specially modified so that they are not likely to be
used more than a minimal amount for personal purposes, • It is owned or leased by a governmental unit or an
such as by installation of permanent shelving and painting agency or instrumentality of a governmental unit.
the vehicle to display advertising or the company’s name.
• It is required to be used for commuting by a police
For a detailed discussion of passenger automobiles,
officer or fire fighter who, when not on a regular shift,
including leased passenger automobiles, see
is on call at all times.
Publication 463.
• It is prohibited from being used for personal use
(other than commuting) outside the limit of the police
officer’s arrest powers or the fire fighter’s obligation
to respond to an emergency.
• It is clearly marked with painted insignia or words
that make it readily apparent that it is a police or fire

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vehicle. A marking on a license plate is not a clear • Equipment of a kind used primarily for the user’s
marking for these purposes. amusement or entertainment, such as video games.

Qualified moving van. A qualified moving van is any

truck or van used by a professional moving company for
moving household or business goods if the following re- Can Employees Claim
quirements are met.
a Deduction?
• No personal use of the van is allowed other than for
travel to and from a move site or for minor personal If you are an employee, you can claim a depreciation
use, such as a stop for lunch on the way from one deduction for the use of your listed property (whether
move site to another. owned or rented) in performing services as an employee
only if your use is a business use. The use of your property
• Personal use for travel to and from a move site in performing services as an employee is a business use
happens no more than five times a month on aver- only if both the following requirements are met.
age.
• The use is for your employer’s convenience.
• Personal use is limited to situations in which it is
more convenient to the employer, because of the • The use is required as a condition of your employ-
location of the employee’s residence in relation to ment.
the location of the move site, for the van not to be
returned to the employer’s business location. If these requirements are not met, you cannot deduct
depreciation (including the section 179 deduction) or rent
Qualified specialized utility repair truck. A truck is a expenses for your use of the property as an employee.
qualified specialized utility repair truck if it is not a van or
pickup truck and all the following apply. Employer’s convenience. Whether the use of listed
property is for your employer’s convenience must be deter-
• The truck was specifically designed for and is used mined from all the facts. The use is for your employer’s
to carry heavy tools, testing equipment, or parts. convenience if it is for a substantial business reason of the
• Shelves, racks, or other permanent interior construc- employer. The use of listed property during your regular
tion has been installed to carry and store the tools, working hours to carry on your employer’s business gener-
equipment, or parts and would make it unlikely that ally is for the employer’s convenience.
the truck would be used, other than minimally, for
personal purposes. Condition of employment. Whether the use of listed
property is a condition of your employment depends on all
• The employer requires the employee to drive the the facts and circumstances. The use of property must be
truck home in order to be able to respond in emer- required for you to perform your duties properly. Your
gency situations for purposes of restoring or main- employer does not have to require explicitly that you use
taining electricity, gas, telephone, water, sewer, or the property. However, a mere statement by the employer
steam utility services. that the use of the property is a condition of your employ-
ment is not sufficient.

Computers and Related Example 1. Virginia Sycamore is employed as a courier

with We Deliver, which provides local courier services. She
Peripheral Equipment owns and uses a motorcycle to deliver packages to down-
A computer is a programmable, electronically activated town offices. We Deliver explicitly requires all delivery
persons to own a car or motorcycle for use in their employ-
device capable of accepting information, applying pre-
ment. Virginia’s use of the motorcycle is for the conve-
scribed processes to the information, and supplying the
nience of We Deliver and is required as a condition of
results of those processes with or without human interven-
employment.
tion. It consists of a central processing unit with extensive
storage, logic, arithmetic, and control capabilities. Example 2. Bill Nelson is an inspector for Uplift, a
Related peripheral equipment is any auxiliary machine construction company with many sites in the local area. He
which is designed to be controlled by the central process- must travel to these sites on a regular basis. Uplift does not
ing unit of a computer. furnish an automobile or explicitly require him to use his
The following are neither computers nor related periph- own automobile. However, it pays him for any costs he
eral equipment. incurs in traveling to the various sites. The use of his own
• Any equipment that is an integral part of other prop- automobile or a rental automobile is for the convenience of
Uplift and is required as a condition of employment.
erty that is not a computer.
• Typewriters, calculators, adding and accounting ma- Example 3. Assume the same facts as in Example 2
chines, copiers, duplicating equipment, and similar except that Uplift furnishes a car to Bill, who chooses to
equipment. use his own car and receive payment for using it. The use

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of his own car is neither for the convenience of Uplift nor • Any depreciation deduction under MACRS for prop-
required as a condition of employment. erty not used predominantly for qualified business
use during any year must be figured using the
Example 4. Marilyn Lee is a pilot for Y Company, a straight line method over the ADS recovery period.
small charter airline. Y requires pilots to obtain 80 hours of This rule applies each year of the recovery period.
flight time annually in addition to flight time spent with the
airline. Pilots usually can obtain these hours by flying with
• Excess depreciation on property previously used
predominantly for qualified business use must be
the Air Force Reserve or by flying part-time with another
recaptured (included in income) in the first year in
airline. Marilyn owns her own airplane. The use of her
airplane to obtain the required flight hours is neither for the which it is no longer used predominantly for qualified
convenience of the employer nor required as a condition of business use.
employment. • A lessee must add an inclusion amount to income in
the first year in which the leased property is not used
Example 5. David Rule is employed as an engineer predominantly for qualified business use.
with Zip, an engineering contracting firm. He occasionally
takes work home at night rather than work late in the office.
He owns and uses a home computer which is virtually Being required to use the straight line method for
identical to the office model. His use of the computer is !
CAUTION
an item of listed property not used predominantly
for qualified business use is not the same as
neither for the convenience of his employer nor required as
a condition of employment. electing the straight line method. It does not mean that you
have to use the straight line method for other property in
the same class as the item of listed property.

What Is the Business-Use Exception for leased property. The business-use re-
Requirement? quirement generally does not apply to any listed property
leased or held for leasing by anyone regularly engaged in
Terms you may need to know the business of leasing listed property.
(see Glossary): You are considered regularly engaged in the business
of leasing listed property only if you enter into contracts for
Adjusted basis the leasing of listed property with some frequency over a
Business/investment use continuous period of time. This determination is made on
the basis of the facts and circumstances in each case and
Capitalized takes into account the nature of your business in its en-
Commuting tirety. Occasional or incidental leasing activity is insuffi-
cient. For example, if you lease only one passenger
Declining balance method automobile during a tax year, you are not regularly en-
Fair market value (FMV) gaged in the business of leasing automobiles. An employer
who allows an employee to use the employer’s property for
Nonresidential real property personal purposes and charges the employee for the use
Placed in service is not regularly engaged in the business of leasing the
property used by the employee.
Recapture
Recovery period How To Allocate Use
Straight line method To determine whether the business-use requirement is
met, you must allocate the use of any item of listed prop-
You can claim the section 179 deduction and a special erty used for more than one purpose during the year
depreciation allowance for listed property and depreciate among its various uses.
listed property using GDS and a declining balance method For passenger automobiles and other means of trans-
if the property meets the business-use requirement. To portation, allocate the property’s use on the basis of mile-
meet this requirement, listed property must be used age. You determine the percentage of qualified business
predominantly (more than 50% of its total use) for qualified use by dividing the number of miles you drove the vehicle
business use. If this requirement is not met, the following for business purposes during the year by the total number
rules apply. of miles you drove the vehicle for all purposes (including
business miles) during the year.
• Property not used predominantly for qualified busi- For other listed property, allocate the property’s use on
ness use during the year it is placed in service does
the basis of the most appropriate unit of time the property is
not qualify for the section 179 deduction.
actually used (rather than merely being available for use).
• Property not used predominantly for qualified busi- For example, you can determine the percentage of busi-
ness use during the year it is placed in service does ness use of a computer by dividing the number of hours
not qualify for a special depreciation allowance. you used the computer for business purposes during the

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year by the total number of hours you used the computer Exception for leasing or compensatory use of aircraft.
for all purposes (including business use) during the year. Treat the leasing or compensatory use of any aircraft by a
5% owner or related person as a qualified business use if
Entertainment use. Treat the use of listed property for
at least 25% of the total use of the aircraft during the year is
entertainment, recreation, or amusement purposes as a
for a qualified business use.
business use only to the extent you can deduct expenses
(other than interest and property tax expenses) due to its 5% owner. For a business entity that is not a corporation,
use as an ordinary and necessary business expense. a 5% owner is any person who owns more than 5% of the
Commuting use. The use of an automobile for commut- capital or profits interest in the business.
ing is not business use, regardless of whether work is For a corporation, a 5% owner is any person who owns,
performed during the trip. For example, a business tele- or is considered to own, either of the following.
phone call made on a car telephone while commuting to • More than 5% of the outstanding stock of the corpo-
work does not change the character of the trip from com- ration.
muting to business. This is also true for a business meeting
held in a car while commuting to work. Similarly, a busi- • Stock possessing more than 5% of the total com-
ness call made on an otherwise personal trip does not bined voting power of all stock in the corporation.
change the character of a trip from personal to business.
The fact that an automobile is used to display material that Related persons. For a description of related persons,
advertises the owner’s or user’s trade or business does not see Related persons in the discussion on property owned
convert an otherwise personal use into business use. or used in 1986 under Which Method Can You Use To
Use of your automobile by another person. If someone Depreciate Your Property in chapter 1. For this purpose,
else uses your automobile, do not treat that use as busi- however, treat as related persons only the relationships
ness use unless one of the following conditions applies. listed in items (1) through (10) of that discussion and
substitute “50%” for “10%” each place it appears.
1. That use is directly connected with your business.
Examples. The following examples illustrate whether the
2. You properly report the value of the use as income to
use of business property is qualified business use.
the other person and withhold tax on the income
where required. Example 1. John Maple is the sole proprietor of a
3. You are paid a fair market rent. plumbing contracting business. John employs his brother,
Richard, in the business. As part of Richard’s pay, he is
Treat any payment to you for the use of the automobile as
allowed to use one of the company automobiles for per-
a rent payment for purposes of item (3).
sonal use. The company includes the value of the personal
Employee deductions. If you are an employee, do not use of the automobile in Richard’s gross income and prop-
treat your use of listed property as business use unless it is erly withholds tax on it. The use of the automobile is pay for
for your employer’s convenience and is required as a the performance of services by a related person, so it is not
condition of your employment. See Can Employees Claim a qualified business use.
a Deduction, earlier.
Example 2. John, in Example 1, allows unrelated em-
Qualified Business Use ployees to use company automobiles for personal pur-
poses. He does not include the value of the personal use of
Qualified business use of listed property is any use of the the company automobiles as part of their compensation
property in your trade or business. However, it does not and he does not withhold tax on the value of the use of the
include the following uses. automobiles. This use of company automobiles by employ-
ees is not a qualified business use.
• The leasing of property to any 5% owner or related
person (to the extent the property is used by a 5% Example 3. James Company Inc. owns several auto-
owner or person related to the owner or lessee of mobiles that its employees use for business purposes. The
the property). employees also are allowed to take the automobiles home
• The use of property as pay for the services of a 5% at night. The fair market value of each employee’s use of
owner or related person. an automobile for any personal purpose, such as commut-
ing to and from work, is reported as income to the em-
• The use of property as pay for services of any per- ployee and James Company withholds tax on it. This use
son (other than a 5% owner or related person), un- of company automobiles by employees, even for personal
less the value of the use is included in that person’s purposes, is a qualified business use for the company.
gross income and income tax is withheld on that
amount where required.
Investment Use
Property does not stop being used predominantly The use of property to produce income in a nonbusiness
! for qualified business use because of a transfer at
death.
activity (investment use) is not a qualified business use.
CAUTION
However, you can treat the investment use as business

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use to figure the depreciation deduction for the property in purposes. She includes $4,018 excess depreciation in her
a given year. gross income for 2009. The excess depreciation is deter-
mined as follows.
Example 1. Sarah Bradley uses a home computer 50%
of the time to manage her investments. She also uses the Total section 179 deduction ($10,000) and
depreciation claimed ($6,618) for 2005 through
computer 40% of the time in her part-time consumer re-
2008. (Depreciation is from Table A-1.) . . . . . . $16,618
search business. Sarah’s home computer is listed property
because it is not used at a regular business establishment. Minus: Depreciation allowable (Table
A-8):
She does not use the computer predominantly for qualified
2005 – 10% of $18,000 . . . . . . . . . . . . $1,800
business use. Therefore, she cannot elect a section 179 2006 – 20% of $18,000 . . . . . . . . . . . . 3,600
deduction or claim a special depreciation allowance for the 2007 – 20% of $18,000 . . . . . . . . . . . . 3,600
computer. She must depreciate it using the straight line 2008 – 20% of $18,000 . . . . . . . . . . . . 3,600 12,600
method over the ADS recovery period. Her combined busi- Excess depreciation . . . . . . . . . . . . . . . . . . . . $4,018
ness/investment use for determining her depreciation de-
duction is 90%. If Ellen’s use of the truck does not change to 50% for
business and 50% for personal purposes until 2011, there
Example 2. If Sarah uses her computer 30% of the time will be no excess depreciation. The total depreciation al-
to manage her investments and 60% of the time in her lowable using Table A-8 through 2011 will be $18,000,
consumer research business, it is used predominantly for which equals the total of the section 179 deduction and
qualified business use. She can elect a section 179 deduc- depreciation she will have claimed.
tion and, if she does not deduct all the computer’s cost, she Where to figure and report recapture. Use Form 4797,
can claim a special depreciation allowance and depreciate Part IV, to figure the recapture amount. Report the recap-
the computer using the 200% declining balance method ture amount as other income on the same form or schedule
over the GDS recovery period. Her combined business/ on which you took the depreciation deduction. For exam-
investment use for determining her depreciation deduction ple, report the recapture amount as other income on
is 90%. Schedule C (Form 1040) if you took the depreciation de-
duction on Schedule C. If you took the depreciation deduc-
Recapture of Excess Depreciation tion on Form 2106, report the recapture amount as other
income on Form 1040, line 21.
If you used listed property more than 50% in a qualified
business use in the year you placed it in service, you must Lessee’s Inclusion Amount
recapture (include in income) excess depreciation in the
first year you use it 50% or less. You also increase the If you use leased listed property other than a passenger
adjusted basis of your property by the same amount. automobile for business/investment use, you must include
Excess depreciation is: an amount in your income in the first year your qualified
business-use percentage is 50% or less. Your qualified
1. The depreciation allowable for the property (including business-use percentage is the part of the property’s total
any section 179 deduction and special depreciation use that is qualified business use (defined earlier). For the
allowance claimed) for years before the first year you inclusion amount rules for a leased passenger automobile,
do not use the property predominantly for qualified see Leasing a Car in chapter 4 of Publication 463.
business use, minus The inclusion amount is the sum of Amount A and
2. The depreciation that would have been allowable for Amount B, described next. However, see the special rules
those years if you had not used the property for the inclusion amount, later, if your lease begins in the
predominantly for qualified business use in the year last 9 months of your tax year or is for less than one year.
you placed it in service. Amount A. Amount A is:
To determine the amount in (2) above, you must refigure 1. The fair market value of the property, multiplied by
the depreciation using the straight line method and the
ADS recovery period. 2. The business/investment use for the first tax year the
qualified business-use percentage is 50% or less,
Example. In June 2005, Ellen Rye purchased and multiplied by
placed in service a pickup truck that cost $18,000. She 3. The applicable percentage from Table A-19 in Ap-
used it only for qualified business use for 2005 through pendix A.
2008. Ellen claimed a section 179 deduction of $10,000
based on the purchase of the truck. She began depreciat- The fair market value of the property is the value on the
ing it using the 200% DB method over a 5-year GDS first day of the lease term. If the capitalized cost of an item
recovery period. The pickup truck’s gross vehicle weight of listed property is specified in the lease agreement, you
was over 6,000 pounds, so it was not subject to the pas- must treat that amount as the fair market value.
senger automobile limits discussed later under Do the Amount B. Amount B is:
Passenger Automobile Limits Apply. During 2009, she
used the truck 50% for business and 50% for personal 1. The fair market value of the property, multiplied by

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2. The average of the business/investment use for all Inclusion Amount Worksheet
tax years the property was leased that precede the for Leased Listed Property
first tax year the qualified business-use percentage is Keep for Your Records
50% or less, multiplied by
1. Fair market value . . . . . . . . . . . . . . . . . . . $3,000
3. The applicable percentage from Table A-20 in Ap- 2. Business/investment use for first year
pendix A. business use is 50% or less . . . . . . . . . . . 40 %
3. Multiply line 1 by line 2. . . . . . . . . . . . . . . . 1,200
4. Rate (%) from Table A-19 . . . . . . . . . . . . . −19.8 %
Maximum inclusion amount. The inclusion amount can-
5. Multiply line 3 by line 4. This is Amount A. −238
not be more than the sum of the deductible amounts of rent 6. Fair market value . . . . . . . . . . . . . . . . . . . 3,000
for the tax year in which the lessee must include the 7. Average business/investment use for years
amount in gross income. property leased before the first year
business use is 50% or less . . . . . . . . . . . 70 %
Inclusion amount worksheet. The following worksheet 8. Multiply line 6 by line 7 . . . . . . . . . . . . . . . 2,100
is provided to help you figure the inclusion amount for 9. Rate (%) from Table A-20 . . . . . . . . . . . . . 22.0 %
leased listed property. 10. Multiply line 8 by line 9. This is Amount B. 462
11. Add line 5 and line 10. This is your
Inclusion Amount Worksheet inclusion amount. Enter here and as other
for Leased Listed Property income on the form or schedule on which
Keep for Your Records you originally took the deduction (for
example, Schedule C or F (Form 1040),
1. Fair market value . . . . . . . . . . . . . . . . . . . . . Form 1040, Form 1120, etc.) . . . . . . . . . . . $224
2. Business/investment use for first year
business use is 50% or less . . . . . . . . . . . . .
3. Multiply line 1 by line 2. . . . . . . . . . . . . . . . .
4. Rate (%) from Table A-19 . . . . . . . . . . . . . . Lease beginning in the last 9 months of your tax year.
5. Multiply line 3 by line 4. This is Amount A. . . The inclusion amount is subject to a special rule if all the
6. Fair market value . . . . . . . . . . . . . . . . . . . . . following apply.
7. Average business/investment use for years
property leased before the first year • The lease term begins within 9 months before the
business use is 50% or less . . . . . . . . . . . . . close of your tax year.
8. Multiply line 6 by line 7 . . . . . . . . . . . . . . . . • You do not use the property predominantly (more
9. Rate (%) from Table A-20 . . . . . . . . . . . . . . than 50%) for qualified business use during that part
10. Multiply line 8 by line 9. This is Amount B. . . of the tax year.
11. Add line 5 and line 10. This is your inclusion
amount. Enter here and as other income on • The lease term continues into your next tax year.
the form or schedule on which you originally
took the deduction (for example, Schedule C Under this special rule, add the inclusion amount to income
or F (Form 1040), Form 1040, Form 1120, in the next tax year. Figure the inclusion amount by taking
etc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . into account the average of the business/investment use
for both tax years (line 2 of the Inclusion Amount Work-
sheet for Leased Listed Property) and the applicable per-
centage for the tax year the lease term begins. Skip lines 6
Example. On February 1, 2007, Larry House, a calen- through 9 of the worksheet and enter zero on line 10.
dar year taxpayer, leased and placed in service a com-
Example 1. On August 1, 2008, Julie Rule, a calendar
puter with a fair market value of $3,000. The lease is for a
year taxpayer, leased and placed in service an item of
period of 5 years. Larry does not use the computer at a
listed property. The property is 5-year property with a fair
regular business establishment, so it is listed property. His
market value of $10,000. Her property has a recovery
business use of the property (all of which is qualified
period of 5 years under ADS. The lease is for 5 years. Her
business use) is 80% in 2007, 60% in 2008, and 40% in
business use of the property was 50% in 2008 and 90% in
2009. He must add an inclusion amount to gross income
2009. She paid rent of $3,600 for 2009, of which $3,240 is
for 2009, the first tax year his qualified business-use per- deductible. She must include $147 in income in 2009. The
centage is 50% or less. The computer has a 5-year recov- $147 is the sum of Amount A and Amount B. Amount A is
ery period under both GDS and ADS. 2009 is the third tax $147 ($10,000 × 70% × 2.1%), the product of the fair
year of the lease, so the applicable percentage from Table market value, the average business use for 2008 and
A-19 is −19.8%. The applicable percentage from Table 2009, and the applicable percentage for year one from
A-20 is 22.0%. Larry’s deductible rent for the computer for Table A-19. Amount B is zero.
2009 is $800.
Larry uses the Inclusion Amount Worksheet for Leased Lease for less than one year. A special rule for the
Listed Property to figure the amount he must include in inclusion amount applies if the lease term is less than one
income for 2009. His inclusion amount is $224, which is the year and you do not use the property predominantly (more
sum of −$238 (Amount A) and $462 (Amount B). than 50%) for qualified business use. The amount included

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in income is the inclusion amount (figured as described in Exception for leased cars. The passenger automobile
the preceding discussions) multiplied by a fraction. The limits generally do not apply to passenger automobiles
numerator of the fraction is the number of days in the lease leased or held for leasing by anyone regularly engaged in
term and the denominator is 365 (or 366 for leap years). the business of leasing passenger automobiles. For infor-
The lease term for listed property other than residential mation on when you are considered regularly engaged in
rental or nonresidential real property includes options to the business of leasing listed property, including passen-
renew. If you have two or more successive leases that are ger automobiles, see Exception for leased property, ear-
part of the same transaction (or a series of related transac-
lier, under What Is the Business-Use Requirement.
tions) for the same or substantially similar property, treat
them as one lease.
Maximum Depreciation Deduction
Example 2. On October 1, 2008, John Joyce, a calen-
dar year taxpayer, leased and placed in service an item of The passenger automobile limits are the maximum depre-
listed property that is 3-year property. This property had a ciation amounts you can deduct for a passenger automo-
fair market value of $15,000 and a recovery period of 5 bile. They are based on the date you placed the
years under ADS. The lease term was 6 months (ending automobile in service.
on March 31, 2009), during which he used the property
45% in business. He must include $71 in income in 2009.
The $71 is the sum of Amount A and Amount B. Amount A Passenger Automobiles
is $71 ($15,000 × 45% × 2.1% × 182/365), the product of The maximum deduction amounts for most passenger
the fair market value, the average business use for both automobiles are shown in the following table.
years, and the applicable percentage for year one from
Table A-19, prorated for the length of the lease. Amount B Maximum Depreciation Deduction
is zero. for Passenger Automobiles
Where to report inclusion amount. Report the inclusion Date 4th &
amount figured as described in the preceding discussions Placed 1st 2nd 3rd Later
as other income on the same form or schedule on which In Service Year Year Year Years
you took the deduction for your rental costs. For example,
report the inclusion amount as other income on Schedule 2009 $10,9601 $4,800 $2,850 $1,775
C (Form 1040) if you took the deduction on Schedule C. If 2008 10,9601 4,800 2,850 1,775
you took the deduction for rental costs on Form 2106,
2007 3,060 4,900 2,850 1,775
report the inclusion amount as other income on Form
1040, line 21. 2006 2,960 4,800 2,850 1,775
2005 2,960 4,700 2,850 1,675

Do the Passenger Automobile 2004 10,6102 4,800 2,850 1,675

5/06/2003– 10,7103 4,900 2,950 1,775
Limits Apply? 12/31/2003

Terms you may need to know 1/01/2003– 7,6604 4,900 2,950 1,775
5/05/2003
(see Glossary):
2002 7,6604 4,900 2,950 1,775
Basis
2001 7,6605 4,900 2,950 1,775
Convention
2000 3,060 4,900 2,950 1,775
Placed in service 1If you elected not to claim any special depreciation
Recovery period allowance for the vehicle or the vehicle is not qualified
property, the maximum deduction is $2,960.
2If you elected not to claim any special depreciation allowance
The depreciation deduction, including the section 179 de- for the vehicle, the vehicle is not qualified property, or the
duction, you can claim for a passenger automobile (de- vehicle is qualified Liberty Zone property, the maximum
fined earlier) each year is limited. deduction is $2,960.
This section describes the maximum depreciation de- 3If you acquired the vehicle before 5/06/03, the maximum
duction amounts for 2009 and explains how to deduct, deduction is $7,660. If you elected not to claim any special
after the recovery period, the unrecovered basis of your depreciation allowance for the vehicle, the vehicle is not
property that results from applying the passenger automo- qualified property, or the vehicle is qualified Liberty Zone
bile limit. property, the maximum deduction is $3,060.

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4If you elected not to claim any special depreciation allowance placed in service after December 31, 2006, should use the
for the vehicle, the vehicle is not qualified property, or the table of maximum deduction amounts on page 66 for
vehicle is qualified Liberty Zone property, the maximum electric vehicles classified as passenger automobiles or
deduction is $3,060. use the table of maximum deduction amounts on page 68
5 If you acquired the vehicle before 9/11/01, you elected not to for electric vehicles classified as trucks and vans.
claim any special depreciation allowance for the vehicle, the Maximum Depreciation Deduction
vehicle is not qualified property, or the vehicle is qualified
For Electric Vehicles
Liberty Zone property, the maximum deduction is $3,060.
Date 4th &
If your business/investment use of the automobile Placed 1st 2nd 3rd Later
!
CAUTION
is less than 100%, you must reduce the maximum
deduction amount by multiplying the maximum
In Service Year Year Year Years

amount by the percentage of business/investment use 2006 $8,980 $14,400 $8,650 $5,225
determined on an annual basis during the tax year. 2005 8,880 14,200 8,450 5,125

If you have a short tax year, you must reduce the 2004 31,8301 14,300 8,550 5,125
!
CAUTION
maximum deduction amount by multiplying the
maximum amount by a fraction. The numerator of
5/06/2003 –
12/31/2003
32,0302 14,600 8,750 5,225

the fraction is the number of months and partial months in 1/01/2003 – 22,8803 14,600 8,750 5,225
the short tax year and the denominator is 12. 5/05/2003
2002 22,9804 14,700 8,750 5,325
Example. On April 15, 2009, Virginia Hart bought and
placed in service a new car for $14,500. She used the car 2001 23,0805 14,800 8,850 5,325
only in her business. She files her tax return based on the 2000 9,280 14,800 8,850 5,325
calendar year. She does not elect a section 179 deduction 1If you elected not to claim any special depreciation allowance for
and elected not to claim any special depreciation allow- the vehicle or the vehicle is not qualified property, or the vehicle
ance for the car. Under MACRS, a car is 5-year property. is qualified Liberty Zone property, the maximum deduction is
Since she placed her car in service on April 15 and used it $8,880.
only for business, she uses the percentages in Table A-1 2If you acquired the vehicle before 5/06/03, the maximum deduction
to figure her MACRS depreciation on the car. Virginia is $22,880. If you elected not to claim any special depreciation
multiplies the $14,500 unadjusted basis of her car by 0.20 allowance for the vehicle, the vehicle is not qualified property, or
the vehicle is qualified Liberty Zone property, the maximum
to get her MACRS depreciation of $2,900 for 2009. This
deduction is $9,080.
$2,900 is below the maximum depreciation deduction of
$2,960 for passenger automobiles placed in service in
3 If you elected not to claim any special depreciation allowance for
the vehicle, the vehicle is not qualified property, or the vehicle is
2009. She can deduct the full $2,900. qualified Liberty Zone property, the maximum deduction is
$9,080.

Electric Vehicles 4 If you elected not to claim any special depreciation allowance for
the vehicle, the vehicle is not qualified property, or the vehicle is
The maximum depreciation deductions for passenger au- qualified Liberty Zone property, the maximum deduction is
$9,180.
tomobiles that are produced to run primarily on electricity
are higher than those for other automobiles. The maximum 5 If you acquired the vehicle before 9/11/01, you elected not to
claim any special depreciation allowance for the vehicle, the
deduction amounts for electric vehicles placed in service
vehicle is not qualified property, or the vehicle is qualified Liberty
after August 5, 1997, and before January 1, 2007, are Zone property, the maximum deduction is $9,280.
shown in the following table. Owners of electric vehicles

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Trucks and Vans Depreciation Worksheet for

Passenger Automobiles
The maximum depreciation deductions for trucks and vans Keep for Your Records
placed in service after 2002 are higher than those for other
passenger automobiles. The maximum deduction Part I
amounts for trucks and vans are shown in the following
table. 1. MACRS system (GDS or ADS) . . .
2. Property class . . . . . . . . . . . . . . . .
Maximum Depreciation Deduction 3. Date placed in service . . . . . . . . . .
For Trucks and Vans 4. Recovery period . . . . . . . . . . . . . .
5. Method and convention . . . . . . . . .
Date 4th & 6. Depreciation rate (from tables) . . .
Placed 1st 2nd 3rd Later 7. Maximum depreciation deduction
In Service Year Year Year Years for this year from the appropriate
table . . . . . . . . . . . . . . . . . . . . . . .
2009 $11,0601 $4,900 $2,950 $1,775 8. Business/investment-use
2008 11,1602 5,100 3,050 1,875 percentage . . . . . . . . . . . . . . . . . .
9. Multiply line 7 by line 8. This is your
2007 3,260 5,200 3,050 1,875 adjusted maximum depreciation
2006 3,260 5,200 3,150 1,875 deduction . . . . . . . . . . . . . . . . . . .
10. Section 179 deduction claimed this
2005 3,260 5,200 3,150 1,875 year (not more than line 9). Enter
2004 10,9103 5,300 3,150 1,875 -0- if this is not the year you placed
the car in service. . . . . . . . . . . . . .
5/06/2003– 11,0104 5,400 3,250 1,975
12/31/2003 Note.
1/01/2003– 7,9605 5,400 3,250 1,975 1) If line 10 is equal to line 9, stop here. Your
5/05/2003 combined section 179 and depreciation deduction is
limited to the amount on line 9.
1 If you elect not to claim any special depreciation 2) If line 10 is less than line 9, complete Part II.
allowance for the vehicle or the vehicle is not qualified
property, the maximum deduction is $3,060. Part II
2If you elected not to claim any special depreciation 11. Subtract line 10 from line 9. This is
allowance for the vehicle or the vehicle is not qualified the maximum amount you can
property, the maximum deduction is $3,160. deduct for depreciation . . . . . . . . .
12. Cost or other basis . . . . . . . . . . . .
3If you elected not to claim any special depreciation allowance 13. Multiply line 12 by line 8. This is
for the vehicle, the vehicle is not qualified property, or the
vehicle is qualified Liberty Zone property, or the maximum
your business/investment cost . . . .
deduction is $3,260. 14. Section 179 deduction and any
special depreciation allowance
4 If you acquired the vehicle before 5/06/03, the maximum claimed in the year you placed the
deduction is $7,960. If you elected not to claim any special car in service . . . . . . . . . . . . . . . .
depreciation allowance for the vehicle, the vehicle is not
15. Subtract line 14 from line 13. This
qualified property, or the vehicle is qualified Liberty Zone
property, the maximum deduction is $3,360. is your basis for depreciation . . . . .
16. Multiply line 15 by line 6. This is
5 If you elected not to claim any special depreciation allowance your tentative MACRS depreciation
for the vehicle, the vehicle is not qualified property, or the deduction . . . . . . . . . . . . . . . . . . .
vehicle is qualified Liberty Zone property, the maximum 17. Enter the lesser of line 11 or
deduction is $3,360.
line 16. This is your MACRS
depreciation deduction . . . . . . . . .

Depreciation Worksheet for The following example shows how to figure your depre-
Passenger Automobiles ciation deduction using the worksheet.

You can use the following worksheet to figure your depre- Example. On September 26, 2009, Donald Banks
ciation deduction using the percentage tables. Then use bought and placed in service a new car for $18,000. He
the information from this worksheet to prepare Form 4562. used the car 60% for business during 2009. He files his tax
return based on the calendar year. Under GDS, his car is
5-year property. Donald is electing a section 179 deduction
of $1,000 on the car. Also, the car does not qualify for any
special depreciation allowance. He uses Table A-1 to de-
termine the depreciation rate. Donald’s MACRS deprecia-
tion deduction is limited to $776, as shown in the following
worksheet on the next page.

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Depreciation Worksheet for for business, you can deduct that unrecovered basis after
Passenger Automobiles the recovery period ends. You can claim a depreciation
Keep for Your Records deduction in each succeeding tax year until you recover
your full basis in the car. The maximum amount you can
Part I deduct each year is determined by the date you placed the
car in service and your business/investment-use percent-
1. MACRS system (GDS or ADS) GDS age. See Maximum Depreciation Deduction, earlier.
2. Property class . . . . . . . . . . . . . . 5-year Unrecovered basis is the cost or other basis of the
3. Date placed in service . . . . . . . . 9/26/09 passenger automobile reduced by any clean-fuel vehicle
4. Recovery period . . . . . . . . . . . . 5-Year deduction, electric vehicle credit, depreciation, and section
5. Method and convention . . . . . . . 200% DB/Half-Year 179 deductions that would have been allowable if you had
6. Depreciation rate (from tables) . . .20 used the car 100% for business and investment use and
the passenger automobile limits had not applied.
7. Maximum depreciation deduction
for this year from the appropriate You cannot claim a depreciation deduction for
table . . . . . . . . . . . . . . . . . . . . .
8. Business/investment-use
$2,960 !
CAUTION
listed property other than passenger automobiles
after the recovery period ends. There is no unre-
percentage . . . . . . . . . . . . . . . . 60% covered basis at the end of the recovery period because
9. Multiply line 7 by line 8. This is you are considered to have used this property 100% for
your adjusted maximum business and investment purposes during all of the recov-
depreciation deduction . . . . . . . $1,776 ery period.
10. Section 179 deduction claimed
this year (not more than line 9). Example. In May 2003, you bought and placed in serv-
Enter -0- if this is not the year
ice a car costing $31,500. The car was 5-year property
you placed the car in service. . . $1,000
under GDS (MACRS). You did not elect a section 179
deduction and elected not to claim any special deprecia-
Note.
1) If line 10 is equal to line 9, stop here. Your tion allowance for the car. You used the car exclusively for
combined section 179 and depreciation deduction is business during the recovery period (2003 through 2008).
limited to the amount on line 9. You figured your depreciation as shown below.
2) If line 10 is less than line 9, complete Part II.
Year Percentage Amount Limit Allowed
Part II 2003 20.0% $6,300 $3,060 $3,060
11. Subtract line 10 from line 9. This 2004 32.0 10,080 4,900 4,900
is the maximum amount you can 2005 19.2 6,048 2,950 2,950
deduct for depreciation . . . . . . . $776 2006 11.52 3,629 1,775 1,775
2007 11.52 3,629 1,775 1,775
12. Cost or other basis . . . . . . . . . . $18,000
2008 5.76 1,814 1,775 1,775
13. Multiply line 12 by line 8. This is Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,235
your business/investment cost . . $10,800
14. Section 179 deduction and any At the end of 2008, you had an unrecovered basis of
special depreciation allowance $15,265 ($31,500 − $16,235). If in 2009 and later years
claimed in year you placed the you continue to use the car 100% for business, you can
car in service . . . . . . . . . . . . . . . $1,000 deduct each year the lesser of $1,775 or your remaining
15. Subtract line 14 from line 13. unrecovered basis.
This is your basis for If your business use of the car had been less than 100%
depreciation . . . . . . . . . . . . . . . $9,800 during any year, your depreciation deduction would have
16. Multiply line 15 by line 6. This is been less than the maximum amount allowable for that
your tentative MACRS year. However, in figuring your unrecovered basis in the
depreciation deduction . . . . . . . $1,960 car, you would still reduce your basis by the maximum
17. Enter the lesser of line 11 or amount allowable as if the business use had been 100%.
line 16. This is your MACRS For example, if you had used your car 60% for business
depreciation deduction . . . . . . . $776 instead of 100%, your allowable depreciation deductions
would have been $9,741 ($16,235 × 60%), but you still
would have to reduce your basis by $16,235 to determine
Deductions After the your unrecovered basis.
Recovery Period
Deductions For Passenger
If the depreciation deductions for your automobile are Automobiles Acquired in a Trade-in
reduced under the passenger automobile limits, you will
have unrecovered basis in your automobile at the end of If you acquire a passenger automobile in a trade-in, depre-
the recovery period. If you continue to use the automobile ciate the carryover basis separately as if the trade-in did

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not occur. If the automobile acquired in the trade-in is • The amount of each separate expenditure, such as
qualified GO Zone property, the carryover basis is eligible the cost of acquiring the item, maintenance and re-
for a special depreciation allowance. See Qualified Gulf pair costs, capital improvement costs, lease pay-
Opportunity Zone Property in chapter 3. Depreciate the ments, and any other expenses.
part of the new automobile’s basis that exceeds its carry- • The amount of each business and investment use
over basis (excess basis) as if it were newly placed in (based on an appropriate measure, such as mileage
service property. This excess basis is the additional cash for vehicles and time for other listed property), and
paid for the new automobile in the trade-in. the total use of the property for the tax year.
The depreciation figured for the two components of the • The date of the expenditure or use.
basis (carryover basis and excess basis) is subject to a
single passenger automobile limit. Special rules apply in • The business or investment purpose for the expendi-
determining the passenger automobile limits. These rules ture or use.
and examples are discussed in section 1.168(i)-6(d)(3) of
the regulations. Written documents of your expenditure or use are gener-
ally better evidence than oral statements alone. You do not
Instead of figuring depreciation for the carryover basis have to keep a daily log. However, some type of record
and the excess basis separately, you can elect to treat the containing the elements of an expenditure or the business
old automobile as disposed of and both of the basis com- or investment use of listed property made at or near the
ponents for the new automobile as if placed in service at time of the expenditure or use and backed up by other
the time of the trade-in. For more information, including documents is preferable to a statement you prepare later.
how to make this election, see Election out under Property
Acquired in a Like-kind Exchange or Involuntary Conver- Timeliness. You must record the elements of an expendi-
sion in chapter 4 and sections 1.168(i)-6(i) and 1.168(i)-6(j) ture or use at the time you have full knowledge of the
of the regulations. elements. An expense account statement made from an
account book, diary, or similar record prepared or main-
tained at or near the time of the expenditure or use gener-
ally is considered a timely record if, in the regular course of
What Records Must Be Kept? business:

Terms you may need to know • The statement is given by an employee to the em-
ployer, or
(see Glossary):
• The statement is given by an independent contractor
Business/investment use to the client or customer.
Circumstantial evidence
For example, a log maintained on a weekly basis, that
Documentary evidence accounts for use during the week, will be considered a
record made at or near the time of use.
You cannot take any depreciation or section 179 deduction Business purpose supported. Generally, an adequate
for the use of listed property unless you can prove your record of business purpose must be in the form of a written
business/investment use with adequate records or with statement. However, the amount of detail necessary to
sufficient evidence to support your own statements. For establish a business purpose depends on the facts and
listed property, you must keep records for as long as any circumstances of each case. A written explanation of the
recapture can still occur. Recapture can occur in any tax business purpose will not be required if the purpose can be
year of the recovery period. determined from the surrounding facts and circumstances.
For example, a salesperson visiting customers on an es-
tablished sales route will not normally need a written expla-
Adequate Records nation of the business purpose of his or her travel.

To meet the adequate records requirement, you Business use supported. An adequate record contains
must maintain an account book, diary, log, state- enough information on each element of every business or
RECORDS ment of expense, trip sheet, or similar record or investment use. The amount of detail required to support
other documentary evidence that, together with the re- the use depends on the facts and circumstances. For
ceipt, is sufficient to establish each element of an expendi- example, a taxpayer who uses a truck for both business
ture or use. You do not have to record information in an and personal purposes and whose only business use of
account book, diary, or similar record if the information is the truck is to make customer deliveries on an established
already shown on the receipt. However, your records route can satisfy the requirement by recording the length of
should back up your receipts in an orderly manner. the route, including the total number of miles driven during
the tax year and the date of each trip at or near the time of
the trips.
Elements of expenditure or use. Your records or other Although you generally must prepare an adequate writ-
documentary evidence must support all the following. ten record, you can prepare a record of the business use of

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listed property in a computer memory device that uses a and investment use of listed property for the entire tax year
logging program. if it can be shown by other evidence that the periods for
which you maintain an adequate record are representative
Separate or combined expenditures or uses. Each use of the use throughout the year.
by you normally is considered a separate use. However,
you can combine repeated uses as a single item. Example 1. Denise Williams, a sole proprietor and cal-
Record each expenditure as a separate item. Do not endar year taxpayer, operates an interior decorating busi-
combine it with other expenditures. If you choose, how- ness out of her home. She uses her automobile for local
ever, you can combine amounts you spent for the use of business visits to the homes or offices of clients, for meet-
listed property during a tax year, such as for gasoline or ings with suppliers and subcontractors, and to pick up and
automobile repairs. If you combine these expenses, you do deliver items to clients. There is no other business use of
not need to support the business purpose of each ex- the automobile, but she and family members also use it for
pense. Instead, you can divide the expenses based on the personal purposes. She maintains adequate records for
total business use of the listed property.
the first 3 months of the year showing that 75% of the
You can account for uses that can be considered part of
automobile use was for business. Subcontractor invoices
a single use, such as a round trip or uninterrupted business
use, by a single record. For example, you can account for and paid bills show that her business continued at approxi-
the use of a truck to make deliveries at several locations mately the same rate for the rest of the year. If there is no
that begin and end at the business premises and can change in circumstances, such as the purchase of a sec-
include a stop at the business in between deliveries by a ond car for exclusive use in her business, the determina-
single record of miles driven. You can account for the use tion that her combined business/investment use of the
of a passenger automobile by a salesperson for a business automobile for the tax year is 75% rests on sufficient
trip away from home over a period of time by a single supporting evidence.
record of miles traveled. Minimal personal use (such as a
stop for lunch between two business stops) is not an Example 2. Assume the same facts as in Example 1,
interruption of business use. except that Denise maintains adequate records during the
first week of every month showing that 75% of her use of
Confidential information. If any of the information on the the automobile is for business. Her business invoices show
elements of an expenditure or use is confidential, you do that her business continued at the same rate during the
not need to include it in the account book or similar record if later weeks of each month so that her weekly records are
you record it at or near the time of the expenditure or use. representative of the automobile’s business use through-
You must keep it elsewhere and make it available as out the month. The determination that her business/invest-
support to the IRS director for your area on request.
ment use of the automobile for the tax year is 75% rests on
sufficient supporting evidence.
Substantial compliance. If you have not fully supported
a particular element of an expenditure or use, but have Example 3. Bill Baker, a sole proprietor and calendar
complied with the adequate records requirement for the year taxpayer, is a salesman in a large metropolitan area
expenditure or use to the satisfaction of the IRS director for for a company that manufactures household products. For
your area, you can establish this element by any evidence the first 3 weeks of each month, he occasionally uses his
the IRS director for your area deems adequate.
own automobile for business travel within the metropolitan
If you fail to establish to the satisfaction of the IRS
area. During these weeks, his business use of the automo-
director for your area that you have substantially complied
with the adequate records requirement for an element of bile does not follow a consistent pattern. During the fourth
an expenditure or use, you must establish the element as week of each month, he delivers all business orders taken
follows. during the previous month. The business use of his auto-
mobile, as supported by adequate records, is 70% of its
• By your own oral or written statement containing total use during that fourth week. The determination based
detailed information as to the element.
on the record maintained during the fourth week of the
• By other evidence sufficient to establish the element. month that his business/investment use of the automobile
for the tax year is 70% does not rest on sufficient support-
If the element is the cost or amount, time, place, or date ing evidence because his use during that week is not
of an expenditure or use, its supporting evidence must be representative of use during other periods.
direct evidence, such as oral testimony by witnesses or a
written statement setting forth detailed information about
the element or the documentary evidence. If the element is Loss of records. When you establish that failure to pro-
the business purpose of an expenditure, its supporting duce adequate records is due to loss of the records
evidence can be circumstantial evidence. through circumstances beyond your control, such as
through fire, flood, earthquake, or other casualty, you have
Sampling. You can maintain an adequate record for part the right to support a deduction by reasonable reconstruc-
of a tax year and use that record to support your business tion of your expenditures and use.

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a. All personal use including commuting.

How Is Listed Property b. Personal use, other than commuting, by employ-
Information Reported? ees who are not officers, directors, or 1%-or-more
owners.
You must provide the information about your listed prop-
erty requested in Part V of Form 4562, Section A, if you 2. You treat all use of the vehicles by your employees
claim either of the following deductions. as personal use.

• Any deduction for a vehicle. 3. You provide more than five vehicles for use by your
employees, and you keep in your records the infor-
• A depreciation deduction for any other listed prop- mation on their use given to you by the employees.
erty.
4. For demonstrator automobiles provided to full-time
If you claim any deduction for a vehicle, you also must salespersons, you maintain a written policy state-
provide the information requested in Section B. If you ment that limits the total mileage outside the sales-
provide the vehicle for your employee’s use, the employee person’s normal working hours and prohibits use of
must give you this information. If you provide any vehicle the automobile by anyone else, for vacation trips, or
for use by an employee, you must first answer the ques- to store personal possessions.
tions in Section C to see if you meet an exception to
completing Section B for that vehicle.
Exceptions. If you file Form 2106, 2106-EZ, or Schedule
Vehicles used by your employees. You do not have to C-EZ (Form 1040), and you are not required to file Form
complete Section B, Part V, for vehicles used by your 4562, report information about listed property on that form
employees who are not more-than-5% owners or related and not on Form 4562. Also, if you file Schedule C (Form
persons if you meet at least one of the following require- 1040) and are claiming the standard mileage rate or actual
ments. vehicle expenses (except depreciation) and you are not
required to file Form 4562 for any other reason, report
1. You maintain a written policy statement that prohibits vehicle information in Part IV of Schedule C and not on
one of the following uses of the vehicles. Form 4562.

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about taxpayer rights and responsibilities. For more infor-

mation, see Publication 4134, Low Income Taxpayer Clinic
6. List. This publication is available at www.irs.gov, by calling
1-800-TAX-FORM (1-800-829-3676), or at your local IRS
office.
How To Get Tax Help Free tax services. To find out what services are avail-
able, get Publication 910, IRS Guide to Free Tax Services.
You can get help with unresolved tax issues, order free It contains a list of free tax information sources, including
publications and forms, ask tax questions, and get informa- publications, services, and free tax education and assis-
tion from the IRS in several ways. By selecting the method tance programs. It also has an index of 100 TeleTax topics
that is best for you, you will have quick and easy access to (recorded tax information) you can listen to on your tele-
tax help. phone.
Accessible versions of IRS published products are
Contacting your Taxpayer Advocate. The Taxpayer available on request in a variety of alternative formats for
Advocate Service (TAS) is an independent organization people with disabilities.
within the IRS whose employees assist taxpayers who are
experiencing economic harm, who are seeking help in Free help with your return. Free help in preparing your
resolving tax problems that have not been resolved return is available nationwide from IRS-trained volunteers.
through normal channels, or who believe that an IRS The Volunteer Income Tax Assistance (VITA) program is
system or procedure is not working as it should. Here are designed to help low-income taxpayers and the Tax Coun-
seven things every taxpayer should know about TAS: seling for the Elderly (TCE) program is designed to assist
• TAS is your voice at the IRS. taxpayers age 60 and older with their tax returns. Many
VITA sites offer free electronic filing and all volunteers will
• Our service is free, confidential, and tailored to meet let you know about credits and deductions you may be
your needs. entitled to claim. To find the nearest VITA or TCE site, call
• You may be eligible for TAS help if you have tried to 1-800-829-1040.
resolve your tax problem through normal IRS chan- As part of the TCE program, AARP offers the Tax-Aide
nels and have gotten nowhere, or you believe an counseling program. To find the nearest AARP Tax-Aide
IRS procedure just isn’t working as it should. site, call 1-888-227-7669 or visit AARP’s website at www.
• TAS helps taxpayers whose problems are causing aarp.org/money/taxaide.
financial difficulty or significant cost, including the For more information on these programs, go to www.irs.
cost of professional representation. This includes gov and enter the keyword “VITA” in the upper right-hand
businesses as well as individuals. corner.
• TAS employees know the IRS and how to navigate Internet. You can access the IRS website at
it. We will listen to your problem, help you under- www.irs.gov 24 hours a day, 7 days a week to:
stand what needs to be done to resolve it, and stay
with you every step of the way until your problem is
resolved. • E-file your return. Find out about commercial tax
preparation and e-file services available free to eligi-
• TAS has at least one local taxpayer advocate in ble taxpayers.
every state, the District of Columbia, and Puerto
Rico. You can call your local advocate, whose num- • Check the status of your 2009 refund. Go to www.
ber is in your phone book, in Pub. 1546, Taxpayer irs.gov and click on Where’s My Refund. Wait at
Advocate Service —Your Voice at the IRS, and on least 72 hours after the IRS acknowledges receipt of
our website at www.irs.gov/advocate. You can also your e-filed return, or 3 to 4 weeks after mailing a
call our toll-free line at 1-877-777-4778 or TTY/TDD paper return. If you filed Form 8379 with your return,
1-800-829-4059. wait 14 weeks (11 weeks if you filed electronically).
Have your 2009 tax return available so you can
• You can learn about your rights and responsibilities provide your social security number, your filing sta-
as a taxpayer by visiting our online tax toolkit at
tus, and the exact whole dollar amount of your re-
www.taxtoolkit.irs.gov.
fund.
Low income tax clinics (LITCs). The Low Income • Download forms, instructions, and publications.
Taxpayer Clinic program serves individuals who have a
problem with the IRS and whose income is below a certain
• Order IRS products online.
level. LITCs are independent from the IRS. Most LITCs • Research your tax questions online.
can provide representation before the IRS or in court on
audits, tax collection disputes, and other issues for free or
• Search publications online by topic or keyword.
a small fee. If an individual’s native language is not En- • Use the online Internal Revenue Code, Regulations,
glish, some clinics can provide multilingual information or other official guidance.

Chapter 6 How To Get Tax Help Page 73

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• View Internal Revenue Bulletins (IRBs) published in

the last few years. Evaluating the quality of our telephone services. To
• Figure your withholding allowances using our with- ensure that IRS representatives give accurate, courteous,
holding calculator online at www.irs.gov/individuals. and professional answers, we use several methods to
evaluate the quality of our telephone services. One method
• Determine if Form 6251 must be filed by using our is for a second IRS representative to sometimes listen in
Alternative Minimum Tax (AMT) assistant.
on or record telephone calls. Another is to ask some callers
• Sign up to receive local and national tax news by to complete a short survey at the end of the call.
email.
• Get information on starting and operating a small Walk-in. Many products and services are avail-
business. able on a walk-in basis.

• Products. You can walk in to many post offices,

Phone. Many services are available by phone. libraries, and IRS offices to pick up certain forms,
instructions, and publications. Some IRS offices, li-
braries, grocery stores, copy centers, city and county
government offices, credit unions, and office supply
• Ordering forms, instructions, and publications.
1-800-TAX-FORM (1-800-829-3676) to order cur- stores have a collection of products available to print
rent-year forms, instructions, and publications and from a CD or photocopy from reproducible proofs.
prior-year forms and instructions. You should receive Also, some IRS offices and libraries have the Inter-
your order within 10 days. nal Revenue Code, regulations, Internal Revenue
Bulletins, and Cumulative Bulletins available for re-
• Asking tax questions. Call the IRS with your tax search purposes.
questions at 1-800-829-1040.
• Solving problems. You can get face-to-face help • Services. You can walk in to your local Taxpayer
solving tax problems every business day in IRS Tax- Assistance Center every business day for personal,
payer Assistance Centers. An employee can explain face-to-face tax help. An employee can explain IRS
IRS letters, request adjustments to your account, or letters, request adjustments to your tax account, or
help you set up a payment plan. Call your local help you set up a payment plan. If you need to
Taxpayer Assistance Center for an appointment. To resolve a tax problem, have questions about how the
find the number, go to www.irs.gov/localcontacts or tax law applies to your individual tax return, or you
look in the phone book under United States Govern- are more comfortable talking with someone in per-
ment, Internal Revenue Service. son, visit your local Taxpayer Assistance Center
• TTY/TDD equipment. If you have access to TTY/ where you can spread out your records and talk with
TDD equipment, call 1-800-829-4059 to ask tax an IRS representative face-to-face. No appointment
questions or to order forms and publications. is necessary —just walk in. If you prefer, you can call
your local Center and leave a message requesting
• TeleTax topics. Call 1-800-829-4477 to listen to
an appointment to resolve a tax account issue. A
pre-recorded messages covering various tax topics.
representative will call you back within 2 business
• Refund information. To check the status of your days to schedule an in-person appointment at your
2009 refund, call 1-800-829-1954 during business convenience. If you have an ongoing, complex tax
hours or 1-800-829-4477 (automated refund infor- account problem or a special need, such as a disa-
mation 24 hours a day, 7 days a week). Wait at least bility, an appointment can be requested. All other
72 hours after the IRS acknowledges receipt of your
issues will be handled without an appointment. To
e-filed return, or 3 to 4 weeks after mailing a paper
return. If you filed Form 8379 with your return, wait find the number of your local office, go to www.irs.
14 weeks (11 weeks if you filed electronically). Have gov/localcontacts or look in the phone book under
your 2009 tax return available so you can provide United States Government, Internal Revenue Serv-
your social security number, your filing status, and ice.
the exact whole dollar amount of your refund. Re-
funds are sent out weekly on Fridays. If you check Mail. You can send your order for forms, instruc-
the status of your refund and are not given the date tions, and publications to the address below and
it will be issued, please wait until the next week receive a response within 10 business days after
before checking back. your request is received.
• Other refund information.To check the status of a prior Internal Revenue Service
year refund or amended return refund, call 1201 N. Mitsubishi Motorway
1-800-829-1954. Bloomington, IL 61705-6613

Page 74 Chapter 6 How To Get Tax Help

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DVD for tax products.You can order Publication • Internal Revenue Bulletins.
1796, IRS Tax Products DVD, and obtain:
• Toll-free and email technical support.
• Two releases during the year.
• Current-year forms, instructions, and publications. – The first release will ship the beginning of January
2010.
• Prior-year forms, instructions, and publications.
– The final release will ship the beginning of March
• Tax Map: an electronic research tool and finding aid. 2010.
• Tax law frequently asked questions.
Purchase the DVD from the National Technical Informa-
• Tax Topics from the IRS telephone response sys- tion Service (NTIS) at www.irs.gov/cdorders for $30 (no
tem. handling fee) or call 1-877-233-6767 toll free to buy the
DVD for $30 (plus a $6 handling fee).
• Internal Revenue Code—Title 26 of the U.S. Code.
• Fill-in, print, and save features for most tax forms.

Chapter 6 How To Get Tax Help Page 75

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Appendix A
MACRS Percentage Table Guide
General Depreciation System (GDS)
Alternative Depreciation System (ADS)

Chart 1. Use this chart to find the correct percentage table to use for any property other than residential rental
and nonresidential real property. Use Chart 2 for residential rental and nonresidential real property.
Month or
Quarter
MACRS Depreciation Placed
System Method Recovery Period Convention Class in Service Table
GDS 200% GDS/3, 5, 7, 10 (Nonfarm) Half-Year 3, 5, 7, 10 Any A-1
GDS 200% GDS/3, 5, 7, 10 (Nonfarm) Mid-Quarter 3, 5, 7, 10 1st Qtr A-2
2nd Qtr A-3
3rd Qtr A-4
4th Qtr A-5
GDS 150% GDS/3, 5, 7, 10 Half-Year 3, 5, 7, 10 Any A-14
GDS 150% GDS/3, 5, 7, 10 Mid-Quarter 3, 5, 7, 10 1st Qtr A-15
2nd Qtr A-16
3rd Qtr A-17
4th Qtr A-18
GDS 150% GDS/15, 20 Half-Year 15 & 20 Any A-1
GDS 150% GDS/15, 20 Mid-Quarter 15 & 20 1st Qtr A-2
2nd Qtr A-3
3rd Qtr A-4
4th Qtr A-5
GDS SL GDS Half-Year Any Any A-8
ADS ADS
GDS SL GDS Mid-Quarter Any 1st Qtr A-9
ADS ADS 2nd Qtr A-10
3rd Qtr A-11
4th Qtr A-12
ADS 150% ADS Half-Year Any Any A-14
ADS 150% ADS Mid-Quarter Any 1st Qtr A-15
2nd Qtr A-16
3rd Qtr A-17
4th Qtr A-18

Chart 2. Use this chart to find the correct percentage table to use for residential rental and nonresidential real
property. Use Chart 1 for all other property.
Month or
Quarter
MACRS Depreciation Placed
System Method Recovery Period Convention Class in Service Table
GDS SL GDS/27.5 Mid-Month Residential Rental Any A-6
GDS SL GDS/31.5 Mid-Month Nonresidential Real Any A-7
SL GDS/39 A-7a
ADS SL ADS/40 Mid-Month Residential Rental Any A-13
and
Nonresidential Real

Chart 3. Income Inclusion Amount Rates

for MACRS Leased Listed Property
Table
Amount A Percentages A-19
Amount B Percentages A-20

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Table A-1. 3-, 5-, 7-, 10-, 15-, and 20-Year Property
Half-Year Convention
Depreciation rate for recovery period
Year
3-year 5-year 7-year 10-year 15-year 20-year

1 33.33% 20.00% 14.29% 10.00% 5.00% 3.750%

2 44.45 32.00 24.49 18.00 9.50 7.219
3 14.81 19.20 17.49 14.40 8.55 6.677
4 7.41 11.52 12.49 11.52 7.70 6.177
5 11.52 8.93 9.22 6.93 5.713

6 5.76 8.92 7.37 6.23 5.285

7 8.93 6.55 5.90 4.888
8 4.46 6.55 5.90 4.522
9 6.56 5.91 4.462
10 6.55 5.90 4.461

11 3.28 5.91 4.462

12 5.90 4.461
13 5.91 4.462
14 5.90 4.461
15 5.91 4.462

16 2.95 4.461
17 4.462
18 4.461
19 4.462
20 4.461

21 2.231

Table A-2. 3-, 5-, 7-, 10-, 15-, and 20-Year Property
Mid-Quarter Convention
Placed in Service in First Quarter
Depreciation rate for recovery period
Year
3-year 5-year 7-year 10-year 15-year 20-year

1 58.33% 35.00% 25.00% 17.50% 8.75% 6.563%

2 27.78 26.00 21.43 16.50 9.13 7.000
3 12.35 15.60 15.31 13.20 8.21 6.482
4 1.54 11.01 10.93 10.56 7.39 5.996
5 11.01 8.75 8.45 6.65 5.546

6 1.38 8.74 6.76 5.99 5.130

7 8.75 6.55 5.90 4.746
8 1.09 6.55 5.91 4.459
9 6.56 5.90 4.459
10 6.55 5.91 4.459

11 0.82 5.90 4.459

12 5.91 4.460
13 5.90 4.459
14 5.91 4.460
15 5.90 4.459

16 0.74 4.460
17 4.459
18 4.460
19 4.459
20 4.460

21 0.565

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Table A-3. 3-, 5-, 7-, 10-, 15-, and 20-Year Property
Mid-Quarter Convention
Placed in Service in Second Quarter
Depreciation rate for recovery period
Year
3-year 5-year 7-year 10-year 15-year 20-year

1 41.67% 25.00% 17.85% 12.50% 6.25% 4.688%

2 38.89 30.00 23.47 17.50 9.38 7.148
3 14.14 18.00 16.76 14.00 8.44 6.612
4 5.30 11.37 11.97 11.20 7.59 6.116
5 11.37 8.87 8.96 6.83 5.658

6 4.26 8.87 7.17 6.15 5.233

7 8.87 6.55 5.91 4.841
8 3.34 6.55 5.90 4.478
9 6.56 5.91 4.463
10 6.55 5.90 4.463

11 2.46 5.91 4.463

12 5.90 4.463
13 5.91 4.463
14 5.90 4.463
15 5.91 4.462

16 2.21 4.463
17 4.462
18 4.463
19 4.462
20 4.463

21 1.673

Table A-4. 3-, 5-, 7-, 10-, 15-, and 20-Year Property
Mid-Quarter Convention
Placed in Service in Third Quarter
Depreciation rate for recovery period
Year
3-year 5-year 7-year 10-year 15-year 20-year

1 25.00% 15.00% 10.71% 7.50% 3.75% 2.813%

2 50.00 34.00 25.51 18.50 9.63 7.289
3 16.67 20.40 18.22 14.80 8.66 6.742
4 8.33 12.24 13.02 11.84 7.80 6.237
5 11.30 9.30 9.47 7.02 5.769

6 7.06 8.85 7.58 6.31 5.336

7 8.86 6.55 5.90 4.936
8 5.53 6.55 5.90 4.566
9 6.56 5.91 4.460
10 6.55 5.90 4.460

11 4.10 5.91 4.460

12 5.90 4.460
13 5.91 4.461
14 5.90 4.460
15 5.91 4.461

16 3.69 4.460
17 4.461
18 4.460
19 4.461
20 4.460

21 2.788

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Table A-5. 3-, 5-, 7-, 10-, 15-, and 20-Year Property
Mid-Quarter Convention
Placed in Service in Fourth Quarter
Depreciation rate for recovery period
Year
3-year 5-year 7-year 10-year 15-year 20-year

1 8.33% 5.00% 3.57% 2.50% 1.25% 0.938%

2 61.11 38.00 27.55 19.50 9.88 7.430
3 20.37 22.80 19.68 15.60 8.89 6.872
4 10.19 13.68 14.06 12.48 8.00 6.357
5 10.94 10.04 9.98 7.20 5.880

6 9.58 8.73 7.99 6.48 5.439

7 8.73 6.55 5.90 5.031
8 7.64 6.55 5.90 4.654
9 6.56 5.90 4.458
10 6.55 5.91 4.458

11 5.74 5.90 4.458

12 5.91 4.458
13 5.90 4.458
14 5.91 4.458
15 5.90 4.458

16 5.17 4.458
17 4.458
18 4.459
19 4.458
20 4.459

21 3.901

Table A-6. Residential Rental Property

Mid-Month Convention
Straight Line—27.5 Years
Month property placed in service
Year
1 2 3 4 5 6 7 8 9 10 11 12

1 3.485% 3.182% 2.879% 2.576% 2.273% 1.970% 1.667% 1.364% 1.061% 0.758% 0.455% 0.152%
2–9 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636
10 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636
11 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637
12 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636

13 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637
14 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636
15 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637
16 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636
17 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637

18 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636
19 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637
20 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636
21 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637
22 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636

23 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637
24 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636
25 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637
26 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636
27 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637

28 1.97 2.273 2.576 2.879 3.182 3.485 3.636 3.636 3.636 3.636 3.636 3.636
29 0.152 0.455 0.758 1.061 1.364 1.667

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Table A-7. Nonresidential Real Property

Mid-Month Convention
Straight Line—31.5 Years
Month property placed in service
Year
1 2 3 4 5 6 7 8 9 10 11 12

1 3.042% 2.778% 2.513% 2.249% 1.984% 1.720% 1.455% 1.190% 0.926% 0.661% 0.397% 0.132%
2–7 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175
8 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.175 3.175 3.175 3.175 3.175
9 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175
10 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174

11 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175
12 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174
13 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175
14 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174
15 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175

16 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174
17 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175
18 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174
19 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175
20 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174

21 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175
22 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174
23 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175
24 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174
25 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175

26 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174
27 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175
28 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174
29 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175
30 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174

31 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175
32 1.720 1.984 2.249 2.513 2.778 3.042 3.175 3.174 3.175 3.174 3.175 3.174
33 0.132 0.397 0.661 0.926 1.190 1.455

Table A-7a. Nonresidential Real Property

Mid-Month Convention
Straight Line—39 Years
Month property placed in service
Year
1 2 3 4 5 6 7 8 9 10 11 12

1 2.461% 2.247% 2.033% 1.819% 1.605% 1.391% 1.177% 0.963% 0.749% 0.535% 0.321% 0.107%
2–39 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564
40 0.107 0.321 0.535 0.749 0.963 1.177 1.391 1.605 1.819 2.033 2.247 2.461

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Table A-8. Straight Line Method

Half-Year Convention
Recovery periods in years
Year
2.5 3 3.5 4 5 6 6.5 7 7.5 8 8.5 9 9.5

1 20.0% 16.67% 14.29% 12.5% 10.0% 8.33% 7.69% 7.14% 6.67% 6.25% 5.88% 5.56% 5.26%
2 40.0 33.33 28.57 25.0 20.0 16.67 15.39 14.29 13.33 12.50 11.77 11.11 10.53
3 40.0 33.33 28.57 25.0 20.0 16.67 15.38 14.29 13.33 12.50 11.76 11.11 10.53
4 16.67 28.57 25.0 20.0 16.67 15.39 14.28 13.33 12.50 11.77 11.11 10.53
5 12.5 20.0 16.66 15.38 14.29 13.34 12.50 11.76 11.11 10.52

6 10.0 16.67 15.39 14.28 13.33 12.50 11.77 11.11 10.53

7 8.33 15.38 14.29 13.34 12.50 11.76 11.11 10.52
8 7.14 13.33 12.50 11.77 11.11 10.53
9 6.25 11.76 11.11 10.52
10 5.56 10.53

Table A-8. ( Continued)

Recovery periods in years
Year
10 10.5 11 11.5 12 12.5 13 13.5 14 15 16 16.5 17

1 5.0% 4.76% 4.55% 4.35% 4.17% 4.0% 3.85% 3.70% 3.57% 3.33% 3.13% 3.03% 2.94%
2 10.0 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
3 10.0 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
4 10.0 9.53 9.09 8.69 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
5 10.0 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88

6 10.0 9.53 9.09 8.69 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
7 10.0 9.52 9.09 8.70 8.34 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
8 10.0 9.53 9.09 8.69 8.33 8.0 7.69 7.41 7.15 6.66 6.25 6.06 5.88
9 10.0 9.52 9.09 8.70 8.34 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
10 10.0 9.53 9.09 8.69 8.33 8.0 7.70 7.40 7.15 6.66 6.25 6.06 5.88

11 5.0 9.52 9.09 8.70 8.34 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.89
12 4.55 8.69 8.33 8.0 7.70 7.40 7.15 6.66 6.25 6.06 5.88
13 4.17 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.89
14 3.85 7.40 7.15 6.66 6.25 6.06 5.88
15 3.57 6.67 6.25 6.06 5.89

16 3.33 6.25 6.06 5.88

17 3.12 6.07 5.89
18 2.94

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Table A-8. ( Continued)

Recovery periods in years
Year
18 19 20 22 24 25 26.5 28 30 35 40 45 50

1 2.78% 2.63% 2.5% 2.273% 2.083% 2.0% 1.887% 1.786% 1.667% 1.429% 1.25% 1.111% 1.0%
2 5.56 5.26 5.0 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.50 2.222 2.0
3 5.56 5.26 5.0 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.50 2.222 2.0
4 5.55 5.26 5.0 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.50 2.222 2.0
5 5.56 5.26 5.0 4.546 4.167 4.0 3.774 3.571 3.333 2.857 2.50 2.222 2.0

6 5.55 5.26 5.0 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.50 2.222 2.0
7 5.56 5.26 5.0 4.546 4.167 4.0 3.773 3.572 3.333 2.857 2.50 2.222 2.0
8 5.55 5.26 5.0 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.50 2.222 2.0
9 5.56 5.27 5.0 4.546 4.167 4.0 3.773 3.572 3.333 2.857 2.50 2.222 2.0
10 5.55 5.26 5.0 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.50 2.222 2.0

11 5.56 5.27 5.0 4.546 4.166 4.0 3.773 3.572 3.333 2.857 2.50 2.222 2.0
12 5.55 5.26 5.0 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.50 2.222 2.0
13 5.56 5.27 5.0 4.546 4.166 4.0 3.773 3.572 3.334 2.857 2.50 2.222 2.0
14 5.55 5.26 5.0 4.545 4.167 4.0 3.773 3.571 3.333 2.857 2.50 2.222 2.0
15 5.56 5.27 5.0 4.546 4.166 4.0 3.774 3.572 3.334 2.857 2.50 2.222 2.0

16 5.55 5.26 5.0 4.545 4.167 4.0 3.773 3.571 3.333 2.857 2.50 2.222 2.0
17 5.56 5.27 5.0 4.546 4.166 4.0 3.774 3.572 3.334 2.857 2.50 2.222 2.0
18 5.55 5.26 5.0 4.545 4.167 4.0 3.773 3.571 3.333 2.857 2.50 2.222 2.0
19 2.78 5.27 5.0 4.546 4.166 4.0 3.774 3.572 3.334 2.857 2.50 2.222 2.0
20 2.63 5.0 4.545 4.167 4.0 3.773 3.571 3.333 2.857 2.50 2.222 2.0

21 2.5 4.546 4.166 4.0 3.774 3.572 3.334 2.857 2.50 2.222 2.0
22 4.545 4.167 4.0 3.773 3.571 3.333 2.857 2.50 2.222 2.0
23 2.273 4.166 4.0 3.774 3.572 3.334 2.857 2.50 2.222 2.0
24 4.167 4.0 3.773 3.571 3.333 2.857 2.50 2.222 2.0
25 2.083 4.0 3.774 3.572 3.334 2.857 2.50 2.222 2.0

26 2.0 3.773 3.571 3.333 2.857 2.50 2.222 2.0

27 3.774 3.572 3.334 2.857 2.50 2.223 2.0
28 3.571 3.333 2.858 2.50 2.222 2.0
29 1.786 3.334 2.857 2.50 2.223 2.0
30 3.333 2.858 2.50 2.222 2.0

31 1.667 2.857 2.50 2.223 2.0

32 2.858 2.50 2.222 2.0
33 2.857 2.50 2.223 2.0
34 2.858 2.50 2.222 2.0
35 2.857 2.50 2.223 2.0

36 1.429 2.50 2.222 2.0

37 2.50 2.223 2.0
38 2.50 2.222 2.0
39 2.50 2.223 2.0
40 2.50 2.222 2.0

41 1.25 2.223 2.0

42 2.222 2.0
43 2.223 2.0
44 2.222 2.0
45 2.223 2.0

46 1.111 2.0
47–50 2.0
51 1.0

Page 82 Publication 946 (2009)

Page 83 of 120 of Publication 946 15:26 - 13-MAY-2010

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-9. Straight Line Method

Mid-Quarter Convention
Placed in Service in First Quarter
Recovery periods in years
Year
2.5 3 3.5 4 5 6 6.5 7 7.5 8 8.5 9 9.5

1 35.0% 29.17% 25.00% 21.88% 17.5% 14.58% 13.46% 12.50% 11.67% 10.94% 10.29% 9.72% 9.21%
2 40.0 33.33 28.57 25.00 20.0 16.67 15.38 14.29 13.33 12.50 11.77 11.11 10.53
3 25.0 33.33 28.57 25.00 20.0 16.67 15.39 14.28 13.33 12.50 11.76 11.11 10.53
4 4.17 17.86 25.00 20.0 16.67 15.38 14.29 13.33 12.50 11.77 11.11 10.53
5 3.12 20.0 16.66 15.39 14.28 13.34 12.50 11.76 11.11 10.52

6 2.5 16.67 15.38 14.29 13.33 12.50 11.77 11.11 10.53

7 2.08 9.62 14.28 13.34 12.50 11.76 11.11 10.52
8 1.79 8.33 12.50 11.77 11.12 10.53
9 1.56 7.35 11.11 10.52
10 1.39 6.58

Table A-9. ( Continued)

Recovery periods in years
Year
10 10.5 11 11.5 12 12.5 13 13.5 14 15 16 16.5 17

1 8.75% 8.33% 7.95% 7.61% 7.29% 7.0% 6.73% 6.48% 6.25% 5.83% 5.47% 5.30% 5.15%
2 10.00 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
3 10.00 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
4 10.00 9.53 9.09 8.69 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
5 10.00 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88

6 10.00 9.53 9.09 8.69 8.34 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
7 10.00 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
8 10.00 9.53 9.09 8.69 8.34 8.0 7.69 7.41 7.15 6.66 6.25 6.06 5.88
9 10.00 9.52 9.09 8.70 8.33 8.0 7.70 7.40 7.14 6.67 6.25 6.06 5.88
10 10.00 9.53 9.10 8.69 8.34 8.0 7.69 7.41 7.15 6.66 6.25 6.06 5.88

11 1.25 5.95 9.09 8.70 8.33 8.0 7.70 7.40 7.14 6.67 6.25 6.06 5.88
12 1.14 5.43 8.34 8.0 7.69 7.41 7.15 6.66 6.25 6.06 5.89
13 1.04 5.0 7.70 7.40 7.14 6.67 6.25 6.06 5.88
14 0.96 4.63 7.15 6.66 6.25 6.06 5.89
15 0.89 6.67 6.25 6.06 5.88

16 0.83 6.25 6.07 5.89

17 0.78 3.79 5.88
18 0.74

Publication 946 (2009) Page 83

Page 84 of 120 of Publication 946 15:26 - 13-MAY-2010

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-9. ( Continued)

Recovery periods in years
Year
18 19 20 22 24 25 26.5 28 30 35 40 45 50

1 4.86% 4.61% 4.375% 3.977% 3.646% 3.5% 3.302% 3.125% 2.917% 2.500% 2.188% 1.944% 1.75%
2 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
3 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
4 5.56 5.26 5.000 4.546 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
5 5.55 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00

6 5.56 5.26 5.000 4.546 4.167 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00
7 5.55 5.26 5.000 4.545 4.167 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00
8 5.56 5.26 5.000 4.546 4.167 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00
9 5.55 5.26 5.000 4.545 4.167 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00
10 5.56 5.27 5.000 4.546 4.166 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00

11 5.55 5.26 5.000 4.545 4.167 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00
12 5.56 5.27 5.000 4.546 4.166 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00
13 5.55 5.26 5.000 4.545 4.167 4.0 3.773 3.571 3.334 2.857 2.500 2.222 2.00
14 5.56 5.27 5.000 4.546 4.166 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00
15 5.55 5.26 5.000 4.545 4.167 4.0 3.773 3.571 3.334 2.857 2.500 2.222 2.00

16 5.56 5.27 5.000 4.546 4.166 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00
17 5.55 5.26 5.000 4.545 4.167 4.0 3.773 3.571 3.334 2.857 2.500 2.222 2.00
18 5.56 5.27 5.000 4.546 4.166 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00
19 0.69 5.26 5.000 4.545 4.167 4.0 3.773 3.571 3.334 2.857 2.500 2.222 2.00
20 0.66 5.000 4.546 4.166 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00

21 0.625 4.545 4.167 4.0 3.773 3.571 3.334 2.857 2.500 2.222 2.00
22 4.546 4.166 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00
23 0.568 4.167 4.0 3.773 3.571 3.334 2.857 2.500 2.222 2.00
24 4.166 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00
25 0.521 4.0 3.773 3.571 3.334 2.857 2.500 2.222 2.00

26 0.5 3.774 3.572 3.333 2.857 2.500 2.223 2.00

27 2.358 3.571 3.334 2.858 2.500 2.222 2.00
28 3.572 3.333 2.857 2.500 2.223 2.00
29 0.446 3.334 2.858 2.500 2.222 2.00
30 3.333 2.857 2.500 2.223 2.00

31 0.417 2.858 2.500 2.222 2.00

32 2.857 2.500 2.223 2.00
33 2.858 2.500 2.222 2.00
34 2.857 2.500 2.223 2.00
35 2.858 2.500 2.222 2.00

36 0.357 2.500 2.223 2.00

37 2.500 2.222 2.00
38 2.500 2.223 2.00
39 2.500 2.222 2.00
40 2.500 2.223 2.00

41 0.312 2.222 2.00

42 2.223 2.00
43 2.222 2.00
44 2.223 2.00
45 2.222 2.00

46 0.278 2.00
47–50 2.00
51 0.25

Page 84 Publication 946 (2009)

Page 85 of 120 of Publication 946 15:26 - 13-MAY-2010

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-10. Straight Line Method

Mid-Quarter Convention
Placed in Service in Second Quarter
Recovery periods in years
Year
2.5 3 3.5 4 5 6 6.5 7 7.5 8 8.5 9 9.5

1 25.0% 20.83% 17.86% 15.63% 12.5% 10.42% 9.62% 8.93% 8.33% 7.81% 7.35% 6.94% 6.58%
2 40.0 33.33 28.57 25.00 20.0 16.67 15.38 14.29 13.33 12.50 11.77 11.11 10.53
3 35.0 33.34 28.57 25.00 20.0 16.67 15.38 14.28 13.33 12.50 11.76 11.11 10.53
4 12.50 25.00 25.00 20.0 16.66 15.39 14.29 13.34 12.50 11.77 11.11 10.53
5 9.37 20.0 16.67 15.38 14.28 13.33 12.50 11.76 11.11 10.52

6 7.5 16.66 15.39 14.29 13.34 12.50 11.77 11.11 10.53

7 6.25 13.46 14.28 13.33 12.50 11.76 11.11 10.52
8 5.36 11.67 12.50 11.77 11.12 10.53
9 4.69 10.29 11.11 10.52
10 4.17 9.21

Table A-10. ( Continued)

Recovery periods in years
Year
10 10.5 11 11.5 12 12.5 13 13.5 14 15 16 16.5 17

1 6.25% 5.95% 5.68% 5.43% 5.21% 5.0% 4.81% 4.63% 4.46% 4.17% 3.91% 3.79% 3.68%
2 10.00 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
3 10.00 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
4 10.00 9.53 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
5 10.00 9.52 9.09 8.69 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88

6 10.00 9.53 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
7 10.00 9.52 9.09 8.69 8.34 8.0 7.69 7.41 7.15 6.66 6.25 6.06 5.88
8 10.00 9.53 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
9 10.00 9.52 9.09 8.69 8.34 8.0 7.69 7.40 7.15 6.66 6.25 6.06 5.88
10 10.00 9.53 9.09 8.70 8.33 8.0 7.70 7.41 7.14 6.67 6.25 6.06 5.88

11 3.75 8.33 9.10 8.69 8.34 8.0 7.69 7.40 7.15 6.66 6.25 6.06 5.88
12 3.41 7.61 8.33 8.0 7.70 7.41 7.14 6.67 6.25 6.06 5.89
13 3.13 7.0 7.69 7.40 7.15 6.66 6.25 6.06 5.88
14 2.89 6.48 7.14 6.67 6.25 6.06 5.89
15 2.68 6.66 6.25 6.06 5.88

16 2.50 6.25 6.06 5.89

17 2.34 5.31 5.88
18 2.21

Publication 946 (2009) Page 85

Page 86 of 120 of Publication 946 15:26 - 13-MAY-2010

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-10. ( Continued)

Recovery periods in years
Year
18 19 20 22 24 25 26.5 28 30 35 40 45 50

1 3.47% 3.29% 3.125% 2.841% 2.604% 2.5% 2.358% 2.232% 2.083% 1.786% 1.563% 1.389% 1.25%
2 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
3 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
4 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
5 5.55 5.26 5.000 4.546 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00

6 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00
7 5.55 5.26 5.000 4.546 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
8 5.56 5.26 5.000 4.545 4.167 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00
9 5.55 5.27 5.000 4.546 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
10 5.56 5.26 5.000 4.545 4.167 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00

11 5.55 5.27 5.000 4.546 4.166 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
12 5.56 5.26 5.000 4.545 4.167 4.0 3.773 3.572 3.334 2.857 2.500 2.222 2.00
13 5.55 5.27 5.000 4.546 4.166 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
14 5.56 5.26 5.000 4.545 4.167 4.0 3.773 3.572 3.334 2.857 2.500 2.222 2.00
15 5.55 5.27 5.000 4.546 4.166 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00

16 5.56 5.26 5.000 4.545 4.167 4.0 3.773 3.572 3.334 2.857 2.500 2.222 2.00
17 5.55 5.27 5.000 4.546 4.166 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
18 5.56 5.26 5.000 4.545 4.167 4.0 3.773 3.572 3.334 2.857 2.500 2.222 2.00
19 2.08 5.27 5.000 4.546 4.166 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
20 1.97 5.000 4.545 4.167 4.0 3.773 3.572 3.334 2.857 2.500 2.222 2.00

21 1.875 4.546 4.166 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
22 4.545 4.167 4.0 3.773 3.572 3.334 2.857 2.500 2.222 2.00
23 1.705 4.166 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
24 4.167 4.0 3.773 3.572 3.334 2.857 2.500 2.222 2.00
25 1.562 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00

26 1.5 3.773 3.572 3.334 2.857 2.500 2.222 2.00

27 3.302 3.571 3.333 2.857 2.500 2.223 2.00
28 3.572 3.334 2.858 2.500 2.222 2.00
29 1.339 3.333 2.857 2.500 2.223 2.00
30 3.334 2.858 2.500 2.222 2.00

31 1.250 2.857 2.500 2.223 2.00

32 2.858 2.500 2.222 2.00
33 2.857 2.500 2.223 2.00
34 2.858 2.500 2.222 2.00
35 2.857 2.500 2.223 2.00

36 1.072 2.500 2.222 2.00

37 2.500 2.223 2.00
38 2.500 2.222 2.00
39 2.500 2.223 2.00
40 2.500 2.222 2.00

41 0.937 2.223 2.00

42 2.222 2.00
43 2.223 2.00
44 2.222 2.00
45 2.223 2.00

46 0.833 2.00
47–50 2.00
51 0.75

Page 86 Publication 946 (2009)

Page 87 of 120 of Publication 946 15:26 - 13-MAY-2010

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-11. Straight Line Method

Mid-Quarter Convention
Placed in Service in Third Quarter
Recovery periods in years
Year
2.5 3 3.5 4 5 6 6.5 7 7.5 8 8.5 9 9.5

1 15.0% 12.50% 10.71% 9.38% 7.5% 6.25% 5.77% 5.36% 5.00% 4.69% 4.41% 4.17% 3.95%
2 40.0 33.33 28.57 25.00 20.0 16.67 15.38 14.29 13.33 12.50 11.76 11.11 10.53
3 40.0 33.34 28.57 25.00 20.0 16.67 15.39 14.28 13.33 12.50 11.77 11.11 10.53
4 5.0 20.83 28.58 25.00 20.0 16.66 15.38 14.29 13.33 12.50 11.76 11.11 10.52
5 3.57 15.62 20.0 16.67 15.39 14.28 13.34 12.50 11.77 11.11 10.53

6 12.5 16.66 15.38 14.29 13.33 12.50 11.76 11.11 10.52

7 10.42 15.39 14.28 13.34 12.50 11.77 11.11 10.53
8 1.92 8.93 13.33 12.50 11.76 11.11 10.52
9 1.67 7.81 11.77 11.11 10.53
10 1.47 6.95 10.52

11 1.32

Table A-11. ( Continued)

Recovery periods in years
Year
10 10.5 11 11.5 12 12.5 13 13.5 14 15 16 16.5 17

1 3.75% 3.57% 3.41% 3.26% 3.13% 3.0% 2.88% 2.78% 2.68% 2.50% 2.34% 2.27% 2.21%
2 10.00 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
3 10.00 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
4 10.00 9.52 9.09 8.69 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
5 10.00 9.53 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88

6 10.00 9.52 9.09 8.69 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
7 10.00 9.53 9.09 8.70 8.34 8.0 7.69 7.41 7.14 6.66 6.25 6.06 5.88
8 10.00 9.52 9.09 8.69 8.33 8.0 7.70 7.40 7.14 6.67 6.25 6.06 5.88
9 10.00 9.53 9.09 8.70 8.34 8.0 7.69 7.41 7.15 6.66 6.25 6.06 5.88
10 10.00 9.52 9.09 8.69 8.33 8.0 7.70 7.40 7.14 6.67 6.25 6.06 5.88

11 6.25 9.53 9.10 8.70 8.34 8.0 7.69 7.41 7.15 6.66 6.25 6.06 5.88
12 1.19 5.68 8.69 8.33 8.0 7.70 7.40 7.14 6.67 6.25 6.06 5.89
13 1.09 5.21 8.0 7.69 7.41 7.15 6.66 6.25 6.06 5.88
14 1.0 4.81 7.40 7.14 6.67 6.25 6.06 5.89
15 0.93 4.47 6.66 6.25 6.06 5.88

16 4.17 6.25 6.07 5.89

17 3.91 6.06 5.88
18 0.76 3.68

Publication 946 (2009) Page 87

Page 88 of 120 of Publication 946 15:26 - 13-MAY-2010

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-11. ( Continued)

Recovery periods in years
Year
18 19 20 22 24 25 26.5 28 30 35 40 45 50

1 2.08% 1.97% 1.875% 1.705% 1.563% 1.5% 1.415% 1.339% 1.250% 1.071% 0.938% 0.833% 0.75%
2 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
3 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
4 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
5 5.55 5.26 5.000 4.546 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00

6 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00
7 5.55 5.26 5.000 4.546 4.167 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00
8 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00
9 5.55 5.27 5.000 4.546 4.166 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00
10 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.572 3.333 2.857 2.500 2.222 2.00

11 5.55 5.27 5.000 4.546 4.166 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00
12 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.572 3.334 2.857 2.500 2.222 2.00
13 5.55 5.27 5.000 4.546 4.166 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00
14 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.572 3.334 2.857 2.500 2.222 2.00
15 5.55 5.27 5.000 4.546 4.166 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00

16 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.572 3.334 2.857 2.500 2.222 2.00
17 5.55 5.27 5.000 4.546 4.166 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00
18 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.572 3.334 2.857 2.500 2.222 2.00
19 3.47 5.27 5.000 4.546 4.166 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00
20 3.29 5.000 4.545 4.167 4.0 3.774 3.572 3.334 2.857 2.500 2.222 2.00

21 3.125 4.546 4.166 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00
22 4.545 4.167 4.0 3.774 3.572 3.334 2.857 2.500 2.222 2.00
23 2.841 4.166 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00
24 4.167 4.0 3.774 3.572 3.334 2.857 2.500 2.222 2.00
25 2.604 4.0 3.773 3.571 3.333 2.857 2.500 2.222 2.00

26 2.5 3.774 3.572 3.334 2.858 2.500 2.222 2.00

27 3.773 3.571 3.333 2.857 2.500 2.223 2.00
28 0.472 3.572 3.334 2.858 2.500 2.222 2.00
29 2.232 3.333 2.857 2.500 2.223 2.00
30 3.334 2.858 2.500 2.222 2.00

31 2.083 2.857 2.500 2.223 2.00

32 2.858 2.500 2.222 2.00
33 2.857 2.500 2.223 2.00
34 2.858 2.500 2.222 2.00
35 2.857 2.500 2.223 2.00

36 1.786 2.500 2.222 2.00

37 2.500 2.223 2.00
38 2.500 2.222 2.00
39 2.500 2.223 2.00
40 2.500 2.222 2.00

41 1.562 2.223 2.00

42 2.222 2.00
43 2.223 2.00
44 2.222 2.00
45 2.223 2.00

46 1.389 2.00
47–50 2.00
51 1.25

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-12. Straight Line Method

Mid-Quarter Convention
Placed in Service in Fourth Quarter
Recovery periods in years
Year
2.5 3 3.5 4 5 6 6.5 7 7.5 8 8.5 9 9.5

1 5.0% 4.17% 3.57% 3.13% 2.5% 2.08% 1.92% 1.79% 1.67% 1.56% 1.47% 1.39% 1.32%
2 40.0 33.33 28.57 25.00 20.0 16.67 15.39 14.29 13.33 12.50 11.76 11.11 10.53
3 40.0 33.33 28.57 25.00 20.0 16.67 15.38 14.28 13.33 12.50 11.77 11.11 10.53
4 15.0 29.17 28.57 25.00 20.0 16.67 15.39 14.29 13.33 12.50 11.76 11.11 10.52
5 10.72 21.87 20.0 16.66 15.38 14.28 13.33 12.50 11.77 11.11 10.53

6 17.5 16.67 15.39 14.29 13.34 12.50 11.76 11.11 10.52

7 14.58 15.38 14.28 13.33 12.50 11.77 11.11 10.53
8 5.77 12.50 13.34 12.50 11.76 11.11 10.52
9 5.00 10.94 11.77 11.11 10.53
10 4.41 9.73 10.52

11 3.95

Table A-12. ( Continued)

Recovery periods in years
Year
10 10.5 11 11.5 12 12.5 13 13.5 14 15 16 16.5 17

1 1.25% 1.19% 1.14% 1.09% 1.04% 1.0% 0.96% 0.93% 0.89% 0.83% 0.78% 0.76% 0.74%
2 10.00 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
3 10.00 9.52 9.09 8.69 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
4 10.00 9.52 9.09 8.70 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
5 10.00 9.53 9.09 8.69 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88

6 10.00 9.52 9.09 8.70 8.34 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
7 10.00 9.53 9.09 8.69 8.33 8.0 7.69 7.41 7.14 6.67 6.25 6.06 5.88
8 10.00 9.52 9.09 8.70 8.34 8.0 7.69 7.40 7.15 6.66 6.25 6.06 5.88
9 10.00 9.53 9.09 8.69 8.33 8.0 7.70 7.41 7.14 6.67 6.25 6.06 5.88
10 10.00 9.52 9.09 8.70 8.34 8.0 7.69 7.40 7.15 6.66 6.25 6.06 5.88

11 8.75 9.53 9.09 8.69 8.33 8.0 7.70 7.41 7.14 6.67 6.25 6.06 5.88
12 3.57 7.96 8.70 8.34 8.0 7.69 7.40 7.15 6.66 6.25 6.06 5.89
13 3.26 7.29 8.0 7.70 7.41 7.14 6.67 6.25 6.06 5.88
14 3.0 6.73 7.40 7.15 6.66 6.25 6.06 5.89
15 2.78 6.25 6.67 6.25 6.06 5.88

16 5.83 6.25 6.06 5.89

17 5.47 6.07 5.88
18 2.27 5.15

Publication 946 (2009) Page 89

Page 90 of 120 of Publication 946 15:26 - 13-MAY-2010

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-12. ( Continued)

Recovery periods in years
Year
18 19 20 22 24 25 26.5 28 30 35 40 45 50

1 0.69% 0.66% 0.625% 0.568% 0.521% 0.5% 0.472% 0.446% 0.417% 0.357% 0.313% 0.278% 0.25%
2 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
3 5.56 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
4 5.56 5.26 5.000 4.546 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
5 5.55 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00

6 5.56 5.26 5.000 4.546 4.167 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00
7 5.55 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
8 5.56 5.26 5.000 4.546 4.167 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00
9 5.55 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
10 5.56 5.27 5.000 4.546 4.166 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00

11 5.55 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.333 2.857 2.500 2.222 2.00
12 5.56 5.27 5.000 4.546 4.166 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00
13 5.55 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.334 2.857 2.500 2.222 2.00
14 5.56 5.27 5.000 4.546 4.166 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00
15 5.55 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.334 2.857 2.500 2.222 2.00

16 5.56 5.27 5.000 4.546 4.166 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00
17 5.55 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.334 2.857 2.500 2.222 2.00
18 5.56 5.27 5.000 4.546 4.166 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00
19 4.86 5.26 5.000 4.545 4.167 4.0 3.774 3.571 3.334 2.857 2.500 2.222 2.00
20 4.61 5.000 4.546 4.166 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00

21 4.375 4.545 4.167 4.0 3.774 3.571 3.334 2.857 2.500 2.222 2.00
22 4.546 4.166 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00
23 3.977 4.167 4.0 3.774 3.571 3.334 2.857 2.500 2.222 2.00
24 4.166 4.0 3.773 3.572 3.333 2.857 2.500 2.222 2.00
25 3.646 4.0 3.774 3.571 3.334 2.857 2.500 2.222 2.00

26 3.5 3.773 3.572 3.333 2.857 2.500 2.222 2.00

27 3.774 3.571 3.334 2.858 2.500 2.222 2.00
28 1.415 3.572 3.333 2.857 2.500 2.223 2.00
29 3.125 3.334 2.858 2.500 2.222 2.00
30 3.333 2.857 2.500 2.223 2.00

31 2.917 2.858 2.500 2.222 2.00

32 2.857 2.500 2.223 2.00
33 2.858 2.500 2.222 2.00
34 2.857 2.500 2.223 2.00
35 2.858 2.500 2.222 2.00

36 2.500 2.500 2.223 2.00

37 2.500 2.222 2.00
38 2.500 2.223 2.00
39 2.500 2.222 2.00
40 2.500 2.223 2.00

41 2.187 2.222 2.00

42 2.223 2.00
43 2.222 2.00
44 2.223 2.00
45 2.222 2.00

46 1.945 2.00
47–50 2.00
51 1.75

Page 90 Publication 946 (2009)

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-13. Straight Line

Mid-Month Convention
Month property placed in service
Year
1 2 3 4 5 6 7 8 9 10 11 12

1 2.396% 2.188% 1.979% 1.771% 1.563% 1.354% 1.146% 0.938% 0.729% 0.521% 0.313% 0.104%
2–40 2.500 2.500 2.500 2.500 2.500 2.500 2.500 2.500 2.500 2.500 2.500 2.500
41 0.104 0.312 0.521 0.729 0.937 1.146 1.354 1.562 1.771 1.979 2.187 2.396

Table A-14. 150% Declining Balance Method

Half-Year Convention
Recovery periods in years
Year
2.5 3 3.5 4 5 6 6.5 7 7.5 8 8.5 9 9.5

1 30.0% 25.0% 21.43% 18.75% 15.00% 12.50% 11.54% 10.71% 10.00% 9.38% 8.82% 8.33% 7.89%
2 42.0 37.5 33.67 30.47 25.50 21.88 20.41 19.13 18.00 16.99 16.09 15.28 14.54
3 28.0 25.0 22.45 20.31 17.85 16.41 15.70 15.03 14.40 13.81 13.25 12.73 12.25
4 12.5 22.45 20.31 16.66 14.06 13.09 12.25 11.52 11.22 10.91 10.61 10.31
5 10.16 16.66 14.06 13.09 12.25 11.52 10.80 10.19 9.65 9.17

6 8.33 14.06 13.09 12.25 11.52 10.80 10.19 9.64 9.17

7 7.03 13.08 12.25 11.52 10.80 10.18 9.65 9.17
8 6.13 11.52 10.80 10.19 9.64 9.17
9 5.40 10.18 9.65 9.17
10 4.82 9.16

Table A-14. ( Continued)

Recovery periods in years
Year
10 10.5 11 11.5 12 12.5 13 13.5 14 15 16 16.5 17

1 7.50% 7.14% 6.82% 6.52% 6.25% 6.00% 5.77% 5.56% 5.36% 5.00% 4.69% 4.55% 4.41%
2 13.88 13.27 12.71 12.19 11.72 11.28 10.87 10.49 10.14 9.50 8.94 8.68 8.43
3 11.79 11.37 10.97 10.60 10.25 9.93 9.62 9.33 9.05 8.55 8.10 7.89 7.69
4 10.02 9.75 9.48 9.22 8.97 8.73 8.51 8.29 8.08 7.70 7.34 7.17 7.01
5 8.74 8.35 8.18 8.02 7.85 7.69 7.53 7.37 7.22 6.93 6.65 6.52 6.39

6 8.74 8.35 7.98 7.64 7.33 7.05 6.79 6.55 6.44 6.23 6.03 5.93 5.83
7 8.74 8.35 7.97 7.64 7.33 7.05 6.79 6.55 6.32 5.90 5.55 5.39 5.32
8 8.74 8.35 7.98 7.63 7.33 7.05 6.79 6.55 6.32 5.90 5.55 5.39 5.23
9 8.74 8.36 7.97 7.64 7.33 7.04 6.79 6.55 6.32 5.91 5.55 5.39 5.23
10 8.74 8.35 7.98 7.63 7.33 7.05 6.79 6.55 6.32 5.90 5.55 5.39 5.23

11 4.37 8.36 7.97 7.64 7.32 7.04 6.79 6.55 6.32 5.91 5.55 5.39 5.23
12 3.99 7.63 7.33 7.05 6.78 6.55 6.32 5.90 5.55 5.39 5.23
13 3.66 7.04 6.79 6.56 6.32 5.91 5.54 5.38 5.23
14 3.39 6.55 6.31 5.90 5.55 5.39 5.23
15 3.16 5.91 5.54 5.38 5.23

16 2.95 5.55 5.39 5.23

17 2.77 5.38 5.23
18 2.62

Publication 946 (2009) Page 91

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-14. ( Continued)

Recovery periods in years
Year
18 19 20 22 24 25 26.5 28 30 35 40 45 50

1 4.17% 3.95% 3.750% 3.409% 3.125% 3.000% 2.830% 2.679% 2.500% 2.143% 1.875% 1.667% 1.500%
2 7.99 7.58 7.219 6.586 6.055 5.820 5.500 5.214 4.875 4.194 3.680 3.278 2.955
3 7.32 6.98 6.677 6.137 5.676 5.471 5.189 4.934 4.631 4.014 3.542 3.169 2.866
4 6.71 6.43 6.177 5.718 5.322 5.143 4.895 4.670 4.400 3.842 3.409 3.063 2.780
5 6.15 5.93 5.713 5.328 4.989 4.834 4.618 4.420 4.180 3.677 3.281 2.961 2.697

6 5.64 5.46 5.285 4.965 4.677 4.544 4.357 4.183 3.971 3.520 3.158 2.862 2.616
7 5.17 5.03 4.888 4.627 4.385 4.271 4.110 3.959 3.772 3.369 3.040 2.767 2.538
8 4.94 4.69 4.522 4.311 4.111 4.015 3.877 3.747 3.584 3.225 2.926 2.674 2.461
9 4.94 4.69 4.462 4.063 3.854 3.774 3.658 3.546 3.404 3.086 2.816 2.585 2.388
10 4.94 4.69 4.461 4.063 3.729 3.584 3.451 3.356 3.234 2.954 2.710 2.499 2.316

11 4.94 4.69 4.462 4.063 3.729 3.583 3.383 3.205 3.072 2.828 2.609 2.416 2.246
12 4.95 4.69 4.461 4.063 3.729 3.584 3.383 3.205 2.994 2.706 2.511 2.335 2.179
13 4.94 4.69 4.462 4.064 3.730 3.583 3.383 3.205 2.994 2.590 2.417 2.257 2.114
14 4.95 4.69 4.461 4.063 3.729 3.584 3.383 3.205 2.994 2.571 2.326 2.182 2.050
15 4.94 4.69 4.462 4.064 3.730 3.583 3.383 3.205 2.994 2.571 2.253 2.110 1.989

16 4.95 4.69 4.461 4.063 3.729 3.584 3.383 3.205 2.994 2.571 2.253 2.039 1.929
17 4.94 4.69 4.462 4.064 3.730 3.583 3.383 3.205 2.994 2.571 2.253 2.005 1.871
18 4.95 4.70 4.461 4.063 3.729 3.584 3.383 3.205 2.994 2.571 2.253 2.005 1.815
19 2.47 4.69 4.462 4.064 3.730 3.583 3.383 3.205 2.994 2.571 2.253 2.005 1.806
20 2.35 4.461 4.063 3.729 3.584 3.384 3.205 2.993 2.571 2.253 2.005 1.806

21 2.231 4.064 3.730 3.583 3.383 3.205 2.994 2.571 2.253 2.005 1.806
22 4.063 3.729 3.584 3.384 3.205 2.993 2.571 2.253 2.005 1.806
23 2.032 3.730 3.583 3.383 3.205 2.994 2.571 2.253 2.005 1.806
24 3.729 3.584 3.384 3.205 2.993 2.571 2.253 2.004 1.806
25 1.865 3.583 3.383 3.205 2.994 2.571 2.253 2.005 1.806

26 1.792 3.384 3.205 2.993 2.571 2.253 2.004 1.806

27 3.383 3.205 2.994 2.571 2.253 2.005 1.806
28 3.205 2.993 2.572 2.253 2.004 1.806
29 1.602 2.994 2.571 2.253 2.005 1.806
30 2.993 2.572 2.253 2.004 1.806

31 1.497 2.571 2.253 2.005 1.806

32 2.572 2.253 2.004 1.806
33 2.571 2.252 2.005 1.806
34 2.572 2.253 2.004 1.806
35 2.571 2.252 2.005 1.806

36 1.286 2.253 2.004 1.806

37 2.252 2.005 1.806
38 2.253 2.004 1.806
39 2.252 2.005 1.806
40 2.253 2.004 1.806

41 1.126 2.005 1.806

42 2.004 1.805
43 2.005 1.806
44 2.004 1.805
45 2.005 1.806

46 1.002 1.805
47 1.806
48 1.805
49 1.806
50 1.805

51 0.903

Page 92 Publication 946 (2009)

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-15. 150% Declining Balance Method

Mid-Quarter Convention
Property Placed in Service in First Quarter
Recovery periods in years
Year
2.5 3 3.5 4 5 6 6.5 7 7.5 8 8.5 9 9.5

1 52.50% 43.75% 37.50% 32.81% 26.25% 21.88% 20.19% 18.75% 17.50% 16.41% 15.44% 14.58% 13.82%
2 29.23 28.13 26.79 25.20 22.13 19.53 18.42 17.41 16.50 15.67 14.92 14.24 13.61
3 18.27 25.00 21.98 19.76 16.52 14.65 14.17 13.68 13.20 12.74 12.29 11.86 11.46
4 3.12 13.73 19.76 16.52 14.06 13.03 12.16 11.42 10.77 10.20 9.89 9.65
5 2.47 16.52 14.06 13.02 12.16 11.42 10.77 10.19 9.64 9.15

6 2.06 14.06 13.03 12.16 11.41 10.76 10.20 9.65 9.15

7 1.76 8.14 12.16 11.42 10.77 10.19 9.64 9.15
8 1.52 7.13 10.76 10.20 9.65 9.15
9 1.35 6.37 9.64 9.14
10 1.21 5.72

Table A-15. ( Continued)

Recovery periods in years
Year
10 10.5 11 11.5 12 12.5 13 13.5 14 15 16 16.5 17

1 13.13% 12.50% 11.93% 11.41% 10.94% 10.50% 10.10% 9.72% 9.38% 8.75% 8.20% 7.95% 7.72%
2 13.03 12.50 12.01 11.56 11.13 10.74 10.37 10.03 9.71 9.13 8.61 8.37 8.14
3 11.08 10.71 10.37 10.05 9.74 9.45 9.18 8.92 8.67 8.21 7.80 7.61 7.42
4 9.41 9.18 8.96 8.74 8.52 8.32 8.12 7.93 7.74 7.39 7.07 6.92 6.77
5 8.71 8.32 7.96 7.64 7.46 7.32 7.18 7.04 6.91 6.65 6.41 6.29 6.17

6 8.71 8.32 7.96 7.64 7.33 7.04 6.78 6.53 6.31 5.99 5.80 5.71 5.63
7 8.71 8.32 7.96 7.64 7.33 7.04 6.77 6.54 6.31 5.90 5.54 5.38 5.23
8 8.71 8.32 7.96 7.64 7.33 7.04 6.78 6.53 6.31 5.91 5.54 5.38 5.23
9 8.71 8.32 7.96 7.64 7.33 7.04 6.77 6.54 6.31 5.90 5.54 5.38 5.23
10 8.71 8.31 7.97 7.63 7.32 7.04 6.78 6.53 6.31 5.91 5.54 5.38 5.23

11 1.09 5.20 7.96 7.64 7.33 7.04 6.77 6.54 6.31 5.90 5.54 5.38 5.23
12 1.00 4.77 7.32 7.03 6.78 6.53 6.31 5.91 5.54 5.38 5.22
13 0.92 4.40 6.77 6.54 6.32 5.90 5.54 5.38 5.23
14 0.85 4.08 6.31 5.91 5.55 5.38 5.22
15 0.79 5.90 5.54 5.38 5.23

16 0.74 5.55 5.37 5.22

17 0.69 3.36 5.23
18 0.65

Publication 946 (2009) Page 93

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-15. ( Continued)

Recovery periods in years
Year
18 19 20 22 24 25 26.5 28 30 35 40 45 50

1 7.29% 6.91% 6.563% 5.966% 5.469% 5.250% 4.953% 4.688% 4.375% 3.750% 3.281% 2.917% 2.625%
2 7.73 7.35 7.008 6.411 5.908 5.685 5.380 5.106 4.781 4.125 3.627 3.236 2.921
3 7.08 6.77 6.482 5.974 5.539 5.344 5.075 4.832 4.542 3.948 3.491 3.128 2.834
4 6.49 6.23 5.996 5.567 5.193 5.023 4.788 4.574 4.315 3.779 3.360 3.024 2.749
5 5.95 5.74 5.546 5.187 4.868 4.722 4.517 4.329 4.099 3.617 3.234 2.923 2.666

6 5.45 5.29 5.130 4.834 4.564 4.439 4.262 4.097 3.894 3.462 3.113 2.826 2.586
7 5.00 4.87 4.746 4.504 4.279 4.172 4.020 3.877 3.700 3.314 2.996 2.732 2.509
8 4.94 4.69 4.459 4.197 4.011 3.922 3.793 3.669 3.515 3.172 2.884 2.640 2.433
9 4.95 4.69 4.459 4.061 3.761 3.687 3.578 3.473 3.339 3.036 2.776 2.552 2.360
10 4.94 4.69 4.459 4.061 3.729 3.582 3.383 3.287 3.172 2.906 2.671 2.467 2.290

11 4.95 4.69 4.459 4.061 3.729 3.582 3.384 3.204 3.013 2.781 2.571 2.385 2.221
12 4.94 4.69 4.460 4.061 3.730 3.582 3.383 3.204 2.994 2.662 2.475 2.306 2.154
13 4.95 4.69 4.459 4.061 3.729 3.582 3.384 3.204 2.994 2.571 2.382 2.229 2.090
14 4.94 4.69 4.460 4.061 3.730 3.582 3.383 3.204 2.994 2.571 2.293 2.154 2.027
15 4.95 4.68 4.459 4.061 3.729 3.582 3.384 3.204 2.994 2.571 2.252 2.083 1.966

16 4.94 4.69 4.460 4.061 3.730 3.582 3.383 3.204 2.994 2.571 2.252 2.013 1.907
17 4.95 4.68 4.459 4.061 3.729 3.582 3.384 3.204 2.994 2.571 2.253 2.005 1.850
18 4.94 4.69 4.460 4.061 3.730 3.582 3.383 3.204 2.994 2.571 2.252 2.005 1.806
19 0.62 4.68 4.459 4.061 3.729 3.581 3.384 3.204 2.994 2.571 2.253 2.005 1.806
20 0.59 4.460 4.060 3.730 3.582 3.383 3.204 2.994 2.571 2.252 2.005 1.806

21 0.557 4.061 3.729 3.581 3.384 3.203 2.993 2.571 2.253 2.005 1.806
22 4.060 3.730 3.582 3.383 3.204 2.994 2.571 2.252 2.005 1.806
23 0.508 3.729 3.581 3.384 3.203 2.993 2.571 2.253 2.005 1.806
24 3.730 3.582 3.383 3.204 2.994 2.570 2.252 2.005 1.806
25 0.466 3.581 3.384 3.203 2.993 2.571 2.253 2.004 1.806

26 0.448 3.383 3.204 2.994 2.570 2.252 2.005 1.806

27 2.115 3.203 2.993 2.571 2.253 2.004 1.806
28 3.204 2.994 2.570 2.252 2.005 1.805
29 0.400 2.993 2.571 2.253 2.004 1.806
30 2.994 2.570 2.252 2.005 1.805

31 0.374 2.571 2.253 2.004 1.806

32 2.570 2.252 2.005 1.805
33 2.571 2.253 2.004 1.806
34 2.570 2.252 2.005 1.805
35 2.571 2.253 2.004 1.806

36 0.321 2.252 2.005 1.805

37 2.253 2.004 1.806
38 2.252 2.005 1.805
39 2.253 2.004 1.806
40 2.252 2.005 1.805

41 0.282 2.004 1.806

42 2.005 1.805
43 2.004 1.806
44 2.005 1.805
45 2.004 1.806

46 0.251 1.805
47 1.806
48 1.805
49 1.806
50 1.805

51 0.226

Page 94 Publication 946 (2009)

Page 95 of 120 of Publication 946 15:26 - 13-MAY-2010

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-16. 150% Declining Balance Method

Mid-Quarter Convention
Property Placed in Service in Second Quarter
Recovery periods in years
Year
2.5 3 3.5 4 5 6 6.5 7 7.5 8 8.5 9 9.5

1 37.50% 31.25% 26.79% 23.44% 18.75% 15.63% 14.42% 13.39% 12.50% 11.72% 11.03% 10.42% 9.87%
2 37.50 34.38 31.38 28.71 24.38 21.09 19.75 18.56 17.50 16.55 15.70 14.93 14.23
3 25.00 25.00 22.31 20.15 17.06 15.82 15.19 14.58 14.00 13.45 12.93 12.44 11.98
4 9.37 19.52 20.15 16.76 14.06 13.07 12.22 11.49 10.93 10.65 10.37 10.09
5 7.55 16.76 14.06 13.07 12.22 11.49 10.82 10.19 9.64 9.16

6 6.29 14.07 13.07 12.22 11.49 10.82 10.19 9.65 9.16

7 5.27 11.43 12.23 11.48 10.83 10.19 9.64 9.16
8 4.58 10.05 10.82 10.20 9.65 9.17
9 4.06 8.92 9.64 9.16
10 3.62 8.02

Table A-16. ( Continued)

Recovery periods in years
Year
10 10.5 11 11.5 12 12.5 13 13.5 14 15 16 16.5 17

1 9.38% 8.93% 8.52% 8.15% 7.81% 7.50% 7.21% 6.94% 6.70% 6.25% 5.86% 5.68% 5.51%
2 13.59 13.01 12.47 11.98 11.52 11.10 10.71 10.34 10.00 9.38 8.83 8.57 8.34
3 11.55 11.15 10.77 10.42 10.08 9.77 9.47 9.19 8.92 8.44 8.00 7.80 7.60
4 9.82 9.56 9.31 9.06 8.82 8.60 8.38 8.17 7.97 7.59 7.25 7.09 6.93
5 8.73 8.34 8.04 7.88 7.72 7.56 7.41 7.26 7.12 6.83 6.57 6.44 6.32

6 8.73 8.34 7.98 7.64 7.33 7.04 6.78 6.55 6.35 6.15 5.95 5.86 5.76
7 8.73 8.34 7.98 7.64 7.33 7.04 6.79 6.55 6.32 5.91 5.55 5.38 5.25
8 8.73 8.34 7.98 7.64 7.33 7.05 6.78 6.55 6.32 5.90 5.55 5.39 5.23
9 8.73 8.34 7.99 7.64 7.33 7.04 6.79 6.54 6.32 5.91 5.55 5.38 5.23
10 8.73 8.35 7.98 7.63 7.33 7.05 6.78 6.55 6.32 5.90 5.54 5.39 5.23

11 3.28 7.30 7.99 7.64 7.33 7.04 6.79 6.54 6.32 5.91 5.55 5.38 5.23
12 2.99 6.68 7.32 7.05 6.78 6.55 6.32 5.90 5.54 5.39 5.23
13 2.75 6.16 6.79 6.54 6.32 5.91 5.55 5.38 5.24
14 2.54 5.73 6.33 5.90 5.54 5.39 5.23
15 2.37 5.91 5.55 5.38 5.24

16 2.21 5.54 5.39 5.23

17 2.08 4.71 5.24
18 1.96

Publication 946 (2009) Page 95

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-16. ( Continued)

Recovery periods in years
Year
18 19 20 22 24 25 26.5 28 30 35 40 45 50

1 5.21% 4.93% 4.688% 4.261% 3.906% 3.750% 3.538% 3.348% 3.125% 2.679% 2.344% 2.083% 1.875%
2 7.90 7.51 7.148 6.528 6.006 5.775 5.460 5.178 4.844 4.171 3.662 3.264 2.944
3 7.24 6.91 6.612 6.083 5.631 5.429 5.151 4.900 4.602 3.992 3.525 3.155 2.855
4 6.64 6.37 6.116 5.668 5.279 5.103 4.859 4.638 4.371 3.821 3.393 3.050 2.770
5 6.08 5.86 5.658 5.281 4.949 4.797 4.584 4.389 4.153 3.657 3.265 2.948 2.687

6 5.58 5.40 5.233 4.921 4.639 4.509 4.325 4.154 3.945 3.501 3.143 2.850 2.606
7 5.11 4.98 4.841 4.586 4.349 4.238 4.080 3.932 3.748 3.351 3.025 2.755 2.528
8 4.94 4.69 4.478 4.273 4.078 3.984 3.849 3.721 3.561 3.207 2.912 2.663 2.452
9 4.94 4.69 4.463 4.063 3.823 3.745 3.631 3.522 3.383 3.069 2.802 2.574 2.378
10 4.95 4.69 4.463 4.063 3.729 3.583 3.426 3.333 3.213 2.938 2.697 2.489 2.307

11 4.94 4.69 4.463 4.062 3.729 3.583 3.384 3.205 3.053 2.812 2.596 2.406 2.238
12 4.95 4.69 4.463 4.063 3.729 3.583 3.383 3.205 2.994 2.692 2.499 2.325 2.171
13 4.94 4.69 4.463 4.062 3.730 3.583 3.384 3.205 2.994 2.576 2.405 2.248 2.106
14 4.95 4.69 4.463 4.063 3.729 3.583 3.383 3.205 2.994 2.571 2.315 2.173 2.042
15 4.94 4.69 4.462 4.062 3.730 3.583 3.384 3.205 2.994 2.571 2.253 2.101 1.981

16 4.95 4.69 4.463 4.063 3.729 3.583 3.383 3.204 2.994 2.571 2.253 2.031 1.922
17 4.94 4.69 4.462 4.062 3.730 3.583 3.384 3.205 2.994 2.571 2.253 2.005 1.864
18 4.95 4.69 4.463 4.063 3.729 3.583 3.383 3.204 2.993 2.571 2.253 2.005 1.808
19 1.85 4.69 4.462 4.062 3.730 3.583 3.384 3.205 2.994 2.571 2.253 2.005 1.806
20 1.76 4.463 4.063 3.729 3.583 3.383 3.204 2.993 2.571 2.253 2.005 1.806

21 1.673 4.062 3.730 3.583 3.384 3.205 2.994 2.572 2.253 2.005 1.806
22 4.063 3.729 3.583 3.383 3.204 2.993 2.571 2.253 2.005 1.806
23 1.523 3.730 3.583 3.384 3.205 2.994 2.572 2.253 2.004 1.806
24 3.729 3.582 3.383 3.204 2.993 2.571 2.253 2.005 1.806
25 1.399 3.583 3.384 3.205 2.994 2.572 2.253 2.004 1.806

26 1.343 3.383 3.204 2.993 2.571 2.253 2.005 1.806

27 2.961 3.205 2.994 2.572 2.253 2.004 1.806
28 3.204 2.993 2.571 2.253 2.005 1.806
29 1.202 2.994 2.572 2.253 2.004 1.806
30 2.993 2.571 2.252 2.005 1.806

31 1.123 2.572 2.253 2.004 1.806

32 2.571 2.252 2.005 1.806
33 2.572 2.253 2.004 1.806
34 2.571 2.252 2.005 1.806
35 2.572 2.253 2.004 1.806

36 0.964 2.252 2.005 1.806

37 2.253 2.004 1.806
38 2.252 2.005 1.806
39 2.253 2.004 1.806
40 2.252 2.005 1.806

41 0.845 2.004 1.806

42 2.005 1.806
43 2.004 1.806
44 2.005 1.806
45 2.004 1.805

46 0.752 1.806
47 1.805
48 1.806
49 1.805
50 1.806

51 0.677

Page 96 Publication 946 (2009)

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-17. 150% Declining Balance Method

Mid-Quarter Convention
Property Placed in Service in Third Quarter
Recovery periods in years
Year
2.5 3 3.5 4 5 6 6.5 7 7.5 8 8.5 9 9.5

1 22.50% 18.75% 16.07% 14.06% 11.25% 9.38% 8.65% 8.04% 7.50% 7.03% 6.62% 6.25% 5.92%
2 46.50 40.63 35.97 32.23 26.63 22.66 21.08 19.71 18.50 17.43 16.48 15.63 14.85
3 27.56 25.00 22.57 20.46 18.64 16.99 16.22 15.48 14.80 14.16 13.57 13.02 12.51
4 3.44 15.62 22.57 20.46 16.56 14.06 13.10 12.27 11.84 11.51 11.18 10.85 10.53
5 2.82 12.79 16.57 14.06 13.10 12.28 11.48 10.78 10.18 9.64 9.17

6 10.35 14.06 13.11 12.27 11.48 10.78 10.17 9.65 9.17

7 8.79 13.10 12.28 11.48 10.78 10.18 9.64 9.18
8 1.64 7.67 11.48 10.79 10.17 9.65 9.17
9 1.44 6.74 10.18 9.64 9.18
10 1.27 6.03 9.17

11 1.15

Table A-17. ( Continued)

Recovery periods in years
Year
10 10.5 11 11.5 12 12.5 13 13.5 14 15 16 16.5 17

1 5.63% 5.36% 5.11% 4.89% 4.69% 4.50% 4.33% 4.17% 4.02% 3.75% 3.52% 3.41% 3.31%
2 14.16 13.52 12.94 12.41 11.91 11.46 11.04 10.65 10.28 9.63 9.05 8.78 8.53
3 12.03 11.59 11.18 10.79 10.43 10.08 9.77 9.46 9.18 8.66 8.20 7.98 7.78
4 10.23 9.93 9.65 9.38 9.12 8.88 8.64 8.41 8.20 7.80 7.43 7.26 7.09
5 8.75 8.51 8.33 8.16 7.98 7.81 7.64 7.48 7.32 7.02 6.73 6.60 6.47

6 8.75 8.34 7.97 7.63 7.33 7.05 6.79 6.65 6.54 6.31 6.10 6.00 5.90
7 8.75 8.34 7.97 7.63 7.33 7.05 6.79 6.55 6.31 5.90 5.55 5.45 5.38
8 8.74 8.34 7.97 7.63 7.33 7.05 6.79 6.54 6.31 5.90 5.55 5.38 5.23
9 8.75 8.34 7.97 7.63 7.33 7.05 6.79 6.55 6.32 5.91 5.55 5.39 5.23
10 8.74 8.34 7.97 7.63 7.32 7.05 6.79 6.54 6.31 5.90 5.55 5.38 5.23

11 5.47 8.35 7.96 7.63 7.33 7.05 6.79 6.55 6.32 5.91 5.55 5.39 5.23
12 1.04 4.98 7.64 7.32 7.04 6.80 6.54 6.31 5.90 5.55 5.38 5.23
13 0.95 4.58 7.05 6.79 6.55 6.32 5.91 5.55 5.39 5.22
14 0.88 4.25 6.54 6.31 5.90 5.55 5.38 5.23
15 0.82 3.95 5.91 5.55 5.39 5.22

16 3.69 5.55 5.38 5.23

17 3.47 5.39 5.22
18 0.67 3.27

Publication 946 (2009) Page 97

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-17. ( Continued)

Recovery periods in years
Year
18 19 20 22 24 25 26.5 28 30 35 40 45 50

1 3.13% 2.96% 2.813% 2.557% 2.344% 2.250% 2.123% 2.009% 1.875% 1.607% 1.406% 1.250% 1.125%
2 8.07 7.66 7.289 6.644 6.104 5.865 5.540 5.250 4.906 4.217 3.697 3.292 2.966
3 7.40 7.06 6.742 6.191 5.722 5.513 5.227 4.968 4.661 4.036 3.559 3.182 2.877
4 6.78 6.50 6.237 5.769 5.364 5.182 4.931 4.702 4.428 3.863 3.425 3.076 2.791
5 6.22 5.99 5.769 5.375 5.029 4.871 4.652 4.450 4.207 3.698 3.297 2.973 2.707

6 5.70 5.51 5.336 5.009 4.715 4.579 4.388 4.212 3.996 3.539 3.173 2.874 2.626
7 5.23 5.08 4.936 4.667 4.420 4.304 4.140 3.986 3.796 3.387 3.054 2.778 2.547
8 4.94 4.69 4.566 4.349 4.144 4.046 3.906 3.773 3.607 3.242 2.940 2.686 2.471
9 4.94 4.69 4.460 4.064 3.885 3.803 3.685 3.571 3.426 3.103 2.829 2.596 2.397
10 4.94 4.69 4.460 4.064 3.729 3.584 3.476 3.379 3.255 2.970 2.723 2.510 2.325

11 4.94 4.69 4.460 4.064 3.730 3.584 3.383 3.205 3.092 2.843 2.621 2.426 2.255
12 4.95 4.69 4.460 4.064 3.729 3.584 3.383 3.205 2.994 2.721 2.523 2.345 2.187
13 4.94 4.69 4.461 4.064 3.730 3.584 3.383 3.205 2.994 2.605 2.428 2.267 2.122
14 4.95 4.69 4.460 4.064 3.729 3.584 3.383 3.205 2.994 2.571 2.337 2.192 2.058
15 4.94 4.70 4.461 4.064 3.730 3.584 3.383 3.205 2.994 2.571 2.253 2.118 1.996

16 4.95 4.69 4.460 4.064 3.729 3.584 3.383 3.206 2.994 2.571 2.253 2.048 1.937
17 4.94 4.70 4.461 4.064 3.730 3.584 3.383 3.205 2.994 2.571 2.253 2.005 1.878
18 4.95 4.69 4.460 4.065 3.729 3.584 3.383 3.206 2.994 2.571 2.253 2.005 1.822
19 3.09 4.70 4.461 4.064 3.730 3.584 3.383 3.205 2.994 2.571 2.253 2.005 1.806
20 2.93 4.460 4.065 3.729 3.584 3.383 3.206 2.993 2.571 2.253 2.005 1.806

21 2.788 4.064 3.730 3.585 3.383 3.205 2.994 2.571 2.253 2.005 1.806
22 4.065 3.729 3.584 3.383 3.206 2.993 2.571 2.253 2.005 1.806
23 2.540 3.730 3.585 3.383 3.205 2.994 2.571 2.253 2.005 1.806
24 3.729 3.584 3.383 3.206 2.993 2.571 2.253 2.005 1.806
25 2.331 3.585 3.382 3.205 2.994 2.571 2.253 2.004 1.806

26 2.240 3.383 3.206 2.993 2.571 2.253 2.005 1.806

27 3.382 3.205 2.994 2.571 2.253 2.004 1.806
28 0.423 3.206 2.993 2.571 2.253 2.005 1.806
29 2.003 2.994 2.571 2.253 2.004 1.806
30 2.993 2.571 2.253 2.005 1.806

31 1.871 2.571 2.253 2.004 1.806

32 2.571 2.253 2.005 1.806
33 2.571 2.253 2.004 1.806
34 2.571 2.253 2.005 1.806
35 2.571 2.253 2.004 1.806

36 1.607 2.253 2.005 1.806

37 2.253 2.004 1.805
38 2.254 2.005 1.806
39 2.253 2.004 1.805
40 2.254 2.005 1.806

41 1.408 2.004 1.805

42 2.005 1.806
43 2.004 1.805
44 2.005 1.806
45 2.004 1.805

46 1.253 1.806
47 1.805
48 1.806
49 1.805
50 1.806

51 1.128

Page 98 Publication 946 (2009)

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-18. 150% Declining Balance Method

Mid-Quarter Convention
Property Placed in Service in Fourth Quarter
Recovery periods in years
Year
2.5 3 3.5 4 5 6 6.5 7 7.5 8 8.5 9 9.5

1 7.50% 6.25% 5.36% 4.69% 3.75% 3.13% 2.88% 2.68% 2.50% 2.34% 2.21% 2.08% 1.97%
2 55.50 46.88 40.56 35.74 28.88 24.22 22.41 20.85 19.50 18.31 17.26 16.32 15.48
3 26.91 25.00 23.18 22.34 20.21 18.16 17.24 16.39 15.60 14.88 14.21 13.60 13.03
4 10.09 21.87 22.47 19.86 16.40 14.06 13.26 12.87 12.48 12.09 11.70 11.33 10.98
5 8.43 17.37 16.41 14.06 13.10 12.18 11.41 10.74 10.16 9.65 9.24

6 14.35 14.06 13.10 12.18 11.41 10.75 10.16 9.65 9.17

7 12.31 13.10 12.19 11.41 10.74 10.16 9.64 9.17
8 4.91 10.66 11.41 10.75 10.16 9.65 9.17
9 4.28 9.40 10.17 9.64 9.17
10 3.81 8.44 9.18

11 3.44

Table A-18. ( Continued)

Recovery periods in years
Year
10 10.5 11 11.5 12 12.5 13 13.5 14 15 16 16.5 17

1 1.88% 1.79% 1.70% 1.63% 1.56% 1.50% 1.44% 1.39% 1.34% 1.25% 1.17% 1.14% 1.10%
2 14.72 14.03 13.40 12.83 12.31 11.82 11.37 10.96 10.57 9.88 9.27 8.99 8.73
3 12.51 12.03 11.58 11.16 10.77 10.40 10.06 9.74 9.44 8.89 8.40 8.17 7.96
4 10.63 10.31 10.00 9.70 9.42 9.15 8.90 8.66 8.43 8.00 7.61 7.43 7.25
5 9.04 8.83 8.63 8.44 8.24 8.06 7.87 7.69 7.52 7.20 6.90 6.75 6.61

6 8.72 8.32 7.95 7.63 7.33 7.09 6.96 6.84 6.72 6.48 6.25 6.14 6.03
7 8.72 8.31 7.96 7.63 7.33 7.05 6.78 6.53 6.31 5.90 5.66 5.58 5.50
8 8.72 8.32 7.95 7.62 7.33 7.05 6.78 6.53 6.31 5.90 5.54 5.38 5.22
9 8.72 8.31 7.96 7.63 7.33 7.05 6.78 6.53 6.31 5.90 5.54 5.38 5.23
10 8.71 8.32 7.95 7.62 7.32 7.05 6.78 6.54 6.31 5.91 5.54 5.38 5.22

11 7.63 8.31 7.96 7.63 7.33 7.05 6.78 6.53 6.31 5.90 5.54 5.38 5.23
12 3.12 6.96 7.62 7.32 7.04 6.78 6.54 6.30 5.91 5.55 5.38 5.22
13 2.86 6.41 7.05 6.78 6.53 6.31 5.90 5.54 5.38 5.23
14 2.64 5.94 6.54 6.30 5.91 5.55 5.38 5.22
15 2.45 5.52 5.90 5.54 5.37 5.23

16 5.17 5.55 5.38 5.22

17 4.85 5.37 5.23
18 2.02 4.57

Publication 946 (2009) Page 99

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table A-18. ( Continued)

Recovery periods in years
Year
18 19 20 22 24 25 26.5 28 30 35 40 45 50

1 1.04% 0.99% 0.938% 0.852% 0.781% 0.750% 0.708% 0.670% 0.625% 0.536% 0.469% 0.417% 0.375%
2 8.25 7.82 7.430 6.760 6.201 5.955 5.620 5.321 4.969 4.263 3.732 3.319 2.989
3 7.56 7.20 6.872 6.299 5.814 5.598 5.302 5.036 4.720 4.080 3.592 3.209 2.899
4 6.93 6.63 6.357 5.870 5.450 5.262 5.002 4.766 4.484 3.905 3.458 3.102 2.812
5 6.35 6.11 5.880 5.469 5.110 4.946 4.719 4.511 4.260 3.738 3.328 2.998 2.728

6 5.82 5.63 5.439 5.097 4.790 4.649 4.452 4.269 4.047 3.578 3.203 2.898 2.646
7 5.34 5.18 5.031 4.749 4.491 4.370 4.200 4.041 3.845 3.424 3.083 2.802 2.567
8 4.94 4.77 4.654 4.425 4.210 4.108 3.962 3.824 3.653 3.278 2.968 2.708 2.490
9 4.94 4.69 4.458 4.124 3.947 3.862 3.738 3.619 3.470 3.137 2.856 2.618 2.415
10 4.94 4.69 4.458 4.062 3.730 3.630 3.526 3.426 3.296 3.003 2.749 2.531 2.342

11 4.95 4.69 4.458 4.062 3.729 3.582 3.383 3.242 3.132 2.874 2.646 2.447 2.272
12 4.94 4.69 4.458 4.062 3.730 3.582 3.382 3.204 2.994 2.751 2.547 2.365 2.204
13 4.95 4.69 4.458 4.062 3.729 3.582 3.383 3.204 2.994 2.633 2.451 2.286 2.138
14 4.94 4.69 4.458 4.061 3.730 3.582 3.382 3.204 2.994 2.570 2.359 2.210 2.074
15 4.95 4.69 4.458 4.062 3.729 3.582 3.383 3.204 2.994 2.571 2.271 2.136 2.011

16 4.94 4.69 4.458 4.061 3.730 3.583 3.382 3.204 2.994 2.570 2.253 2.065 1.951
17 4.95 4.68 4.458 4.062 3.729 3.582 3.383 3.204 2.994 2.571 2.253 2.005 1.893
18 4.94 4.69 4.459 4.061 3.730 3.583 3.382 3.204 2.994 2.570 2.253 2.005 1.836
19 4.33 4.68 4.458 4.062 3.729 3.582 3.383 3.204 2.993 2.571 2.253 2.005 1.806
20 4.10 4.459 4.061 3.730 3.583 3.382 3.204 2.994 2.570 2.253 2.005 1.806

21 3.901 4.062 3.729 3.582 3.383 3.204 2.993 2.571 2.253 2.005 1.806
22 4.061 3.730 3.583 3.382 3.204 2.994 2.570 2.253 2.005 1.806
23 3.554 3.729 3.582 3.383 3.205 2.993 2.571 2.253 2.005 1.806
24 3.730 3.583 3.382 3.204 2.994 2.570 2.253 2.005 1.805
25 3.263 3.582 3.383 3.205 2.993 2.571 2.253 2.005 1.806

26 3.135 3.382 3.204 2.994 2.570 2.252 2.005 1.805

27 3.383 3.205 2.993 2.571 2.253 2.004 1.806
28 1.268 3.204 2.994 2.570 2.252 2.005 1.805
29 2.804 2.993 2.571 2.253 2.004 1.806
30 2.994 2.570 2.252 2.005 1.805

31 2.619 2.571 2.253 2.004 1.806

32 2.570 2.252 2.005 1.805
33 2.571 2.253 2.004 1.806
34 2.570 2.252 2.005 1.805
35 2.571 2.253 2.004 1.806

36 2.249 2.252 2.005 1.805

37 2.253 2.004 1.806
38 2.252 2.005 1.805
39 2.253 2.004 1.806
40 2.252 2.005 1.805

41 1.971 2.004 1.806

42 2.005 1.805
43 2.004 1.806
44 2.005 1.805
45 2.004 1.806

46 1.754 1.805
47 1.806
48 1.805
49 1.806
50 1.805

51 1.580

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

RATES TO FIGURE INCLUSION AMOUNTS

FOR
LEASED LISTED PROPERTY

Table A-19. Amount A Percentages

First Tax Year During Lease in Which
Recovery Period Business Use is 50% or Less
of Property
Under ADS 1 2 3 4 5 6 7 8 9 10 11 12 & Later

Less than 7 years 2.1% –7.2% –19.8% –20.1% –12.4% –12.4% –12.4% –12.4% –12.4% –12.4% –12.4% –12.4%
7 to 10 years 3.9% –3.8% –17.7% –25.1% –27.8% –27.2% –27.1% –27.6% –23.7% –14.7% –14.7% –14.7%
More than 10 years 6.6% –1.6% –16.9% –25.6% –29.9% –31.1% –32.8% –35.1% –33.3% –26.7% –19.7% –12.2%

Table A-20. Amount B Percentages

First Tax Year During Lease in Which
Recovery Period Business Use is 50% or Less
of Property
Under ADS 1 2 3 4 5 6 7 8 9 10 11 12 & Later

Less than 7 years 0.0% 10.0% 22.0% 21.2% 12.7% 12.7% 12.7% 12.7% 12.7% 12.7% 12.7% 12.7%
7 to 10 years 0.0% 9.3% 23.8% 31.3% 33.8% 32.7% 31.6% 30.5% 25.0% 15.0% 15.0% 15.0%
More than 10 years 0.0% 10.1% 26.3% 35.4% 39.6% 40.2% 40.8% 41.4% 37.5% 29.2% 20.8% 12.5%

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Qualified Indian Reservation Property Tables

Table A-21. 2-Year Qualified Indian Reservation Property

Half-Year and Mid-Quarter Conventions

Half-Year
Year Q-4 Q-4 Q-4 Q-4
Convention

1 12.50% 12.50% 12.50% 12.50% 12.50%

2 87.50 87.50 87.50 87.50 87.50

Table A-22. 4-Year Qualified Indian Reservation Property

Half-Year and Mid-Quarter Conventions

Half-Year
Year Q-4 Q-4 Q-4 Q-4
Convention

1 25.00% 43.75% 31.25% 18.75% 6.25%

2 37.50 28.13 34.37 40.63 46.87

3 18.75 14.06 17.19 20.31 23.44

4 12.50 12.50 12.50 12.50 12.50

5 6.25 1.56 4.69 7.81 10.94

Table A-23. 6-Year Qualified Indian Reservation Property

Half-Year and Mid-Quarter Conventions

Half-Year
Year Q-4 Q-4 Q-4 Q-4
Convention

1 16.67% 29.17% 20.83% 12.50% 4.17%

2 27.78 23.61 26.39 29.17 31.94

3 18.52 15.74 17.59 19.44 21.30

4 12.35 10.49 11.73 12.96 14.20

5 9.87 9.88 9.88 9.88 9.87

6 9.87 9.88 9.88 9.88 9.88

7 4.94 1.23 3.70 6.17 8.64

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Table A-24. Qualified Nonresidential Real Indian Reservation Property

Mid-Month Convention
Straight Line—22 Years

Month property placed in service

Year
1 2 3 4 5 6 7 8 9 10 11 12
1 4.356% 3.977% 3.598% 3.220% 2.841% 2.462% 2.083% 1.705% 1.326% 0.947% 0.568% 0.189%
2-3 4.545 4.545 4.545 4.545 4.545 4.545 4.545 4.545 4.545 4.545 4.545 4.545
4 4.546 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.546
5 4.545 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.545
6 4.546 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.546
7 4.545 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.545
8 4.546 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.546
9 4.545 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.545
10 4.546 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.546
11 4.545 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.545
12 4.546 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.546
13 4.545 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.545
14 4.546 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.546
15 4.545 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.545
16 4.546 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.546
17 4.545 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.545
18 4.546 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.546
19 4.545 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.545
20 4.546 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.546
21 4.545 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.545
22 4.546 4.546 4.546 4.545 4.545 4.546 4.546 4.545 4.545 4.546 4.546 4.546
23 0.189% 0.568% 0.947% 1.326% 1.705% 2.083% 2.462% 2.841% 3.220% 3.598% 3.977% 4.356%

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Appendix B — Table of Class Lives and Recovery Periods

The Table of Class Lives and Recov- being used and use the recovery pe- improvements. The land improve-
ery Periods has two sections. The first riod shown in the appropriate column ments have a 13-year class life and a
section, Specific Depreciable Assets following the description. 7-year recovery period for GDS. If he
Used In All Business Activities, Except elects to use ADS, the recovery period
Property not in either table. If the is 13 years. If Richard only looked at
As Noted, generally lists assets used activity or the property is not included Table B-1, he would select asset class
in all business activities. It is shown as in either table, check the end of Table 00.3, Land Improvements, and incor-
Table B-1. The second section, Depre- B-2 to find Certain Property for Which rectly use a recovery period of 15
ciable Assets Used In The Following Recovery Periods Assigned. This years for GDS or 20 years for ADS.
Activities, describes assets used only property generally has a recovery pe-
in certain activities. It is shown as Ta- riod of 7 years for GDS or 12 years for Example 2. Sam Plower produces
ble B-2. ADS. See Which Property Class Ap- rubber products. During the year, he
plies Under GDS and Which Recovery made substantial improvements to the
Period Applies in chapter 4 for the
How To Use the Tables class lives or the recovery periods for
land on which his rubber plant is lo-
cated. He checks Table B-1 and finds
You will need to look at both Table B-1 GDS and ADS for the following. land improvements under asset class
and B-2 to find the correct recovery • Residential rental property and 00.3. He then checks Table B-2 and
period. Generally, if the property is nonresidential real property (also finds his activity, producing rubber
listed in Table B-1 you use the recov- see Appendix A, Chart 2). products, under asset class 30.1,
ery period shown in that table. How- Manufacture of Rubber Products.
ever, if the property is specifically • Qualified rent-to-own property.
Reading the headings and descrip-
listed in Table B-2 under the type of • A motorsport entertainment com- tions under asset class 30.1, Sam
activity in which it is used, you use the plex placed in service before finds that it does not include land im-
recovery period listed under the activ- January 1, 2010. provements. Therefore, Sam uses the
ity in that table. Use the tables in the
order shown below to determine the • Any retail motor fuels outlet. recovery period under asset class
00.3. The land improvements have a
recovery period of your depreciable • Any qualified leasehold improve- 20-year class life and a 15-year recov-
property. ment property placed in service ery period for GDS. If he elects to use
before January 1, 2010. ADS, the recovery period is 20 years.
Table B-1. Check Table B-1 for a
description of the property. If it is de- • Any qualified restaurant property
scribed in Table B-1, also check Table placed in service before January Example 3. Pam Martin owns a re-
B-2 to find the activity in which the 1, 2010. tail clothing store. During the year, she
property is being used. If the activity is • Initial clearing and grading land purchased a desk and a cash register
described in Table B-2, read the text (if improvements for gas utility for use in her business. She checks
any) under the title to determine if the property and electric utility trans- Table B-1 and finds office furniture
property is specifically included in that mission and distribution plants. under asset class 00.11. Cash regis-
asset class. If it is, use the recovery ters are not listed in any of the asset
period shown in the appropriate col- • Any water utility property. classes in Table B-1. She then checks
umn of Table B-2 following the • Certain electric transmission Table B-2 and finds her activity, retail
description of the activity. If the activity property used in the transmission store, under asset class 57.0, Distribu-
is not described in Table B-2 or if the at 69 or more kilovolts of electric- tive Trades and Services, which in-
activity is described but the property ity for sale and placed in service cludes assets used in wholesale and
either is not specifically included in or after April 11, 2005. retail trade. This asset class does not
is specifically excluded from that asset specifically list office furniture or a
class, then use the recovery period • Natural gas gathering and distri- cash register. She looks back at Table
shown in the appropriate column fol- bution lines placed in service af-
lowing the description of the property ter April 11, 2005. B-1 and uses asset class 00.11 for the
in Table B-1. desk. The desk has a 10-year class life
and a 7-year recovery period for GDS.
Tax-exempt use property subject to Example 1. Richard Green is a pa- If she elects to use ADS, the recovery
a lease. The recovery period for ADS per manufacturer. During the year, he period is 10 years. For the cash regis-
cannot be less than 125 percent of the made substantial improvements to the ter, she uses asset class 57.0 because
lease term for any property leased land on which his paper plant is lo- cash registers are not listed in Table
under a leasing arrangement to a cated. He checks Table B-1 and finds B-1 but it is an asset used in her retail
tax-exempt organization, governmen- land improvements under asset class business. The cash register has a
tal unit, or foreign person or entity 00.3. He then checks Table B-2 and 9-year class life and a 5-year recovery
(other than a partnership). finds his activity, paper manufacturing, period for GDS. If she elects to use the
under asset class 26.1, Manufacture ADS method, the recovery period is 9
Table B-2. If the property is not listed of Pulp and Paper. He uses the recov- years.
in Table B-1, check Table B-2 to find ery period under this asset class be-
the activity in which the property is cause it specifically includes land ■

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Table B-1. Table of Class Lives and Recovery Periods

Recovery Periods
(in years)
Asset Class Life GDS
class Description of assets included (in years) (MACRS) ADS
SPECIFIC DEPRECIABLE ASSETS USED IN ALL BUSINESS ACTIVITIES, EXCEPT AS NOTED:
00.11 Office Furniture, Fixtures, and Equipment:
Includes furniture and fixtures that are not a structural component of a building. Includes such 10 7 10
assets as desks, files, safes, and communications equipment. Does not include
communications equipment that is included in other classes.
00.12 Information Systems:
Includes computers and their peripheral equipment used in administering normal business 6 5 5
transactions and the maintenance of business records, their retrieval and analysis.
Information systems are defined as:
1) Computers: A computer is a programmable electronically activated device capable of
accepting information, applying prescribed processes to the information, and supplying the
results of these processes with or without human intervention. It usually consists of a central
processing unit containing extensive storage, logic, arithmetic, and control capabilities.
Excluded from this category are adding machines, electronic desk calculators, etc., and other
equipment described in class 00.13.
2) Peripheral equipment consists of the auxiliary machines which are designed to be placed
under control of the central processing unit. Nonlimiting examples are: Card readers, card
punches, magnetic tape feeds, high speed printers, optical character readers, tape cassettes,
mass storage units, paper tape equipment, keypunches, data entry devices, teleprinters,
terminals, tape drives, disc drives, disc files, disc packs, visual image projector tubes, card
sorters, plotters, and collators. Peripheral equipment may be used on-line or off-line.
Does not incude equipment that is an integral part of other capital equipment that is included
in other classes of economic activity, i.e., computers used primarily for process or production
control, switching, channeling, and automating distributive trades and services such as point
of sale (POS) computer systems. Also, does not include equipment of a kind used primarily for
amusement or entertainment of the user.
00.13 Data Handling Equipment; except Computers:
Includes only typewriters, calculators, adding and accounting machines, copiers, and 6 5 6
duplicating equipment.
00.21 Airplanes (airframes and engines), except those used in commercial or contract carrying 6 5 6
of passengers or freight, and all helicopters (airframes and engines)
00.22 Automobiles, Taxis 3 5 5
00.23 Buses 9 5 9
00.241 Light General Purpose Trucks:
Includes trucks for use over the road (actual weight less than 13,000 pounds) 4 5 5
00.242 Heavy General Purpose Trucks:
Includes heavy general purpose trucks, concrete ready mix-trucks, and ore trucks, for use 6 5 6
over the road (actual unloaded weight 13,000 pounds or more)
00.25 Railroad Cars and Locomotives, except those owned by railroad transportation 15 7 15
companies
00.26 Tractor Units for Use Over-The-Road 4 3 4
00.27 Trailers and Trailer-Mounted Containers 6 5 6
00.28 Vessels, Barges, Tugs, and Similar Water Transportation Equipment, except those used 18 10 18
in marine construction
00.3 Land Improvements:
Includes improvements directly to or added to land, whether such improvements are section 20 15 20
1245 property or section 1250 property, provided such improvements are depreciable.
Examples of such assets might include sidewalks, roads, canals, waterways, drainage
facilities, sewers (not including municipal sewers in Class 51), wharves and docks, bridges,
fences, landscaping shrubbery, or radio and television transmitting towers. Does not include
land improvements that are explicitly included in any other class, and buildings and structural
components as defined in section 1.48-1(e) of the regulations. Excludes public utility initial
clearing and grading land improvements as specified in Rev. Rul. 72-403, 1972-2 C.B. 102.
00.4 Industrial Steam and Electric Generation and/or Distribution Systems:
Includes assets, whether such assets are section 1245 property or 1250 property, providing 22 15 22
such assets are depreciable, used in the production and/or distribution of electricity with rated
total capacity in excess of 500 Kilowatts and/or assets used in the production and/or
distribution of steam with rated total capacity in excess of 12,500 pounds per hour for use by
the taxpayer in its industrial manufacturing process or plant activity and not ordinarily available
for sale to others. Does not include buildings and structural components as defined in section
1.48-1(e) of the regulations. Assets used to generate and/or distribute electricity or steam of
the type described above, but of lesser rated capacity, are not included, but are included in
the appropriate manufacturing equipment classes elsewhere specified. Also includes electric
generating and steam distribution assets, which may utilize steam produced by a waste
reduction and resource recovery plant, used by the taxpayer in its industrial manufacturing
process or plant activity. Steam and chemical recovery boiler systems used for the recovery
and regeneration of chemicals used in manufacturing, with rated capacity in excess of that
described above, with specifically related distribution and return systems are not included but
are included in appropriate manufacturing equipment classes elsewhere specified. An example
of an excluded steam and chemical recovery boiler system is that used in the pulp and paper
manufacturing equipment classes elsewhere specified. An example of an excluded steam and
chemical recovery boiler system is that used in the pulp and paper manufacturing industry.

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Table B-2. Table of Class Lives and Recovery Periods

Recovery Periods
(in years)
Asset Class Life GDS
class Description of assets included (in years) (MACRS) ADS
DEPRECIABLE ASSETS USED IN THE FOLLOWING ACTIVITIES:
01.1 Agriculture:
Includes machinery and equipment, grain bins, and fences but no other land improvements, 10 7 10
that are used in the production of crops or plants, vines, and trees; livestock; the operation of
farm dairies, nurseries, greenhouses, sod farms, mushroom cellars, cranberry bogs, apiaries,
and fur farms; the performance of agriculture, animal husbandry, and horticultural services.
01.11 Cotton Ginning Assets 12 7 12
01.21 Cattle, Breeding or Dairy 7 5 7
01.221 Any breeding or work horse that is 12 years old or less at the time it is placed in service** 10 7 10
01.222 Any breeding or work horse that is more than 12 years old at the time it is placed in service** 10 3 10
01.223 Any race horse that is more than 2 years old at the time it is placed in service** * 3 12
01.224 Any horse that is more than 12 years old at the time it is placed in service and that is * 3 12
neither a race horse nor a horse described in class 01.222**
01.225 Any horse not described in classes 01.221, 01.222, 01.223, or 01.224 * 7 12
01.23 Hogs, Breeding 3 3 3
01.24 Sheep and Goats, Breeding 5 5 5
01.3 Farm buildings except structures included in Class 01.4 25 20 25
01.4 Single purpose agricultural or horticultural structures (within the meaning of section 15 10*** 15
168(i)(13) of the Code)
10.0 Mining:
Includes assets used in the mining and quarrying of metallic and nonmetallic minerals (including sand, 10 7 10
gravel, stone, and clay) and the milling, beneficiation and other primary preparation of such materials.
13.0 Offshore Drilling:
Includes assets used in offshore drilling for oil and gas such as floating, self-propelled and 7.5 5 7.5
other drilling vessels, barges, platforms, and drilling equipment and support vessels such as
tenders, barges, towboats and crewboats. Excludes oil and gas production assets.
13.1 Drilling of Oil and Gas Wells:
Includes assets used in the drilling of onshore oil and gas wells and the provision of 6 5 6
geophysical and other exploration services; and the provision of such oil and gas field services
as chemical treatment, plugging and abandoning of wells and cementing or perforating well
casings. Does not include assets used in the performance of any of these activities and
services by integrated petroleum and natural gas producers for their own account.
13.2 Exploration for and Production of Petroleum and Natural Gas Deposits:
Includes assets used by petroleum and natural gas producers for drilling of wells and production of 14 7 14
petroleum and natural gas, including gathering pipelines and related storage facilities. Also includes
petroleum and natural gas offshore transportation facilities used by producers and others consisting
of platforms (other than drilling platforms classified in Class 13.0), compression or pumping
equipment, and gathering and transmission lines to the first onshore transshipment facility. The assets
used in the first onshore transshipment facility are also included and consist of separation equipment
(used for separation of natural gas, liquids, and in Class 49.23), and liquid holding or storage facilities
(other than those classified in Class 49.25). Does not include support vessels.
13.3 Petroleum Refining:
Includes assets used for the distillation, fractionation, and catalytic cracking of crude petroleum 16 10 16
into gasoline and its other components.
15.0 Construction:
Includes assets used in construction by general building, special trade, heavy and marine 6 5 6
construction contractors, operative and investment builders, real estate subdividers and
developers, and others except railroads.
20.1 Manufacture of Grain and Grain Mill Products:
Includes assets used in the production of flours, cereals, livestock feeds, and other grain and 17 10 17
grain mill products.
20.2 Manufacture of Sugar and Sugar Products:
Includes assets used in the production of raw sugar, syrup, or finished sugar from sugar cane 18 10 18
or sugar beets.
20.3 Manufacture of Vegetable Oils and Vegetable Oil Products:
Includes assets used in the production of oil from vegetable materials and the manufacture of 18 10 18
related vegetable oil products.
20.4 Manufacture of Other Food and Kindred Products:
Includes assets used in the production of foods and beverages not included in classes 20.1, 12 7 12
20.2 and 20.3.
20.5 Manufacture of Food and Beverages—Special Handling Devices:
Includes assets defined as specialized materials handling devices such as returnable pallets, 4 3 4
palletized containers, and fish processing equipment including boxes, baskets, carts, and flaking trays
used in activities as defined in classes 20.1, 20.2, 20.3 and 20.4. Does not include general purpose
small tools such as wrenches and drills, both hand and power-driven, and other general purpose
equipment such as conveyors, transfer equipment, and materials handling devices.
* Property described in asset classes 01.223, 01.224, and 01.225 are assigned recovery periods but have no class lives.
** A horse is more than 2 (or 12) years old after the day that is 24 (or 144) months after its actual birthdate.
*** 7 if property was placed in service before 1989.

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Table B-2. Table of Class Lives and Recovery Periods

Recovery Periods
(in years)
Asset Class Life GDS
class Description of assets included (in years) (MACRS) ADS
21.0 Manufacture of Tobacco and Tobacco Products:
Includes assets used in the production of cigarettes, cigars, smoking and chewing tobacco, 15 7 15
snuff, and other tobacco products.
22.1 Manufacture of Knitted Goods:
Includes assets used in the production of knitted and netted fabrics and lace. Assets used in 7.5 5 7.5
yarn preparation, bleaching, dyeing, printing, and other similar finishing processes, texturing,
and packaging, are elsewhere classified.
22.2 Manufacture of Yarn, Thread, and Woven Fabric:
Includes assets used in the production of spun yarns including the preparing, blending, spinning, and 11 7 11
twisting of fibers into yarns and threads, the preparation of yarns such as twisting, warping, and winding, the
production of covered elastic yarn and thread, cordage, woven fabric, tire fabric, braided fabric, twisted jute
for packaging, mattresses, pads, sheets, and industrial belts, and the processing of textile mill waste to
recover fibers, flocks, and shoddies. Assets used to manufacture carpets, man-made fibers, and nonwovens,
and assets used in texturing, bleaching, dyeing, printing, and other similar finishing processes, are elsewhere
classified.
22.3 Manufacture of Carpets and Dyeing, Finishing, and Packaging of Textile Products and
Manufacture of Medical and Dental Supplies:
Includes assets used in the production of carpets, rugs, mats, woven carpet backing, chenille, and other 9 5 9
tufted products, and assets used in the joining together of backing with carpet yarn or fabric. Includes assets
used in washing, scouring, bleaching, dyeing, printing, drying, and similar finishing processes applied to
textile fabrics, yarns, threads, and other textile goods. Includes assets used in the production and packaging
of textile products, other than apparel, by creasing, forming, trimming, cutting, and sewing, such as the
preparation of carpet and fabric samples, or similar joining together processes (other than the production of
scrim reinforced paper products and laminated paper products) such as the sewing and folding of hosiery
and panty hose, and the creasing, folding, trimming, and cutting of fabrics to produce nonwoven products,
such as disposable diapers and sanitary products. Also includes assets used in the production of medical
and dental supplies other than drugs and medicines. Assets used in the manufacture of nonwoven carpet
backing, and hard surface floor covering such as tile, rubber, and cork, are elsewhere classified.
22.4 Manufacture of Textile Yarns:
Includes assets used in the processing of yarns to impart bulk and/or stretch properties to the 8 5 8
yarn. The principal machines involved are falsetwist, draw, beam-to-beam, and stuffer box
texturing equipment and related highspeed twisters and winders. Assets, as described above,
which are used to further process man-made fibers are elsewhere classified when located in
the same plant in an integrated operation with man-made fiber producing assets. Assets used
to manufacture man-made fibers and assets used in bleaching, dyeing, printing, and other
similar finishing processes, are elsewhere classified.
22.5 Manufacture of Nonwoven Fabrics:
Includes assets used in the production of nonwoven fabrics, felt goods including felt hats, padding, batting, 10 7 10
wadding, oakum, and fillings, from new materials and from textile mill waste. Nonwoven fabrics are defined
as fabrics (other than reinforced and laminated composites consisting of nonwovens and other products)
manufactured by bonding natural and/or synthetic fibers and/or filaments by means of induced mechanical
interlocking, fluid entanglement, chemical adhesion, thermal or solvent reaction, or by combination thereof
other than natural hydration bonding as ocurs with natural cellulose fibers. Such means include resin
bonding, web bonding, and melt bonding. Specifically includes assets used to make flocked and needle
punched products other than carpets and rugs. Assets, as described above, which are used to manufacture
nonwovens are elsewhere classified when located in the same plant in an integrated operation with
man-made fiber producing assets. Assets used to manufacture man-made fibers and assets used in
bleaching, dyeing, printing, and other similar finishing processes, are elsewhere classified.
23.0 Manufacture of Apparel and Other Finished Products:
Includes assets used in the production of clothing and fabricated textile products by the cutting 9 5 9
and sewing of woven fabrics, other textile products, and furs; but does not include assets used
in the manufacture of apparel from rubber and leather.
24.1 Cutting of Timber:
Includes logging machinery and equipment and roadbuilding equipment used by logging and 6 5 6
sawmill operators and pulp manufacturers for their own account.
24.2 Sawing of Dimensional Stock from Logs:
Includes machinery and equipment installed in permanent or well established sawmills. 10 7 10
24.3 Sawing of Dimensional Stock from Logs:
Includes machinery and equipment in sawmills characterized by temporary foundations and a 6 5 6
lack, or minimum amount, of lumberhandling, drying, and residue disposal equipment and
facilities.
24.4 Manufacture of Wood Products, and Furniture:
Includes assets used in the production of plywood, hardboard, flooring, veneers, furniture, and 10 7 10
other wood products, including the treatment of poles and timber.
26.1 Manufacture of Pulp and Paper:
Includes assets for pulp materials handling and storage, pulp mill processing, bleach processing, paper and 13 7 13
paperboard manufacturing, and on-line finishing. Includes pollution control assets and all land improvements
associated with the factory site or production process such as effluent ponds and canals, provided such
improvements are depreciable but does not include buildings and structural components as defined in
section 1.48-1(e)(1) of the regulations. Includes steam and chemical recovery boiler systems, with any rated
capacity, used for the recovery and regeneration of chemicals used in manufacturing. Does not include
assets used either in pulpwood logging, or in the manufacture of hardboard.

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Table B-2. Table of Class Lives and Recovery Periods

Recovery Periods
(in years)
Asset Class Life GDS
class Description of assets included (in years) (MACRS) ADS
26.2 Manufacture of Converted Paper, Paperboard, and Pulp Products:
Includes assets used for modification, or remanufacture of paper and pulp into converted 10 7 10
products, such as paper coated off the paper machine, paper bags, paper boxes, cartons and
envelopes. Does not include assets used for manufacture of nonwovens that are elsewhere
classified.
27.0 Printing, Publishing, and Allied Industries:
Includes assets used in printing by one or more processes, such as letter-press, lithography, 11 7 11
gravure, or screen; the performance of services for the printing trade, such as bookbinding,
typesetting, engraving, photo-engraving, and electrotyping; and the publication of newspapers,
books, and periodicals.
28.0 Manufacture of Chemicals and Allied Products:
Includes assets used to manufacture basic organic and inorganic chemicals; chemical products 9.5 5 9.5
to be used in further manufacture, such as synthetic fibers and plastics materials; and finished
chemical products. Includes assets used to further process man-made fibers, to manufacture
plastic film, and to manufacture nonwoven fabrics, when such assets are located in the same
plant in an integrated operation with chemical products producing assets. Also includes assets
used to manufacture photographic supplies, such as film, photographic paper, sensitized
photographic paper, and developing chemicals. Includes all land improvements associated with
plant site or production processes, such as effluent ponds and canals, provided such land
improvements are depreciable but does not include buildings and structural components as
defined in section 1.48-1(e) of the regulations. Does not include assets used in the manufacture
of finished rubber and plastic products or in the production of natural gas products, butane,
propane, and by-products of natural gas production plants.
30.1 Manufacture of Rubber Products:
Includes assets used for the production of products from natural, synthetic, or reclaimed 14 7 14
rubber, gutta percha, balata, or gutta siak, such as tires, tubes, rubber footwear, mechanical
rubber goods, heels and soles, flooring, and rubber sundries; and in the recapping, retreading,
and rebuilding of tires.
30.11 Manufacture of Rubber Products—Special Tools and Devices:
Includes assets defined as special tools, such as jigs, dies, mandrels, molds, lasts, patterns, 4 3 4
specialty containers, pallets, shells; and tire molds, and accessory parts such as rings and
insert plates used in activities as defined in class 30.1. Does not include tire building drums
and accessory parts and general purpose small tools such as wrenches and drills, both power
and hand-driven, and other general purpose equipment such as conveyors and transfer
equipment.
30.2 Manufacture of Finished Plastic Products:
Includes assets used in the manufacture of plastics products and the molding of primary
plastics for the trade. Does not include assets used in the manufacture of basic plastics 11 7 11
materials nor the manufacture of phonograph records.
30.21 Manufacture of Finished Plastic Products—Special Tools:
Includes assets defined as special tools, such as jigs, dies, fixtures, molds, patterns, gauges, 3.5 3 3.5
and specialty transfer and shipping devices, used in activities as defined in class 30.2. Special
tools are specifically designed for the production or processing of particular parts and have no
significant utilitarian value and cannot be adapted to further or different use after changes or
improvements are made in the model design of the particular part produced by the special
tools. Does not include general purpose small tools such as wrenches and drills, both hand and
power-driven, and other general purpose equipment such as conveyors, transfer equipment,
and materials handling devices.
31.0 Manufacture of Leather and Leather Products:
Includes assets used in the tanning, currying, and finishing of hides and skins; the processing 11 7 11
of fur pelts; and the manufacture of finished leather products, such as footwear, belting,
apparel, and luggage.
32.1 Manufacture of Glass Products:
Includes assets used in the production of flat, blown, or pressed products of glass, such as 14 7 14
float and window glass, glass containers, glassware and fiberglass. Does not include assets
used in the manufacture of lenses.
32.11 Manufacture of Glass Products—Special Tools:
Includes assets defined as special tools such as molds, patterns, pallets, and specialty transfer 2.5 3 2.5
and shipping devices such as steel racks to transport automotive glass, used in activities as
defined in class 32.1. Special tools are specifically designed for the production or processing of
particular parts and have no significant utilitarian value and cannot be adapted to further or
different use after changes or improvements are made in the model design of the particular
part produced by the special tools. Does not include general purpose small tools such as
wrenches and drills, both hand and power-driven, and other general purpose equipment such
as conveyors, transfer equipment, and materials handling devices.
32.2 Manufacture of Cement:
Includes assets used in the production of cement, but does not include assets used in the 20 15 20
manufacture of concrete and concrete products nor in any mining or extraction process.
32.3 Manufacture of Other Stone and Clay Products:
Includes assets used in the manufacture of products from materials in the form of clay and 15 7 15
stone, such as brick, tile, and pipe; pottery and related products, such as vitreous-china,
plumbing fixtures, earthenware and ceramic insulating materials; and also includes assets used
in manufacture of concrete and concrete products. Does not include assets used in any mining
or extraction processes.

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Table B-2. Table of Class Lives and Recovery Periods

Recovery Periods
(in years)
Asset Class Life GDS
class Description of assets included (in years) (MACRS) ADS
33.2 Manufacture of Primary Nonferrous Metals:
Includes assets used in the smelting, refining, and electrolysis of nonferrous metals from ore, 14 7 14
pig, or scrap, the rolling, drawing, and alloying of nonferrous metals; the manufacture of
castings, forgings, and other basic products of nonferrous metals; and the manufacture of
nails, spikes, structural shapes, tubing, wire, and cable.
33.21 Manufacture of Primary Nonferrous Metals—Special Tools:
Includes assets defined as special tools such as dies, jigs, molds, patterns, fixtures, gauges, 6.5 5 6.5
and drawings concerning such special tools used in the activities as defined in class 33.2,
Manufacture of Primary Nonferrous Metals. Special tools are specifically designed for the
production or processing of particular products or parts and have no significant utilitarian value
and cannot be adapted to further or different use after changes or improvements are made in
the model design of the particular part produced by the special tools. Does not include general
purpose small tools such as wrenches and drills, both hand and power-driven, and other
general purpose equipment such as conveyors, transfer equipment, and materials handling
devices. Rolls, mandrels and refractories are not included in class 33.21 but are included in
class 33.2.
33.3 Manufacture of Foundry Products:
Includes assets used in the casting of iron and steel, including related operations such as 14 7 14
molding and coremaking. Also includes assets used in the finishing of castings and
patternmaking when performed at the foundry, all special tools and related land improvements.
33.4 Manufacture of Primary Steel Mill Products:
Includes assets used in the smelting, reduction, and refining of iron and steel from ore, pig, or 15 7 15
scrap; the rolling, drawing and alloying of steel; the manufacture of nails, spikes, structural
shapes, tubing, wire, and cable. Includes assets used by steel service centers, ferrous metal
forges, and assets used in coke production, regardless of ownership. Also includes related land
improvements and all special tools used in the above activities.
34.0 Manufacture of Fabricated Metal Products:
Includes assets used in the production of metal cans, tinware, fabricated structural metal 12 7 12
products, metal stampings, and other ferrous and nonferrous metal and wire products not
elsewhere classified. Does not include assets used to manufacture non-electric heating
apparatus.
34.01 Manufacture of Fabricated Metal Products—Special Tools:
Includes assets defined as special tools such as dies, jigs, molds, patterns, fixtures, gauges, 3 3 3
and returnable containers and drawings concerning such special tools used in the activities as
defined in class 34.0. Special tools are specifically designed for the production or processing of
particular machine components, products, or parts, and have no significant utilitarian value and
cannot be adapted to further or different use after changes or improvements are made in the
model design of the particular part produced by the special tools. Does not include general
small tools such as wrenches and drills, both hand and power-driven, and other general
purpose equipment such as conveyors, transfer equipment, and materials handling devices.
35.0 Manufacture of Electrical and Non-Electrical Machinery and Other Mechanical Products:
Includes assets used to manufacture or rebuild finished machinery and equipment and 10 7 10
replacement parts thereof such as machine tools, general industrial and special industry
machinery, electrical power generation, transmission, and distribution systems, space heating,
cooling, and refrigeration systems, commercial and home appliances, farm and garden
machinery, construction machinery, mining and oil field machinery, internal combustion engines
(except those elsewhere classified), turbines (except those that power airborne vehicles),
batteries, lamps and lighting fixtures, carbon and graphite products, and electromechanical and
mechanical products including business machines, instruments, watches and clocks, vending
and amusement machines, photographic equipment, medical and dental equipment and
appliances, and ophthalmic goods. Includes assets used by manufacturers or rebuilders of
such finished machinery and equipment in activities elsewhere classified such as the
manufacture of castings, forgings, rubber and plastic products, electronic subassemblies or
other manufacturing activities if the interim products are used by the same manufacturer
primarily in the manufacture, assembly, or rebuilding of such finished machinery and
equipment. Does not include assets used in mining, assets used in the manufacture of primary
ferrous and nonferrous metals, assets included in class 00.11 through 00.4 and assets
elsewhere classified.
36.0 Manufacture of Electronic Components, Products, and Systems:
Includes assets used in the manufacture of electronic communication, computation, 6 5 6
instrumentation and control system, including airborne applications; also includes assets used
in the manufacture of electronic products such as frequency and amplitude modulated
transmitters and receivers, electronic switching stations, television cameras, video recorders,
record players and tape recorders, computers and computer peripheral machines, and
electronic instruments, watches, and clocks; also includes assets used in the manufacture of
components, provided their primary use is products and systems defined above such as
electron tubes, capacitors, coils, resistors, printed circuit substrates, switches, harness cables,
lasers, fiber optic devices, and magnetic media devices. Specifically excludes assets used to
manufacture electronic products and components, photocopiers, typewriters, postage meters
and other electromechanical and mechanical business machines and instruments that are
elsewhere classified. Does not include semiconductor manufacturing equipment included in
class 36.1.
36.1 Any Semiconductor Manufacturing Equipment 5 5 5

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Table B-2. Table of Class Lives and Recovery Periods

Recovery Periods
(in years)
Asset Class Life GDS
class Description of assets included (in years) (MACRS) ADS
37.11 Manufacture of Motor Vehicles:
Includes assets used in the manufacture and assembly of finished automobiles, trucks, trailers, 12 7 12
motor homes, and buses. Does not include assets used in mining, printing and publishing,
production of primary metals, electricity, or steam, or the manufacture of glass, industrial
chemicals, batteries, or rubber products, which are classified elsewhere. Includes assets used
in manufacturing activities elsewhere classified other than those excluded above, where such
activities are incidental to and an integral part of the manufacture and assembly of finished
motor vehicles such as the manufacture of parts and subassemblies of fabricated metal
products, electrical equipment, textiles, plastics, leather, and foundry and forging operations.
Does not include any assets not classified in manufacturing activity classes, e.g., does not
include any assets classified in asset guideline classes 00.11 through 00.4. Activities will be
considered incidental to the manufacture and assembly of finished motor vehicles only if 75
percent or more of the value of the products produced under one roof are used for the
manufacture and assembly of finished motor vehicles. Parts that are produced as a normal
replacement stock complement in connection with the manufacture and assembly of finished
motor vehicles are considered used for the manufacture assembly of finished motor vehicles.
Does not include assets used in the manufacture of component parts if these assets are used
by taxpayers not engaged in the assembly of finished motor vehicles.
37.12 Manufacture of Motor Vehicles—Special Tools:
Includes assets defined as special tools, such as jigs, dies, fixtures, molds, patterns, gauges, 3 3 3
and specialty transfer and shipping devices, owned by manufacturers of finished motor vehicles
and used in qualified activities as defined in class 37.11. Special tools are specifically designed
for the production or processing of particular motor vehicle components and have no
significant utilitarian value, and cannot be adapted to further or different use, after changes or
improvements are made in the model design of the particular part produced by the special
tools. Does not include general purpose small tools such as wrenches and drills, both hand and
powerdriven, and other general purpose equipment such as conveyors, transfer equipment, and
materials handling devices.
37.2 Manufacture of Aerospace Products:
Includes assets used in the manufacture and assembly of airborne vehicles and their component 10 7 10
parts including hydraulic, pneumatic, electrical, and mechanical systems. Does not include assets
used in the production of electronic airborne detection, guidance, control, radiation, computation,
test, navigation, and communication equipment or the components thereof.
37.31 Ship and Boat Building Machinery and Equipment:
Includes assets used in the manufacture and repair of ships, boats, caissons, marine drilling 12 7 12
rigs, and special fabrications not included in asset classes 37.32 and 37.33. Specifically
includes all manufacturing and repairing machinery and equipment, including machinery and
equipment used in the operation of assets included in asset class 37.32. Excludes buildings
and their structural components.
37.32 Ship and Boat Building Dry Docks and Land Improvements:
Includes assets used in the manufacture and repair of ships, boats, caissons, marine drilling 16 10 16
rigs, and special fabrications not included in asset classes 37.31 and 37.33. Specifically
includes floating and fixed dry docks, ship basins, graving docks, shipways, piers, and all other
land improvements such as water, sewer, and electric systems. Excludes buildings and their
structural components.
37.33 Ship and Boat Building—Special Tools:
Includes assets defined as special tools such as dies, jigs, molds, patterns, fixtures, gauges, 6.5 5 6.5
and drawings concerning such special tools used in the activities defined in classes 37.31 and
37.32. Special tools are specifically designed for the production or processing of particular
machine components, products, or parts, and have no significant utilitarian value and cannot
be adapted to further or different use after changes or improvements are made in the model
design of the particular part produced by the special tools. Does not include general purpose
small tools such as wrenches and drills, both hand and power-driven, and other general
purpose equipment such as conveyors, transfer equipment, and materials handling devices.
37.41 Manufacture of Locomotives:
Includes assets used in building or rebuilding railroad locomotives (including mining and 11.5 7 11.5
industrial locomotives). Does not include assets of railroad transportation companies or assets
of companies which manufacture components of locomotives but do not manufacture finished
locomotives.
37.42 Manufacture of Railroad Cars:
Includes assets used in building or rebuilding railroad freight or passenger cars (including rail 12 7 12
transit cars). Does not include assets of railroad transportation companies or assets of
companies which manufacture components of railroad cars but do not manufacture finished
railroad cars.
39.0 Manufacture of Athletic, Jewelry, and Other Goods:
Includes assets used in the production of jewelry; musical instruments; toys and sporting 12 7 12
goods; motion picture and television films and tapes; and pens, pencils, office and art supplies,
brooms, brushes, caskets, etc.
Railroad Transportation:
Classes with the prefix 40 include the assets identified below that are used in the commercial
and contract carrying of passengers and freight by rail. Assets of electrified railroads will be
classified in a manner corresponding to that set forth below for railroads not independently
operated as electric lines. Excludes the assets included in classes with the prefix beginning
00.1 and 00.2 above, and also excludes any non-depreciable assets included in Interstate
Commerce Commission accounts enumerated for this class.

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Table B-2. Table of Class Lives and Recovery Periods

Recovery Periods
(in years)
Asset Class Life GDS
class Description of assets included (in years) (MACRS) ADS
40.1 Railroad Machinery and Equipment:
Includes assets classified in the following Interstate Commerce Commission accounts: 14 7 14
Roadway accounts:
(16) Station and office buildings (freight handling machinery and equipment only)
(25) TOFC/COFC terminals (freight handling machinery and equipment only)
(26) Communication systems
(27) Signals and interlockers
(37) Roadway machines
(44) Shop machinery
Equipment accounts:
(52) Locomotives
(53) Freight train cars
(54) Passenger train cars
(57) Work equipment
40.2 Railroad Structures and Similar Improvements:
Includes assets classified in the following Interstate Commerce Commission road accounts: 30 20 30
(6) Bridges, trestles, and culverts
(7) Elevated structures
(13) Fences, snowsheds, and signs
(16) Station and office buildings (stations and other operating structures only)
(17) Roadway buildings
(18) Water stations
(19) Fuel stations
(20) Shops and enginehouses
(25) TOFC/COFC terminals (operating structures only)
(31) Power transmission systems
(35) Miscellaneous structures
(39) Public improvements construction
40.3 Railroad Wharves and Docks:
Includes assets classified in the following Interstate Commission Commerce accounts: 20 15 20
(23) Wharves and docks
(24) Coal and ore wharves
40.4 Railroad Track 10 7 10
40.51 Railroad Hydraulic Electric Generating Equipment 50 20 50
40.52 Railroad Nuclear Electric Generating Equipment 20 15 20
40.53 Railroad Steam Electric Generating Equipment 28 20 28
40.54 Railroad Steam, Compressed Air, and Other Power Plan Equipment 28 20 28
41.0 Motor Transport—Passengers:
Includes assets used in the urban and interurban commercial and contract carrying of 8 5 8
passengers by road, except the transportation assets included in classes with the prefix 00.2.
42.0 Motor Transport—Freight:
Includes assets used in the commercial and contract carrying of freight by road, except the 8 5 8
transportation assets included in classes with the prefix 00.2.
44.0 Water Transportation:
Includes assets used in the commercial and contract carrying of freight and passengers by 20 15 20
water except the transportation assets included in classes with the prefix 00.2. Includes all
related land improvements.
45.0 Air Transport:
Includes assets (except helicopters) used in commercial and contract carrying of passengers 12 7 12
and freight by air. For purposes of section 1.167(a)-11(d)(2)(iv)(a) of the regulations,
expenditures for “repair, maintenance, rehabilitation, or improvement,” shall consist of direct
maintenance expenses (irrespective of airworthiness provisions or charges) as defined by Civil
Aeronautics Board uniform accounts 5200, maintenance burden (exclusive of expenses
pertaining to maintenance buildings and improvements) as defined by Civil Aeronautics Board
accounts 5300, and expenditures which are not “excluded additions” as defined in section
1.167(a)-11(d)(2)(vi) of the regulations and which would be charged to property and equipment
accounts in the Civil Aeronautics Board uniform system of accounts.
45.1 Air Transport (restricted):
Includes each asset described in the description of class 45.0 which was held by the taxpayer 6 5 6
on April 15, 1976, or is acquired by the taxpayer pursuant to a contract which was, on April 15,
1976, and at all times thereafter, binding on the taxpayer. This criterion of classification based
on binding contract concept is to be applied in the same manner as under the general rules
expressed in section 49(b)(1), (4), (5) and (8) of the Code (as in effect prior to its repeal by the
Revenue Act of 1978, section 312(c)(1), (d), 1978-3 C.B. 1, 60).
46.0 Pipeline Transportation:
Includes assets used in the private, commercial, and contract carrying of petroleum, gas and 22 15 22
other products by means of pipes and conveyors. The trunk lines and related storage facilities
of integrated petroleum and natural gas producers are included in this class. Excludes initial
clearing and grading land improvements as specified in Rev. Rul. 72-403, 1972-2; C.B. 102, but
includes all other related land improvements.

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Table B-2. Table of Class Lives and Recovery Periods

Recovery Periods
(in years)
Asset Class Life GDS
class Description of assets included (in years) (MACRS) ADS
Telephone Communications:
Includes the assets classified below and that are used in the provision of commercial and
contract telephonic services such as:
48.11 Telephone Central Office Buildings:
Includes assets intended to house central office equipment, as defined in Federal 45 20 45
Communications Commission Part 31 Account No. 212 whether section 1245 or section 1250
property.
48.12 Telephone Central Office Equipment:
Includes central office switching and related equipment as defined in Federal Communications 18 10 18
Commission Part 31 Account No. 221.
Does not include computer-based telephone central office switching equipment included in
class 48.121. Does not include private branch exchange (PBX) equipment.
48.121 Computer-based Telephone Central Office Switching Equipment:
Includes equipment whose functions are those of a computer or peripheral equipment (as 9.5 5 9.5
defined in section 168(i)(2)(B) of the Code) used in its capacity as telephone central office
equipment. Does not include private exchange (PBX) equipment.
48.13 Telephone Station Equipment:
Includes such station apparatus and connections as teletypewriters, telephones, booths, private 10 7* 10*
exchanges, and comparable equipment as defined in Federal Communications Commission
Part 31 Account Nos. 231, 232, and 234.
48.14 Telephone Distribution Plant:
Includes such assets as pole lines, cable, aerial wire, underground conduits, and comparable 24 15 24
equipment, and related land improvements as defined in Federal Communications Commission
Part 31 Account Nos. 241, 242.1, 242.2, 242.3, 242.4, 243, and 244.
48.2 Radio and Television Broadcastings:
Includes assets used in radio and television broadcasting, except transmitting towers. 6 5 6
Telegraph, Ocean Cable, and Satellite Communications (TOCSC) includes
communications-related assets used to provide domestic and international radio-telegraph,
wire-telegraph, ocean-cable, and satellite communications services; also includes related land
improvements. If property described in Classes 48.31–48.45 is comparable to telephone
distribution plant described in Class 48.14 and used for 2-way exchange of voice and data
communication which is the equivalent of telephone communication, such property is assigned
a class life of 24 years under this revenue procedure. Comparable equipment does not include
cable television equipment used primarily for 1-way communication.
48.31 TOCSC—Electric Power Generating and Distribution Systems:
Includes assets used in the provision of electric power by generation, modulation, rectification, 19 10 19
channelization, control, and distribution. Does not include these assets when they are installed
on customers premises.
48.32 TOCSC—High Frequency Radio and Microwave Systems:
Includes assets such as transmitters and receivers, antenna supporting structures, antennas, 13 7 13
transmission lines from equipment to antenna, transmitter cooling systems, and control and
amplification equipment. Does not include cable and long-line systems.
48.33 TOCSC—Cable and Long-line Systems:
Includes assets such as transmission lines, pole lines, ocean cables, buried cable and conduit, 26.5 20 26.5
repeaters, repeater stations, and other related assets. Does not include high frequency radio or
microwave systems.
48.34 TOCSC—Central Office Control Equipment:
Includes assets for general control, switching, and monitoring of communications signals 16.5 10 16.5
including electromechanical switching and channeling apparatus, multiplexing equipment
patching and monitoring facilities, in-house cabling, teleprinter equipment, and associated site
improvements.
48.35 TOCSC—Computerized Switching, Channeling, and Associated Control Equipment:
Includes central office switching computers, interfacing computers, other associated specialized 10.5 7 10.5
control equipment, and site improvements.
48.36 TOCSC—Satellite Ground Segment Property:
Includes assets such as fixed earth station equipment, antennas, satellite communications 10 7 10
equipment, and interface equipment used in satellite communications. Does not include general
purpose equipment or equipment used in satellite space segment property.
48.37 TOCSC—Satellite Space Segment Property:
Includes satellites and equipment used for telemetry, tracking, control, and monitoring when 8 5 8
used in satellite communications.
48.38 TOCSC—Equipment Installed on Customer’s Premises:
Includes assets installed on customer’s premises, such as computers, terminal equipment, 10 7 10
power generation and distribution systems, private switching center, teleprinters, facsimile
equipment and other associated and related equipment.
48.39 TOCSC—Support and Service Equipment:
Includes assets used to support but not engage in communications. Includes store, warehouse 13.5 7 13.5
and shop tools, and test and laboratory assets.
Cable Television (CATV): Includes communications-related assets used to provide cable
television community antenna television services. Does not include assets used to provide
subscribers with two-way communications services.
* Property described in asset guideline class 48.13 which is qualified technological equipment as defined in section 168(i)(2) is assigned a 5-year recovery
period.

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Table B-2. Table of Class Lives and Recovery Periods

Recovery Periods
(in years)
Asset Class Life GDS
class Description of assets included (in years) (MACRS) ADS
48.41 CATV—Headend:
Includes assets such as towers, antennas, preamplifiers, converters, modulation equipment, and program 11 7 11
non-duplication systems. Does not include headend buildings and program origination assets.
48.42 CATV—Subscriber Connection and Distribution Systems:
Includes assets such as trunk and feeder cable, connecting hardware, amplifiers, power
equipment, passive devices, directional taps, pedestals, pressure taps, drop cables, matching 10 7 10
transformers, multiple set connector equipment, and convertors.
48.43 CATV—Program Origination:
Includes assets such as cameras, film chains, video tape recorders, lighting, and remote location 9 5 9
equipment excluding vehicles. Does not include buildings and their structural components.
48.44 CATV—Service and Test:
Includes assets such as oscilloscopes, field strength meters, spectrum analyzers, and cable 8.5 5 8.5
testing equipment, but does not include vehicles.
48.45 CATV—Microwave Systems:
Inlcudes assets such as towers, antennas, transmitting and receiving equipment, and broad 9.5 5 9.5
band microwave assets is used in the provision of cable television services. Does not include
assets used in the provision of common carrier services.
Electric, Gas, Water and Steam, Utility Services:
Includes assets used in the production, transmission and distribution of electricity, gas, steam, 50 20 50
or water for sale including related land improvements.
49.11 Electric Utility Hydraulic Production Plant:
Includes assets used in the hydraulic power production of electricity for sale, including related
land improvements, such as dams, flumes, canals, and waterways.
49.12 Electric Utility Nuclear Production Plant:
Includes assets used in the nuclear power production and electricity for sale and related land 20 15 20
improvements. Does not include nuclear fuel assemblies.
49.121 Electric Utility Nuclear Fuel Assemblies:
Includes initial core and replacement core nuclear fuel assemblies (i.e., the composite of fabricated nuclear 5 5 5
fuel and container) when used in a boiling water, pressurized water, or high temperature gas reactor used in
the production of electricity. Does not include nuclear fuel assemblies used in breader reactors.
49.13 Electric Utility Steam Production Plant:
Includes assets used in the steam power production of electricity for sale, combusion turbines operated in a 28 20 28
combined cycle with a conventional steam unit and related land improvements. Also includes package
boilers, electric generators and related assets such as electricity and steam distribution systems as used by
a waste reduction and resource recovery plant if the steam or electricity is normally for sale to others.
49.14 Electric Utility Transmission and Distribution Plant:
Includes assets used in the transmission and distribution of electricity for sale and related land 30 20 30
improvements. Excludes initial clearing and grading land improvements as specified in Rev. Rul.
72-403, 1972-2 C.B. 102.
49.15 Electric Utility Combustion Turbine Production Plant:
Includes assets used in the production of electricity for sale by the use of such prime movers as jet 20 15 20
engines, combustion turbines, diesel engines, gasoline engines, and other internal combustion
engines, their associated power turbines and/or generators, and related land improvements. Does not
include combustion turbines operated in a combined cycle with a conventional steam unit.
49.21 Gas Utility Distribution Facilities:
Includes gas water heaters and gas conversion equipment installed by utility on customers’ 35 20 35
premises on a rental basis.
49.221 Gas Utility Manufactured Gas Production Plants:
Includes assets used in the manufacture of gas having chemical and/or physical properties 30 20 30
which do not permit complete interchangeability with domestic natural gas. Does not include
gas-producing systems and related systems used in waste reduction and resource recovery
plants which are elsewhere classified.
49.222 Gas Utility Substitute Natural Gas (SNG) Production Plant (naphtha or lighter hydrocarbon
feedstocks):
Includes assets used in the catalytic conversion of feedstocks or naphtha or lighter 14 7 14
hydrocarbons to a gaseous fuel which is completely interchangeable with domestic natural gas.
49.223 Substitute Natural Gas—Coal Gasification:
Includes assets used in the manufacture and production of pipeline quality gas from coal using the basic Lurgi 18 10 18
process with advanced methanation. Includes all process plant equipment and structures used in this coal
gasification process and all utility assets such as cooling systems, water supply and treatment facilities, and
assets used in the production and distribution of electricity and steam for use by the taxpayer in a gasification
plant and attendant coal mining site processes but not for assets used in the production and distribution of
electricity and steam for sale to others. Also includes all other related land improvements. Does not include
assets used in the direct mining and treatment of coal prior to the gasification process itself.
49.23 Natural Gas Production Plant 14 7 14
49.24 Gas Utility Trunk Pipelines and Related Storage Facilities:
Excluding initial clearing and grading land improvements as specified in Rev. Rul. 72-40. 22 15 22
49.25 Liquefied Natural Gas Plant:
Includes assets used in the liquefaction, storage, and regasification of natural gas including 22 15 22
loading and unloading connections, instrumentation equipment and controls, pumps, vaporizers
and odorizers, tanks, and related land improvements. Also includes pipeline interconnections
with gas transmission lines and distribution systems and marine terminal facilities.

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Table B-2. Table of Class Lives and Recovery Periods

Recovery Periods
(in years)
Asset Class Life GDS
class Description of assets included (in years) (MACRS) ADS
49.3 Water Utilities:
Includes assets used in the gathering, treatment, and commercial distribution of water. 50 20*** 50
49.4 Central Steam Utility Production and Distribution:
Includes assets used in the production and distribution of steam for sale. Does not include 28 20 28
assets used in waste reduction and resource recovery plants which are elsewhere classified.
49.5 Waste Reduction and Resource Recovery Plants:
Includes assets used in the conversion of refuse or other solid waste or biomass to heat or to a 10 7 10
solid, liquid, or gaseous fuel. Also includes all process plant equipment and structures at the
site used to receive, handle, collect, and process refuse or other solid waste or biomass in a
waterwall, combustion system, oil or gas pyrolysis system, or refuse derived fuel system to
create hot water, gas, steam and electricity. Includes material recovery and support assets
used in refuse or solid refuse or solid waste receiving, collecting, handling, sorting, shredding,
classifying, and separation systems. Does not include any package boilers, or electric
generators and related assets such as electricity, hot water, steam and manufactured gas
production plants classified in classes 00.4, 49.13, 49.221, and 49.4. Does include, however, all
other utilities such as water supply and treatment facilities, ash handling and other related land
improvements of a waste reduction and resource recovery plant.
50. Municipal Wastewater Treatment Plant 24 15 24
51. Municipal Sewer 50 20*** 50
57.0 Distributive Trades and Services:
Includes assets used in wholesale and retail trade, and personal and professional services. 9 5 9*
Includes section 1245 assets used in marketing petroleum and petroleum products.
57.1 Distributive Trades and Services—Billboard, Service Station Buildings and Petroleum
Marketing Land Improvements:
Includes section 1250 assets, including service station buildings and depreciable land 20 15 20
improvements, whether section 1245 property or section 1250 property, used in the marketing
of petroleum and petroleum products, but not including any of these facilities related to
petroleum and natural gas trunk pipelines. Includes car wash buildings and related land
improvements. Includes billboards, whether such assets are section 1245 property or section
1250 property. Excludes all other land improvements, buildings and structural components as
defined in section 1.48-1(e) of the regulations. See Gas station convenience stores in chapter 3.
79.0 Recreation:
Includes assets used in the provision of entertainment services on payment of a fee or 10 7 10
admission charge, as in the operation of bowling alleys, billiard and pool establishments,
theaters, concert halls, and miniature golf courses. Does not include amusement and theme
parks and assets which consist primarily of specialized land improvements or structures, such
as golf courses, sports stadia, race tracks, ski slopes, and buildings which house the assets
used in entertainment services.
80.0 Theme and Amusement Parks:
Includes assets used in the provision of rides, attractions, and amusements in activities defined as theme 12.5 7 12.5
and amusement parks, and includes appurtenances associated with a ride, attraction, amusement or theme
setting within the park such as ticket booths, facades, shop interiors, and props, special purpose structures,
and buildings other than warehouses, administration buildings, hotels, and motels. Includes all land
improvements for or in support of park activities (e.g., parking lots, sidewalks, waterways, bridges, fences,
landscaping, etc.), and support functions (e.g., food and beverage retailing, souvenir vending and other
nonlodging accommodations) if owned by the park and provided exclusively for the benefit of park patrons.
Theme and amusement parks are defined as combinations of amusements, rides, and attractions which are
permanently situated on park land and open to the public for the price of admission. This guideline class is a
composite of all assets used in this industry except transportation equipment (general purpose trucks, cars,
airplanes, etc., which are included in asset guideline classes with the prefix 00.2), assets used in the
provision of administrative services (asset classes with the prefix 00.1) and warehouses, administration
buildings, hotels and motels.
Certain Property for Which Recovery Periods Assigned
A. Personal Property With No Class Life 7 12
Section 1245 Real Property With No Class Life 7 40

B. Qualified Technological Equipment, as defined in section 168(i)(2). ** 5 5

C. Property Used in Connection with Research and Experimentation referred to in section ** 5 class life if
168(e)(3)(B). no class
life—12
D. Alternative energy property described in sections 48(l)(3)(A)(ix) (as in effect on the day before ** 5 class life if
the date of enactment (11/5/90) of the Revenue Reconciliation Act of 1990). no class
life—12
E. Biomass property described in section 48(l)(15) (as in effect on the day before the date of ** 5 class life if
enactment (11/5/90) of the Revenue Reconciliation Act of 1990) and is a qualifying small no class
production facility within the meaning of section 3(17)(c) of the Federal Power Act (16 U.S.C. life—12
796(17)(C)), as in effect on September 1, 1986.
F. Energy property described in section 48(a)(3)(A) (or would be described if “solar or wind ** 5 class life if
energy” were substituted for “solar energy” in section 48(a)(3)(A)(i)). no class
life—12
* Any high technology medical equipment as defined in section 168(i)(2)(C) which is described in asset guideline class 57.0 is assigned a 5-year
recovery period for the alternate MACRS method.
** The class life (if any) of property described in classes B, C, D, E, or F is determined by reference to the asset guideline classes. If an item of property
described in paragraphs B, C, D, E, or F is not described in any asset guideline class, such item of property has no class life.
*** Use straight line over 25 years if placed in service after June 12, 1996, unless placed in service under a binding contract in effect before June 10,
1996, and at all times until placed in service.

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Glossary
The definitions in this glossary are Class life: A number of years that es- Goodwill: An intangible property
the meanings of the terms as used in tablishes the property class and recov- such as the advantage or benefit re-
this publication. The same term used ery period for most types of property ceived in property beyond its mere
in another publication may have a under the General Depreciation Sys- value. It is not confined to a name but
slightly different meaning. tem (GDS) and Alternative Deprecia- can also be attached to a particular
tion System (ADS). area where business is transacted, to
Abstract fees: Expenses generally a list of customers, or to other ele-
paid by a buyer to research the title of Commuting: Travel between a per- ments of value in business as a going
real property. concern.
sonal home and work or job site within
Active conduct of a trade or busi- the area of an individual’s tax home.
Grantor: The one who transfers prop-
ness: Generally, for the section 179 erty to another.
deduction, a taxpayer is considered to Convention: A method established
conduct a trade or business actively if under the Modified Accelerated Cost
Improvement: An addition to or par-
he or she meaningfully participates in Recovery System (MACRS) to deter-
tial replacement of property that adds
the management or operations of the mine the portion of the year to depreci- to its value, appreciably lengthens the
trade or business. A mere passive in- ate property both in the year the time you can use it, or adapts it to a
vestor in a trade or business does not property is placed in service and in the different use.
actively conduct the trade or business. year of disposition.
Intangible property: Property that
Adjusted basis: The original cost of Declining balance method: An ac- has value but cannot be seen or
property, plus certain additions and celerated method to depreciate prop- touched, such as goodwill, patents,
improvements, minus certain deduc- erty. The General Depreciation copyrights, and computer software.
tions such as depreciation allowed or System (GDS) of MACRS uses the
allowable and casualty losses. 150% and 200% declining balance Listed property: Passenger automo-
methods for certain types of property. biles; any other property used for
Amortization: A ratable deduction for
A depreciation rate (percentage) is de- transportation; property of a type gen-
the cost of intangible property over its
termined by dividing the declining bal- erally used for entertainment, recrea-
useful life.
ance percentage by the recovery tion or amusement; computers and
Amount realized: The total of all period for the property. their peripheral equipment (unless
money received plus the fair market used only at a regular business estab-
value of all property or services re- Disposition: The permanent with- lishment and owned or leased by the
ceived from a sale or exchange. The drawal from use in a trade or business person operating the establishment);
amount realized also includes any lia- or from the production of income. and cellular telephones or similar tele-
bilities assumed by the buyer and any communications equipment.
liabilities to which the property trans- Documentary evidence: Written rec-
ferred is subject, such as real estate ords that establish certain facts. Nonresidential real property: Most
taxes or a mortgage. real property other than residential
Exchange: To barter, swap, part rental property.
Basis: A measure of an individual’s with, give, or transfer property for other
investment in property for tax pur- Placed in service: Ready and avail-
property or services.
poses. able for a specific use whether in a
Fair market value (FMV): The price trade or business, the production of
Business/investment use: Usually, that property brings when it is offered income, a tax-exempt activity, or a per-
a percentage showing how much an sonal activity.
for sale by one who is willing but not
item of property, such as an automo-
obligated to sell, and is bought by one Property class: A category for prop-
bile, is used for business and invest-
who is willing or desires to buy but is erty under MACRS. It generally deter-
ment purposes.
not compelled to do so. mines the depreciation method,
Capitalized: Expended or treated as recovery period, and convention.
an item of a capital nature. A capital- Fiduciary: The one who acts on be-
ized amount is not deductible as a half of another as a guardian, trustee, Recapture: To include as income on
current expense and must be included executor, administrator, receiver, or your return an amount allowed or al-
in the basis of property. conservator. lowable as a deduction in a prior year.

Circumstantial evidence: Details or Fungible commodity: A commodity Recovery period: The number of
facts which indirectly point to other of a nature that one part may be used years over which the basis of an item
facts. in place of another part. of property is recovered.

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Remainder interest: That part of an Straight line method: A way to figure the occurrence of an event, or the fail-
estate that is left after all the other depreciation for property that ratably ure of an event to occur.
provisions of a will have been satis- deducts the same amount for each
fied. year in the recovery period. The rate Unadjusted basis: The basis of an
(in percentage terms) is determined by item of property for purposes of figur-
Residential rental property: Real dividing 1 by the number of years in ing gain on a sale without taking into
property, generally buildings or struc- the recovery period. account any depreciation taken in ear-
tures, if 80% or more of its annual lier years but with adjustments for
gross rental income is from dwelling Structural components: Parts that
other amounts, including amortization,
units. together form an entire structure, such
as a building. The term includes those the section 179 deduction, any special
Salvage value: An estimated value of parts of a building such as walls, parti- depreciation allowance, any deduction
property at the end of its useful life. Not tions, floors, and ceilings, as well as claimed for clean-fuel vehicles or
used under MACRS. any permanent coverings such as clean-fuel vehicle refueling property
paneling or tiling, windows and doors, placed in service before January 1,
Section 1245 property: Property that and all components of a central air 2006, and any electric vehicle credit.
is or has been subject to an allowance conditioning or heating system includ-
for depreciation or amortization. Sec- ing motors, compressors, pipes and Unit-of-production method: A way
tion 1245 property includes personal ducts. It also includes plumbing fix- to figure depreciation for certain prop-
property, single purpose agricultural tures such as sinks, bathtubs, electri- erty. It is determined by estimating the
and horticultural structures, storage cal wiring and lighting fixtures, and number of units that can be produced
facilities used in connection with the other parts that form the structure. before the property is worn out. For
distribution of petroleum or primary
example, if it is estimated that a ma-
products of petroleum, and railroad Tangible property: Property you can
grading or tunnel bores. see or touch, such as buildings, ma- chine will produce 1000 units before its
chinery, vehicles, furniture, and equip- useful life ends, and it actually pro-
Section 1250 property: Real prop- ment. duces 100 units in a year, the percent-
erty (other than section 1245 property) age to figure depreciation for that year
which is or has been subject to an Tax-exempt: Not subject to tax. is 10% of the machine’s cost less its
allowance for depreciation. salvage value.
Term interest: A life interest in prop-
Standard mileage rate: The estab- erty, an interest in property for a term Useful life: An estimate of how long
lished amount for optional use in de- of years, or an income interest in a an item of property can be expected to
termining a tax deduction for trust. It generally refers to a present or be usable in trade or business or to
automobiles instead of deducting de- future interest in income from property produce income.
preciation and actual operating ex- or the right to use property that termi-
■
penses. nates or fails upon the lapse of time,

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To help us develop a more useful index, please let us know if you have ideas for index entries.
Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

A Copyright (See also Section 197 Energy property . . . . . . . . . . . . . . . . . 17

Addition to property . . . . . . . . . . . . . 41 intangibles) . . . . . . . . . . . . . . . . . . . . . 10 Exchange of MACRS
Adjusted basis . . . . . . . . . . . . . . . . . . . 12 Correcting depreciation property . . . . . . . . . . . . . . . . . . . . . . . . 51
Alternative Depreciation System deductions . . . . . . . . . . . . . . . . . . . . . 13
(ADS): Cost basis . . . . . . . . . . . . . . . . . . . . . . . . 11 F
Recovery periods . . . . . . . . . . . . . . . 41 Farm:
Required use . . . . . . . . . . . . . . . . . . . 35 D Property . . . . . . . . . . . . . . . . . . . . . . . . 43
Amended return . . . . . . . . . . . . . . . . . 13 Declining balance: Figuring MACRS:
Apartment: Method . . . . . . . . . . . . . . . . . . . . . . . . . 47 Using percentage tables . . . . . . . . 44
Cooperative . . . . . . . . . . . . . . . . . . . . . 4 Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Without using percentage
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Deduction limit: tables . . . . . . . . . . . . . . . . . . . . . . . . 47
Assistance (See Tax help) Automobile . . . . . . . . . . . . . . . . . . . . . 66 Films . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Automobile (See Passenger Section 179 . . . . . . . . . . . . . . . . . . . . . 18 Free tax services . . . . . . . . . . . . . . . . 73
automobile) Depreciation:
Deduction: G
B Employee . . . . . . . . . . . . . . . . . . . . 61 General asset account:
Basis: Listed property . . . . . . . . . . . . . . . 61 Abusive transaction . . . . . . . . . . . . . 56
Adjustments . . . . . . . . . . . . 12, 22, 44 Determinable useful life . . . . . . . . . . 5 Disposing of property . . . . . . . . . . . 55
Basis for depreciation . . . . . . . . . . . 39 Excepted property . . . . . . . . . . . . . . . 6 Grouping property in . . . . . . . . . . . . 54
Casualty loss . . . . . . . . . . . . . . . . . . . 44 Incorrect amount deducted . . . . . 13 Nonrecognition transaction . . . . . 56
Change in use . . . . . . . . . . . . . . . . . . 12 Methods . . . . . . . . . . . . . . . . . . . . . . . . 43 General Depreciation System
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Property lasting more than one (GDS), recovery periods . . . . . . 39
Depreciable basis . . . . . . . . . . . . . . 33 year . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Gift (See Basis, other than cost)
Other than cost . . . . . . . . . . . . . . . . . 12 Property owned . . . . . . . . . . . . . . . . . . 3
Property used in business . . . . . . . 5 Glossary . . . . . . . . . . . . . . . . . . . . . . . . 115
Recapture of clean-fuel vehicle
deduction or credit . . . . . . . . . . . 44 Recapture . . . . . . . . . . . . . . . . . . 58, 64
Term interest . . . . . . . . . . . . . . . . . . . . 6 Depreciation allowable . . . . . . . . . . 12 H
Unadjusted . . . . . . . . . . . . . . . . . . . . . 45 Depreciation allowed . . . . . . . . . . . . 12 Help (See Tax help)
Business use of property, Depreciation deduction:
partial . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Listed property . . . . . . . . . . . . . . . . . . 62 I
Business-use limit, recapture of Determinable useful life . . . . . . . . . . 5 Idle property . . . . . . . . . . . . . . . . . . . . . . 7
Section 179 deduction . . . . . . . . 23 Disposition: Improvements . . . . . . . . . . . . . . . 13, 41
Business-use requirement, listed Before recovery period ends . . . . 46 Income forecast method . . . . . . . . 10
property . . . . . . . . . . . . . . . . . . . . . . . . 62 General asset account Incorrect depreciation
property . . . . . . . . . . . . . . . . . . . . . . 55 deductions . . . . . . . . . . . . . . . . . . . . . 13
Section 179 deduction . . . . . . . . . . 23 Indian reservation:
C
Car (See Passenger automobile) Defined . . . . . . . . . . . . . . . . . . . . . . . . . 40
Carryover of section 179 E Qualified infrastructure
Election: property . . . . . . . . . . . . . . . . . . . . . . 40
deduction . . . . . . . . . . . . . . . . . . . . . . 21
ADS . . . . . . . . . . . . . . . . . . . . . . . . 35, 43 Qualified property . . . . . . . . . . . . . . . 40
Casualty loss, effect of . . . . . . . . . . 44 Recovery periods for qualified
Declining balance (150% DB)
Cellular telephone (See Listed property . . . . . . . . . . . . . . . . . . . . . . 40
method . . . . . . . . . . . . . . . . . . . . . . . 43
property) Related person . . . . . . . . . . . . . . . . . 40
Exclusion from MACRS . . . . . . . . . 11
Changing accounting General asset account . . . . . . . . . . 58 Inheritance (See Basis, other than
method . . . . . . . . . . . . . . . . . . . . . . . . . 14 Not to claim special depreciation cost)
Comments on publication . . . . . . . . 2 allowance . . . . . . . . . . . . . . . . . . . . 33 Intangible property:
Communication equipment (See Section 179 deduction . . . . . . . . . . 22 Depreciation method . . . . . . . . 9, 10
Listed property) Straight line method . . . . . . . . . . . . 43 Income forecast method . . . . . . . . 10
Commuting . . . . . . . . . . . . . . . . . . . . . . 63 Electric vehicle . . . . . . . . . . . . . . . . . . 67 Straight line method . . . . . . . . . . . . . 9
Computer (See Listed property) Employee: Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Computer software . . . . . . . . . . 10, 16 Depreciation deduction . . . . . . . . . 61 Investment use of property,
Containers . . . . . . . . . . . . . . . . . . . . . . . . 5 How to claim depreciation . . . . . . 13 partial . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Conventions . . . . . . . . . . . . . . . . . . . . . 41 Employee deduction, listed Involuntary conversion of MACRS
Cooperative apartment . . . . . . . . . . . 4 property . . . . . . . . . . . . . . . . . . . . . . . . 61 property . . . . . . . . . . . . . . . . . . . . . . . . 51

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L O Qualified Liberty Zone property,

Land: Office in the home . . . . . . . . . . . . 5, 40 requirements for the special
Not depreciable . . . . . . . . . . . . . . . . . . 6 Ownership, incidents of . . . . . . . . . . 4 allowance . . . . . . . . . . . . . . . . . . . . . . 24
Preparation costs . . . . . . . . . . . . . . . . 6 Qualified property, special
Leased property . . . . . . . . . . . . . . . . . 17 depreciation allowance . . . . . . . 24
P
Leasehold improvement property,
Partial business use . . . . . . . . . . . . . 16
defined . . . . . . . . . . . . . . . . . . . . . 25, 38 R
Passenger automobile:
Life tenant (See also Term Real property . . . . . . . . . . . . . . . . . . . . . 8
interests) . . . . . . . . . . . . . . . . . . . . . . . . 4 Defined . . . . . . . . . . . . . . . . . . . . . . . . . 60
Recapture:
Electric vehicles . . . . . . . . . . . . . . . . 67
Limit on deduction: Clean-fuel vehicle deduction or
Limit on . . . . . . . . . . . . . . . . . . . . . . . . . 66 credit . . . . . . . . . . . . . . . . . . . . . . . . . 44
Automobile . . . . . . . . . . . . . . . . . . . . . 66
Maximum depreciation General asset account, abusive
Section 179 . . . . . . . . . . . . . . . . . . . . . 18
deduction . . . . . . . . . . . . . . . . . . . . . 66 transaction . . . . . . . . . . . . . . . . . . . 56
Listed property:
Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Listed property . . . . . . . . . . . . . . . . . . 64
5% owner . . . . . . . . . . . . . . . . . . . . . . . 63
Vans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 MACRS depreciation . . . . . . . . . . . 58
Computer . . . . . . . . . . . . . . . . . . . . . . . 61
Patent (See also Section 197 Section 179 deduction . . . . . . . . . . 23
Condition of employment . . . . . . . 61
intangibles) . . . . . . . . . . . . . . . . . . . . . 10 Special depreciation
Defined . . . . . . . . . . . . . . . . . . . . . . . . . 59
Personal property . . . . . . . . . . . . . . . . 8 allowance . . . . . . . . . . . . . . . . . . . . 34
Employee deduction . . . . . . . . . . . . 61
Phonographic equipment (See Recordkeeping:
Employer convenience . . . . . . . . . 61
Listed property) Listed property . . . . . . . . . . . . . . . . . . 70
Improvements to . . . . . . . . . . . . . . . . 60
Photographic equipment (See Section 179 . . . . . . . . . . . . . . . . . . . . . 22
Leased . . . . . . . . . . . . . . . . . . . . . . . . . 64
Listed property) Recovery periods:
Passenger automobile . . . . . . . . . . 60
Placed in service: ADS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Qualified business use . . . . . . . . . . 63
Before 1987 . . . . . . . . . . . . . . . . . . . . . 8 GDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Recordkeeping . . . . . . . . . . . . . . . . . 70
Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Related persons . . . . . . . 6, 8, 17, 26,
Related person . . . . . . . . . . . . . . . . . 63
Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 40, 63
Reporting on Form 4562 . . . . . . . . 72
Property: Rental home (See Residential rental
Lodging . . . . . . . . . . . . . . . . . . . . . . . . . . 17 property)
Classes . . . . . . . . . . . . . . . . . . . . . . . . . 35
Depreciable . . . . . . . . . . . . . . . . . . . . . . 3 Rented property,
M Idle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 improvements . . . . . . . . . . . . . . . . . 13
Maximum deduction: Improvements . . . . . . . . . . . . . . . . . . 13 Rent-to-own property,
Electric vehicles . . . . . . . . . . . . . . . . 67 Leased . . . . . . . . . . . . . . . . . . . . . . 4, 17 defined . . . . . . . . . . . . . . . . . . . . . . . . . 37
Passenger automobiles . . . . . . . . . 66 Listed . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Personal . . . . . . . . . . . . . . . . . . . . . . . . . 8 Residential rental property . . . . . . 36
Vans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Real . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Retail motor fuels outlet . . . . . . . . . 37
Mobile home (See Residential rental Retired from service . . . . . . . . . . . . . 7 Revoking:
property) Tangible personal . . . . . . . . . . . . . . 16 ADS election . . . . . . . . . . . . . . . . . . . . 35
Modified ACRS (MACRS): Term interest . . . . . . . . . . . . . . . . . . . . 6 General asset account
Addition or improvement . . . . . . . . 41 Publications (See Tax help) election . . . . . . . . . . . . . . . . . . . . . . . 58
Alternative Depreciation System Section 179 election . . . . . . . . . . . . 22
(ADS) . . . . . . . . . . . . . . . . . . . . . . . . 35
Q
Conventions . . . . . . . . . . . . . . . . . . . . 41
Qualified Gulf Opportunity Zone
S
Declining balance method . . . . . . 47 Sale of property . . . . . . . . . . . . . . . . . . 46
property:
Depreciation methods . . . . . . . . . . 43 Section 179 deduction:
Acquisition date test . . . . . . . . . . . . 26
Farm property . . . . . . . . . . . . . . . . . . 43 Business use required . . . . . . . . . . 16
Excepted property . . . . . . . . . . . . . . 27
Figuring, short tax year . . . . . . . . . 53 Carryover . . . . . . . . . . . . . . . . . . . . . . . 21
Original use test . . . . . . . . . . . . . . . . 27
General Depreciation System Dispositions . . . . . . . . . . . . . . . . . . . . 23
(GDS) . . . . . . . . . . . . . . . . . . . . . . . . 35 Placed in service date test . . . . . . 26
Electing . . . . . . . . . . . . . . . . . . . . . . . . . 22
Percentage tables . . . . . . . . . . . . . . 44 Substantial use test . . . . . . . . . . . . . 26
Limits:
Property classes . . . . . . . . . . . . . . . . 35 Qualified Gulf Opportunity Zone Business (taxable)
Recovery periods . . . . . . . . . . . . . . . 39 property, requirements for the income . . . . . . . . . . . . . . . . . . . . . 20
special allowance . . . . . . . . . . . . . 25 Business-use, recapture . . . . . . 23
Short tax year . . . . . . . . . . . . . . . . . . 51
Straight line method . . . . . . . . . . . . 48 Qualified leasehold improvement Dollar . . . . . . . . . . . . . . . . . . . . . . . . . 18
property, defined . . . . . . . . . . 25, 38 Enterprise zone business . . . . 19
More information (See Tax help)
Qualified Liberty Zone property: Partial business use . . . . . . . . . . 16
Acquisition date test . . . . . . . . . . . . 24 Married filing separate
N Excepted property . . . . . . . . . . . . . . 25 returns . . . . . . . . . . . . . . . . . . . . . . . 19
Nonresidential real property . . . . 36 Original use test . . . . . . . . . . . . . . . . 25 Partnership rules . . . . . . . . . . . . . . . 21
Nontaxable transfer of MACRS Placed in service date test . . . . . . 24 Property:
property . . . . . . . . . . . . . . . . . . . . . . . . 51 Substantial use test . . . . . . . . . . . . . 24 Eligible . . . . . . . . . . . . . . . . . . . . . . . 16

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Section 179 deduction: Qualified property . . . . . . . . . . . . . . . 24 Useful life . . . . . . . . . . . . . . . . . . . . . . . . . 5

Property: (Cont.) Recapture . . . . . . . . . . . . . . . . . . . . . . 34
Excepted . . . . . . . . . . . . . . . . . . . . . 17 Stock, constructive ownership V
Purchase required . . . . . . . . . . . . . . 16 of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Vans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Recapture . . . . . . . . . . . . . . . . . . . . . . 23 Straight line method . . . . . . . . . . 9, 48 Video tape . . . . . . . . . . . . . . . . . . . . . . . . 10
Recordkeeping . . . . . . . . . . . . . . . . . 22 Created intangibles . . . . . . . . . . . . . 10 Video-recording equipment (See
S corporation rules . . . . . . . . . . . . . 22 Suggestions for publication . . . . . 2 Listed property)
Settlement fees . . . . . . . . . . . . . . . . . . 11
Short tax year: T
Figuring depreciation . . . . . . . . . . . 53 W
Tangible personal property . . . . . 16 When to use ADS . . . . . . . . . . . . . . . . 35
Figuring placed-in-service
Tax help . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Worksheet:
date . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Taxpayer Advocate . . . . . . . . . . . . . . 73 Leased listed property . . . . . . . . . . 65
Software, computer . . . . . . . . . . 10, 16
Term interest . . . . . . . . . . . . . . . . . . . . . . 6 MACRS . . . . . . . . . . . . . . . . . . . . . . . . . 45
Sound recording . . . . . . . . . . . . . . . . . 10
Trade-in of property . . . . . . . . . . . . . 18
Special depreciation allowance: ■
Election not to claim . . . . . . . . . . . . 33 Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Qualified Gulf Opportunity Zone TTY/TDD information . . . . . . . . . . . . 73
property . . . . . . . . . . . . . . . . . . . . . . 25
Qualified Liberty Zone U
property . . . . . . . . . . . . . . . . . . . . . . 24 Unadjusted basis . . . . . . . . . . . . . . . . 45

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Tax Publications for Business Taxpayers See How To Get Tax Help for a variety
of ways to get publications, including by
computer, phone, and mail. Keep for Your Records

General Guides 527 Residential Rental Property (Including 686 Certification for Reduced Tax Rates
1 Your Rights as a Taxpayer Rental of Vacation Homes) in Tax Treaty Countries
17 Your Federal Income Tax (For 534 Depreciating Property Placed in 901 U.S. Tax Treaties
Individuals) Service Before 1987 908 Bankruptcy Tax Guide
334 Tax Guide for Small Business (For 535 Business Expenses 925 Passive Activity and At-Risk Rules
Individuals Who Use Schedule C or 536 Net Operating Losses (NOLs) for 946 How To Depreciate Property
C-EZ) Individuals, Estates, and Trusts 947 Practice Before the IRS and Power of
509 Tax Calendars 537 Installment Sales Attorney
910 IRS Guide to Free Tax Services 538 Accounting Periods and Methods 954 Tax Incentives for Distressed
541 Partnerships Communities
Employer’s Guides
542 Corporations 1544 Reporting Cash Payments of Over
15 (Circular E), Employer’s Tax Guide
544 Sales and Other Dispositions of $10,000 (Received in a Trade or
15-A Employer’s Supplemental Tax Guide
Assets Business)
15-B Employer’s Tax Guide to Fringe
551 Basis of Assets 1546 The Taxpayer Advocate Service of
Benefits
556 Examination of Returns, Appeal the IRS
51 (Circular A), Agricultural Employer’s
Rights, and Claims for Refund
Tax Guide Spanish Language Publications
560 Retirement Plans for Small Business
80 (Circular SS), Federal Tax Guide For 1SP Derechos del Contribuyente
(SEP, SIMPLE, and Qualified
Employers in the U.S. Virgin 179 (Circular PR) Guı́a Contributiva
Plans)
Islands, Guam, American Samoa, Federal Para Patronos
561 Determining the Value of Donated
and the Commonwealth of the Puertorriqueños
Property
Northern Mariana Islands 579SP Cómo Preparar la Declaración de
583 Starting a Business and Keeping
926 Household Employer’s Tax Guide Impuesto Federal
Records
594SP Qué es lo Debemos Saber sobre El
Specialized Publications 587 Business Use of Your Home
Proceso de Cobro del IRS
225 Farmer’s Tax Guide (Including Use by Daycare
850 English-Spanish Glossary of Words
463 Travel, Entertainment, Gift, and Car Providers)
and Phrases Used in Publications
Expenses 594 What You Should Know About The
Issued by the Internal Revenue
505 Tax Withholding and Estimated Tax IRS Collection Process
Service
510 Excise Taxes 595 Capital Construction Fund for
1544SP Informe de Pagos en Efectivo en
515 Withholding of Tax on Nonresident Commercial Fishermen
Exceso de $10,000 (Recibidos en
Aliens and Foreign Entities 597 Information on the United
una Ocupación o Negocio)
517 Social Security and Other Information States-Canada Income Tax Treaty
for Members of the Clergy and 598 Tax on Unrelated Business Income of
Religious Workers Exempt Organizations

Commonly Used Tax Forms See How To Get Tax Help for a variety of ways to get forms,
including by computer, phone, and mail. Keep for Your Records
Form Number and Form Title Sch. K-1 Shareholder’s Share of Income, Deductions, Credits,
etc.
W-2 Wage and Tax Statement
2106 Employee Business Expenses
W-4 Employee’s Withholding Allowance Certificate
2106-EZ Unreimbursed Employee Business Expenses
940 Employer’s Annual Federal Unemployment (FUTA) Tax
2210 Underpayment of Estimated Tax by Individuals, Estates,
Return
and Trusts
941 Employer’s QUARTERLY Federal Tax Return
2441 Child and Dependent Care Expenses
944 Employer’s ANNUAL Federal Tax Return
2848 Power of Attorney and Declaration of Representative
1040 U.S. Individual Income Tax Return
3800 General Business Credit
Sch. A & B Itemized Deductions & Interest and Ordinary
3903 Moving Expenses
Dividends
4562 Depreciation and Amortization
Sch. C Profit or Loss From Business
4797 Sales of Business Property
Sch. C-EZ Net Profit From Business
4868 Application for Automatic Extension of Time To File U.S.
Sch. D Capital Gains and Losses
Individual Income Tax Return
Sch. D-1 Continuation Sheet for Schedule D
5329 Additional Taxes on Qualified Plans (Including IRAs) and
Sch. E Supplemental Income and Loss
Other Tax-Favored Accounts
Sch. F Profit or Loss From Farming
6252 Installment Sale Income
Sch. H Household Employment Taxes
7004 Application for Automatic 6-Month Extension of Time To
Sch. J Income Averaging for Farmers and Fishermen
File Certain Business Income Tax, Information, and
Sch. R Credit for the Elderly or the Disabled
Other Returns
Sch. SE Self-Employment Tax
8283 Noncash Charitable Contributions
1040-ES Estimated Tax for Individuals
8300 Report of Cash Payments Over $10,000 Received in a
1040X Amended U.S. Individual Income Tax Return
Trade or Business
1065 U.S. Return of Partnership Income
8582 Passive Activity Loss Limitations
Sch. D Capital Gains and Losses
8606 Nondeductible IRAs
Sch. K-1 Partner’s Share of Income, Deductions, Credits, etc.
8822 Change of Address
1120 U.S. Corporation Income Tax Return
8829 Expenses for Business Use of Your Home
1120S U.S. Income Tax Return for an S Corporation
Sch. D Capital Gains and Losses and Built-In Gains

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