For use in preparing 2023 Returns
For the latest information about developments related to Pub. 946, such as legislation enacted after this publication was published, go to IRS.gov/Pub946.
Section 179 deduction dollar limits. For tax years beginning in 2023, the maximum section 179 expense deduction is $1,160,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,890,000.Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2023 is $28,900.
Phase down of special depreciation allowance. The special depreciation allowance is 80% for certain qualified property acquired after September 27, 2017, and placed in service after December 31, 2022, and before January 1, 2024 (other than certain property with a long production period and certain aircraft). The special depreciation allowance is also 80% for certain specified plants bearing fruits and nuts planted or grafted after December 31, 2022, and before January 1, 2024. See Certain Qualified Property Acquired After September 27, 2017 and Certain Plants Bearing Fruits and Nuts under What Is Qualified Property? in chapter 3.
Depreciation limits on business vehicles. The total section 179 deduction and depreciation you can deduct for a passenger automobile, including a truck or van, you use in your business and first placed in service in 2023 is $20,200, if the special depreciation allowance applies, or $12,200, if the special depreciation allowance does not apply. See Maximum Depreciation Deduction in chapter 5.
Section 179 deduction dollar limits. For tax years beginning in 2024, the maximum section 179 expense deduction is $1,220,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $3,050,000.Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2024 is $30,500.
Phase down of special depreciation allowance. The special depreciation allowance is 60% for certain qualified property acquired after September 27, 2017, and placed in service after December 31, 2023, and before January 1, 2025 (other than certain property with a long production period and certain aircraft). Property with a long production period and certain aircraft placed in service after December 31, 2023, and before January 1, 2025, is eligible for a special depreciation allowance of 80% of the depreciable basis of the property. The special depreciation allowance is also 60% for certain specified plants bearing fruits and nuts planted or grafted after December 31, 2023, and before January 1, 2025. See Certain Qualified Property Acquired After September 27, 2017 and Certain Plants Bearing Fruits and Nuts under What Is Qualified Property? in chapter 3.
Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
This publication explains how you can recover the cost of business or income-producing property through deductions for depreciation (for example, the special depreciation allowance and deductions under the Modified Accelerated Cost Recovery System (MACRS)). It also explains how you can elect to take a section 179 deduction, instead of depreciation deductions, for certain property and the additional rules for listed property.
. The depreciation methods discussed in this publication generally do not apply to property placed in service before 1987. For more information, see Pub. 534, Depreciating Property Placed in Service Before 1987. .
Definitions.
Many of the terms used in this publication are defined in the Glossary at the end of this publication. Glossary terms used in each discussion under the major headings are listed before the beginning of each discussion throughout the publication.
Do you need a different publication?
The following table shows where you can get more detailed information when depreciating certain types of property.
| For information on depreciating: | See Publication: |
|---|---|
| A car | 463, Travel, Gift, and Car Expenses |
| Residential rental property | 527, Residential Rental Property |
| Office space in your home | 587, Business Use of Your Home |
| Farm property | 225, Farmer's Tax Guide |
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Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. It is an allowance for the wear and tear, deterioration, or obsolescence of the property.
This chapter discusses the general rules for depreciating property and answers the following questions.
Publication
Form (and Instructions)
See How To Get Tax Help for information about getting publications and forms.
You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. You can also depreciate certain intangible property, such as patents, copyrights, and computer software.
To be depreciable, the property must meet all the following requirements.
To claim depreciation, you must usually be the owner of the property. You are considered as owning property even if it is subject to a debt.
Example 1.
You made a down payment to purchase rental property and assumed the previous owner's mortgage. You own the property and you can depreciate it.
Example 2.
You bought a new van that you will use only for your courier business. You will be making payments on the van over the next 5 years. You own the van and you can depreciate it.
Leased property.
You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). This means you bear the burden of exhaustion of the capital investment in the property. Therefore, if you lease property from someone to use in your trade or business or for the production of income, generally you cannot depreciate its cost because you do not retain the incidents of ownership. You can, however, depreciate any capital improvements you make to the property. See How Do You Treat Repairs and Improvements , later in this chapter, and Additions and Improvements under Which Recovery Period Applies? in chapter 4.
If you lease property to someone, you can generally depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property.
Incidents of ownership.
Incidents of ownership in property include the following.
Life tenant.
Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. However, see Certain term interests in property under Excepted Property, later.
Cooperative apartments.
If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment.
Figure your depreciation deduction as follows.
Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income.
Example.
You figure your share of the cooperative housing corporation's depreciation to be $30,000. Your adjusted basis in the stock of the corporation is $50,000. You use one-half of your apartment solely for business purposes. Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000).
Change to business use.
If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts.
If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) above. The FMV of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic.
For a discussion of FMV and adjusted basis, see Pub. 551.
To claim depreciation on property, you must use it in your business or income-producing activity. If you use property to produce income (investment use), the income must be taxable. You cannot depreciate property that you use solely for personal activities.
Partial business or investment use.
If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities.
. You must keep records showing the business, investment, and personal use of your property. For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept? in chapter 5. .
. Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-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. .
Office in the home.
If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. For information about depreciating your home office, see Pub. 587.
Inventory.
You cannot depreciate inventory because it is not held for use in your business. Inventory is any property you hold primarily for sale to customers in the ordinary course of your business.
If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. See Rent-to-own dealer under Which Property Class Applies Under GDS? in chapter 4.
In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. If it is unclear, examine carefully all the facts in the operation of the particular business. The following example shows how a careful examination of the facts in two similar situations results in different conclusions.
Example.
Maple Corporation is in the business of leasing cars. At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. Maple does not have a showroom, used car lot, or individuals to sell the cars. Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased.
If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. In this situation, the cars are held primarily for sale to customers in the ordinary course of business.
Containers.
Generally, containers for the products you sell are part of inventory and you cannot depreciate them. However, you can depreciate containers used to ship your products if they have a life longer than 1 year and meet the following requirements.
To determine if these requirements are met, consider the following questions.
To be depreciable, your property must have a determinable useful life. This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes.
To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service.
Example.
You maintain a library for use in your profession. You can depreciate it. However, if you buy technical books, journals, or information services for use in your business that have a useful life of 1 year or less, you cannot depreciate them. Instead, you deduct their cost as a business expense.
Certain property cannot be depreciated. This includes land and certain excepted property.
You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. The cost of land generally includes the cost of clearing, grading, planting, and landscaping.
Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property.
Example.
You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. If you replace the building, you would have to destroy the bushes and trees right next to it. These bushes and trees are closely associated with the building, so they have a determinable useful life. Therefore, you can depreciate them. Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them.
Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property.
Certain term interests in property.
You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust.
Related persons.
For a description of related persons, see Related Persons , later. For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears.
Basis adjustments.
If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you must generally reduce your basis in the term interest by any depreciation or amortization not allowed.
If you hold the remainder interest, you must generally increase your basis in that interest by the depreciation not allowed to the term interest holder. However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies.
Exceptions.
The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser.
You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first.
You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Even if you are not using the property, it is in service when it is ready and available for its specific use.
Example 1.
You bought a machine for your business. The machine was delivered last year. However, it was not installed and operational until this year. It is considered placed in service this year. If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year.
Example 2.
On April 6, Sue Thorn bought a house to use as residential rental property. Sue made several repairs and had it ready for rent on July 5. At that time, Sue began to advertise it for rent in the local newspaper. The house is considered placed in service in July when it was ready and available for rent. Sue can begin to depreciate it in July.
Example 3.
James Elm is a building contractor who specializes in constructing office buildings. James bought a truck last year that had to be modified to lift materials to second-story levels. The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought.
Conversion to business use.
If you place property in service in a personal activity, you cannot claim depreciation. However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. You place the property in service in the business or income-producing activity on the date of the change.
Example.
You bought a home and used it as your personal home several years before you converted it to rental property. Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time.
Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine.
You stop depreciating property when you have fully recovered your cost or other basis. You fully recover your basis when your section 179 deduction, allowed or allowable depreciation deductions, and salvage value, if applicable, equal the cost or investment in the property. See What Is the Basis of Your Depreciable Property , later.
You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events.
. If you included the property in a general asset account, see How Do You Use General Asset Accounts? in chapter 4 for the rules that apply when you dispose of that property. .
You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. MACRS is discussed in chapter 4.
You cannot use MACRS to depreciate the following property.
The following discussions describe the property listed above and explain what depreciation method should be used.
You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). Property placed in service before 1987 must be depreciated under the methods discussed in Pub. 534.
For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier.
Use of real property changed.
You must generally use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986.
Improvements made after 1986.
You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. For more information about improvements, see How Do You Treat Repairs and Improvements , later, and Additions and Improvements under Which Recovery Period Applies? in chapter 4.
You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. If you cannot use MACRS, the property must be depreciated under the methods discussed in Pub. 534.
. For the following discussions, do not treat property as owned before you placed it in service. If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. .
Personal property.
You cannot use MACRS for personal property (section 1245 property) in any of the following situations.
Real property.
You generally cannot use MACRS for real property (section 1250 property) in any of the following situations.
Exceptions.
The rules above do not apply to the following.
Related persons.
For this purpose, the following are related persons.
When to determine relationship.
You must determine whether you are related to another person at the time you acquire the property.
A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination.
Constructive ownership of stock or partnership interest.
To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules.
Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. However, you can choose to depreciate certain intangible property under the income forecast method (discussed later).
. You cannot depreciate intangible property that is a section 197 intangible or that does not otherwise meet all the requirements discussed earlier under What Property Can Be Depreciated. .
This method lets you deduct the same amount of depreciation each year over the useful life of the property. To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Subtract the salvage value, if any, from the adjusted basis. The balance is the total depreciation you can take over the useful life of the property.
Divide the balance by the number of years in the useful life. This gives you your yearly depreciation deduction. Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use.
Example.
In April, you bought a patent for $5,100 that is not a section 197 intangible. You depreciate the patent under the straight line method, using a 17-year useful life and no salvage value. You divide the $5,100 basis by 17 years to get your $300 yearly depreciation deduction. You only used the patent for 9 months during the first year, so you multiply $300 by 9 /12 to get your deduction of $225 for the first year. Next year, you can deduct $300 for the full year.
Patents and copyrights.
If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. However, if the patent 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.
Computer software.
Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business.
However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests.
If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later in chapters 2 and 3. If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months.
Tax-exempt use property subject to a lease.
The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term.
Certain created intangibles.
You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs.
The following are not eligible.
You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities.
You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles.
Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th tax year following the tax year the property is placed in service. For more information, see section 167(g) of the Internal Revenue Code.
Films, videotapes, and recordings.
You cannot use MACRS for motion picture films, videotapes, and sound recordings. For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. You can depreciate this property using either the straight line method or the income forecast method.
Participations and residuals.
You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. The participations and residuals must relate to income to be derived from the property before the end of the 10th tax year after the property is placed in service. For this purpose, participations and residuals are defined as costs, which by contract vary with the amount of income earned in connection with the property.
Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the tax year that they are paid.
Videocassettes.
If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. If the videocassette has a useful life of 1 year or less, you can currently deduct the cost as a business expense.
MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis.
The nontaxable transfers covered by this rule include the following.
If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement, as described in the Instructions for Form 4562. You must make this election by the return due date (including extensions) for the tax year you place your property in service. However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach the election to the amended return and write “Filed pursuant to section 301.9100-2” on the election statement. File the amended return at the same address you filed the original return.
Use of standard mileage rate.
If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. See Pub. 463 for a discussion of the standard mileage rate.
To figure your depreciation deduction, you must determine the basis of your property. To determine basis, you need to know the cost or other basis of your property.
The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception below), freight charges, and installation and testing fees. The cost includes the amount you pay in cash, debt obligations, other property, or services.
Exception.
You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). If you make that choice, you cannot include those sales 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 property, your basis includes the amount you pay for the property plus the amount of the assumed debt.
Example.
You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. Your total cost is $140,000, the cash you paid plus the mortgage you assumed.
Settlement costs.
The basis of real property also includes certain fees and charges you pay in addition to the purchase price. These are generally shown on your settlement statement and include the following.
For fees and charges you cannot include in the basis of property, see Real Property in Pub. 551.
Property you construct or build.
If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. For information about the uniform capitalization rules, see Pub. 551 and the regulations under section 263A of the Internal Revenue Code.
Other basis usually refers to basis that is determined by the way you received the property. For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. If you acquired property in this or some other way, see Pub. 551 to determine your basis.
Property changed from personal use.
If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following.
Example.
Several years ago, Nia paid $160,000 to have a home built on a lot that cost $25,000. Before changing the property to rental use last year, Nia paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. Land is not depreciable, so Nia includes only the cost of the house when figuring the basis for depreciation.
The adjusted basis in the house when Nia changed its use was $178,000 ($160,000 + $20,000 − $2,000). On the same date, the property had an FMV of $180,000, of which $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 date of change ($165,000) because it is less than Nia’s adjusted basis ($178,000).
Property acquired in a nontaxable transaction.
Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. See Like-kind exchanges and involuntary conversions under How Much Can You Deduct? in chapter 3, and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4.
There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. See How Do You Use General Asset Accounts? in chapter 4.
To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. These events could include the following.
If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and credits with respect to the property. For more information, see What Is the Basis for Depreciation? in chapter 4.
Basis adjustment for depreciation allowed or allowable.
You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Depreciation allowable is depreciation you are entitled to deduct.
If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable.
If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed).
If you improve depreciable property, you must treat the improvement as separate depreciable property. Improvement means an addition to or partial replacement of property that is a betterment to the property, restores the property, or adapts it to a new or different use. See section 1.263(a)-3 of the regulations.
You generally deduct the cost of repairing business property in the same way as any other business expense. However, if the cost is for a betterment to the property, to restore the property, or to adapt the property to a new or different use, you must treat it as an improvement and depreciate it.
Example.
You repair a small section on one corner of the roof of a rental house. You deduct the cost of the repair as a rental expense. However, if you completely replace the roof, the new roof is an improvement because it is a restoration of the building. You depreciate the cost of the new roof.
Improvements to rented property.
You can depreciate permanent improvements you make to business property you rent from someone else.
Use Form 4562 to figure your deduction for depreciation and amortization. Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items.
. You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. .
Table 1-1 presents an overview of the purpose of the various parts of Form 4562.
Employee.
Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. Instead, use Form 2106.
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 Return next. If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. See Changing Your Accounting Method , later.
You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations.
Adoption of accounting method defined.
Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns.
For an exception to the 2-year rule, see sections 6.01(1)(b), 6.19(1)(b), and 6.21(3)(b) of Revenue Procedure 2022-14 on page 502 of Internal Revenue Bulletin 2022-7, available at IRS.gov/irb/2022–7_IRB#REV-PROC-2022-14; or any successor.
When to file.
If an amended return is allowed, you must file it by the later of the following.
Generally, you must get IRS approval to change your method of accounting. You must generally file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation.
The following are examples of a change in method of accounting for depreciation.
Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following.
See sections 1.446-1(e)(2)(ii)(d) and 1.446-1(e)(2)(iii) of the regulations for more information and examples.
IRS approval.
If your change in method of accounting for depreciation is described in Revenue Procedure 2019-43, on page 1107 of Internal Revenue Bulletin 2019-48, as modified, amplified, and superseded by Revenue Procedure 2022-14, on page 502 of Internal Revenue Bulletin 2022-7, as modified, amplified, and superseded by Revenue Procedure 2023-34, on page 1207 of Internal Revenue Bulletin 2023-28, you may be able to get approval from the IRS to make that change under the automatic change request procedures generally covered in Revenue Procedure 2015-13 on page 419 of Internal Revenue Bulletin 2015-5. If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 2015-13. Also, see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes.
Additional guidance.
For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2015-13 on page 419 of Internal Revenue Bulletin 2015-5, available at IRS.gov/irb/2015-05_IRB#RP-2015-13; Revenue Procedure 2019-43 on page 1107 of Internal Revenue Bulletin 2019-48, available at IRS.gov/irb/2019-48_IRB#REV-PROC-2019-43; Revenue Procedure 2022-14 on page 502 of Internal Revenue Bulletin 2022-7, available at IRS.gov/irb/2022-7_IRB#REV-PROC-2022-14 and Revenue Procedure 2023-34 on page 1207 of Internal Revenue Bulletin 2023-28, available at IRS.gov/irb/2023-28_IRB#REV-PROC-2023-24.
Section 481(a) adjustment.
If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the 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 section 481(a) adjustment results in an increase in taxable income. It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income.” However, you can elect to use a 1-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $50,000. Make the election by completing the appropriate line on Form 3115.
If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero.
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 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 |
You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. This is the section 179 deduction. You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions.
. Estates and trusts cannot elect the section 179 deduction. .
This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. It also explains when and how to recapture the deduction.
Publication
Form (and Instructions)
See How To Get Tax Help for information about getting publications and forms.
To qualify for the section 179 deduction, your property must meet all the following requirements.
The following discussions provide information about these requirements and exceptions.
To qualify for the section 179 deduction, your property must be one of the following types of depreciable property.
Tangible personal property.
Tangible personal property is any tangible property that is not real property. It includes the following property.
The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law.
Off-the-shelf computer software.
Off-the-shelf computer software is qualifying property for purposes of the section 179 deduction. This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. It includes any program designed to cause a computer to perform a desired function. However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software.
Qualified section 179 real property.
You can elect to treat certain qualified real property you placed in service during the tax year as section 179 property. If this election is made, the term “section 179 property” will include any qualified real property that is:
Qualified improvement property.
Generally, this is any improvement to an interior portion of a building that is nonresidential real property if the improvement is placed in service after the date the building was first placed in service.
Also, qualified improvement property does not include the cost of any improvement attributable to the following.
To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify.
Partial business use.
When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. Use the resulting business cost to figure your section 179 deduction.
Example.
May Oak bought and placed in service an item of section 179 property costing $11,000. May used the property 80% for business and 20% for personal purposes. The business part of the cost of the property is $8,800 (80% (0.80) × $11,000).
To qualify for the section 179 deduction, your property must have been acquired by purchase. For example, property acquired by gift or inheritance does not qualify.
Property is not considered acquired by purchase in the following situations.
Related persons.
Related persons are described under Related persons, earlier. However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only their spouse, ancestors, and lineal descendants and substitute "50%" for "10%" each place it appears.
Example.
You are a tailor. You bought two industrial sewing machines from your father. You placed both machines in service in the same year you bought them. They do not qualify as section 179 property because you and your father are related persons. You cannot claim a section 179 deduction for the cost of these machines.
Certain property does not qualify for the section 179 deduction. This includes the following.
Land and land improvements do not qualify as section 179 property. Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences.
Even if the requirements explained earlier under What Property Qualifies? are met, you cannot elect the section 179 deduction for the following property.
Leased property.
Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. This rule does not apply to corporations. However, you can claim a section 179 deduction for the cost of the following property.
Your section 179 deduction is generally the cost of the qualifying property. However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. These limits apply to each taxpayer, not to each business. However, see Married Individuals under Dollar Limits , later. For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. See Do the Passenger Automobile Limits Apply? in chapter 5.
If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct.
Trade-in of other property.
If you buy qualifying property with cash and a trade-in, its cost, for purposes of the section 179 deduction, includes only the cash you paid.
Example.
Silver Leaf, a retail bakery, traded in two ovens having a total adjusted basis of $680, for a new oven costing $1,320. They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. On the date that Silver Leaf traded in the two old ovens for the new oven, the old ovens and the new oven are classified as real property under the law of the state in which the old and new ovens are located and, as a result, the old and new ovens are real property for purposes of section 1031. The new oven is section 179 property.
Only the portion of the new oven's basis paid by cash qualifies for the section 179 deduction. Therefore, Silver Leaf's qualifying cost for the section 179 deduction is $520.
The total amount you can elect to deduct under section 179 for most property placed in service in tax years beginning in 2023 generally cannot be more than $1,160,000. If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $1,160,000. You do not have to claim the full $1,160,000.
. The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year. .
. After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction. .
Example.
In 2023, you bought and placed in service $1,160,000 in machinery and a $25,000 circular saw for your business. You elect to deduct $1,135,000 for the machinery and the entire $25,000 for the saw, a total of $1,160,000. This is the maximum amount you can deduct. Your $25,000 deduction for the saw completely recovered its cost. Your basis for depreciation is zero. The basis for depreciation of your machinery is $25,000. You figure this by subtracting your $1,135,000 section 179 deduction for the machinery from the $1,160,000 cost of the machinery.
Situations affecting dollar limit.
Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. The general dollar limit is affected by any of the following situations.
If the cost of your qualifying section 179 property placed in service in a year is more than $2,890,000, you must generally reduce the dollar limit (but not below zero) by the amount of cost over $2,890,000. If the cost of your section 179 property placed in service during 2023 is $4,050,000 or more, you cannot take a section 179 deduction.
Example.
In 2023, Jane Ash placed in service machinery costing $2,940,000. This cost is $50,000 more than $2,890,000, so Jane must reduce the dollar limit to $1,110,000 ($1,160,000 − $50,000).
You cannot elect to expense more than $28,900 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service in tax years beginning in 2023. This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. However, the $28,900 limit does not apply to any vehicle:
If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2,890,000. You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you.
Example.
You are married. You and your spouse file separate returns. You bought and placed in service $2,890,000 of qualified farm machinery in 2023. Your spouse has a separate business, and bought and placed in service $300,000 of qualified business equipment. Your combined dollar limit is $860,000. This is because you and your spouse must figure the limit as if you were one taxpayer. You reduce the $1,160,000 dollar limit by the $300,000 excess of your costs over $2,890,000.
You elect to allocate the $860,000 dollar limit as follows.
If you did not make an election to allocate your costs in this way, you and your spouse would have to allocate $430,000 ($860,000 × 50% (0.50)) to each of you.
Joint return after filing separate returns.
If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts.
Example.
The facts are the same as in the previous example, except that you elected to deduct $300,000 of the cost of section 179 property on your separate return and your spouse elected to deduct $20,000. After the due date of your returns, you and your spouse file a joint return. The dollar limit for the section 179 deduction is $320,000. This is the lesser of the following amounts.
The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business.
Any cost not deductible in 1 year under section 179 because of this limit can be carried to the next year. Special rules apply to a deduction of qualified section 179 real property that is placed in service by you in tax years beginning before 2016 and disallowed because of the business income limit. See Special rules for qualified section 179 real property under Carryover of disallowed deduction , later.
Taxable income.
In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Net income or loss from a trade or business includes the following items.
In addition, figure taxable income without regard to any of the following.
Two different taxable income limits.
In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. You may have to figure the limit for this other deduction taking into account the section 179 deduction. If so, complete the following steps.
| Step | Action |
| 1 | Figure taxable income without the section 179 deduction or the other deduction. |
| 2 | Figure a hypothetical section 179 deduction using the taxable income figured in Step 1. |
| 3 | Subtract the hypothetical section 179 deduction figured in Step 2 from the taxable income figured in Step 1. |
| 4 | Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. |
| 5 | Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1. |
| 6 | Figure your actual section 179 deduction using the taxable income figured in Step 5. |
| 7 | Subtract your actual section 179 deduction figured in Step 6 from the taxable income figured in Step 1. |
| 8 | Figure your actual other deduction using the taxable income figured in Step 7. |
Example.
On February 1, 2023, the XYZ Corporation purchased and placed in service qualifying section 179 property that cost $1,160,000. It elects to expense the entire $1,160,000 cost under section 179. In June, the corporation gave a charitable contribution of $10,000. A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $1,180,000. XYZ figures its section 179 deduction and its deduction for charitable contributions as follows.
Step 1— Taxable income figured without either deduction is $1,180,000.
Step 2— Using $1,180,000 as taxable income, XYZ's hypothetical section 179 deduction is $1,160,000.
Step 3— $20,000 ($1,180,000 − $1,160,000).
Step 4— Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000.
Step 5— $1,178,000 ($1,180,000 − $2,000).
Step 6— Using $1,178,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. Because the taxable income is at least $1,160,000, XYZ can take a $1,160,000 section 179 deduction.
Step 7— $20,000 ($1,180,000 − $1,160,000).
Step 8— Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000.
Carryover of disallowed deduction.
You can carry over for an unlimited number of years the cost of any qualified section 179 real property that you placed in service in tax years beginning after 2015, and that you elected to expense, but were unable to deduct because of the business income limitation. This disallowed deduction amount is shown on line 13 of Form 4562. You use the amount you carry over to determine your section 179 deduction in the next year. Enter that amount on line 10 of your Form 4562 for the next year.
If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. Your selections must be shown in your books and records. For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year.
If costs from more than 1 year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first.
Special rules for qualified section 179 real property.
You can carry over to 2024 a 2023 deduction attributable to qualified section 179 real property that you placed in service during the tax year and that you elected to expense but were unable to take because of the business income limitation. See Carryover of disallowed deduction , earlier. Thus, the amount of any 2023 disallowed section 179 expense deduction attributable to qualified section 179 real property will be reported on line 13 of Form 4562.
. If there is a sale or other disposition of your property (including a transfer at death) before you can use the full amount of any outstanding carryover of your disallowed section 179 deduction, neither you nor the new owner can deduct any of the unused amount. Instead, you must add it back to the property's basis. .
The section 179 deduction limits apply both to the partnership and to each partner. The partnership determines its section 179 deduction subject to the limits. It then allocates the deduction among its partners.
Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc.) to their nonpartnership section 179 costs and then applies the dollar limit to this total. To determine any reduction in the dollar limit for costs over $2,890,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. After the dollar limit (reduced for any nonpartnership section 179 costs over $2,890,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit.
Partnership's taxable income.
For purposes of the business income limit, figure the partnership's taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code.
Partner's share of partnership's taxable income.
For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership's trades or businesses includes their allocable share of taxable income derived from the partnership's active conduct of any trade or business.
Example.
In 2023, Beech Partnership placed in service section 179 property with a total cost of $2,940,000. The partnership must reduce its dollar limit by $50,000 ($2,940,000 − $2,890,000). Its maximum section 179 deduction is $1,110,000 ($1,160,000 − $50,000), and it elects to expense that amount. The partnership's taxable income from the active conduct of all its trades or businesses for the year was $1,110,000, so it can deduct the full $1,110,000. It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners.
In addition to being a partner in Beech Partnership, Dean is also a partner in Cedar Partnership, which allocated to Dean a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. Dean also conducts a business as a sole proprietor and, in 2023, placed in service in that business qualifying section 179 property costing $55,000. Dean had a net loss of $5,000 from that business for the year.
Dean does not have to include section 179 partnership costs to figure any reduction in the dollar limit, so the total section 179 costs for the year are not more than $2,890,000 and the dollar limit is not reduced. Dean’s maximum section 179 deduction is $1,160,000. Dean elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of the sole proprietorship's section 179 costs, and notes that information in the books and records. However, Dean’s deduction is limited to the business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership, minus $5,000 loss from Dean’s sole proprietorship). Dean carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2024. Dean allocates the carryover amount to the cost of section 179 property placed in service in Dean’s sole proprietorship, and notes that allocation in the books and records.
Different tax years.
For purposes of the business income limit, if the partner's tax year and that of the partnership differ, the partner's share of the partnership's taxable income for a tax year is generally the partner's distributive share for the partnership tax year that ends with or within the partner's tax year.
Example.
John and James Oak are equal partners in Oak Partnership. Oak Partnership uses a tax year ending January 31. John and James both use a tax year ending December 31. For its tax year ending January 31, 2023, Oak Partnership's taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2022. John and James each include $40,000 (each partner's entire share) of partnership taxable income in computing their business income limit for the 2023 tax year.
Adjustment of partner's basis in partnership.
A partner must reduce the basis of their partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. If the partner disposes of their partnership interest, the partner's basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership.
Adjustment of partnership's basis in section 179 property.
The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits.
Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. The deduction limits apply to an S corporation and to each shareholder. The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits.
Figuring taxable income for an S corporation.
To figure taxable income (or loss) from the active conduct by an S corporation of any trade or business, you total the net income and losses from all trades or businesses actively conducted by the S corporation during the year.
To figure the net income (or loss) from a trade or business actively conducted by an S corporation, you take into account the items from that trade or business that are passed through to the shareholders and used in determining each shareholder's tax liability. However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. In figuring the taxable income of an S corporation, disregard any limits on the amount of an S corporation item that must be taken into account when figuring a shareholder's taxable income.
A corporation's taxable income from its active conduct of any trade or business is its taxable income figured with the following changes.
Election.
You elect to take the section 179 deduction by completing Part I of Form 4562.
. If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I. .
For property placed in service in 2023, file Form 4562 with either of the following.
. You must keep records that show the specific identification of each piece of qualifying section 179 property. These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. .
Election for qualified section 179 real property.
You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2023. For more information, see Election above. Also, see Revenue Procedure 2019-8 on page 347 of Internal Revenue Bulletin 2019-3, available at IRS.gov/irb/2019-03_IRB#RP-2019-08.
Revoking an election.
An election (or any specification made in the election) to take a section 179 deduction for 2023 can be revoked without IRS approval by filing an amended return. The amended return must be filed within the time prescribed by law. The amended return must also include any resulting adjustments to taxable income. Once made, the revocation is irrevocable.
You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage 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 4797. You also increase the basis of the property by the recapture amount. Recovery periods for property are discussed under Which Recovery Period Applies? in chapter 4.
. If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Instead, use the rules for recapturing depreciation explained in chapter 3 of Pub. 544 under Section 1245 Property. For qualified real property, see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. You can find Notice 2013-59 at IRS.gov/irb/2013-40_IRB/ar14.html. .
. If the property is listed property (described in chapter 5), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement. .
Figuring the recapture amount.
To figure the amount to recapture, take the following steps.
Example.
In January 2021, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. The property is not listed property. The property is 3-year property. Paul elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. Paul used the property only for business in 2021 and 2022. In 2023, Paul used the property 40% for business and 60% for personal use. Paul figures the recapture amount as follows.
| Section 179 deduction claimed (2019) | $5,000.00 | |
| Minus: Allowable depreciation using Table A-1 (instead of section 179 deduction): | ||
| 2021 | $1,666.50 | |
| 2022 | 2,222.50 | |
| 2023 ($740.50 × 40% (0.40)(business)) | 296.20 | 4,185.20 |
| 2023 — Recapture amount | $814.80 | |
Paul must include $814.80 in income for 2023.
. If any qualified zone property placed in service during a particular year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return. .
You can take a special depreciation allowance to recover part of the cost of qualified property (defined next) placed in service during the tax year. The allowance applies only for the first year you place the property in service. The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service.
This chapter explains what is qualified property. It also includes rules regarding how to figure an allowance, how to elect not to claim an allowance, and when you must recapture an allowance.
See How To Get Tax Help for information about getting publications and forms.
Your property is qualified property if it is one of the following.
The following discussions provide information about the types of qualified property listed above for which you can take the special depreciation allowance.
You can take a 50% special depreciation allowance for qualified reuse and recycling property. Qualified reuse and recycling property is any machinery or equipment (not including buildings or real estate), along with any appurtenance, that is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials (as defined in section 168(m)(3)(B) of the Internal Revenue Code). Qualified reuse and recycling property also includes software necessary to operate such equipment. The property must meet the following requirements.
Qualified reuse and recycling property does not include any of the following.
You can elect to take an 80% special depreciation allowance for property acquired after September 27, 2017, and placed in service after December 31, 2022, and before January 1, 2024 (other than certain property with a long production period and certain aircraft). You can elect to take a 100% special depreciation allowance for certain property with a long production period and certain aircraft placed in service before January 1, 2024. Your property is qualified property if it meets the following.
Qualified property must also be placed in service before January 1, 2027 (or before January 1, 2028, for certain property with a long production period and for certain aircraft), and can be either new property or certain used property.
For certain qualified property acquired after September 27, 2017, and placed in service after December 31, 2023, and before January 1, 2025 (other than certain property with a long production period and certain aircraft), you can elect to take a 60% special depreciation allowance. For certain property with a long production period and certain aircraft placed in service after December 31, 2023, and before January 1, 2025, you can elect to take an 80% special depreciation allowance.
To be qualified property, long production period property must meet the following requirements.
See section 168(k)(2)(B) of the Internal Revenue Code.
To be qualified property, noncommercial aircraft must meet the following requirements.
See section 168(k)(2)(C) of the Internal Revenue Code.
Syndicated leasing transactions.
If qualified property is originally placed in service by a lessor, the property is sold within 3 months of the date it was placed in service, and the user of 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 be treated as originally placed in service no earlier than the date of the last sale if the property is sold within 3 months after the final unit is placed in service and the period between the time the first and last units are placed in service does not exceed 12 months.
Qualified property acquired after September 27, 2017, does not include any of the following.
You can elect to claim an 80% special depreciation allowance for the adjusted basis of certain specified plants (defined later) bearing fruits and nuts planted or grafted after December 31, 2022, and before January 1, 2024.
A specified plant is:
Any property planted or grafted outside the United States does not qualify as a specified plant.
If you elect to claim the special depreciation allowance for any specified plant, the special depreciation allowance applies only for the tax year in which the plant is planted or grafted. The plant will not be treated as qualified property eligible for the special depreciation allowance in the subsequent tax year in which it is placed in service.
To make the election, attach a statement to your timely filed return (including extensions) for the tax year in which you plant or graft the specified plant(s), indicating you are electing to apply section 168(k)(5) and identifying the specified plant(s) for which you are making the election. The election once made cannot be revoked without IRS consent.
For certain specified plants bearing fruits and nuts planted or grafted after December 31, 2023, and before January 1, 2025, you can elect to claim a 60% special depreciation allowance.
See section 168(k)(5) of the Internal Revenue Code.
Figure the special depreciation allowance by multiplying the depreciable basis of qualified reuse and recycling property, certain qualified property acquired after September 27, 2017, and certain plants bearing fruits and nuts by the applicable percentage.
For qualified property other than listed property, enter the special depreciation allowance on Form 4562, Part II, line 14. For qualified property that is listed property, enter the special depreciation allowance on Form 4562, Part V, line 25.
. If you place qualified property in service in a short tax year, you can take the full amount of a special depreciation allowance. .
Depreciable basis.
This is the property's cost or other basis multiplied by the percentage of business/investment use, reduced by the total amount of any credits and deductions allocable to the property.
The following are examples of some credits and deductions that reduce depreciable basis.
For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code.
For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property? in chapter 1. For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1.
Depreciating the remaining cost.
After you figure your special depreciation allowance for your qualified property, you can use the remaining cost to figure your regular MACRS depreciation deduction (discussed in chapter 4). Therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before figuring your regular MACRS depreciation deduction.
Example.
On July 1, 2023, you placed in service in your business qualified property (that is not long production period property or certain aircraft) that cost $450,000 and that you acquired after September 27, 2017. You did not elect to claim a section 179 deduction. You deduct 80% of the cost ($360,000) as a special depreciation allowance for 2023. You use the remaining cost of the property to figure a regular MACRS depreciation deduction for your property for 2023 and later years.
Like-kind exchanges and involuntary conversions.
If you acquired qualified property in a like-kind exchange or involuntary conversion after September 27, 2017, and the qualified property is new property, the carryover basis and any excess basis of the acquired property is eligible for the special depreciation allowance.
If you acquired qualified property in a like-kind exchange or involuntary conversion after September 27, 2017, and the qualified property is used property, only the excess basis of the acquired property is eligible for the special depreciation allowance. After you figure your special depreciation allowance, you can use the remaining carryover basis to figure your regular MACRS depreciation deduction. See Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4 under How Is the Depreciation Deduction Figured .
You can elect, for any class of property, not to deduct any special depreciation allowances for all property in such class placed in service during the tax year.
To make an election, attach a statement to your return indicating what election you are making and the class of property for which you are making the election.
The election must be made separately by each person owning qualified property (for example, by the partnerships, by the S corporation, or for each member of a consolidated group by the common parent of the group).
When to make election.
Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service.
However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Attach the election statement to the amended return. On the amended return, write “Filed pursuant to section 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.
. If you elect not to have any special depreciation allowance apply, the property placed in service after 2015 will not be subject to an alternative minimum tax adjustment for depreciation. .
When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. See When Do You Recapture MACRS Depreciation? in chapter 4 for more information.
Recapture of allowance deducted for qualified GO Zone property.
If, in any year after the year you claim the special depreciation allowance for qualified GO Zone property (including specified GO Zone extension property), the property ceases to be used in the GO Zone, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. For additional guidance, see Notice 2008-25 on page 484 of Internal Revenue Bulletin 2008-9, available at IRS.gov/irb/2008-09_IRB/index.html.
Qualified cellulosic biomass ethanol plant property, qualified cellulosic biofuel plant property, and qualified second generation biofuel plant property.
If, in any year after the year you claim the special depreciation allowance for any qualified cellulosic biomass ethanol plant property, qualified cellulosic biofuel plant property, or qualified second generation biofuel plant property, the property ceases to be qualified cellulosic biomass ethanol plant property, qualified cellulosic biofuel plant property, or qualified second generation biofuel plant property, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance.
Recapture of allowance for qualified Recovery Assistance property.
If, in any year after the year you claim the special depreciation allowance for qualified Recovery Assistance property, the property ceases to be used in the Kansas disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32, available at IRS.gov/irb/2008-32_IRB/index.html.
Recapture of allowance for qualified disaster assistance property.
If, in any year after the year you claim the special depreciation allowance for qualified disaster assistance property, the property ceases to be used in the applicable disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance.
The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions.
. To be sure you can use MACRS to figure depreciation for your property, see What Method Can You Use To Depreciate Your Property? in chapter 1. .
This chapter explains how to determine which MACRS depreciation system applies to your property. It also discusses other information you need to know before you can figure depreciation under MACRS. This information includes the property's recovery class, placed in service date, and basis, as well as the applicable recovery period, convention, and depreciation method. It explains how to use this information to figure your depreciation deduction and how to use a general asset account to depreciate a group of properties. Finally, it explains when and how to recapture MACRS depreciation.
Publication
Form (and Instructions)
See How To Get Tax Help for information about getting publications and forms.
Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. You must generally use GDS unless you are specifically required by law to use ADS or you elect to use ADS.
If you placed your property in service in 2023, complete Part III of Form 4562 to report depreciation using MACRS. Complete Section B of Part III to report depreciation using GDS, and complete Section C of Part III to report depreciation using ADS. If you placed your property in service before 2023 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III.
Required use of ADS.
You must use ADS for the following property.
. If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3 ) for the property. .
Electing ADS.
Although your property may qualify for GDS, you can elect to use ADS. The election must generally cover all property in the same property class that you placed in service during the year. However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Once you make this election, you can never revoke it.
You make the election by completing Form 4562, Part III, line 20.
The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. These property classes are also listed under column (a) in Section B of Part III of Form 4562. For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication.
Qualified rent-to-own property.
Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. It is tangible personal property generally used in the home for personal use. It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable 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 rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you can still treat this property as qualified property as long as it does not represent a significant portion of your leasing property. However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property.
Rent-to-own dealer.
You are a rent-to-own dealer if you meet all the following requirements.
Rent-to-own contract.
This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual, which meets all of the following requirements.
Motorsports entertainment complex.
This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. The events must be open to the public for the price of admission.
Qualified smart electric grid system.
A qualified smart electric grid system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. Smart grid property includes electronics and related equipment that is capable of:
Retail motor fuels outlet.
Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests.
A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines.
Qualified improvement property.
Generally, this is any improvement to an interior part of a building that is nonresidential real property, and the improvement is section 1250 property, is made by you, and is placed in service by you after 2017 and after the date the building was first placed in service by any person.
However, a qualified improvement does not include any improvement for which the expenditure is attributable to any of the following.
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 electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that meets all of the following requirements.
Natural gas gathering line and electric transmission property.
Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met.
You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. The placed in service date for your property is the date the property is ready and available for a specific use. It is therefore not necessarily the date it is first used. If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. See Placed in Service under When Does Depreciation Begin and End? in chapter 1 for examples illustrating when property is placed in service.
The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1. Reduce that amount by any credits and deductions allocable to the property. The following are examples of some credits and deductions that reduce basis.
For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code.
Enter the basis for depreciation under column (c) in Part III of Form 4562. For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property? in chapter 1.
The recovery period of property is the number of years over which you recover its cost or other basis. It is determined based on the depreciation system (GDS or ADS) used.
Under GDS, property is depreciated over one of the following recovery periods.
| Property Class | Recovery Period | |||
| 3-year property | 3 years 1 | |||
| 5-year property | 5 years | |||
| 7-year property | 7 years | |||
| 10-year property | 10 years | |||
| 15-year property | 15 years 2 | |||
| 20-year property | 20 years | |||
| 25-year property | 25 years 3 | |||
| Residential rental property | 27.5 years | |||
| Nonresidential real property | 39 years 4 | |||
| 1 5 years for qualified rent-to-own property placed in service before August 6, 1997. | ||||
| 2 39 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31.5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years. | ||||
| 3 20 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996. | ||||
| 4 31.5 years for property placed in service before May 13, 1993 (or before January 1, 1994, if the purchase or construction of the property is under a binding contract in effect before May 13, 1993, or if construction began before May 13, 1993). | ||||
The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. Residential rental property and nonresidential real property are defined earlier under Which Property Class Applies Under GDS .
Enter the appropriate recovery period on Form 4562 under column (d) in Section B of Part III, unless already shown (for 25-year property, residential rental property, and nonresidential real property).
Office in the home.
If your home is a personal-use single family residence and you begin to use part of your home as an office, depreciate that part of your home as nonresidential real property over 39 years (31.5 years if you began using it for business before May 13, 1993). However, if your home is an apartment in an apartment building that you own and the building is residential rental property, as defined earlier under Which Property Class Applies Under GDS , depreciate the part used as an office as residential rental property over 27.5 years. See Pub. 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home.
Home changed to rental use.
If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27.5 years.
The recovery periods for most property are generally longer under ADS than they are under GDS. The following table shows some of the ADS recovery periods.
| Property | Recovery Period |
| Rent-to-own property | 4 years |
| Automobiles and light duty trucks | 5 years |
| Computers and peripheral equipment | 5 years |
| High technology telephone station equipment installed on customer premises | 5 years |
| High technology medical equipment | 5 years |
| Personal property with no class life | 12 years |
| Natural gas gathering lines | 14 years |
| Single-purpose agricultural and horticultural structures | 15 years |
| Any tree or vine bearing fruits or nuts | 20 years |
| Initial clearing and grading land improvements for gas utility property | 20 years |
| Initial clearing and grading land improvements for electric utility transmission and distribution plants | 25 years |
| Electric transmission property used in the transmission at 69 or more kilovolts of electricity | 30 years |
| Natural gas distribution lines | 35 years |
| Nonresidential real property | 40 years |
| Residential rental property | 30 years 1 |
| Section 1245 real property not listed in Appendix B | 40 years |
| Railroad grading and tunnel bore | 50 years |
| 1 40 years for property placed in service before January 1, 2018. Note. The ADS recovery period for residential rental property placed in service before January 1, 2018, is 30 years if the property is held by an electing real property trade or business (as defined in section 163(j)(7)(B)) and section 168(g)(1)(A), (B), (C), (D), or (E) did not apply to the property before January 1, 2018. | |
The ADS recovery periods for property not listed above can be found in the tables in Appendix B. Rent-to-own property, residential rental property, and nonresidential real property are defined earlier under Which Property Class Applies Under GDS .
Tax-exempt use property subject to a lease.
The ADS recovery period for any property leased under a lease agreement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership) cannot be less than 125% of the lease term.
An addition or improvement you make to depreciable property is treated as separate depreciable property. See How Do You Treat Repairs and Improvements? in chapter 1 for a definition of improvements. Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. The recovery period begins on the later of the following dates.
Example.
You own a rental home that you have been renting out since 1981. If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. Under GDS, the property class for the addition is residential rental property and its recovery period is 27.5 years because the home to which the addition is made would be residential rental property if you had placed it in service this year.
Under MACRS, averaging conventions establish when the recovery period begins and ends. The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property.
The mid-month convention.
Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore.
Under this convention, you treat all property placed in service or disposed of during a month as placed in service or disposed of at the midpoint of the month. This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of.
Your use of the mid-month convention is indicated by the “MM” already shown under column (e) in Part III of Form 4562.
The mid-quarter convention.
Use this convention if the mid-month convention does not apply and the total depreciable bases of MACRS property you placed in service during the last 3 months of the tax year (excluding nonresidential real property, residential rental property, any railroad grading or tunnel bore, property placed in service and disposed of in the same year, and property that is being depreciated under a method other than MACRS) are more than 40% of the total depreciable bases of all MACRS property you placed in service during the entire year.
Under this convention, you treat all property placed in service or disposed of during any quarter of the tax year as placed in service or disposed of at the midpoint of that quarter. This means that, for a 12-month tax year, 1½ months of depreciation is allowed for the quarter the property is placed in service or disposed of.
If you use this convention, enter “MQ” under column (e) in Part III of Form 4562.
. For purposes of determining whether the mid-quarter convention applies, the depreciable basis of property you placed in service during the tax year reflects the reduction in basis for amounts expensed under section 179 and the part of the basis of property attributable to personal use. However, it does not reflect any reduction in basis for any special depreciation allowance. .
The half-year convention.
Use this convention if neither the mid-quarter convention nor the mid-month convention applies.
Under this convention, you treat all property placed in service or disposed of during a tax year as placed in service or disposed of at the midpoint of the year. This means that for a 12-month tax year, a one-half year of depreciation is allowed for the year the property is placed in service or disposed of.
If you use this convention, enter “HY” under column (e) in Part III of Form 4562.
See Figuring the Deduction for a Short Tax Year , later, for information on the short tax year rules.
MACRS provides three depreciation methods under GDS and one depreciation method under ADS.
. For property placed in service before 1999, you could have elected the 150% declining balance method using the ADS recovery periods for certain property classes. If you made this election, continue to use the same method and recovery period for that property. .
Table 4-1 lists the types of property you can depreciate under each method. It also gives a brief explanation of the method, including any benefits that may apply.
If you place personal property in service in a farming business after 1988, and before 2018, you must generally depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under GDS or ADS using the straight line method. You can depreciate real property using the straight line method under either GDS or ADS.
For 3-, 5-, 7-, or 10-year property used in a farming business and placed in service after 2017, in tax years ending after 2017, the 150% declining balance method is no longer required. However, the 150% declining balance method will continue to apply to any 15- or 20-year property used in a farming business to which the straight line method does not apply or to property for which you elect the use of the 150% declining balance method.
Fruit or nut trees and vines.
Depreciate trees and vines bearing fruits 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 the uniform capitalization rules to any plant produced in 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 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property.
As shown in Table 4-1, you can elect a different method for depreciation for certain types of property. You must make the election by the due date of the return (including extensions) for the year you placed the property in service. However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach the election to the amended return and write “Filed pursuant to section 301.9100-2” on the election statement. File the amended return at the same address you filed the original return. Once you make the election, you cannot change it.
. If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. However, you can make the election on a property-by-property basis for nonresidential real and residential rental property. .
150% election.
Instead of using the 200% declining balance method over the GDS recovery period for property in the 3-, 5-, 7-, or 10-year property class, you can elect to use the 150% declining balance method. Make the election by entering “150 DB” under column (f) in Part III of Form 4562.
Straight line election.
Instead of using either the 200% or 150% declining balance method over the GDS recovery period, you can elect to use the straight line method over the GDS recovery period. Make the election by entering “S/L” under column (f) in Part III of Form 4562.
Election of ADS.
As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. ADS uses the straight line method of depreciation over fixed ADS recovery periods. Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS , earlier.
Make the election by completing line 20 in Part III of Form 4562.
15- or 20-year farm property.
Instead of using the 150% declining balance method over a GDS recovery period for 15- or 20-year property you use in a farming business (other than real property), you can elect to depreciate it using either of the following 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% DB | • Nonfarm 3-, 5-, 7-, and 10-year property • Farm 3-, 5-, 7-, and 10-year property placed in service after 2017, in tax years ending after 2017 | • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction |
| GDS using 150% DB | • Farm 3-, 5-, 7-, or 10-year property placed in service before 2018 • All 15- and 20-year property • Nonfarm 3-, 5-, 7-, or 10-year property 2 • Farm 3-, 5-, 7-, or 10-year property placed in service after 2017 2 | • Provides a greater deduction during the earlier recovery years • Changes to SL when that method provides an equal or greater deduction 1 |
| GDS using SL | • Nonresidential real property • Residential rental property • Trees or vines bearing fruits or nuts • Water utility property • All 3-, 5-, 7-, 10-, 15-, and 20-year property 2 • Property for which you elected section 168(k)(4) of the Internal Revenue Code for a tax year beginning before January 1, 2018 • Qualified improvement property (as defined in section 168(e)(6) of the Internal Revenue Code) placed in service after 2017 | • Provides for equal yearly deductions (except for the first and last years) |
| ADS using SL | • Listed property used 50% or less for business • Property used predominantly outside the United States • 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 property 3 • Any property for which you elect to use this method 4 • Any nonresidential real property, residential rental property, or qualfied improvement property held by an electing real property trade or business (as defined in section 163(j)(7)(B) of the Internal Revenue Code) • Any property that has a recovery period of 10 years or more under GDS that is held by an electing farming business (as defined in section 163(j)(7)(C) of the Internal Revenue Code) | • Provides for equal yearly deductions (except for the first and last years) |
| 1 The MACRS percentage tables in Appendix A have the switch to the straight line method built into their rates. | ||
| 2 See section 168(b)(5) of the Internal Revenue Code. | ||
| 3 See section 168(g)(6) of the Internal Revenue Code. | ||
| 4 See section 168(g)(7) of the Internal Revenue Code. | ||
To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that apply to your property. Then, you are ready to figure your depreciation deduction. You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table.
To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. These percentage tables are in Appendix A near the end of this publication.
Which table to use.
Appendix A contains the MACRS Percentage Table Guide, which is designed to help you locate the correct percentage table to use for depreciating your property. The percentage tables immediately follow the guide.
The following rules cover the use of the percentage tables.
Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss.
Basis adjustment due to recapture of clean-fuel vehicle deduction or credit.
If you increase the basis of your property because of the recapture of part or all of a deduction for clean-fuel vehicles or the credit for clean-fuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. See Figuring the Deduction Without Using the Tables , later.
Basis adjustment due to casualty loss.
If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. See Figuring the Deduction Without Using the Tables , later.
Example.
On October 26, 2022, Sandra and Frank Elm, calendar year taxpayers, bought and placed in service in their business a new item of 7-year property. It cost $39,000 and they elected a section 179 deduction of $24,000. They also made an election under section 168(k)(7) not to deduct the special depreciation allowance for 7-year property placed in service in 2022. Their unadjusted basis after the section 179 deduction was $15,000 ($39,000 – $24,000). They figured their MACRS depreciation deduction using the percentage tables. For 2022, their MACRS depreciation deduction was $536.
In July 2023, the property was vandalized and they had a deductible casualty loss of $3,000. Sandra and Frank must adjust the property's basis for the casualty loss, so they can no longer use the percentage tables. Their adjusted basis at the end of 2023, before figuring their 2023 depreciation, is $11,464. They figure that amount by subtracting the 2022 MACRS depreciation of $536 and the casualty loss of $3,000 from the unadjusted basis of $15,000. They must now figure their depreciation for 2023 without using the percentage tables.
You must apply the table rates to your property's unadjusted basis each year of the recovery period. Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. However, you do reduce your original basis by other amounts, including the following.
For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments.
You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Use a separate worksheet for each item of property. Then, use the information from this worksheet to prepare Form 4562.
| Part I | ||||
| 1. | MACRS system (GDS or ADS) | _____ | ||
| 2. | Property class | _____ | ||
| 3. | Date placed in service | _____ | ||
| 4. | Recovery period | _____ | ||
| 5. | Method and convention | _____ | ||
| 6. | Depreciation rate (from tables) | _____ | ||
| Part II | ||||
| 7. | Cost or other basis* | $ | ||
| 8. | Business/investment use | _____ | % | |
| 9. | Multiply line 7 by line 8 | $ | ||
| 10. | Total claimed for section 179 deduction and other items | $ | ||
| 11. | Subtract line 10 from line 9. This is your tentative basis for depreciation | $ | ||
| 12. | Multiply line 11 by the applicable percentage if the special depreciation allowance applies. This is your special depreciation allowance. Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance | $ | ||
| 13. | Subtract line 12 from line 11. This is your basis for depreciation | _____ | ||
| 14. | Depreciation rate (from line 6) | _____ | ||
| 15. | Multiply line 13 by line 14. This is your MACRS depreciation deduction | $ | ||
| * If real estate, do not include cost (basis) of land. | ||||
The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS Worksheet.
Example.
You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2023. You use the furniture only for business. This is the only property you placed in service this year. You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance, so your property's unadjusted basis is its cost, $10,000. You use GDS and the half-year convention to figure your depreciation. You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. You figure your depreciation deduction using the MACRS Worksheet as follows.
| Part I | |||
| 1. | MACRS system (GDS or ADS) | GDS | |
| 2. | Property class | 7-year | |
| 3. | Date placed in service | 8/11/23 | |
| 4. | Recovery period | 7-year | |
| 5. | Method and convention | 200%DB/Half-Year | |
| 6. | Depreciation rate (from tables) | 0.1429 | |
| Part II | |||
| 7. | Cost or other basis* | $10,000 | |
| 8. | Business/investment use | 100% | |
| 9. | Multiply line 7 by line 8 | $10,000 | |
| 10. | Total claimed for section 179 deduction and other items | -0- | |
| 11. | Subtract line 10 from line 9. This is your tentative basis for depreciation | $10,000 | |
| 12. | Multiply line 11 by the applicable percentage if the special depreciation allowance applies. This is your special depreciation allowance. Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance | -0- | |
| 13. | Subtract line 12 from line 11. This is your basis for depreciation | $10,000 | |
| 14. | Depreciation rate (from line 6) | 0.1429 | |
| 15. | Multiply line 13 by line 14. This is your MACRS depreciation deduction | $1,429 | |
| * If real estate, do not include cost (basis) of land. | |||
If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows.
| Year | Basis | Percentage | Deduction | ||
| 2024 | $10,000 | 24.49% | $2,449 | ||
| 2025 | 10,000 | 17.49 | 1,749 | ||
| 2026 | 10,000 | 12.49 | 1,249 | ||
| 2027 | 10,000 | 8.93 | 893 | ||
| 2028 | 10,000 | 8.92 | 892 | ||
| 2029 | 10,000 | 8.93 | 893 | ||
| 2030 | 10,000 | 4.46 | 446 | ||
The following examples are provided to show you how to use the percentage tables. In both examples, assume the following.
Example 1.
You bought a building and land for $120,000 and placed it in service on March 8. The sales contract showed that the building cost $100,000 and the land cost $20,000. It is nonresidential real property. The building's unadjusted basis is its original cost, $100,000.
You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. March is the third month of your tax year, so multiply the building's unadjusted basis, $100,000, by the percentages for the third month in Table A-7a. Your depreciation deduction for each of the first 3 years is as follows.
| Year | Basis | Percentage | Deduction | ||
| 1st | $ | 100,000 | 2.033% | $2,033 | |
| 2nd | 100,000 | 2.564 | 2,564 | ||
| 3rd | 100,000 | 2.564 | 2,564 | ||
Example 2.
During the year, you bought a machine (7-year property) for $4,000, office furniture (7-year property) for $1,000, and a computer (5-year property) for $5,000. You placed the machine in service in January, the furniture in September, and the computer in October. You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance.
You placed property in service during the last 3 months of the year, so you must first determine if you have to use the mid-quarter convention. The total bases of all property you placed in service during the year is $10,000. The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. Therefore, you must use the mid-quarter convention for all three items.
You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. The machine is 7-year property placed in service in the first quarter, so you use Table A-2 . The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-5. Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows.
| Year | Property | Basis | Percentage | Deduction | |
| 1st | Machine | $4,000 | 25.00 | $1,000 | |
| 2nd | Machine | 4,000 | 21.43 | 857 | |
| 1st | Furniture | 1,000 | 10.71 | 107 | |
| 2nd | Furniture | 1,000 | 25.51 | 255 | |
| 1st | Computer | 5,000 | 5.00 | 250 | |
| 2nd | Computer | 5,000 | 38.00 | 1,900 | |
If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property.
Half-year convention used.
For property for which you used a half-year convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year.
Mid-quarter convention used.
For property for which you used the mid-quarter convention, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter in which you disposed of the property.
| Quarter | Percentage |
| First | 12.5% |
| Second | 37.5 |
| Third | 62.5 |
| Fourth | 87.5 |
Example.
On December 2, 2020, you placed in service an item of 5-year property costing $10,000. You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Your unadjusted basis for the property was $10,000. You used the mid-quarter convention because this was the only item of business property you placed in service in 2020 and it was placed in service during the last 3 months of your tax year. Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. Your deductions for 2020, 2021, and 2022 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22.80% of $10,000), respectively. You disposed of the property on April 6, 2023. To determine your depreciation deduction for 2023, first figure the deduction for the full year. This is $1,368 (13.68% of $10,000). April is in the second quarter of the year, so you multiply $1,368 by 37.5% (0.375) to get your depreciation deduction of $513 for 2023.
Mid-month convention used.
If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. The denominator is 12.
Example.
On July 2, 2021, you purchased and placed in service residential rental property. The property cost $100,000, not including the cost of land. You used Table A-6 to figure your MACRS depreciation for this property. You sold the property on March 2, 2023. You file your tax return based on the calendar year.
A full year of depreciation for 2023 is $3,636. This is $100,000 multiplied by 0.03636 (the percentage for the seventh month of the third recovery year) from Table A-6. You then apply the mid-month convention for the 2½ months of use in 2023. Treat the month of disposition as one-half month of use. Multiply $3,636 by the fraction, 2.5 over 12, to get your 2023 depreciation deduction of $757.50.
Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year(s).
. Figuring MACRS deductions without using the tables will generally result in a slightly different amount than using the tables. .
When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. The straight line method is explained later.
You figure depreciation for the year you place property in service as follows.
You figure depreciation for all other years (before the year you switch to the straight line method) as follows.
If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it.
Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples .
Declining balance rate.
You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. For example, for 3-year property depreciated using the 200% declining balance method, divide 2.00 (200%) by 3 to get 0.6667, or a 66.67% declining balance rate. For 15-year property depreciated using the 150% declining balance method, divide 1.50 (150%) by 15 to get 0.10, or a 10% declining balance rate.
The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction.
| Property Class | Method | Declining Balance Rate | Year |
|---|---|---|---|
| 3-year | 200% DB | 66.667% | 3rd |
| 5-year | 200% DB | 40.0 | 4th |
| 7-year | 200% DB | 28.571 | 5th |
| 10-year | 200% DB | 20.0 | 7th |
| 15-year | 150% DB | 10.0 | 7th |
| 20-year | 150% DB | 7.5 | 9th |
When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. You must use the applicable convention in the year you place the property in service and the year you dispose of the property.
You figure depreciation for the year you place property in service as follows.
You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows.
If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it.
Straight line rate.
You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. If the number of years remaining is less than 1, the depreciation rate for that tax year is 1.0 (100%).
The applicable convention (discussed earlier under Which Convention Applies ) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. See Straight line rate in the previous discussion. Use the applicable convention, as explained in the following discussions.
Half-year convention.
If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. You deduct a full year of depreciation for any other year during the recovery period.
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 deduction for the year of the disposition the same way. If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property.
Mid-quarter convention.
If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service.
A quarter of a full 12-month tax year is a period of 3 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 the fourth month of the tax year. The third quarter begins on the first day of the seventh month of the tax year. The fourth quarter begins on the first day of the tenth month of the tax year. A calendar year is divided into the following quarters.
| Quarter | Months |
| First | January, February, March |
| Second | April, May, June |
| Third | July, August, September |
| Fourth | October, November, December |
Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service.
| Quarter | Percentage |
|---|---|
| First | 87.5% |
| Second | 62.5 |
| Third | 37.5 |
| Fourth | 12.5 |
If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property.
| Quarter | Percentage |
|---|---|
| First | 12.5% |
| Second | 37.5 |
| Third | 62.5 |
| Fourth | 87.5 |
If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property.
Mid-month convention.
If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0.5). The denominator is 12.
If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property.
Example.
You use the calendar year and place nonresidential real property in service in August. The property is in service 4 full months (September, October, November, and December). Your numerator is 4.5 (4 full months plus 0.5). You multiply the depreciation for a full year by 4.5/12, or 0.375.
The following examples show how to figure depreciation under MACRS without using the percentage tables. Figures are rounded for purposes of the examples. Assume for all the examples that you use a calendar year as your tax year.
Example 1—200% DB method and half-year convention.
In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. You use GDS and the 200% DB method to figure your depreciation. When the SL method results in an equal or larger deduction, you switch to the SL method. You did not place any property in service in the last 3 months of the year, so you must use the half-year convention.
First year. You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). The result is 40%. You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. You apply the half-year convention by dividing the result ($400) by 2. Depreciation for the first year under the 200% DB method is $200.
You figure the depreciation rate under the SL method by dividing 1 by 5, the number of years in the recovery period. The result is 20%.You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. You apply the half-year convention by dividing the result ($200) by 2. Depreciation for the first year under the SL method is $100.
The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method.
Second year. You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). You multiply the result ($800) by the DB rate (40%). Depreciation for the second year under the 200% DB method is $320.
You figure the SL depreciation rate by dividing 1 by 4.5, the number of years remaining in the recovery period. (Based on the half-year convention, you used only half a year of the recovery period in the first year.) You multiply the reduced adjusted basis ($800) by the result (22.22%). Depreciation under the SL method for the second year is $178.
The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method.
Third year. You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). You multiply the result ($480) by the DB rate (40%). Depreciation for the third year under the 200% DB method is $192.
You figure the SL depreciation rate by dividing 1 by 3.5. You multiply the reduced adjusted basis ($480) by the result (28.57%). Depreciation under the SL method for the third year is $137.
The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method.
Fourth year. You reduce the adjusted basis ($480) by the depreciation claimed in the third year ($192). You multiply the result ($288) by the DB rate (40%). Depreciation for the fourth year under the 200% DB method is $115.
You figure the SL depreciation rate by dividing 1 by 2.5. You multiply the reduced adjusted basis ($288) by the result (40%). Depreciation under the SL method for the fourth year is $115.
The SL method provides an equal deduction, so you switch to the SL method and deduct the $115.
Fifth year. You reduce the adjusted basis ($288) by the depreciation claimed in the fourth year ($115) to get the reduced adjusted basis of $173. You figure the SL depreciation rate by dividing 1 by 1.5. You multiply the reduced adjusted basis ($173) by the result (66.67%). Depreciation under the SL method for the fifth year is $115.
Sixth year. You reduce the adjusted basis ($173) by the depreciation claimed in the fifth year ($115) to get the reduced adjusted basis of $58. There is less than 1 year remaining in the recovery period, so the SL depreciation rate for the sixth year is 100%. You multiply the reduced adjusted basis ($58) by 100% to arrive at the depreciation deduction for the sixth year ($58).
Example 2—SL method and mid-month convention.
In January, you bought and placed in service a building for $100,000 that is nonresidential real property with a recovery period of 39 years. The adjusted basis of the building is its cost of $100,000. You use GDS, the SL method, and the mid-month convention to figure your depreciation.
First year. You figure the SL depreciation rate for the building by dividing 1 by 39 years. The result is 0.02564. The depreciation for a full year is $2,564 ($100,000 × 0.02564). Under the mid-month convention, you treat the property as placed in service in the middle of January. You get 11.5 months of depreciation for the year. Expressed as a decimal, the fraction of 11.5 months divided by 12 months is 0.958. Your first-year depreciation for the building is $2,456 ($2,564 × 0.958).
Second year. You subtract $2,456 from $100,000 to get your adjusted basis of $97,544 for the second year. The SL rate is 0.02629. This is 1 divided by the remaining recovery period of 38.042 years (39 years reduced by 11.5 months or 0.958). Your depreciation for the building for the second year is $2,564 ($97,544 × 0.02629).
Third year. The adjusted basis is $94,980 ($97,544 − $2,564). The SL rate is 0.027 (1 divided by 37.042 remaining years). Your depreciation for the third year is $2,564 ($94,980 × 0.027).
Example 3—200% DB method and mid-quarter convention.
During the year, you bought and placed in service in your business the following items.
| Item | Month Placed in Service | Cost |
| Safe | January | $4,000 |
| Office furniture | September | 1,000 |
| Computer | October | 5,000 |
You do not elect a section 179 deduction and these items do not qualify for a special depreciation allowance. You use GDS and the 200% DB method to figure the depreciation. The total bases of all property you placed in service this year is $10,000. The basis of the computer ($5,000) is more than 40% of the total bases of all property placed in service during the year ($10,000), so you must use the mid-quarter convention. This convention applies to all three items of property. The safe and office furniture are 7-year property and the computer is 5-year property.
First- and second-year depreciation for safe. The 200% DB rate for 7-year property is 0.28571. You determine this by dividing 2.00 (200%) by 7 years. The depreciation for the safe for a full year is $1,143 ($4,000 × 0.28571). You placed the safe in service in the first quarter of your tax year, so you multiply $1,143 by 87.5% (the mid-quarter percentage for the first quarter). The result, $1,000, is your deduction for depreciation on the safe for the first year.
For the second year, the adjusted basis of the safe is $3,000. You figure this by subtracting the first year's depreciation ($1,000) from the basis of the safe ($4,000). Your depreciation deduction for the second year is $857
($3,000 × 0.28571).
First- and second-year depreciation for furniture. The furniture is also 7-year property, so you use the same 200% DB rate of 0.28571. You multiply the basis of the furniture ($1,000) by 0.28571 to get the depreciation of $286 for the full year. You placed the furniture in service in the third quarter of your tax year, so you multiply $286 by 37.5% (the mid-quarter percentage for the third quarter). The result, $107, is your deduction for depreciation on the 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 × 0.28571).
First- and second-year depreciation for computer. The 200% DB rate for 5-year property is 0.40. You determine this by dividing 2.00 (200%) by 5 years. The depreciation for the computer for a full year is $2,000 ($5,000 × 0.40). You placed the computer in service in the fourth quarter of your tax year, so you multiply the $2,000 by 12.5% (the mid-quarter percentage for the fourth quarter). The result, $250, is your deduction for depreciation on the computer for the first year.
For the second year, the adjusted basis of the computer is $4,750. You figure this by subtracting the first year's depreciation ($250) from the basis of the computer ($5,000). Your depreciation deduction for the second year is $1,900 ($4,750 × 0.40).
Example 4—200% DB method and half-year convention.
Last year, in July, you bought and placed in service in your business a new item of 7-year property. This was the only item of property you placed in service last year. The property cost $39,000 and you elected a $24,000 section 179 deduction. You also made an election under section 168(k)(7) not to deduct the special depreciation allowance for 7-year property placed in service last year. Your unadjusted basis for the property is $15,000. Because you did not place any property in service in the last 3 months of your tax year, you used the half-year convention. You figured your deduction using the percentages in Table A-1 for 7-year property. Last year, your depreciation was $2,144 ($15,000 × 14.29% (0.1429)).
In July of this year, your property was vandalized. You had a deductible casualty loss of $3,000. You spent $3,500 to put the property back in operational order. Your adjusted basis at the end of this year is $13,356. You figured this by first subtracting the first year's depreciation ($2,144) and the casualty loss ($3,000) from the unadjusted basis of $15,000. To this amount ($9,856), you then added the $3,500 repair cost.
You cannot use the table percentages to figure your depreciation for this property for this year because of the adjustments to basis. You must figure the deduction yourself. You determine the DB rate by dividing 2.00 (200%) by 7 years. The result is 0.28571 or 28.571%. You multiply the adjusted basis of your property ($13,356) by the DB rate of 0.28571 to get your depreciation deduction of $3,816 for this year.
If your property has a carryover basis because you acquired it in a nontaxable transfer such as a like-kind exchange or involuntary conversion, you must generally figure depreciation for the property as if the transfer had not occurred. However, see Like-kind exchanges and involuntary conversions , earlier, in chapter 3 under How Much Can You Deduct ; and Property Acquired in a Like-kind Exchange or Involuntary Conversion next.
You must generally depreciate the carryover basis of property acquired in a like-kind exchange or involuntary conversion over the remaining recovery period of the property exchanged or involuntarily converted. You also generally continue to use the same depreciation method and convention used for the exchanged or involuntarily converted property. This applies only to acquired property with the same or a shorter recovery period and the same or more accelerated depreciation method than the property exchanged or involuntarily converted. The excess basis (the part of the acquired property's basis that exceeds its carryover basis), if any, of the acquired property is treated as newly placed in service property.
For acquired property that has a longer recovery period or less accelerated depreciation method than the exchanged or involuntarily converted property, you must generally depreciate the carryover basis of the acquired property as if it were placed in service in the same tax year as the exchanged or involuntarily converted property. You also generally continue to use the longer recovery period and less accelerated depreciation method of the acquired property.
If the MACRS property you acquired in the exchange or involuntary conversion is qualified property, discussed earlier in chapter 3 under What Is Qualified Property , you can claim a special depreciation allowance on the carryover basis. Special rules apply to vehicles acquired in a trade-in. For information on how to figure depreciation for a vehicle acquired in a trade-in that is subject to the passenger automobile limits, see Deductions For Passenger Automobiles Acquired in a Trade-in under Do the Passenger Automobile Limits Apply? in chapter 5.
. Like-kind exchanges completed after December 31, 2017, are generally limited to exchanges of real property not held primarily for sale. .
Election out.
Instead of using the above rules, you can elect, for depreciation purposes, to treat the adjusted basis of the exchanged or involuntarily converted property as if disposed of at the time of the exchange or involuntary conversion. Treat the carryover basis and excess basis, if any, for the acquired property as if placed in service the later of the date you acquired it or the time of the disposition of the exchanged or involuntarily converted property. The depreciable basis of the new property is the adjusted basis of the exchanged or involuntarily converted property plus any additional amount you paid for it. The election, if made, applies to both the acquired property and the exchanged or involuntarily converted property. This election does not affect the amount of gain or loss recognized on the exchange or involuntary conversion.
When to make the election.
You must make the election on a timely filed return (including extensions) for the year of replacement. The election must be made separately by each person acquiring replacement property. In the case of a partnership, S corporation, or consolidated group, the election is made by the partnership, by the S corporation, or by the common parent of a consolidated group, respectively. Once made, the election may not be revoked without IRS consent.
For more information and special rules, see the Instructions for Form 4562.
You must depreciate MACRS property acquired by a corporation or partnership in certain nontaxable transfers over the property's remaining recovery period in the transferor's hands, as if the transfer had not occurred. You must continue to use the same depreciation method and convention as the transferor. You can depreciate the part of the property's basis that exceeds its carryover basis (the transferor's adjusted basis in the property) as newly purchased MACRS property.
The nontaxable transfers covered by this rule include the following.
You cannot use the MACRS percentage tables to determine depreciation for a short tax year. A short tax year is any tax year with less than 12 full months. This section discusses the rules for determining the depreciation deduction for property you place in service or dispose of in a short tax year. It also discusses the rules for determining depreciation when you have a short tax year during the recovery period (other than the year the property is placed in service or disposed of).
For more information on figuring depreciation for a short tax year, see Revenue Procedure 89-15, 1989-1 C.B. 816.
The applicable convention establishes the date property is treated as placed in service and disposed of. Depreciation is allowable only for that part of the tax year the property is treated as in service. The recovery period begins on the placed in service date determined by applying the convention. The remaining recovery period at the beginning of the next tax year is the full recovery period less the part for which depreciation was allowable in the first tax year.
The following discussions explain how to use the applicable convention in a short tax year.
Mid-month convention.
Under the mid-month convention, you always treat your property as placed in service or disposed of on the midpoint of the month it is placed in service or disposed of. You apply this rule without regard to your tax year.
Half-year convention.
Under the half-year convention, you treat property as placed in service or disposed of on the midpoint of the tax year it is placed in service or disposed of.
First or last day of month.
For a short tax year beginning 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 the tax year. If the short tax year includes part of a month, you generally include the full month in the number of months in the tax year. You determine the midpoint of the tax year by dividing the number of months in the tax year by 2. For the half-year convention, you treat property as placed in service or disposed of on either the first day or the midpoint of a month.
For example, a short tax year that begins on June 20 and ends on December 31 consists of 7 months. You use only full months for this determination, so you treat the tax year as beginning on June 1 instead of June 20. The midpoint of the tax year is the middle of September (3½ months from the beginning of the tax year). You treat property as placed in service or disposed of on this midpoint.
Example.
Tara Corporation, a calendar year taxpayer, was incorporated on March 15. For purposes of the half-year convention, it has a short tax year of 10 months, ending on December 31, 2023. During the short tax year, Tara placed property in service for which it uses the half-year convention. Tara treats this property as placed in service on the first day of the sixth month of the short tax year, or August 1, 2023.
Not on first or last day of month.
For a short tax year not beginning on the first day of a month and not ending on the last day of a month, the tax year consists of the number 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. For the half-year convention, you treat property as placed in service or disposed of on either the first day or the midpoint of a month. If the result of dividing the number of 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 disposed of on the nearest preceding first day or midpoint of a month.
Mid-quarter convention.
To determine if you must use the mid-quarter convention, compare the basis of property you place in service in the last 3 months of your tax year to 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 convention for all applicable property you place in service during that tax year.
You treat property under the mid-quarter convention as placed in service or disposed of on the midpoint of the quarter of the tax year in which it is placed in service or disposed of. Divide a short tax year into 4 quarters and determine the midpoint of each quarter.
For a short tax year of 4 or 8 full calendar months, determine quarters on the basis of whole months. The midpoint of each quarter is either the first day or the midpoint of a month. Treat property as placed in service or disposed of on this midpoint.
To determine the midpoint of a quarter for a short tax year of other than 4 or 8 full calendar months, complete the following steps.
If the result of (3) gives you a midpoint of a quarter that is on a day other than the first day or midpoint of a month, treat the property as placed in service or disposed of on the nearest preceding first day or midpoint of that month.
Example.
Tara Corporation, a calendar year taxpayer, was incorporated and began business on March 15. It has a short tax year of 9½ months, ending on December 31. During December, it placed property in service for which it must use the mid-quarter convention. This is a short tax year of other than 4 or 8 full calendar months, so it must determine the midpoint of each quarter.
The following table shows the quarters of Tara Corporation's short tax year, the midpoint of each quarter, and the date in each quarter that Tara must treat its property as placed in service.
| Quarter | Midpoint | Placed in Service |
|---|---|---|
| 3/15 – 5/26 | 4/20 | 4/15 |
| 5/27 – 8/07 | 7/02 | 7/01 |
| 8/08 – 10/19 | 9/13 | 9/01 |
| 10/20 – 12/31 | 11/25 | 11/15 |
The last quarter of the short tax year begins on October 20, which is 73 days from December 31, the end of the tax year. The 37th day of the last quarter is November 25, which is the midpoint of the quarter. November 25 is not the first day or the midpoint of November, so Tara Corporation must treat the property as placed in service in the middle of November (the nearest preceding first day or midpoint of that month).
To figure your MACRS depreciation deduction for the short tax year, you must first determine the depreciation for a full tax year. You do this by multiplying your basis in the property by the applicable depreciation rate. Then, determine the depreciation for the short tax year. Do this by multiplying the depreciation for a full tax year by a fraction. The numerator (top number) of the fraction is the number of months (including parts of a month) the property is treated as in service during the tax year (applying the applicable convention). The denominator (bottom number) is 12. See Depreciation After a Short Tax Year , later, for information on how to figure depreciation in later years.
Example 1—half-year convention.
Tara Corporation, with a short tax year beginning March 15 and ending December 31, placed in service on March 16 an item of 5-year property with a basis of $1,000. This is the only property the corporation placed in service during the short tax year. Tara does not elect to claim a section 179 deduction and the property does not qualify for a special depreciation allowance. The depreciation method for this property is the 200% declining balance method. The depreciation rate is 40% and Tara applies the half-year convention.
Tara treats the property as placed in service on
August 1. The determination of this August 1 date is explained in the example illustrating the half-year convention under Using the Applicable Convention in a Short Tax Year , earlier. Tara is allowed 5 months of depreciation for the short tax year that consists of 10 months. The corporation first multiplies the basis ($1,000) by 40% (the declining balance rate) to get the depreciation for a full tax year of $400. The corporation then multiplies $400 by 5 /12 to get the short tax year depreciation of $167.
Example 2—mid-quarter convention.
Tara Corporation, with a short tax year beginning March 15 and ending December 31, placed in service on October 16 an item of 5-year property with a basis of $1,000. Tara does not elect to claim a section 179 deduction and the property does not qualify for a special depreciation allowance. The depreciation method for this property is the 200% declining balance method. The depreciation rate is 40%. The corporation must apply the mid-quarter convention because the property was the only item placed in service that year and it was placed in service in the last 3 months of the tax year.
Tara treats the property as placed in service on September 1. This date is shown in the table provided in the example illustrating the mid-quarter convention under Using the Applicable Convention in a Short Tax Year , earlier, for property that Tara Corporation placed in service during the quarter that begins on August 8 and ends on October 19. Under MACRS, Tara is allowed 4 months of depreciation for the short tax year that consists of 10 months. The corporation first multiplies the basis ($1,000) by 40% to get the depreciation for a full tax year of $400. The corporation then multiplies $400 by 4 /12 to get the short tax year depreciation of $133.
If you have a short tax year after the tax year in which you began depreciating property, you must change the way you figure depreciation for that property. If you were using the percentage tables, you can no longer use them. You must figure depreciation for the short tax year and each later tax year as explained next.
You can use either of the following methods to figure the depreciation for years after a short tax year.
Using the simplified method for a 12-month year.
Under the simplified method, you figure the depreciation for a later 12-month year in the recovery period by multiplying the adjusted basis of your property at the beginning of the year by the applicable depreciation rate.
Example.
Assume the same facts as in Example 1 under Property Placed in Service in a Short Tax Year , earlier. The Tara Corporation claimed depreciation of $167 for its short tax year. The adjusted basis on January 1 of the next year is $833 ($1,000 − $167). Tara's depreciation for that next year is 40% of $833, or $333.
Using the simplified method for a short tax year.
If a later tax year in the recovery period is a short tax year, you figure depreciation for that year by multiplying the adjusted basis of the property at the beginning of the tax year by the applicable depreciation rate, and then by a fraction. The fraction's numerator is the number of months (including parts of a month) in the tax year. Its denominator is 12.
Using the simplified method for an early disposition.
If you dispose of property in a later tax year before the end of the recovery period, determine the depreciation for the year of disposition by multiplying the adjusted basis of the property at the beginning of the tax year by the applicable depreciation rate and then multiplying the result by a fraction. The fraction's numerator is the number of months (including parts of a month) the property is treated as in service during the tax year (applying the applicable convention). Its denominator is 12.
Using the allocation method for a 12-month or short tax year.
Under the allocation method, you figure the depreciation for each later tax year by allocating to that year the depreciation attributable to the parts of the recovery years that fall within that year. Whether your tax year is a 12-month or short tax year, you figure the depreciation by determining which recovery years are included in that year. For each recovery year included, multiply the depreciation attributable to that recovery year by a fraction. The fraction's numerator is the number of months (including parts of a month) that are included in both the tax year and the recovery year. Its denominator is 12. The allowable depreciation for the tax year is the sum of the depreciation figured for each recovery year.
Example.
Assume the same facts as in Example 1 under Property Placed in Service in a Short Tax Year , earlier. The Tara Corporation's first tax year after the short tax year is a full year of 12 months, beginning January 1 and ending December 31. The first recovery year for the 5-year property placed in service during the short tax year extends from August 1 to July 31. Tara deducted 5 months of the first recovery year on its short-year tax return. Seven months of the first recovery year and 5 months of the second recovery year fall within the next tax year. The depreciation for the next tax year is $333, which is the sum of the following.
Using the allocation method for an early disposition.
If you dispose of property before the end of the recovery period in a later tax year, determine the depreciation for the 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 is the number of months (including parts of months) the property is treated as in service in the tax year (applying the applicable convention). The denominator is 12. If there is more than one recovery year in the tax year, you add together the depreciation for each recovery year.
To make it easier to figure MACRS depreciation, you can group separate properties into one or more general asset accounts (GAAs). You can then depreciate all the properties in each account as a single item of property.
Property you cannot include.
You cannot include property in a GAA if you use it in both a personal activity and a trade or business (or for the production of income) in the year in which you first place it in service. If property you included in a GAA is later used in a personal activity, see Terminating GAA Treatment , later.
Property generating foreign source income.
For information on the GAA treatment of property that generates foreign source income, see sections 1.168(i)-1(c)(1)(ii) and (f) of the regulations.
Change in use.
Special rules apply to figuring depreciation for property in a GAA for which the use changes during the tax year. Examples include a change in use resulting in a shorter recovery period and/or a more accelerated depreciation method or a change in use resulting in a longer recovery period and/or a less accelerated depreciation method. See sections 1.168(i)-1(h) and 1.168(i)-4 of the regulations.
Each GAA must include only property you placed in service in the same tax year and that has the following in common.
The following rules also apply when you establish a GAA.
See section 1.168(i)-1(c)(2)(ii) of the regulations for additional rules that apply when you establish a GAA.
After you have set up a GAA, you generally figure the MACRS depreciation for it by using the applicable depreciation method, recovery period, and convention for the property in the GAA. For each GAA, record the depreciation allowance in a separate depreciation reserve account.
Example.
Make & Sell, a calendar year corporation, set up a GAA for 10 machines. The machines cost a total of $10,000 and were placed in service in June 2023. One of the machines cost $8,200 and the rest cost a total of $1,800. This GAA is depreciated under the 200% declining balance method with a 5-year recovery period and a half-year convention. Make & Sell did not claim the section 179 deduction on the machines and the machines did not qualify for a special depreciation allowance. The depreciation allowance for 2023 is $2,000 [($10,000 × 40% (0.40)) ÷ 2]. As of January 1, 2024, the depreciation reserve account is $2,000.
Passenger automobiles.
To figure depreciation on passenger automobiles in a GAA, apply the deduction limits discussed in chapter 5 under Do the Passenger Automobile Limits Apply . Multiply the amount determined using these limits by the number of automobiles originally included in the account, reduced by the total number of automobiles removed from the GAA, as discussed under Terminating GAA Treatment, later.
When you dispose of property included in a GAA, the following rules generally apply.
However, these rules do not apply to any disposition described later under Terminating GAA Treatment.
Disposition.
Property in a GAA is considered disposed of when you do any of the following.
The retirement of a structural component of real property is not a disposition unless it is a partial disposition. See section 1.168(i)-1(e)(1) of the regulations.
Treatment of amount realized.
When you dispose of property in a GAA, you must recognize any amount realized from the disposition as ordinary income, up to a limit. The limit is:
Unadjusted depreciable basis.
The unadjusted depreciable basis of a GAA is the total of the unadjusted depreciable bases of all the property in the GAA. The unadjusted depreciable basis of an item of property in a GAA is the amount you would use to figure gain or loss on its sale, but figured without reducing your original basis by any depreciation allowed or allowable in earlier years. However, you do reduce your original basis by other amounts, including any amortization deduction, section 179 deduction, special depreciation allowance, and electric vehicle credit.
Expensed costs.
Expensed costs that are subject to recapture as depreciation include the following.
Example 1.
The facts are the same as in the example under Figuring Depreciation for a GAA, earlier. In February 2024, Make & Sell sells the machine that cost $8,200 to an unrelated person for $9,000. The machine is treated as having an adjusted basis of zero.
On its 2024 tax return, Make & Sell recognizes the $9,000 amount realized as ordinary income because it is not more than the GAA's unadjusted depreciable basis ($10,000) plus any expensed cost (for example, the section 179 deduction) for property in the GAA ($0), minus any amounts previously recognized as ordinary income because of dispositions of other property from the GAA ($0).
The unadjusted depreciable basis and depreciation reserve of the GAA are not affected by the sale of the machine. The depreciation allowance for the GAA in 2024 is $3,200 [($10,000 − $2,000) × 40% (0.40)].
Example 2.
Assume the same facts as in Example 1 . In June 2025, Make & Sell sells seven machines to an unrelated person for a total of $1,100. These machines are treated as having an adjusted basis of zero.
On its 2025 tax return, Make & Sell recognizes $1,000 as ordinary income. This is the GAA's unadjusted depreciable basis ($10,000) plus the expensed costs ($0), minus the amount previously recognized as ordinary income ($9,000). The remaining amount realized of $100 ($1,100 − $1,000) is section 1231 gain (discussed in chapter 3 of Pub. 544).
The unadjusted depreciable basis and depreciation reserve of the GAA are not affected by the disposition of the machines. The depreciation allowance for the GAA in 2025 is $1,920 [($10,000 − $5,200) × 40% (0.40)].
You must remove the following property from a GAA.
If you remove property from a GAA, you must make the following adjustments.
These adjustments have no effect on the recognition and character of prior dispositions subject to the rules discussed earlier under Disposing of GAA Property .
Nonrecognition transactions.
If you dispose of GAA property in a nonrecognition transaction, you must remove it from the GAA. The following are nonrecognition transactions.
Rules for recipient (transferee).
The recipient of the property (the person to whom it is transferred) must include your (the transferor's) adjusted basis in the property in a GAA. If you transferred either all of the property, the last item of property, or the remaining portion of the last item of property, in a GAA, the recipient’s basis in the property is the result of the following.
For this purpose, the adjusted depreciable basis of a GAA is the unadjusted depreciable basis of the GAA minus any depreciation allowed or allowable for the GAA.
Abusive transactions.
If you dispose of GAA property in an abusive transaction, you must remove it from the GAA. A disposition is an abusive transaction if it is not a nonrecognition transaction (described earlier) or a like-kind exchange or involuntary conversion and a main purpose for the disposition is to get a tax benefit or a result that would not be available without the use of a GAA. Examples of abusive transactions include the following.
Figuring gain or loss.
You must determine the gain, loss, or other deduction due to an abusive transaction by taking into account the property's adjusted basis. The adjusted basis of the property at the time of the disposition is the result of the following.
If there is a gain, the amount subject to recapture as ordinary income is the smaller of the following.
Qualifying dispositions.
If you dispose of GAA property in a qualifying disposition, you can choose to remove the property from the GAA. A qualifying disposition is one that does not involve all the property, or the last item of property, remaining in a GAA and that is described by any of the following.
If you choose to remove the property from the GAA, figure your gain, loss, or other deduction resulting from the disposition in the manner described earlier under Abusive transactions .
Like-kind exchanges and involuntary conversions.
If you dispose of GAA property as a result of a like-kind exchange or involuntary conversion, you must remove from the GAA the property that you transferred. See chapter 1 of Pub. 544 for information on these transactions. Figure your gain, loss, or other deduction resulting from the disposition in the manner described earlier under Abusive transactions .
Example.
Sankofa, a calendar year corporation, maintains one GAA for 12 machines. Each machine costs $15,000 and was placed in service in 2021. Of the 12 machines, nine cost a total of $135,000 and are used in Sankofa's New York plant and three machines cost $45,000 and are used in Sankofa's New Jersey plant. Assume this GAA uses the 200% declining balance depreciation method, a 5-year recovery period, and a half-year convention. Sankofa does not claim the section 179 deduction and the machines do not qualify for a special depreciation allowance. As of January 1, 2023, the depreciation reserve account for the GAA is $93,600.
In May 2023, Sankofa sells its entire manufacturing plant in New Jersey to an unrelated person. The sales proceeds allocated to each of the three machines at the New Jersey plant is $5,000. This transaction is a qualifying disposition, so Sankofa chooses to remove the three machines from the GAA and figure the gain, loss, or other deduction by taking into account their adjusted bases.
For Sankofa's 2023 return, the depreciation allowance for the GAA is figured as follows. As of December 31, 2022, the depreciation allowed or allowable for the three machines at the New Jersey plant is $23,400. As of January 1, 2023, 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 machines), and the depreciation reserve account is decreased from $93,600 to $70,200 ($93,600 minus $23,400 depreciation allowed or allowable for the three machines as of December 31, 2022). The depreciation allowance for the GAA in 2023 is $25,920 [($135,000 − $70,200) × 40% (0.40)].
For Sankofa's 2023 return, gain or loss for each of the three machines at the New Jersey plant is determined as follows. The depreciation allowed or allowable in 2023 for each machine is $1,440 [(($15,000 − $7,800) × 40% (0.40)) ÷ 2]. The adjusted basis of each machine is $5,760 (the adjusted depreciable basis of $7,200 removed from the account less the $1,440 depreciation allowed or allowable in 2023). As a result, the loss recognized in 2023 for each machine is $760 ($5,760 − $5,000). This loss is subject to section 1231 treatment. See chapter 3 of Pub. 544 for information on section 1231 losses.
Disposition of all property in a GAA.
If you dispose of all the property, or the last item of property, in a GAA, you can choose to end the GAA. If you make this choice, you figure the gain or loss by comparing the adjusted depreciable basis of the GAA with the amount realized.
If there is a gain, the amount subject to recapture as ordinary income is limited to the result of the following.
Like-kind exchanges and involuntary conversions.
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 conversion, the GAA terminates. You must figure the gain or loss in the manner described above under Disposition of all property in a GAA .
Example.
Duforcelf, a calendar year corporation, maintains a GAA for 1,000 calculators that cost a total of $60,000 and were placed in service in 2020. Assume this GAA is depreciated under the 200% declining balance method, has a recovery period of 5 years, and uses a half-year convention. Duforcelf does not claim the section 179 deduction and the calculators do not qualify for a special depreciation allowance. In 2022, Duforcelf sells 200 of the calculators to an unrelated person for $10,000. The $10,000 is recognized as ordinary income.
In March 2023, Duforcelf sells the remaining calculators in the GAA to an unrelated person for $35,000. Duforcelf decides to end the GAA.
On the date of the disposition, the adjusted depreciable basis of the account is $23,040 (unadjusted depreciable basis of $60,000 minus the depreciation allowed or allowable of $36,960). In 2023, Duforcelf recognizes a gain of $11,960. This is the amount realized of $35,000 minus the adjusted depreciable basis of $23,040. The gain subject to recapture as ordinary income is limited to the depreciation allowed or allowable minus the amounts previously recognized as ordinary income ($36,960 − $10,000 = $26,960). Therefore, the entire gain of $11,960 is recaptured as ordinary income.
An election to include property in a GAA is made separately by each owner of the property. This means that an election to include property in a GAA must be made by each member of a consolidated group and at the partnership or S corporation level (and not by each partner or shareholder separately).
How to make the election.
Make the election by completing line 18 of Form 4562.
When to make the election.
You must make the election on a timely filed tax return (including extensions) for the year in which you place in service the property included in the GAA. However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach the election to the amended return and write “Filed pursuant to section 301.9100-2” on the election statement.
. You must maintain records that identify the property included in each GAA, that establish the unadjusted depreciable basis and depreciation reserve of the GAA, and that reflect the amount realized during the year upon dispositions from each GAA. However, see chapter 2 for the recordkeeping requirements for section 179 property. .
Revoking an election.
You can revoke an election to use a GAA only in the following situations.
When you dispose of property that you depreciated using MACRS, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the depreciation previously allowed or allowable for the property. Depreciation, for this purpose, includes the following.
There is no recapture for residential rental and nonresidential real property unless that property is qualified property for which you claimed a special depreciation allowance. For more information on depreciation recapture, see Pub. 544.
This chapter discusses the deduction limits and other special rules that apply to certain listed property. Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers.
Deductions for listed property (other than certain leased property) are subject to the following special rules and limits.
This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return.
Publication
Form (and Instructions)
See How To Get Tax Help for information about getting publications and forms.
Listed property is any of the following.
Improvements to listed property.
An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. For example, if you must depreciate the listed property using the straight line method, you must also depreciate the improvement using the straight line method.
A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). It includes any part, component, or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile.
The following vehicles are not considered passenger automobiles for these purposes.
Qualified nonpersonal use vehicles.
Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation next. They also include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name.
For a detailed discussion of passenger automobiles, including leased passenger automobiles, see Pub. 463.
. Although vehicles used to transport persons or property for pay or hire and vehicles rated at more than the 6,000-pound threshold are not passenger automobiles, they are still “other property used for transportation” and are subject to the special rules for listed property. .
Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods.
Excepted vehicles.
Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ).
Clearly marked police or fire vehicle.
A clearly marked police or fire vehicle is a vehicle that meets all the following requirements.
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 requirements are met.
Qualified specialized utility repair truck.
A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply.
If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. The use of your property in performing services as an employee is a business use only if both the following requirements are met.
If these requirements are not met, you cannot deduct depreciation (including the section 179 deduction) or rent expenses for your use of the property as an employee.
Employee expenses for transportation and for the depreciation of certain listed property (such as computers placed in service before 2018) paid or incurred in a tax year beginning after December 31, 2017, and before January 1, 2026, may not be claimed as a miscellaneous itemized deduction subject to the 2% floor. If you are not entitled to claim these expenses as an above-the-line deduction, you may not claim a deduction for the expense on your 2023 return.
Employer's convenience.
Whether the use of listed property is for your employer's convenience must be determined from all the facts. The use is for your employer's convenience if it is for a substantial business reason of the employer. The use of listed property during your regular working hours to carry on your employer's business is generally for the employer's convenience.
Condition of employment.
Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. The use of property must be required for you to perform your duties properly. Your employer does not have to require explicitly that you use the property. However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient.
Example 1.
Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. Virginia owns and uses a motorcycle to deliver packages to downtown offices. We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment.
Example 2.
You are an inspector for Uplift, a construction company with many sites in the local area. You must travel to these sites on a regular basis. Uplift does not furnish an automobile or explicitly require you to use your own automobile. However, it pays you for any costs you incur in traveling to the various sites. The use of your own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment.
Example 3.
Assume the same facts as in Example 2 , except that Uplift furnishes a car to you, and you choose to use your own car and receive payment for using it. The use of your own car is neither for the convenience of Uplift nor required as a condition of employment.
Example 4.
Marilyn Lee is a pilot for Y Company, a small charter airline. Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. Pilots can usually obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. Marilyn owns an airplane. The use of that airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment.
Example 5.
David Rule is employed as an engineer with Zip, an engineering contracting firm. David occasionally takes work home at night rather than work late in the office. David owns and uses a home computer, which is virtually identical to the office model. David’s use of the computer is neither for the convenience of David’s employer nor required as a condition of employment.
You can claim the section 179 deduction and a special depreciation allowance for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. If this requirement is not met, the following rules apply.
. Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as 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. .
Exception for leased property.
The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property.
You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. Occasional or incidental leasing activity is insufficient. For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee.
To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses.
For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year.
For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). For example, you can determine the percentage of business use of an item of listed property by dividing the number of hours you used the item of listed property for business purposes during the year by the total number of hours you used the item of listed property for all purposes (including business use) during the year.
Entertainment use.
Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense.
Commuting use.
The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. This is also true for a business meeting held in a car while commuting to work. Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use.
Use of your automobile by another person.
If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies.
Employee deductions.
If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. See Can Employees Claim a Deduction , earlier.
Qualified business use of listed property is any use of the property in your trade or business. However, it does not include the following uses.
. Property does not stop being used predominantly for qualified business use because of a transfer at death. .
Exception for leasing or compensatory use of aircraft.
Treat the leasing of any aircraft by a 5% owner or related person, or the compensatory use of any aircraft, as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use.
5% owner.
For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business.
For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following.
Related persons.
For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property? in chapter 1. For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears.
Examples.
The following examples illustrate whether the use of business property is qualified business use.
Example 1.
John Maple is the sole proprietor of a plumbing contracting business. Richard, John’s sibling, is employed by John in the business. As part of Richard's pay, Richard is allowed to use one of the company automobiles for personal use. The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use.
Example 2.
John, in Example 1 , allows unrelated employees to use company automobiles for personal purposes. John does not include the value of the personal use of the company automobiles as part of their compensation and does not withhold tax on the value of the use of the automobiles. This use of company automobiles by employees is not a qualified business use.
Example 3.
James Company Inc. owns several automobiles that its employees use for business purposes. The employees are also allowed to take the automobiles home at night. The FMV of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company.
The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year.
Example 1.
You use an item of listed property 50% of the time to manage your investments. You also use the item of listed property 40% of the time in your part-time consumer research business. Your item of listed property is listed property because it is not used at a regular business establishment. You do not use the item of listed property predominantly for qualified business use. Therefore, you cannot elect a section 179 deduction or claim a special depreciation allowance for the item of listed property. You must depreciate it using the straight line method over the ADS recovery period. Your combined business/investment use for determining your depreciation deduction is 90%.
Example 2.
If you use your item of listed property 30% of the time to manage your investments and 60% of the time in your consumer research business, it is used predominantly for qualified business use. You can elect a section 179 deduction and, if you do not deduct all the item of listed property’s cost, you can claim a special depreciation allowance and depreciate the item of listed property using the 200% declining balance method over the GDS recovery period. Your combined business/investment use for determining your depreciation deduction is 90%.
If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. You also increase the adjusted basis of your property by the same amount.
Excess depreciation is:
To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period.
Example.
In June 2019, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. Ellen used it only for qualified business use for 2019 through 2022. Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. Ellen began depreciating it using the 200% DB method over a 5-year GDS recovery period. The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply. During 2023, Ellen used the truck 50% for business and 50% for personal purposes. Ellen includes $4,018 excess depreciation in her gross income for 2023. The excess depreciation is determined as follows.
| Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2019 through 2022. (Depreciation is from Table A-1.) | $16,618 | ||
| Minus: Depreciation allowable (Table A-8): | |||
| 2019 — 10% of $18,000 | $1,800 | ||
| 2020 — 20% of $18,000 | 3,600 | ||
| 2021 — 20% of $18,000 | 3,600 | ||
| 2022 — 20% of $18,000 | 3,600 | 12,600 | |
| Excess depreciation | $4,018 | ||
If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2025, there will be no excess depreciation. The total depreciation allowable using Table A-8 through 2025 will be $18,000, which equals the total of the section 179 deduction and depreciation Ellen will have claimed.
Where to figure and report recapture.
Use Form 4797, Part IV, to figure the recapture amount. Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Schedule 1 (Form 1040), line 8z.
If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Pub. 463.
The inclusion amount is the sum of Amount A and Amount B, described next. However, see the special rules for the inclusion amount, later, if your lease begins in the last 9 months of your tax year or is for less than 1 year.
Amount A.
The FMV of the property is the value on the first day of the lease term. If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the FMV.
Amount B.
Maximum inclusion amount.
The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income.
Inclusion amount worksheet.
The following worksheet is provided to help you figure the inclusion amount for leased listed property.
| 1. | Fair market value | _____ |
| 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 | _____ |
| 5. | Multiply line 3 by line 4. This is Amount A | _____ |
| 6. | Fair market value | _____ |
| 7. | Average business/investment use for years property leased before the first year business use is 50% or less . . . . . . . . . . . . . | _____ |
| 8. | Multiply line 6 by line 7 | _____ |
| 9. | Rate (%) from Table A-20 | _____ |
| 10. | Multiply line 8 by line 9. This is Amount B | _____ |
| 11. | Add line 5 and line 10. This is your inclusion amount. Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Schedule 1 (Form 1040), Form 1120, etc.) | _____ |
Example.
On February 1, 2021, Larry House, a calendar year taxpayer, leased and placed in service an item of listed property with an FMV of $3,000. The lease is for a period of 5 years. Larry does not use the item of listed property at a regular business establishment, so it is listed property. Larry’s business use of the property (all of which is qualified business use) is 80% in 2021, 60% in 2022, and 40% in 2023. Larry must add an inclusion amount to gross income for 2023, the first tax year Larry’s qualified business-use percentage is 50% or less. The item of listed property has a 5-year recovery period under both GDS and ADS. 2023 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19.8%. The applicable percentage from Table A-20 is 22%. Larry's deductible rent for the item of listed property for 2023 is $800.
Larry uses the inclusion amount worksheet to figure the amount that must be included in income for 2023. Larry’s inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B).
| 1. | Fair market value | $3,000 |
| 2. | Business/investment use for first year business use is 50% or less | 40% |
| 3. | Multiply line 1 by line 2 | 1,200 |
| 4. | Rate (%) from Table A-19 | −19.8% |
| 5. | Multiply line 3 by line 4. This is Amount A | −238 |
| 6. | Fair market value | 3,000 |
| 7. | Average business/investment use for years property leased before the first year business use is 50% or less | 70% |
| 8. | Multiply line 6 by line 7 | 2,100 |
| 9. | Rate (%) from Table A-20 | 22.0% |
| 10. | Multiply line 8 by line 9. This is Amount B | 462 |
| 11. | Add line 5 and line 10. This is your inclusion amount. Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Schedule 1 (Form 1040), Form 1120, etc.) | $224 |
Lease beginning in the last 9 months of your tax year.
The inclusion amount is subject to a special rule if all the following apply.
Under this special rule, add the inclusion amount to income in the next tax year. Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. Skip lines 6 through 9 of the worksheet and enter zero on line 10.
Example 1.
On August 1, 2022, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. The property is 5-year property with an FMV of $10,000. Julie’s property has a recovery period of 5 years under ADS. The lease is for 5 years. Julie’s business use of the property was 50% in 2022 and 90% in 2023. Julie paid rent of $3,600 for 2022, of which $3,240 is deductible. Julie must include $147 in income in 2023. The $147 is the sum of Amount A and Amount B. Amount A is $147 ($10,000 × 70% (0.70) × 2.1% (0.021)), the product of the FMV, the average business use for 2022 and 2023, and the applicable percentage for year 1 from Table A-19. Amount B is zero.
Lease for less than 1 year.
A special rule for the inclusion amount applies if the lease term is less than 1 year and you do not use the property predominantly (more than 50%) for qualified business use. The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. The numerator of the fraction is the number of days in the lease term, and the denominator is 365 (or 366 for leap years).
The lease term for listed property includes options to renew. If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease.
Example 2.
On October 1, 2022, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. This property had an FMV of $15,000 and a recovery period of 5 years under ADS. The lease term was 6 months (ending on March 31, 2023), during which John used the property 45% in business. John must include $71 in income in 2023. The $71 is the sum of Amount A and Amount B. Amount A is $71 ($15,000 × 45% (0.45) × 2.1% (0.021) × 183/365), the product of the FMV, the average business use for both years, and the applicable percentage for year 1 from Table A-19, prorated for the length of the lease. Amount B is zero.
Where to report the inclusion amount.
Report the inclusion amount figured (as described in the preceding discussions) as other income on the same form or schedule on which you took the deduction for your rental costs. For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Schedule 1 (Form 1040), line 8z.
The depreciation deduction, including the section 179 deduction and special depreciation allowance, you can claim for a passenger automobile (defined earlier) each year is limited.
This section describes the maximum depreciation deduction amounts for 2023 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limits.
Exception for leased cars.
The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property , earlier, under What Is the Business-Use Requirement .
The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. They are based on the date you placed the automobile in service.
The maximum deduction amounts for most passenger automobiles are shown in the following table.
Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) Acquired After September 27, 2017, and Placed in Service Before 2024
| Date | 4th & | |||
| Placed | 1st | 2nd | 3rd | Later |
| in Service | Year | Year | Year | Year |
| 2023 | $20,200 1 | $19,500 | $11,700 | $6,960 |
| 2022 | $19,200 2 | $18,000 | $10,800 | $6,460 |
| 2021 | $18,200 3 | $16,400 | $9,800 | $5,860 |
| 2020 | $18,100 4 | $16,100 | $9,700 | $5,760 |
| 2019 | $18,100 4 | $16,100 | $9,700 | $5,760 |
| 2018 | $18,000 5 | $16,000 | $9,600 | $5,760 |
| 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum depreciation deduction is $12,200. | ||||
| 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum depreciation deduction is $11,200. | ||||
| 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum depreciation deduction is $10,200. | ||||
| 4 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum depreciation deduction is $10,100. | ||||
| 5 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum depreciation deduction is $10,000. | ||||
Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) Acquired Before September 28, 2017, and Placed in Service Before 2020
| Date | 4th & | |||
| Placed | 1st | 2nd | 3rd | Later |
| in Service | Year | Year | Year | Year |
| 2019 | $14,900 1 | $16,100 | $9,700 | $5,760 |
| 2018 | $16,400 2 | $16,000 | $9,600 | $5,760 |
| 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum depreciation deduction is $10,100. | ||||
| 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum depreciation deduction is $10,000. | ||||
Maximum Depreciation Deduction for Passenger Automobiles Placed in Service Before 2018
| Date | 4th & | |||
| Placed | 1st | 2nd | 3rd | Later |
| in Service | Year | Year | Year | Years |
| 2017 | $11,160 1 | $5,100 | $3,050 | $1,875 |
| 2016 | 11,160 1 | 5,100 | 3,050 | 1,875 |
| 2015 | 11,160 2 | 5,100 | 3,050 | 1,875 |
| 2014 | 11,160 3 | 5,100 | 3,050 | 1,875 |
| 2013 | 11,160 3 | 5,100 | 3,050 | 1,875 |
| 2012 | 11,160 3 | 5,100 | 3,050 | 1,875 |
| 2011 | 11,060 4 | 4,900 | 2,950 | 1,775 |
| 2010 | 11,060 4 | 4,900 | 2,950 | 1,775 |
| 2009 | 10,960 5 | 4,800 | 2,850 | 1,775 |
| 2008 | 10,960 5 | 4,800 | 2,850 | 1,775 |
| 2007 | 3,060 | 4,900 | 2,850 | 1,775 |
| 2006 | 2,960 | 4,800 | 2,850 | 1,775 |
| 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. | ||||
| 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. Also, if you placed the vehicle in service in a tax year beginning in 2015 and ending in 2016, and you elected to accelerate certain credits in lieu of the special depreciation for that tax year, the maximum deduction is $3,160. | ||||
| 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. | ||||
| 4 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. | ||||
| 5 If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $2,960. | ||||
. If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year. .
. If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. The numerator of the fraction is the number of months and partial months in the short tax year, and the denominator is 12. .
Example.
On April 15, 2023, you bought and placed in service a new car for $14,500. You used the car only in your business. You file your tax return based on the calendar year. You do not elect a section 179 deduction and elected not to claim any special depreciation allowance for the 5-year property. Under MACRS, a car is 5-year property. Because you placed your car in service on April 15 and used it only for business, you use the percentages in Table A-1 to figure your MACRS depreciation on the car. You multiply the $14,500 unadjusted basis of your car by 0.20 to get your MACRS depreciation of $2,900 for 2023. This $2,900 is below the maximum depreciation deduction of $12,200 for passenger automobiles placed in service in 2023. You can deduct the full $2,900.
The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts in the previous section titled Passenger Automobiles for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts for trucks and vans, later, for electric vehicles classified as trucks and vans.
Maximum Depreciation Deduction for Electric Vehicles
| Date | 4th & | |||
| Placed | 1st | 2nd | 3rd | Later |
| in Service | Year | Year | Year | Years |
| 2006 | $8,980 | $14,400 | $8,650 | $5,225 |
| 2005 | 8,880 | 14,200 | 8,450 | 5,125 |
| 2004 | 31,830 1 | 14,300 | 8,550 | 5,125 |
| 5/06/2003– 12/31/2003 | 32,030 2 | 14,600 | 8,750 | 5,225 |
| 1/01/2003– 5/05/2003 | 22,880 3 | 14,600 | 8,750 | 5,225 |
| 1 If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880. | ||||
| 2 If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. | ||||
| 3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. | ||||
The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. The maximum deduction amounts for trucks and vans are shown in the following table.
Maximum Depreciation Deduction for Trucks and Vans Placed in Service Before 2018
| Date | 4th & | |||
| Placed | 1st | 2nd | 3rd | Later |
| in Service | Year | Year | Year | Years |
| 2017 | $11,560 1 | $5,700 | $3,450 | $2,075 |
| 2016 | 11,560 1 | 5,700 | 3,350 | 2,075 |
| 2015 | 11,460 2 | 5,600 | 3,350 | 1,975 |
| 2014 | 11,460 3 | 5,500 | 3,350 | 1,975 |
| 2013 | 11,360 4 | 5,400 | 3,250 | 1,975 |
| 2012 | 11,360 4 | 5,300 | 3,150 | 1,875 |
| 2011 | 11,260 5 | 5,200 | 3,150 | 1,875 |
| 2010 | 11,160 6 | 5,100 | 3,050 | 1,875 |
| 2009 | 11,060 7 | 4,900 | 2,950 | 1,775 |
| 2008 | 11,160 8 | 5,100 | 3,050 | 1,875 |
| 2007 | 3,260 | 5,200 | 3,050 | 1,875 |
| 2006 | 3,260 | 5,200 | 3,150 | 1,875 |
| 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,560. | ||||
| 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,460. Also, if you placed the vehicle in service in a tax year beginning in 2015 and ending in 2016, and you elected to accelerate certain credits in lieu of the special depreciation for that tax year, the maximum deduction is $3,460. | ||||
| 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,460. | ||||
| 4 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,360. | ||||
| 5 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,260. | ||||
| 6 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. | ||||
| 7 If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,060. | ||||
| 8 If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,160. | ||||
You can use the following worksheet to figure your depreciation deduction using the percentage tables. Then, use the information from this worksheet to prepare Form 4562.
| Part I | ||||
| 1. | MACRS system (GDS or ADS) | _____ | ||
| 2. | Property class | _____ | ||
| 3. | Date placed in service | _____ | ||
| 4. | Recovery period | _____ | ||
| 5. | Method and convention | _____ | ||
| 6. | Depreciation rate (from tables) | _____ | ||
| 7. | Maximum depreciation deduction for this year from the appropriate table | _____ | ||
| 8. | Business/investment-use percentage | _____ | ||
| 9. | Multiply line 7 by line 8. This is your adjusted maximum depreciation deduction | _____ | ||
| 10. | Section 179 deduction claimed this year (not more than line 9). Enter -0- if this is not the year you placed the car in service | _____ | ||
| Note. 1) If line 10 is equal to line 9, stop here. Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. 2) If line 10 is less than line 9, complete Part II. | ||||
| Part II | ||||
| 11. | Subtract line 10 from line 9. This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance) | _____ | ||
| 12. | Cost or other basis (reduced by any alternative motor vehicle credit 1 or credit for electric vehicles 2 ) | _____ | ||
| 13. | Multiply line 12 by line 8. This is your business/investment cost | _____ | ||
| 14. | Section 179 deduction claimed in the year you placed the car in service | _____ | ||
| 15. | Subtract line 14 from line 13. This is your tentative basis for depreciation | _____ | ||
| 16. | Multiply line 15 by the applicable percentage if the special depreciation allowance applies. This is your special depreciation allowance. Enter -0- if this is not the year you placed the car in service, the car is not qualified property, or you elected not to claim a special depreciation allowance | _____ | ||
| Note. 1) If line 16 is equal to line 11, stop here. Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. 2) If line 16 is less than line 11, complete Part III. | ||||
| Part III | ||||
| 17. | Subtract line 16 from line 11. This is the limit on the amount you can deduct for MACRS depreciation | _____ | ||
| 18. | Subtract line 16 from line 15. This is your basis for depreciation | _____ | ||
| 19. | Multiply line 18 by line 6. This is your tentative MACRS depreciation deduction | _____ | ||
| 20. | Enter the lesser of line 17 or line 19. This is your MACRS depreciation deduction | |||
| 1 When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. | ||||
| 2 Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount. | ||||
If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. See Maximum Depreciation Deduction , earlier.
Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied.
. You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period. .
Example.
In May 2017, you bought and placed in service a car costing $31,500. The car was 5-year property under GDS (MACRS). You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the 5-year property. You used the car exclusively for business during the recovery period (2017 through 2022). You figured your depreciation as shown below.
| Year | Percentage | Amount | Limit | Allowed |
| 2017 | 20.0% | $6,300 | $3,160 | $3,160 |
| 2018 | 32.0 | 10,080 | 5,100 | 5,100 |
| 2019 | 19.2 | 6,048 | 3,050 | 3,050 |
| 2020 | 11.52 | 3,629 | 1,875 | 1,875 |
| 2021 | 11.52 | 3,629 | 1,875 | 1,875 |
| 2022 | 5.76 | 1,814 | 1,875 | 1,875 |
| Total | $16,935 | |||
At the end of 2022 you had an unrecovered basis of $14,565 ($31,500 − $16,935). If in 2023 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,875 or your remaining unrecovered basis.
If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $8,739 ($14,565 × 60% (0.60)), but you would still have to reduce your basis by $14,565 to determine your unrecovered basis.
If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. This excess basis is the additional cash paid for the new automobile in the trade-in.
The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. Special rules apply in determining the passenger automobile limits. These rules and examples are discussed in section 1.168(i)-6(d)(3) of the regulations.
Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. For more information, including how to make this election, see Election out under Property Acquired in a Like-Kind Exchange or Involuntary Conversion in chapter 4, and sections 1.168(i)-6(i) and 1.168(i)-6(j) of the regulations.
. Like-kind exchanges completed after December 31, 2017, are generally limited to exchanges of real property not held primarily for sale. Section 1.168(i)-6 of the regulations does not reflect this change in law. .
You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. For listed property, you must keep records for as long as any recapture can still occur. Recapture can occur in any tax year of the recovery period.
. To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. However, your records should back up your receipts in an orderly manner. .
Elements of expenditure or use.
Your records or other documentary evidence must support all the following.
Written documents of your expenditure or use are generally better evidence than oral statements alone. You do not have to keep a daily log. However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time of the expenditure or use and backed up by other documents is preferable to a statement you prepare later.
Timeliness.
You must record the elements of an expenditure or use at the time you have full knowledge of the elements. An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use is generally considered a timely record if, in the regular course of business:
For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use.
Business purpose supported.
Generally, an adequate record of business purpose must be in the form of a written statement. However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of their travel.
Business use supported.
An adequate record contains enough information on each element of every business or investment use. The amount of detail required to support the use depends on the facts and circumstances. For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of 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 trip.
Although you must generally prepare an adequate written record, you can prepare a record of the business use of listed property in a computer memory device that uses a logging program.
Separate or combined expenditures or uses.
Each use by you is normally considered a separate use. However, you can combine repeated uses as a single item.
Record each expenditure as a separate item. Do not combine it with other expenditures. If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. If you combine these expenses, you do not need to support the business purpose of each expense. Instead, you can divide the expenses based on the total business use of the listed property.
You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use.
Confidential information.
If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. You must keep it elsewhere and make it available as support to the IRS director for your area on request.
Substantial compliance.
If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate.
If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows.
If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be 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 the business purpose of an expenditure, its supporting evidence can be circumstantial evidence.
Sampling.
You can maintain an adequate record for part of a tax year and use that record to support your business and investment use of listed property for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of the use throughout the year.
Example 1.
You are a sole proprietor and calendar year taxpayer who operates an interior decorating business out of your home. You use your automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. There is no other business use of the automobile, but you and family members also use it for personal purposes. You maintain adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. Subcontractor invoices and paid bills show that your business continued at approximately the same rate for the rest of the year. If there is no change in circumstances, such as the purchase of a second car for exclusive use in your business, the determination that your combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence.
Example 2.
Assume the same facts as in Example 1 , except that you maintain adequate records during the first week of every month showing that 75% of your use of the automobile is for business. Your business invoices show that your business continued at the same rate during the later weeks of each month so that your weekly records are representative of the automobile's business use throughout the month. The determination that your business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence.
Example 3.
You are a sole proprietor and calendar year taxpayer who works as a sales representative in a large metropolitan area for a company that manufactures household products. For the first 3 weeks of each month, you occasionally used your own automobile for business travel within the metropolitan area. During these weeks, your business use of the automobile does not follow a consistent pattern. During the fourth week of each month, you delivered all business orders taken during the previous month. The business use of your automobile, as supported by adequate records, is 70% of its total use during that fourth week. The determination based on the record maintained during the fourth week of the month that your business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because your use during that week is not representative of use during other periods.
Loss of records.
When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use.
You must provide the information about your listed property requested in Section A of Part V of Form 4562, if you claim either of the following deductions.
If you claim any deduction for a vehicle, you must also provide the information requested in Section B. If you provide the vehicle for your employee's use, the employee must give you this information. If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle.
Vehicles used by your employees.
You do not have to complete Section B of Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements.
Exceptions.
If you file Form 2106, and you are not required to file Form 4562, report information about listed property on that form and not on Form 4562. Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562.
If you have questions about a tax issue; need help preparing your tax return; or want to download free publications, forms, or instructions, go to IRS.gov to find resources that can help you right away.
Preparing and filing your tax return.
After receiving all your wage and earnings statements (Forms W-2, W-2G, 1099-R, 1099-MISC, 1099-NEC, etc.); unemployment compensation statements (by mail or in a digital format) or other government payment statements (Form 1099-G); and interest, dividend, and retirement statements from banks and investment firms (Forms 1099), you have several options to choose from to prepare and file your tax return. You can prepare the tax return yourself, see if you qualify for free tax preparation, or hire a tax professional to prepare your return.
Free options for tax preparation.
Your options for preparing and filing your return online or in your local community, if you qualify, include the following.
Using online tools to help prepare your return.
Go to IRS.gov/Tools for the following.
. Getting answers to your tax questions. On IRS.gov, you can get up-to-date information on current events and changes in tax law. .
Need someone to prepare your tax return?
There are various types of tax return preparers, including enrolled agents, certified public accountants (CPAs), accountants, and many others who don’t have professional credentials. If you choose to have someone prepare your tax return, choose that preparer wisely. A paid tax preparer is:
. Although the tax preparer always signs the return, you're ultimately responsible for providing all the information required for the preparer to accurately prepare your return and for the accuracy of every item reported on the return. Anyone paid to prepare tax returns for others should have a thorough understanding of tax matters. For more information on how to choose a tax preparer, go to Tips for Choosing a Tax Preparer on IRS.gov. .
Employers can register to use Business Services Online.
The Social Security Administration (SSA) offers online service at SSA.gov/employer for fast, free, and secure online W-2 filing options to CPAs, accountants, enrolled agents, and individuals who process Form W-2, Wage and Tax Statement, and Form W-2c, Corrected Wage and Tax Statement.
IRS social media.
Go to IRS.gov/SocialMedia to see the various social media tools the IRS uses to share the latest information on tax changes, scam alerts, initiatives, products, and services. At the IRS, privacy and security are our highest priority. We use these tools to share public information with you. Don’t post your social security number (SSN) or other confidential information on social media sites. Always protect your identity when using any social networking site.
The following IRS YouTube channels provide short, informative videos on various tax-related topics in English, Spanish, and ASL.
Watching IRS videos.
The IRS Video portal (IRSVideos.gov) contains video and audio presentations for individuals, small businesses, and tax professionals.
Online tax information in other languages.
You can find information on IRS.gov/MyLanguage if English isn’t your native language.
Free Over-the-Phone Interpreter (OPI) Service.
The IRS is committed to serving taxpayers with limited-English-proficiency (LEP) by offering OPI services. The OPI Service is a federally funded program and is available at Taxpayer Assistance Centers (TACs), most IRS offices, and every VITA/TCE tax return site. The OPI Service is accessible in more than 350 languages.
Accessibility Helpline available for taxpayers with disabilities.
Taxpayers who need information about accessibility services can call 833-690-0598. The Accessibility Helpline can answer questions related to current and future accessibility products and services available in alternative media formats (for example, braille, large print, audio, etc.). The Accessibility Helpline does not have access to your IRS account. For help with tax law, refunds, or account-related issues, go to IRS.gov/LetUsHelp.
Form 9000, Alternative Media Preference, or Form 9000(SP) allows you to elect to receive certain types of written correspondence in the following formats.