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97 Department of the Treasury

Internal Revenue Service

Instructions for Form 4562


Depreciation and Amortization
(Including Information on Listed Property)
Section references are to the Internal Revenue Code unless otherwise noted.

Changes To Note Who Must File Depreciation starts when you first
use the property in your business or
● For tax years beginning in 1997, the Except as otherwise noted, complete for the production of income. It ends
maximum section 179 expense and file Form 4562 if you are claiming when you take the property out of
deduction has been increased to any of the following. service, deduct all your depreciable
$18,000 ($38,000 for enterprise zone ● Depreciation for property placed in cost or other basis, or no longer use
businesses). service during the 1997 tax year. the property in your business or for
● Any qualified rent-to-own property ● A section 179 expense deduction the production of income.
placed in service after August 5, (which may include a carryover from
1997, is classified as 3-year property a previous year). Amortization
under the General Depreciation ● Depreciation on any vehicle or Amortization is similar to the straight
System and has a 4-year class life other listed property (regardless of line method of depreciation in that an
under the Alternative Depreciation when it was placed in service). annual deduction is allowed to
System. Generally, qualified ● A deduction for any vehicle recover certain costs over a fixed time
rent-to-own property is tangible reported on a form other than period. You can amortize such items
personal property of a type used Schedule C (Form 1040), Profit or as the costs of starting a business,
within the home for personal use and Loss From Business, or Schedule goodwill and certain other intangibles,
held by a dealer for lease to C-EZ (Form 1040), Net Profit From reforestation, and pollution control
customers under a rent-to-own Business. facilities. For additional information,
agreement. See section 168(i)(14) for ● Any depreciation on a corporate
get Pub. 535, Business Expenses.
more details.
income tax return (other than Form Listed Property
● For property placed in service after
1120S).
August 5, 1997, the use of the income Listed property generally includes:
● Amortization of costs that begins
forecast method is limited to motion ● Passenger automobiles weighing
during the 1997 tax year.
picture films, video tapes, sound 6,000 pounds or less.
recordings, copyrights, books, and However, do not file Form 4562 to ● Any other property used for
patents. You cannot use this method report depreciation and information
transportation if the nature of the
to depreciate any amortizable section on the use of vehicles if you are an
property lends itself to personal use,
197 intangible. employee deducting job-related
such as motorcycles, pick-up trucks,
vehicle expenses using either the
● For property placed in service after etc.
standard mileage rate or actual
August 5, 1997, the limits on ● Any property used for
expenses. Instead, use Form 2106,
depreciation and the section 179 entertainment or recreational
Employee Business Expenses, or
expense deduction that apply solely purposes (such as photographic,
Form 2106-EZ, Unreimbursed
to passenger automobiles have been phonographic, communication, and
Employee Business Expenses, for
(a) eliminated for the cost of installed video recording equipment).
this purpose.
qualified clean-fuel vehicle property ● Cellular telephones (or other similar
and (b) tripled for certain electric Submit a separate Form 4562 for
each business or activity on your telecommunications equipment).
vehicles. See page 8 for more details. ● Computers or peripheral
return. If you need more space,
attach additional sheets. However, equipment.
General Instructions complete only one Part I in its entirety Exception. Listed property does not
when computing your allowable include (a) photographic,
Purpose of Form section 179 expense deduction. phonographic, communication, or
Use Form 4562 to claim your video equipment used exclusively in
deduction for depreciation and Definitions a taxpayer's trade or business or at
amortization; to make the election to the taxpayer's regular business
expense certain tangible property Depreciation establishment; (b) any computer or
(section 179); and to provide Depreciation is the annual deduction peripheral equipment used
information on the allowed to recover the cost or other exclusively at a regular business
business/investment use of basis of business or income- establishment and owned or leased
automobiles and other listed property. producing property with a by the person operating the
determinable useful life of more than establishment; or (c) an ambulance,
1 year. However, land is not hearse, or vehicle used for
depreciable. transporting persons or property for

Cat. No. 12907Y


hire. For purposes of the preceding If you elect this deduction, reduce ● The cost of section 179 property
sentence, a portion of the taxpayer's the amount on which you figure your that is also qualified zone property
home is treated as a regular business depreciation or amortization (including such property placed in
establishment only if that portion deduction by the section 179 expense service by your spouse, even if you
meets the requirements under section deduction. are filing a separate return).
280A(c)(1) for deducting expenses Section 179 property does not Cross out the preprinted entry on
attributable to the business use of a include: line 1 and enter in the margin the
home. However, for any property 1. Property used 50% or less in larger amount if your business is an
listed under (a) above, the regular your trade or business. enterprise zone business. For the
business establishment of an definitions of enterprise zone
2. Property held for investment
employee is his or her employer's business and qualified zone property,
(section 212 property).
regular business establishment. see sections 1397B and 1397C.
3. Property you lease to others as
a noncorporate lessor unless (a) you Recapture Rule: If any qualified
Recordkeeping manufactured or produced the zone property placed in service
Except for Part V (relating to listed property or (b) the term of the lease during the current year ceases to be
property), the IRS does not require is less than 50% of the property's used in an empowerment zone by an
you to submit detailed information class life, and for the first 12 months enterprise zone business in a later
with your return on the depreciation after the property is transferred to the year, the benefit of the increased
of assets placed in service in previous lessee, the sum of the deductions section 179 expense deduction must
tax years. However, the information related to the property that are be reported as “other income” on your
needed to compute your depreciation allowed to you solely under section return.
deduction (basis, method, etc.) must 162 (except rents and reimbursed Line 2
be part of your permanent records. amounts) is more than 15% of the
Because Form 4562 does not rental income from the property. Enter the cost of all section 179
provide for permanent recordkeeping, 4. Property used mainly outside property placed in service during the
you may use the depreciation the United States (except for property tax year. Include amounts from any
worksheet on page 12 to assist you described in section 168(g)(4)). listed property from Part V. Also
in maintaining depreciation records. include any section 179 property
5. Property used for lodging or for placed in service by your spouse,
However, the worksheet is designed furnishing the lodging (except as
only for Federal income tax purposes. even if you are filing a separate
provided in section 50(b)(2)). return.
You may need to keep additional 6. Property used by a tax-exempt
records for accounting and state For an enterprise zone business,
organization (other than a section 521 include on this line only 50% of the
income tax purposes. farmers' cooperative) unless the cost of section 179 property that is
property is used mainly in a taxable also qualified zone property.
unrelated trade or business.
Specific Instructions 7. Property used by a Line 5
governmental unit or foreign person If line 5 is zero, you cannot elect to
Part I or entity (except for property used expense any property. Skip lines 6
under a lease with a term of less than through 11, enter zero on line 12, and
Caution: An estate or trust cannot 6 months).
make this election. enter the carryover of any disallowed
8. Air conditioning or heating deduction from 1996 on line 13.
You may elect to expense part of units.
the cost of certain tangible personal If you are married filing separately,
property used in your trade or The section 179 expense deduction you and your spouse must allocate
business and certain other property is subject to two separate limitations: the dollar limitation for the tax year.
described in section 1245(a)(3). To a dollar limitation and a taxable To do so, multiply the total limitation
do so, you must have: income limitation. Both limitations are that you would otherwise enter on line
● Purchased the property (as defined
figured in Part I. 5 by 50%, unless you both elect a
For a partnership, these limitations different allocation. If you both elect
in section 179(d)(2)) and
apply to the partnership and each a different allocation, multiply the total
● Placed it in service during the 1997
partner. For an S corporation, these limitation by the percentage elected.
tax year. limitations apply to the S corporation The sum of the percentages you and
You must make the election with: and each shareholder. For a your spouse elect must equal 100%.
1. The original return you file for controlled group, all component Do not enter on line 5 more than your
the tax year the property was placed members are treated as one share of the total dollar limitation.
in service (whether or not you file taxpayer.
your return on time), or Line 6
For more details on the section 179
2. An amended return filed no expense deduction, see Pub. 946, Caution: Do not include any listed
later than the due date (including How To Depreciate Property. property on line 6.
extensions) for your return for the tax Column (a). Enter a brief description
year the property was placed in Line 1 of the property for which you are
service. For an enterprise zone business, the making the election (e.g., truck, office
Once made, the election (and the maximum section 179 expense furniture, etc.).
selection of the property you elect to deduction of $18,000 is increased by Column (b). Enter the cost of the
expense) may not be revoked without the smaller of: property. If you acquired the property
IRS consent. ● $20,000 or through a trade-in, do not include any
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undepreciated basis of the assets you Partnerships. Enter the smaller of MACRS, see Pub. 946. For
traded in. See Pub. 551, Basis of line 5 or the aggregate of the information on other methods of
Assets, for more details. partnership's items of income and depreciation, see Pub. 534,
Column (c). Enter the amount you expense described in section 702(a) Depreciating Property Placed in
elect to expense. You do not have to from any trade or business the Service Before 1987.
expense the entire cost of the partnership actively conducted (other Depreciation may be an adjustment
property. You can depreciate the than credits, tax-exempt income, the for alternative minimum tax purposes.
amount you do not expense. See the section 179 expense deduction, and For details, see Form 4626,
line 15 and line 16 instructions. guaranteed payments under section Alternative Minimum
To report your share of a section 707(c)). Tax—Corporations; Form 6251,
179 expense deduction from a S corporations. Enter the smaller Alternative Minimum
partnership or an S corporation, write of line 5 or the aggregate of the Tax—Individuals; or Schedule I of
“from Schedule K-1 (Form 1065)” or corporation's items of income and Form 1041, U.S. Income Tax Return
“from Schedule K-1 (Form 1120S)” expense described in section 1366(a) for Estates and Trusts.
across columns (a) and (b). from any trade or business the
corporation actively conducted (other Section A
Line 10 than credits, tax-exempt income, the Line 14
The carryover of disallowed deduction section 179 expense deduction, and
from 1996 is the amount of section the deduction for compensation paid To simplify the computation of
179 property, if any, you elected to to the corporation's shareholder- MACRS depreciation, you may elect
expense in previous years, but not employees). to group assets into one or more
allowed as a deduction due to the Corporations other than S general asset accounts under section
business income limitation. If you filed corporations. Enter the smaller of 168(i)(4). The assets in each general
Form 4562 for 1996, enter the line 5 or the corporation's taxable asset account are depreciated as a
amount from line 13 of your 1996 income before the section 179 single asset.
Form 4562. For additional details, see expense deduction, net operating loss Each account must include only
Pub. 946. deduction, and special deductions assets that were placed in service
(excluding items not derived from a during the same tax year with the
Line 11 trade or business actively conducted same asset class (if any),
The section 179 expense deduction by the corporation). depreciation method, recovery period,
is further limited to the “business and convention. However, an asset
income” limitation under section Line 12 cannot be included in a general asset
179(b)(3). The limitations on lines 5 and 11 account if the asset is used both for
For purposes of the rules that apply to the taxpayer, and not to each personal purposes and
follow: separate business or activity. business/investment purposes.
● If you have to apply another Code Therefore, if you have more than one When an asset in an account is
section that has a limitation based on business or activity, you may allocate disposed of, the amount realized
taxable income, see Regulations your allowable section 179 expense generally must be recognized as
section 1.179-2(c)(5) for rules on how deduction among them. ordinary income. The unadjusted
to apply the business income To do so, write “Summary” at the depreciable basis and depreciation
limitation under section 179 in such a top of Part I of the separate Form reserve of the general asset account
case. 4562 you are completing for the are not affected as a result of a
● You are considered to actively aggregate amounts from all disposition.
conduct a trade or business if you businesses or activities. Do not Special rules apply to passenger
meaningfully participate in its complete the rest of that form. On line automobiles, assets generating
management or operations. A mere 12 of the Form 4562 you prepare for foreign source income, assets
passive investor is not considered to each separate business or activity, converted to personal use, and
actively conduct a trade or business. enter the amount allocated to the certain asset dispositions. For more
business or activity from the details, see Regulations section
Individuals. Enter the smaller of line 1.168(i)-1.
“Summary.” No other entry is required
5 or the aggregate taxable income
in Part I of the separate Form 4562 To make the election, check the
from any trade or business you
prepared for each business or box on line 14. You must make the
actively conducted, computed without
activity. election on your return filed no later
regard to any section 179 expense
deduction, the deduction for one-half than the due date (including
of self-employment taxes under Part II extensions) for the tax year in which
section 164(f), or any net operating The term “Modified Accelerated Cost the assets included in the general
loss deduction. Include in aggregate Recovery System” (MACRS) includes asset account were placed in service.
taxable income the wages, salaries, the General Depreciation System and Once made, the election is
tips, and other compensation you the Alternative Depreciation System. irrevocable and applies to the tax
earned as an employee (not reduced Generally, MACRS is used to year for which the election is made
by unreimbursed employee business depreciate any tangible property and all later tax years.
expenses). If you are married filing a placed in service after 1986. Section B
joint return, combine the aggregate However, MACRS does not apply to
taxable incomes for you and your films, videotapes, and sound Lines 15a Through 15i
spouse. recordings. See section 168(f) for Use lines 15a through 15i only for
other exceptions. For more details on assets placed in service during the
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tax year beginning in 1997 and 15-year property includes: 2. Use the following table to find
depreciated under the General ● Any municipal wastewater the classification in column (b) that
Depreciation System, except for treatment plant. corresponds to the class life of the
automobiles and other listed property ● Any telephone distribution plant and property in column (a).
(which are reported in Part V). comparable equipment used for
Column (a). Determine which 2-way exchange of voice and data (a) (b)
property you acquired and placed in Class life (in years) Classification
communications. (See Pub. 946)
service during the tax year beginning ● Any section 1250 property that is a
in 1997. Then, sort that property 4 or less ................................. 3-year property
retail motor fuels outlet (whether or More than 4 but less than 10. 5-year property
according to its classification (3-year not food or other convenience items 10 or more but less than 16 .. 7-year property
property, 5-year property, etc.) as are sold there). 16 or more but less than 20 .. 10-year property
shown in column (a) of lines 15a 20 or more but less than 25 .. 15-year property
20-year property includes: 25 or more ............................. 20-year property
through 15i. The classifications for
● Farm buildings (other than single
some property are shown below. For Column (b). For lines 15h and 15i,
property not shown, see Determining purpose agricultural or horticultural
structures). enter the month and year you placed
the classification on this page. the property in service. If you
● Municipal sewers not classified as
3-year property includes: converted property held for personal
25-year property. use to use in a trade or business or
● A race horse that is more than 2 25-year property is water utility
years old at the time it is placed in for the production of income, treat the
property, which is: property as being placed in service
service. ● Property that is an integral part of
● Any horse (other than a race horse)
on the conversion date.
the gathering, treatment, or Column (c). To find the basis for
that is more than 12 years old at the commercial distribution of water, that,
time it is placed in service. depreciation, multiply the cost or
without regard to this classification, other basis of the property by the
● Any qualified rent-to-own property
would be 20-year property. percentage of business/investment
(as defined in section 168(i)(14)) ● Municipal sewers. This use. From that result, subtract any
placed in service after August 5, classification applies to property section 179 expense deduction,
1997. placed in service after June 12, 1996, deduction for removal of barriers to
5-year property includes: except for property placed in service the disabled and the elderly, disabled
● Automobiles. under a binding contract in effect at access credit, and enhanced oil
● Light general purpose trucks. all times since June 9, 1996. recovery credit. See section 50(c) to
● Typewriters, calculators, copiers, Residential rental property is a determine the basis adjustment for
and duplicating equipment. building in which 80% or more of the investment credit property.
● Any semi-conductor manufacturing total rent is from dwelling units. Column (d). Determine the recovery
equipment. Nonresidential real property is period from the table on page 5,
● Any computer or peripheral any real property that is neither unless either 1 or 2 below applies.
equipment. residential rental property nor 1. You make an irrevocable
● Any section 1245 property used in
property with a class life of less than election to use the 150% declining
connection with research and 27.5 years. balance method of depreciation for
experimentation. 50-year property includes any 3-, 5-, 7-, or 10-year property
● Certain energy property specified in
improvements necessary to construct (excluding any tree or vine bearing
or improve a roadbed or right-of-way fruit or nuts). The election applies to
section 168(e)(3)(B)(vi). all property within the classification for
for railroad track that qualifies as a
7-year property includes: railroad grading or tunnel bore under which it is made that was placed in
● Office furniture and equipment. service during the tax year. If you
section 168(e)(4).
● Appliances, carpets, furniture, etc.,
There is no separate line to report elect this method, you must use the
used in residential rental property. 50-year property. Therefore, attach a recovery period under the Alternative
● Railroad track. statement showing the same Depreciation System (ADS)
● Any property that does not have a information as required in columns (a) discussed in the line 16 instructions.
class life and is not otherwise through (g). Include the deduction in You will not have an adjustment for
classified. the line 21 “Total” and write “See alternative minimum tax purposes on
attachment” in the bottom margin of the property for which you make this
10-year property includes: election.
● Vessels, barges, tugs, and similar
the form.
Determining the classification. If 2. You acquired qualified Indian
water transportation equipment. reservation property (as defined in
● Any single purpose agricultural or
your depreciable property is not listed
above, determine the classification as section 168(j)(4)). Qualified Indian
horticultural structure (see section reservation property does not include
168(i)(13)). follows.
1. Find the property's class life. property placed in service to conduct
● Any tree or vine bearing fruit or class I, II, or III gaming activities. The
nuts. See the Table of Class Lives and
Recovery Periods in Pub. 946. table for qualified Indian reservation
property can be found in Pub. 946.

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The mid-quarter convention treats applicable decimal amount from the
Recovery Period for Most Property all property placed in service (or tables in step 3 below. Or you may
disposed of) during any quarter as compute the deduction yourself by
The recovery
In the case of: period is: placed in service (or disposed of) on completing the following steps:
3-year property ............................ 3 yrs. the midpoint of that quarter. However, Step 1. Determine the depreciation
5-year property ............................ 5 yrs. no depreciation is allowed under this rate as follows.
7-year property ............................ 7 yrs. convention for property that is placed
10-year property .......................... 10 yrs. ● If you are using the 200% or 150%
15-year property .......................... 15 yrs. in service and disposed of within the declining balance method in column
20-year property .......................... 20 yrs. same tax year. (f), divide the declining balance rate
25-year property .......................... 25 yrs. Mid-month convention (MM).
Residential rental property .......... 27.5 yrs. (use 2.00 for 200 DB or 1.50 for 150
Nonresidential real property This convention applies ONLY to DB) by the number of years in the
placed in service before May 13, residential rental property, recovery period in column (d). For
1993............................................. 31.5 yrs. nonresidential real property (lines 15h example, for property depreciated
Nonresidential real property or 15i), and railroad gradings and
placed in service after May 12, using the 200 DB method over a
1993............................................. * 39 yrs. tunnel bores. It treats all property recovery period of 5 years, divide
Railroad gradings and tunnel placed in service (or disposed of) 2.00 by 5 for a rate of 40%.
bores............................................ 50 yrs. during any month as placed in service You must switch to the straight line
* The recovery period is 31.5 years for property (or disposed of) on the midpoint of rate in the first year that the straight
you placed in service before 1994, if you that month.
started construction on the property before May line rate exceeds the declining
13, 1993, or you had a binding written contract Enter “HY” for half-year, “MQ” for balance rate.
to buy or build it before that date. mid-quarter, or “MM” for mid-month ● If you are using the straight line
convention. method, divide 1.00 by the remaining
Column (e). The applicable Column (f). Applicable depreciation number of years in the recovery
convention determines the portion of methods are prescribed for each period as of the beginning of the tax
the tax year for which depreciation is classification of property. Except as year (but not less than one). For
allowable during a year property is otherwise stated below, the example, if there are 61/2 years
either placed in service or disposed applicable method for 3-, 5-, 7-, and remaining in the recovery period as
of. There are three types of 10-year property is the 200% of the beginning of the year, divide
conventions. To select the correct declining balance method, switching 1.00 by 6.5 for a rate of 15.38%.
convention, you must know when you to the straight line method in the first Step 2. Multiply the percentage
placed the property in service and the tax year that maximizes the rate determined in Step 1 by the
type of property. depreciation allowance. property's unrecovered basis (basis
Half-year convention (HY). This For 15- and 20-year property, for depreciation (as defined in column
convention applies to all property property used in a farming business, (c)) reduced by all prior year's
reported on lines 15a through 15g, and property for which you elected to depreciation).
unless the mid-quarter convention use the 150% declining balance Step 3. For property placed in
applies. It does not apply to method, the applicable method is the service or disposed of during the
residential rental property, 150% declining balance method, current tax year, multiply the result
nonresidential real property, and switching to the straight line method from Step 2 by the applicable decimal
railroad gradings and tunnel bores. It in the first tax year that maximizes the amount from the tables below (based
treats all property placed in service depreciation allowance. on the convention shown in column
(or disposed of) during any tax year For water utility property, residential (e)).
as placed in service (or disposed of) rental property, nonresidential real
on the midpoint of that tax year. property, any railroad grading or Half-year (HY) convention ......................... 0.5
Mid-quarter convention (MQ). If tunnel bore, or any tree or vine
the aggregate bases of property bearing fruit or nuts, the only Mid-quarter (MQ) convention
subject to depreciation under section applicable method is the straight line
168 and placed in service during the method. Placed in service
last 3 months of your tax year exceed You may also make an irrevocable (or disposed of) during Placed Disposed
40% of the aggregate bases of the: in service of
election to use the straight line
property subject to depreciation under 1st quarter .................. 0.875 0.125
method for all property within a 2nd quarter ................. 0.625 0.375
section 168 and placed in service classification that is placed in service 3rd quarter.................. 0.375 0.625
during the entire tax year, the during the tax year. 4th quarter .................. 0.125 0.875
mid-quarter, instead of the half-year,
Enter “200 DB” for 200% declining
convention applies.
balance, “150 DB” for 150% declining
In determining whether the balance, or “S/L” for straight line.
mid-quarter convention applies, do
Column (g). To compute the
not take into account the following:
depreciation deduction you may use
● Property that is being depreciated
optional Tables A through E, starting
under the pre-1987 rules. on page 10. To do this, multiply the
● Any residential rental property, applicable rate from the appropriate
nonresidential real property, or table by the property's unadjusted
railroad gradings and tunnel bores. basis (column (c)). See Pub. 946 for
● Property that is placed in service complete tables. If you disposed of
and disposed of within the same tax the property during the current tax
year. year, multiply the result by the
Page 5
Class life. Under ADS, the Line 18
Mid-month (MM) convention depreciation deduction for most Report property that you elect, under
property is based on the property's section 168(f)(1), to depreciate under
Placed in service class life. See the Table of Class
(or disposed of) during Placed Disposed the unit-of-production method or any
the: in service of
Lives and Recovery Periods in Pub. other method not based on a term of
946. Use line 16a for all property years (other than the retirement-
1st month.................... 0.9583 0.0417
2nd month .................. 0.8750 0.1250
depreciated under ADS, except replacement-betterment method).
3rd month ................... 0.7917 0.2083 property that does not have a class
4th month ................... 0.7083 0.2917 life, residential rental and Attach a separate sheet showing:
5th month ................... 0.6250 0.3750 ● A description of the property and
nonresidential real property, water
6th month ................... 0.5417 0.4583 the depreciation method you elect
7th month ................... 0.4583 0.5417 utility property, and railroad gradings
8th month ................... 0.3750 0.6250 and tunnel bores. that excludes the property from ACRS
9th month ................... 0.2917 0.7083 See section 168(g)(3) for special or MACRS.
10th month ................. 0.2083 0.7917 ● The depreciable basis (cost or
11th month ................. 0.1250 0.8750 rules for determining the class life for
12th month ................. 0.0417 0.9583 certain property. other basis reduced, if applicable, by
12-year property. Use line 16b for salvage value, any section 179
Short tax years. See Pub. 946 for property that does not have a class expense deduction, deduction for
rules on how to compute the life. removal of barriers to the disabled
depreciation deduction for property and the elderly, disabled access
placed in service in a short tax year. 40-year property. Use line 16c for
credit, and enhanced oil recovery
residential rental and nonresidential
credit).
Section C real property.
See section 50(c) to determine the
Water utility property and
Lines 16a Through 16c basis adjustment for investment credit
railroad gradings and tunnel bores.
property.
Complete lines 16a through 16c for These assets are 50-year property
assets, other than automobiles and under ADS. There is no separate line Line 19
other listed property, placed in service to report 50-year property. Therefore,
attach a statement showing the same Enter the total depreciation you are
ONLY during the tax year beginning
information required in columns (a) claiming for the following types of
in 1997 and depreciated under the
through (g). Include the deduction in property (except listed property and
Alternative Depreciation System.
the line 21 “Total” and write “See property subject to a section 168(f)(1)
Report on line 17 depreciation on
attachment” in the bottom margin of election):
assets placed in service in prior
● Accelerated cost recovery system
years. the form.
Column (b). For 40-year property, (ACRS) property (pre-1987 rules).
Under ADS, use the applicable
enter the month and year placed in See Pub. 534.
depreciation method, the applicable
● Property placed in service before
recovery period, and the applicable service or converted to use in a trade
convention to compute depreciation. or business or for the production of 1981.
income. ● Certain public utility property, which
The following types of property
must be depreciated under ADS: Column (c). See the instructions for does not meet certain normalization
● Tangible property used line 15, column (c). requirements.
● Certain property acquired from
predominantly outside the United Column (d). On line 16a, enter the
States. property's class life. related persons.
● Property acquired in certain
● Tax-exempt use property. Column (e). Under ADS, the
● Tax-exempt bond financed applicable conventions are the same nonrecognition transactions.
as those used under GDS. See the ● Certain sound recordings, movies,
property.
● Imported property covered by an
instructions for line 15, column (e). and videotapes.
Column (g). Compute the ● Property depreciated under the
executive order of the President of
the United States. depreciation deduction in the same income forecast method. For property
● Property used predominantly in a
manner as under GDS, except use placed in service after August 5,
the straight line method over the ADS 1997, the use of the income forecast
farming business and placed in
recovery period and use the method is limited to motion picture
service during any tax year in which
applicable convention. films, video tapes, sound recordings,
you made an election under section
copyrights, books, and patents. You
263A(d)(3).
Instead of depreciating property
Part III cannot use this method to depreciate
any amortizable section 197
under GDS (line 15), you may make Do not use Part III for automobiles intangible. See page 9 for more
an irrevocable election with respect to and other listed property. Instead, details on section 197 intangibles.
any classification of property for any report this property in Part V on page
● Intangible property, other than
tax year to use ADS. For residential 2 of Form 4562.
section 197 intangibles, including:
rental and nonresidential real
property, you may make this election Line 17 1. Computer software. Use the
separately for each property. For tangible property depreciated straight line method over 36 months.
Column (a). Use the following rules under MACRS, enter the GDS and 2. Any right to receive tangible
to determine the classification of the ADS deductions for the current year. property or services under a contract
property under ADS. To compute the deductions, see the or granted by a governmental unit
instructions for column (g), line 15. (not acquired as part of a business).

Page 6
3. Any interest in a patent or you must first determine the driven for trade or business purposes
copyright not acquired as part of a percentage of qualified business use or for the production of income during
business. for each property. Generally, a the year (not to include any
4. Residential mortgage servicing qualified business use is any use in commuting mileage) by the total
rights. Use the straight line method your trade or business. However, it number of miles the vehicle is driven
over 108 months. does not include any of the following: for all purposes. Treat vehicles used
See section 167(f) for more details. ● Investment use. by employees as being used 100%
● Leasing the property to a 5% owner for business/investment purposes if
Prior years' depreciation, plus
or related person. the value of personal use is included
current year's depreciation, can never
in the employees' gross income, or
exceed the depreciable basis of the ● The use of the property as
the employees reimburse the
property. compensation for services performed
employer for the personal use.
The basis and amounts claimed for by a 5% owner or related person.
Employers who report the amount
depreciation should be part of your ● The use of the property as
of personal use of the vehicle in the
permanent books and records. No compensation for services performed
employee's gross income, and
attachment is necessary. by any person (who is not a 5%
withhold the appropriate taxes, should
owner or related person), unless an
enter “100%” for the percentage of
Part IV amount is included in that person's
business/investment use. For more
income for the use of the property
information, see Pub. 463, Travel,
Line 21 and, if required, income tax was
Entertainment, Gift, and Car
A partnership or S corporation does withheld on that amount.
Expenses.
not include any section 179 expense Exception. If at least 25% of the
total use of any aircraft during the tax For listed property (such as
deduction (line 12) on this line. Any computers or video equipment),
section 179 expense deduction is year is for a qualified business use,
the leasing or compensatory use of allocate the use based on the most
passed through separately to the appropriate unit of time the property
partners and shareholders on the the aircraft by a 5% owner or related
person is treated as a qualified is actually used. See Temporary
appropriate line of their Schedules Regulations section 1.280F-6T.
K-1. business use.
Determine your percentage of If during the tax year you convert
Line 22 qualified business use similar to the property used solely for personal
method used to figure the purposes to business/investment use,
If you are subject to the uniform figure the percentage of
capitalization rules of section 263A, business/investment use percentage
in column (c). Your percentage of business/investment use only for the
enter the increase in basis from costs number of months you use the
you must capitalize. For a detailed qualified business use may be
smaller than the business/investment property in your business or for the
discussion of who is subject to these production of income. Multiply that
rules, which costs must be use percentage.
percentage by the number of months
capitalized, and allocation of costs For more information, see Pub. you use the property in your business
among activities, see Regulations 946. or for the production of income, and
section 1.263A-1. Column (a). List on a divide the result by 12.
property-by-property basis all your Column (d). Enter the property's
Part V listed property in the following order: actual cost (including sales tax) or
If you claim the standard mileage 1. Automobiles and other other basis (unadjusted for prior
rate, actual vehicle expenses vehicles; and years' depreciation). If you traded in
(including depreciation), or 2. Other listed property old property, your basis is the
depreciation on other listed property, (computers and peripheral adjusted basis of the old property
you must provide the information equipment, etc.). (figured as if 100% of the property's
requested in Part V, regardless of the In column (a), list the make and use had been for business/investment
tax year the property was placed in model of automobiles, and give a purposes) plus any additional amount
service. However, if you file Form general description of other listed you paid for the new property.
2106, 2106-EZ, or Schedule C-EZ property. For a vehicle, reduce your basis by
(Form 1040), report this information If you have more than five vehicles any diesel-powered highway vehicle
on that form and not in Part V. Also, used 100% for business/investment credit, qualified electric vehicle credit,
if you file Schedule C (Form 1040) purposes, you may group them by tax or deduction for clean-fuel vehicles
and are claiming the standard year. Otherwise, list each vehicle you claimed.
mileage rate or actual vehicle separately. If you converted the property from
expenses (except depreciation), and Column (b). Enter the date the personal use to business/investment
you are not required to file Form 4562 property was placed in service. If use, your basis for depreciation is the
for any other reason, report vehicle property held for personal use is smaller of the property's adjusted
information in Part IV of Schedule C converted to business/investment basis or its fair market value on the
and not on Form 4562. use, treat the property as placed in date of conversion.
Section A service on the date of conversion. Column (e). Multiply column (d) by
Column (c). Enter the percentage the percentage in column (c). From
Lines 24 and 25 of business/investment use. For that result, subtract any section 179
Qualified business use. To automobiles and other vehicles, expense deduction and half of any
determine whether to use line 24 or determine this percentage by dividing investment credit taken before 1986
line 25 to report your listed property, the number of miles the vehicle is (unless you took the reduced credit).

Page 7
For automobiles and other listed For computers placed in service in
Limits for Passenger Automobiles Placed
property placed in service after 1985 a tax year beginning in 1985, multiply in Service After 1994
(i.e., transition property), reduce the column (e) by 4.167%. For computers
depreciable basis by the entire placed in service in a tax year AND the
THEN the
number of
investment credit. beginning in 1986, multiply column (e) limit on your
IF you placed tax years in
depreciation
Column (f). Enter the recovery by 8.333%. your automobile which this
and section
in service: automobile
period. For property placed in service For property placed in service 179 expense
has been in
deduction is:
after 1986 and used more than 50% before 1987 that was disposed of service is:
in a qualified business use, use the during the year, enter zero. 1 $3,060
table in the line 15, column (d) Limits for passenger automobiles. Jan. 1, 1995– 2 $4,900
instructions. For property placed in The depreciation deduction plus Dec. 31, 1996 3 $2,950
service after 1986 and used 50% or section 179 expense deduction for 4 or more $1,775
less in a qualified business use, passenger automobiles is limited for
depreciate the property using the any tax year. Jan. 1– 1 $3,160 *
straight line method over its ADS Definition. “Passenger
Dec. 31, 1997 2 $5,000 *
recovery period. The ADS recovery automobiles” are 4-wheeled vehicles After Dec. 31,
period is 5 years for automobiles and manufactured primarily for use on 1997 1 *, * *
computers. public roads that are rated at 6,000 *For vehicles placed in service after August 5, 1997:
Column (g). Enter the method and pounds unloaded gross vehicle ● This limit does not apply to the cost of any
convention used to figure your weight or less. For a truck or van, qualified clean-fuel vehicle property (such as
depreciation deduction. See the retrofit parts and components) installed on a
gross vehicle weight is substituted for vehicle for the purpose of permitting that vehicle
instructions for line 15, columns (e) unloaded gross vehicle weight. to run on a clean-burning fuel. See section 179A
and (f). Write “200 DB,” “150 DB,” or Exception. The following vehicles for definitions.
“S/L,” for the depreciation method, are not considered passenger ● This limit is tripled for vehicles produced by an
and “HY,” “MM,” or “MQ,” for original equipment manufacturer and designed
automobiles: to run primarily on electricity.
half-year, mid-month, or mid-quarter ● An ambulance, hearse, or **The limit for automobiles placed in service after
conventions, respectively. For combination ambulance-hearse used Dec. 31, 1997, will be published in the Internal
property placed in service before in your trade or business. Revenue Bulletin. This amount was not available at
1987, write “PRE” if you used the the time these instructions were printed.
● A vehicle used in your trade or
prescribed percentages under ACRS.
business of transporting persons or Column (i). Enter the amount you
If you elected an alternate
property for compensation or hire. choose to expense for section 179
percentage, enter “S/L.”
For any passenger automobile you property used more than 50% in a
Column (h). See Limits for qualified business use (subject to the
passenger automobiles below list on line 24 or line 25, the total of
columns (h) and (i) for that limits for passenger automobiles
before entering an amount in noted above). Refer to the Part I
column (h). automobile cannot exceed the limit
shown in the tables below. The limit instructions to determine if the
For property used more than 50% property qualifies under section 179.
is further reduced when the
in a qualified business use (line 24) Be sure to include the total cost of
business/investment use percentage
and placed in service after 1986, such property (50% of the cost if
is less than 100%.
figure column (h) by following the qualified zone property placed in
instructions for line 15, column (g). If Example. If an automobile placed
in service in 1997 is used 60% for service by an enterprise zone
placed in service before 1987, business) on line 2, page 1.
multiply column (e) by the applicable business/investment purposes, the
limit generally is figured as follows: Recapture of depreciation and
percentage given in Pub. 534 for section 179 expense deduction.
ACRS property. If the recovery period $3,160 × 60% = $1,896. However,
the $3,160 limit is increased for For listed property used more than
for an automobile ended before your 50% in a qualified business use in the
tax year beginning in 1997, enter your certain clean-fuel and electric
vehicles. See the footnote below. year placed in service and used 50%
unrecovered basis, if any, in or less in a later year, you may have
column (h). For help in figuring the limit, use the
Worksheet for Passenger to recapture in the later year part of
For property used 50% or less in a the depreciation and section 179
qualified business use (line 25) and Automobiles in Pub. 946.
expense deduction. Use Form 4797,
placed in service after 1986, figure Limits for Passenger Automobiles Placed
in Service Before 1995 Sales of Business Property, to figure
column (h) by dividing column (e) by the recapture amount.
column (f) and using the same THEN the
limit on your
conventions as discussed in the IF you placed your depreciation Section B
instructions for line 15, column (e). automobile in service: and section
Except as noted below, you must
179 expense
The amount in column (h) cannot deduction is: complete items 28 through 34 for
exceed the property's unrecovered June 19–Dec. 31, 1984 $6,000 each vehicle identified in Section A.
basis. If the recovery period for an Employees must provide their
automobile ended before your tax Jan. 1–Apr. 2, 1985 $6,200
employers with the information
year beginning in 1997, enter your Apr. 3, 1985–Dec. 31, 1986 $4,800 requested in items 28 through 34 for
unrecovered basis, if any, in Jan. 1. 1987–Dec. 31, 1990 $1,475 each automobile or vehicle provided
column (h). Jan. 1, 1991–Dec. 31, 1992 $1,575 for their use.
Jan. 1, 1993–Dec. 31, 1994 $1,675 Exception. Employers are not
required to complete items 28 through
34 for vehicles used by employees

Page 8
who are not more than 5% owners or ● The employer establishes a written bonds acquired after October 22,
related persons and for which policy under which the employee may 1986, but before January 1, 1988, the
question 35, 36, 37, 38, or 39 is not use the vehicle for personal deduction is treated as interest
answered “Yes.” purposes, other than commuting or expense and is subject to the
de minimis personal use (e.g., a stop investment interest limitations. Use
Section C for a personal errand between a Form 4952, Investment Interest
For employers providing vehicles to business delivery and the employee's Expense Deduction, to compute the
their employees, two types of written home). allowable deduction.
policy statements will satisfy the ● Except for de minimis use, the For taxable bonds acquired after
employer's substantiation employer reasonably believes that the 1987, the amortization offsets the
requirements under section 274(d): employee does not use the vehicle for interest income. See Pub. 550,
● A policy statement that prohibits any personal purpose other than Investment Income and Expenses.
personal use including commuting, commuting.
and ● The employer accounts for the
Line 40
● A policy statement that prohibits commuting use by including an Complete line 40 only for those costs
personal use except for commuting. appropriate amount in the employee's for which the amortization period
An employee does not need to gross income. begins during your tax year beginning
keep a separate set of records for any For both written policy statements, in 1997.
vehicle that satisfies these written there must be evidence that would Column (a). Describe the costs you
policy statement rules. enable the IRS to determine whether are amortizing. You may amortize:
use of the vehicle meets the ● Pollution control facilities (section
Line 35 conditions stated above. 169, limited by section 291 for
A policy statement that prohibits corporations).
personal use (including commuting) Line 38
● Certain bond premiums (section
must meet all of the following An employer that provides more than 171).
conditions: five vehicles to its employees who are ● Research and experimental
● The employer owns or leases the not 5% owners or related persons expenditures (section 174).
vehicle and provides it to one or more need not complete Section B for such ● The cost of acquiring a lease
employees for use in the employer's vehicles. Instead, the employer must
obtain the information from its (section 178).
trade or business. ● Qualified forestation and
● When the vehicle is not used in the employees and retain the information
received. reforestation costs (section 194).
employer's trade or business, it is ● Business start-up expenditures
kept on the employer's business Line 39
premises, unless it is temporarily (section 195).
located elsewhere (e.g., for An automobile meets the ● Organizational expenditures for a

maintenance or because of a requirements for qualified corporation (section 248) or


mechanical failure). demonstration use if the employer partnership (section 709).
maintains a written policy statement ● Optional write-off of certain tax
● No employee using the vehicle lives
that: preferences over the period specified
at the employer's business premises. ● Prohibits its use by individuals other
● No employee may use the vehicle
in section 59(e).
than full-time automobile salesmen. ● Certain section 197 intangibles,
for personal purposes, other than de ● Prohibits its use for personal
minimis personal use (e.g., a stop for which generally include the following:
lunch between two business vacation trips. 1. Goodwill.
● Prohibits storage of personal
deliveries). 2. Going concern value.
● Except for de minimis use, the
possessions in the automobile. 3. Workforce in place.
● Limits the total mileage outside the
employer reasonably believes that no 4. Business books and records,
employee uses the vehicle for any salesmen's normal working hours. operating systems, or any other
personal purpose. information base.
Part VI 5. Any patent, copyright, formula,
Line 36
Each year you may elect to deduct process, design, pattern, knowhow,
A policy statement that prohibits part of certain capital costs over a format, or similar item.
personal use (except for commuting) fixed period. If you amortize property,
is not available if the commuting 6. Any customer-based intangible
the part you amortize does not qualify (e.g., composition of market or market
employee is an officer, director, or 1% for the election to expense certain
or more owner. This policy must meet share).
tangible property or for depreciation. 7. Any supplier-based intangible.
all of the following conditions:
For individuals reporting 8. Any license, permit, or other
● The employer owns or leases the
amortization of bond premium for right granted by a governmental unit.
vehicle and provides it to one or more bonds acquired before October 23,
employees for use in the employer's 1986, do not report the deduction 9. Any covenant not to compete
trade or business, and it is used in the here. See the instructions for entered into in connection with the
employer's trade or business. Schedule A (Form 1040), line 27. acquisition of a business.
● For bona fide noncompensatory
For taxpayers (other than 10. Any franchise (other than a
business reasons, the employer corporations) claiming a deduction for sports franchise), trademark, or trade
requires the employee to commute to amortization of bond premium for name.
and/or from work in the vehicle.

Page 9
Section 197 intangibles must be 2. Multiplying column (c) by the instructions must be retained as long
amortized over 15 years starting with percentage in column (e). as their contents may become
the month the intangibles were Attach any other information the material in the administration of any
acquired. Code and regulations may require to Internal Revenue law. Generally, tax
Column (b). Enter the date the make a valid election. See Pub. 535 returns and return information are
amortization period begins under the for more information. confidential, as required by section
applicable Code section. 6103.
Column (c). Enter the total amount The time needed to complete and
you are amortizing. See the Paperwork Reduction Act Notice. file this form will vary depending on
applicable Code section for limits on We ask for the information on this individual circumstances. The
the amortizable amount. form to carry out the Internal Revenue estimated average time is:
Column (d). Enter the Code section laws of the United States. You are
Recordkeeping ........................ 34 hr., 41 min.
under which you amortize the costs. required to give us the information.
We need it to ensure that you are Learning about the
Column (f). Compute the complying with these laws and to
law or the form........................ 5 hr., 4 min.
amortization deduction by: allow us to figure and collect the right Preparing and sending
1. Dividing column (c) by the the form to the IRS ................. 5 hr., 51 min.
amount of tax.
number of months over which the You are not required to provide the If you have comments concerning
costs are to be amortized, and information requested on a form that the accuracy of these time estimates
multiplying the result by the number is subject to the Paperwork Reduction or suggestions for making this form
of months in the amortization period Act unless the form displays a valid simpler, we would be happy to hear
included in your tax year beginning in OMB control number. Books or from you. See the instructions for the
1997; or records relating to a form or its tax return with which this form is filed.

Table A—General Depreciation System


Method: 200% declining balance switching to straight line
Convention: Half-year
If the recovery period is:
Year 3 years 5 years 7 years 10 years
1 33.33% 20.00% 14.29% 10.00%
2 44.45% 32.00% 24.49% 18.00%
3 14.81% 19.20% 17.49% 14.40%
4 7.41% 11.52% 12.49% 11.52%
5 11.52% 8.93% 9.22%
6 5.76% 8.92% 7.37%
7 8.93% 6.55%
8 4.46% 6.55%
9 6.56%
10 6.55%
11 3.28%

Table B—General and Alternative Depreciation System


Method: 150% declining balance switching to straight line
Convention: Half-year
If the recovery period is:
Year 5 years 7 years 10 years 12 years 15 years 20 years
1 15.00% 10.71% 7.50% 6.25% 5.00% 3.750%
2 25.50% 19.13% 13.88% 11.72% 9.50% 7.219%
3 17.85% 15.03% 11.79% 10.25% 8.55% 6.677%
4 16.66% 12.25% 10.02% 8.97% 7.70% 6.177%
5 16.66% 12.25% 8.74% 7.85% 6.93% 5.713%
6 8.33% 12.25% 8.74% 7.33% 6.23% 5.285%
7 12.25% 8.74% 7.33% 5.90% 4.888%
8 6.13% 8.74% 7.33% 5.90% 4.522%
9 8.74% 7.33% 5.91% 4.462%
10 8.74% 7.33% 5.90% 4.461%
11 4.37% 7.32% 5.91% 4.462%
12 7.33% 5.90% 4.461%

Page 10
Table C—General Depreciation System
Method: Straight line
Convention: Mid-month
Recovery period: 27.5 years
The month in the 1st recovery year the property is placed in service:
Year 1 2 3 4 5 6 7 8 9 10 11 12
1 3.485% 3.182% 2.879% 2.576% 2.273% 1.970% 1.667% 1.364% 1.061% 0.758% 0.455% 0.152%
2–9 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636%
10, 12 3.637% 3.637% 3.637% 3.637% 3.637% 3.637% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636%
11 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.637% 3.637% 3.637% 3.637% 3.637% 3.637%

Table D—General Depreciation System


Method: Straight line
Convention: Mid-month
Recovery period: 31.5 years
The month in the 1st recovery year the property is placed in service:
Year 1 2 3 4 5 6 7 8 9 10 11 12
4–7 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175%
8 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175%
9, 11 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175%
10, 12 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174%

Table E—General Depreciation System


Method: Straight line
Convention: Mid-month
Recovery period: 39 years
The month in the 1st recovery year the property is placed in service:
Year 1 2 3 4 5 6 7 8 9 10 11 12

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

Page 11
Depreciation Worksheet

Page 12
Date Cost or Business/ Section Depreciation Prior Basis for Method/ Recovery Rate or Depreciation
Description of Property Placed in Other Investment 179 Years Depreciation Convention Period Table Deduction
Service Basis Use % Deduction %

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