Additional Rules for Listed Property

This part discusses the depreciation deduction limits and other special rules that apply to certain listed property. It also discusses the recordkeeping rules for listed property. Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers and cellular phones.

Deductions for listed property (other than certain leased property) are subject to the following limits and special rules.

• Limit for employees.
• Business-use limits and rules.
• Passenger automobile limits and rules.

What Is Listed Property?

Listed property is any of the following.

• Any passenger automobile.
• Any other vehicle used for transportation, unless it is an excepted vehicle.
• Any property of a type generally used for entertainment, recreation, or amusement.
• Any computer and related peripheral equipment unless it is used only at a regular business establishment and owned or leased by the person operating the establishment.
• Any cellular telephone (or similar telecommunication equipment).

Passenger automobiles. 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 or usually included in the purchase price of an automobile.

Other vehicles used for transportation. This includes trucks, buses, boats, airplanes, motorcycles, and other vehicles used for transporting persons or goods.

Excepted vehicles. The following vehicles are not listed property.

• Tractors and other special purpose farm vehicles.
• Bucket trucks (cherry pickers), dump trucks, flatbed trucks, and refrigerated trucks.
• Combines, cranes and derricks, and forklifts.
• Buses with a capacity of at least 20 passengers that are used as passenger buses.

Does the Limit for Employees Apply?

If you are an employee, the use of your listed property (whether owned or rented) in performing services as an employee is a business use only if both the following requirements are met.

• The use is for your employer's convenience.
• The use is required as a condition of your employment.

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.

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.

Do the Business-Use Limits Apply?

The business-use limits apply to listed property not used predominantly (more than 50% of its total use) for qualified business use. 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 depreciable basis of the property.

Under this limit, the following rules apply.

• Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction.
• Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. This rule applies each year of the recovery period.
• Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use.
• A lessee must include an amount in income if the leased property is not used predominantly for qualified business use.

To determine whether this limit applies, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses.

Do the Passenger Automobile Limits Apply?

The depreciation deduction (including the section 179 deduction) you can claim for a passenger automobile each year is limited. (For the definition of a passenger automobile, see What Is Listed Property, earlier.)

Exception for clean fuel modifications. The passenger automobile limits do not apply to any costs you pay to retrofit parts and components to modify an automobile to run on clean fuel. The limits apply only to the cost of the automobile without this modification.

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.

Maximum Depreciation Deduction

Determine the maximum depreciation deduction you can claim for a passenger automobile based on the date you placed it in service. The maximum deductions (in dollar amounts) for most passenger automobiles for 2000 are shown in the following table.

Maximum Depreciation Deduction
for Passenger Automobiles

If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount proportionately.

Clean-fuel vehicles. The maximum depreciation deductions for passenger automobiles that run on clean fuel are higher than those for other automobiles. The maximum deductions (in dollar amounts) for clean-fuel vehicles for 2001 are shown in the following table.

Maximum Depreciation Deduction
for Clean-Fuel Vehicles

For more information on clean-fuel vehicles, see chapter 12 of Publication 535, Business Expenses.

Car expenses. For information about deducting expenses for the business use of your passenger automobile, see chapter 4 in Publication 463.

What Records Must Be Kept?

You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove business and investment use with adequate records or sufficient evidence to support your own statements.

Adequate records. 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.

How long to keep records. For listed property, you must keep records for as long as any excess depreciation can be recaptured (included in income). Recapture can occur in any tax year of the recovery period.

For more information on records, see chapter 4 in Publication 946.

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