Supplement to Publication 946 |
2001 Tax Year |
Special Depreciation Allowance
You can take a special depreciation allowance for qualified property you place
in service after September 10, 2001. The allowance is an additional deduction of
30% of the property's depreciable basis. To figure the depreciable basis, you
must first multiply the property's cost or other basis by the percentage of
business/investment use and then reduce that amount by any section 179 deduction
and certain other deductions and credits for the property. See What Is the
Basis for Depreciation? on page 23 in
Publication 946 for more information on figuring depreciable basis.
The allowance is deductible for both regular tax and alternative minimum tax
(AMT) purposes. There is no AMT adjustment required for any depreciation figured
on the remaining basis of the property. In the year you claim the allowance
(generally the year you place the property in service), you must reduce the
depreciable basis of the property by the allowance before figuring your regular
depreciation deduction.
Example 1. On November 1, 2001, you bought and placed in service
in your business qualified property that cost $100,000. You did not elect to
claim a section 179 deduction. You can deduct 30% of the cost ($30,000) as a
special depreciation allowance for 2001. You use the remaining $70,000 of cost to
figure your regular depreciation deduction for 2001 and later years.
Example 2. The facts are the same as in Example 1, except that
you choose to deduct $24,000 of the property's cost as a section 179 deduction.
You use the remaining $76,000 of cost to figure your special depreciation
allowance of $22,800 ($76,000 ? 30%). You use the remaining $53,200 of cost to
figure your regular depreciation deduction for 2001 and later years.
Qualified Property To qualify for the special depreciation allowance,
your property must meet the following requirements.
- It is new property of one of the following types.
- Property depreciated under the modified accelerated cost recovery system
(MACRS) with a recovery period of 20 years or less. See Can You Use MACRS
To Depreciate Your Property and Which Recovery Period Applies? on
pages 7 and 23, respectively, in
Publication 946.
- Water utility property. See 25-year
property on page 22 in Publication
946.
- Computer software that is not a section 197
intangible as described in Computer software
on page 5 in Publication
946. (The cost of some computer software is
treated as part of the cost of hardware and is
depreciated under MACRS.)
- Qualified leasehold improvement property
(defined later).
- It meets the following tests (explained later
under Tests To Be Met).
- Acquisition date test.
- Placed in service date test.
- Original use test.
- It is not excepted property
(explained later under Excepted Property).
Qualified leasehold improvement property. Generally, this is any
improvement to an interior part of a building that is nonresidential real
property, provided all of the following requirements are met.
- The improvement is made under or pursuant to a lease by the lessee (or any
sublessee) or the lessor of that part of the building.
- That part of the building is to be occupied exclusively by the lessee (or
any sublessee) of that part.
- The improvement is placed in service more than 3 years after the date the
building was first placed in service.
However, a qualified leasehold improvement does not include any improvement for
which the expenditure is attributable to any of the following.
- The enlargement of the building.
- Any elevator or escalator.
- Any structural component benefiting a common area.
- The internal structural framework of the building.
Generally, a binding commitment to enter into a lease is treated as a lease and
the parties to the commitment are treated as the lessor and lessee. However, a
binding commitment between related persons is not treated as a lease.
Related persons. For this purpose, the following are related
persons.
- Members of an affiliated group.
- The persons listed in items (1) through (9) under
Related persons on page 8 of Publication
946 (except that "80% or more" should be substituted for "more than 10%" each place it
appears).
- An executor and a beneficiary of the same estate.
Tests To Be Met
To qualify for the special depreciation allowance, the property must meet all
of the following tests.
Acquisition date test. Generally, you must have acquired the property
either:
- After September 10, 2001, and before September 11,
2004, but only if no written binding contract for the
acquisition was in effect before September 11, 2001,
or
- Pursuant to a written binding contract entered
into after September 10, 2001, and before September
11, 2004.
Property you manufacture, construct, or produce for your own use meets this
test if you began the manufacture, construction, or production of the property
after September 10, 2001, and before September 11, 2004.
Placed in service date test. Generally, the property must be placed in
service for use in your trade or business or for the production of income after
September 10, 2001, and before January 1, 2005.
If you sold property you placed in service after September 10, 2001, and you
leased it back within 3 months after the property was originally placed in
service, the property is treated as placed in service no earlier than the date it
is used under the leaseback.
Original use test. The original use of the property must have begun
with you after September 10, 2001. "Original use" means the first use to which
the property is put, whether or not by you. Additional capital expenditures you
incurred after September 10, 2001, to recondition or rebuild your property meet
the original use test.
Excepted Property
The following property does not qualify for the special depreciation
allowance.
- Property used by any person before September 11,
2001.
- Property required to be depreciated using ADS.
This includes listed property used 50% or less in a
qualified business use.
- Qualified New York Liberty Zone leasehold
improvement property (defined next).
Qualified New York Liberty Zone leasehold improvement property. This is
any qualified leasehold improvement property (as defined earlier) if all of the
following requirements are met.
- The improvement is to a building located in the
New York Liberty Zone (defined later under New York
Liberty Zone Benefits).
- The improvement is placed in service after
September 10, 2001, and before January 1, 2007.
- No written binding contract for the improvement
was in effect before September 11, 2001.
Election Not To Claim the Allowance
You can elect not to claim the special depreciation allowance
for qualified property. If you make this election for any property, it applies to
all property in the same property class placed in service during the year. To
make this election, attach a statement to your return indicating you elect not to
claim the allowance and the class of property for which you are making the
election.
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. At the top of the election
statement, write "Filed pursuant to section 301.9100-2." Revoking an
election. Once you elect not to deduct the special depreciation allowance for
a class of property, you cannot revoke the election without IRS consent. A
request to revoke the election is subject to a user fee.
Rules for Returns Filed Before June 1, 2002
The following rules apply if you placed qualified property in service after
September 10, 2001, and filed your return before June 1, 2002. The rules apply to
returns for the following years.
- 2000 fiscal years that end after September 10, 2001.
- 2001 calendar and fiscal years.
Claiming the allowance. If you did not claim the allowance on your
return and did not make the election not to claim the allowance, you can do
either of the following to claim the allowance.
- File an amended return by the due date (not
including extensions) of your return for the year
following the year the property was placed in service.
Write "Filed Pursuant to Rev. Proc. 2002-33" at the
top of the amended return.
- File Form 3115, Application for Change in
Accounting Method, with your return for the year
following the year the property was placed in service.
Your return must be filed by the due date (including
extensions). Write "Automatic Change Filed Under Rev.
Proc. 2002-33" on the appropriate line of Form 3115.
You must also file a copy (with signature) of the
completed Form 3115 with the IRS National Office no
later than when you file the original with your
return. For more information about filing Form 3115,
including the address to send it to, see Revenue
Procedure 2002-9, Revenue Procedure 2002-19, and
Revenue Procedure 2002-33.
Example 1. You are an individual and you use the calendar year.
You placed qualified property in service for your business in December 2001. You
filed your 2001 income tax return before April 15, 2002. You did not claim the
special depreciation allowance for the property and did not make the election not
to claim the allowance. You can claim the special allowance by filing an amended
2001 return by April 15, 2003, with "Filed Pursuant to Rev. Proc. 2002-33" at the
top of the amended return. You must file an amended return by April 15, 2003,
even if you get an extension of time to file your 2002 tax return.
Example 2. The facts concerning your 2001 return are the same as
in Example 1. In addition, you got an automatic 4-month extension of time
(to August 15, 2003) to file your 2002 return. You can claim the special
allowance by filing a Form 3115 (with "Filed Pursuant to Rev. Proc. 2002-33" on
the appropriate line) with your 2002 return by August 15, 2003. You must also
file a copy of this Form 3115 with the IRS National Office no later than when you
file your 2002 return.
Electing not to claim the allowance. Generally, you have elected
not to claim the special depreciation allowance for a class of property
if you:
- Filed your return timely (including extensions)
for the year you placed qualified property in service
and indicated on a statement with the return that you
are not claiming the allowance, or
- Filed your return timely and filed an amended
return within 6 months of the due date of the original
return (not including extensions) and indicated on a
statement with the amended return that you are not
claiming the allowance.
The statement must indicate that you are not deducting the special depreciation
allowance and the class of property to which the election applies. The statement
can be either attached to or written on the return. You can, for example, write
"not deducting 30%" on Form 4562.
Deemed election. If you have not followed either of the
procedures described above to elect not to claim the allowance, you
may still be treated as making the election. You will be treated as making the
election if you meet both of the following conditions.
- You filed your return for the year you placed the
property in service and claimed depreciation, but not
the special allowance, for any class of property.
- You do not file an amended return or a Form 3115
within the time prescribed for claiming the special
allowance. See Claiming the allowance, earlier.
Passenger Automobiles
The limit on your depreciation deduction (including any section 179 deduction)
for any passenger automobile that is qualified property (defined earlier) placed
in service after September 10, 2001, and for which you claim the special
depreciation allowance is increased. Generally, the limit is increased from
$3,060 to $7,660. However, if the automobile is a qualified electric car, the
limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002).
Table 1 shows the maximum deduction amounts for 2001.
Table 1. Maximum Deduction for 2001
Qualified Vehicle |
Placed in Service Before Sept. 11 |
Placed in Service After Sept. 10 |
Passenger automobile |
$3,060 |
$ 7,660 |
Electric car |
9,280 |
23,0801 |
1$22,980 if you place an electric car in service in 2002.
Election not to claim the allowance. The increased maximum depreciation
deduction does not apply if you elected not to claim the special
depreciation allowance as explained earlier under Election Not To Claim the
Allowance and Rules for Returns Filed Before June 1, 2002.
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