Words you may need to know (see Glossary):

• Listed property
• Nonresidential real property
• Placed in service
• Property class
• Recovery period
• Residential rental property
• Tangible property
• Tax exempt

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 generally must use GDS unless you are specifically required by law to use ADS or you elect to use it.

Required use of ADS. You must use ADS for the following property.

• Listed property used 50% or less for business. (See chapter 4 for information on listed property.)
• Any tangible property used predominantly outside the United States during the year.
• Any tax-exempt use property.
• Any tax-exempt bond-financed property.
• All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect.
• Any imported property covered by an executive order of the President of the United States.
• Any property for which an election to use ADS was made (discussed next).

Electing ADS. Although your property may qualify for GDS, you can elect to use ADS. The election generally must 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 line 16 in Part II of Form 4562.

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