How Can You Elect Not To Claim an Allowance?

You can elect not to claim the special depreciation allowance (or Liberty Zone depreciation allowance) for qualified property (or Liberty Zone 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 a special depreciation allowance (or Liberty Zone depreciation allowance) for a class of property, you cannot revoke the election (not to deduct) without IRS consent. A request to revoke the election is subject to a user fee.

When Must You Recapture an Allowance?

When you dispose of property that you depreciated, 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. A special depreciation allowance (or Liberty Zone depreciation allowance) claimed for qualified property (or Liberty Zone property) is considered to be depreciation for this purpose and is therefore subject to recapture. See When Do You Recapture MACRS Depreciation? in chapter 4 for more information.

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