Important Changes

Special depreciation allowance.   You can take a special depreciation allowance (or Liberty Zone depreciation allowance) for qualified property (or Liberty Zone property) you place in service during 2002. The allowance is an additional deduction of 30% of the property's depreciable basis. See chapter 3, Claiming the Special Depreciation Allowance (or Liberty Zone Depreciation Allowance).

Increased section 179 deduction for enterprise zone businesses.   If you placed section 179 property in service in an empowerment zone during 2002, you may be able to increase your section 179 deduction by as much as $35,000 (up from $20,000). See Increased dollar limit under Enterprise Zone Businesses in chapter 2.

For information on empowerment zones and enterprise communities, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities.

Increased section 179 deduction for businesses in the Liberty Zone.   If you placed section 179 property in service in the New York Liberty Zone during 2002, you may be able to increase your section 179 deduction by as much as $35,000. See Increased dollar limit under Liberty Zone Property in chapter 2.

Reduced section 179 dollar limit for Liberty Zone property exceeding $200,000.   Generally, you must reduce the dollar limit on the section 179 deduction for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. You take into account only 50% (instead of 100%) of the cost of section 179 property which is qualified Liberty Zone property placed in service in a year. See Reduced dollar limit under Liberty Zone Property in chapter 2.

Depreciation limits on business cars and electric vehicles.   The total section 179 deduction and depreciation (including the special depreciation allowance) you can take on a car (that is not an electric vehicle) you use in your business and first place in service in 2002 is generally $7,660. The maximum depreciation deduction for an electric vehicle that you first place in service in 2002 is generally $22,980. For the maximum depreciation you can deduct in later years, see Maximum Depreciation Deduction in chapter 5.

Important Reminder

Photographs of missing children.   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Introduction

This publication explains how you can recover the cost of business or income-producing property through the special depreciation allowance (or Liberty Zone depreciation allowance) and deductions for depreciation under the Modified Accelerated Cost Recovery System. It also explains how you can elect to take a section 179 deduction, instead of depreciation deductions, for certain property and the additional rules for listed property. In addition, the publication describes how to figure depreciation and how to fill out Form 4562, Depreciation and Amortization.

The depreciation methods discussed in this publication generally do not apply to property placed in service before 1987. If you want information about depreciating such property, see Publication 534.

Definitions.   Many of the terms used in this publication are defined in the Glossary near the end of the publication.

Do you need a different publication?   The following table shows where you can get more detailed information when depreciating certain types of property.

For information on depreciating:	See Publication:
A car	463, Travel, Entertainment, Gift, and Car Expenses
Residential rental property	527, Residential Rental Property
Office space in your home	587, Business Use of Your Home
Farm property	225, Farmer's Tax Guide

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Internal Revenue Service
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