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Publication 946, How To Depreciate Property

• Important Changes
• Important Reminder
• 1. Overview of Depreciation
  • What Property Can Be Depreciated?
    • Property You Own
    • Property Used in Your Business or Income-Producing Activity
    • Property Having a Determinable Useful Life
    • Property Lasting More Than One Year
    • Excepted Property

  • When Does Depreciation Begin and End?
    • Placed in Service
    • Idle Property
    • Cost or Other Basis Fully Recovered
    • Retired From Service

  • Can You Use MACRS To Depreciate Your Property?
    • Property You Placed in Service Before 1987
    • Property Owned or Used in 1986
    • Intangible Property
      • Straight Line Method
      • Income Forecast Method

    • Films, Video Tapes, and Recordings
    • Corporate or Partnership Property Acquired in a Nontaxable Transfer
    • Election To Exclude Property From MACRS

  • What Is the Basis of Your Depreciable Property?
    • Cost as Basis
    • Other Basis
    • Property Changed From Personal Use
    • Adjusted Basis

  • How Do You Treat Improvements?
  • Do You Have To File Form 4562?
  • How Do You Correct Depreciation Deductions?
    • Filing an Amended Return
    • Changing Your Accounting Method

• 2. Electing the Section 179 Deduction
  • What Property Qualifies?
    • Eligible Property
    • Property Acquired for Business Use
    • Property Acquired by Purchase
    • Excepted Property

  • How Much Can You Deduct?
    • Dollar Limit
      • Reduced Dollar Limit for Cost Exceeding $200,000
      • Liberty Zone Property
      • Enterprise Zone Businesses
      • Additional Limit for Passenger Automobiles
      • Married Individuals

    • Business Income Limit
    • Partnerships and Partners
    • S Corporations
    • Other Corporations

  • How Do You Elect the Deduction?
  • When Must You Recapture the Deduction?

• 3. Claiming the Special Depreciation Allowance (or Liberty Zone Depreciation Allowance)
  • What Is Qualified Property?
    • Tests To Be Met
    • Excepted Property

  • What Is Qualified Liberty Zone Property?
    • Tests To Be Met
    • Excepted Property

  • How Much Can You Deduct?
  • How Can You Elect Not To Claim an Allowance?
  • When Must You Recapture an Allowance?

• 4. Figuring Depreciation Under MACRS
  • Which Depreciation System (GDS or ADS) Applies?
  • Which Property Class Applies Under GDS?
  • What Is the Placed-in-Service Date?
  • What Is the Basis for Depreciation?
  • Which Recovery Period Applies?
    • Recovery Periods Under GDS
      • Indian Reservation Property

    • Recovery Periods Under ADS
    • Additions and Improvements

  • Which Convention Applies?
  • Which Depreciation Method Applies?
    • Depreciation Methods for Farm Property
    • Electing a Different Method

  • How Is the Depreciation Deduction Figured?
    • Using the MACRS Percentage Tables
      • Rules Covering the Use of the Tables
      • Figuring the Unadjusted Basis of Your Property
      • MACRS Worksheet
      • Examples
      • Sale or Other Disposition Before the Recovery Period Ends

    • Figuring the Deduction Without Using the Tables
      • Declining Balance Method
      • Straight Line Method
      • Using the Applicable Convention
      • Examples

    • Figuring the Deduction for Carried-Over-Basis Property
      • Property Acquired in an Exchange or Involuntary Conversion
      • Property Acquired in a Nontaxable Transfer

    • Figuring the Deduction for a Short Tax Year
      • Using the Applicable Convention in a Short Tax Year
      • Property Placed in Service in a Short Tax Year
      • Property Placed in Service Before a Short Tax Year
      • Depreciation After a Short Tax Year

  • How Do You Use General Asset Accounts?
    • Grouping Property
    • Figuring Depreciation for a GAA
    • Disposing of GAA Property
    • Terminating GAA Treatment
    • Electing To Use a GAA

  • When Do You Recapture MACRS Depreciation?

• 5. Additional Rules for Listed Property
  • What Is Listed Property?
    • Passenger Automobiles
    • Other Property Used for Transportation
    • Computers and Related Peripheral Equipment

  • Can Employees Claim a Deduction?
  • What Is the Business-Use Requirement?
    • How To Allocate Use
    • Qualified Business Use
      • Investment Use

    • Recapture of Excess Depreciation
    • Lessee

  • Do the Passenger Automobile Limits Apply?
    • Maximum Depreciation Deduction
      • Electric Vehicles
      • Depreciation Worksheet for Passenger Automobiles

    • Deductions After the Recovery Period

  • What Records Must Be Kept?
    • Adequate Records
    • How Long To Keep Records

  • How Is Listed Property Information Reported?

• 6. Comprehensive Example
  • Depreciation Worksheet
  • Form 4562

• 7. How To Get Tax Help
• Appendix B - Table of Class Lives and Recovery Periods
  • How To Use the Tables

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Index

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A

• Adjusted basis
• Agreement not to compete ( See Section 197 intangibles )
• Agricultural structure, defined
• Alternative Depreciation System (ADS), Required use
• Amended return
• Apartment, Rental
• Automobile ( See Passenger automobile )

B

• Basis, Adjustments
• Basis, Adjustments
• Basis, Adjustments
• Basis, Adjustments
• Basis, Basis for depreciation
• Basis, Changed from personal use
• Basis, Cost
• Basis, Depreciable basis
• Basis, Other than cost
• Basis, Term interest
• Basis, Unadjusted
• Business-use requirement, listed property

C

• Carryover of section 179 deduction
• Cellular telephone ( See Listed property )
• Changing accounting method
• Commuting
• Computer ( See Listed property )
• Containers
• Cooperative apartment
• Copyright ( See also Section 197 intangibles )
• Correcting depreciation deductions

D

• Declining balance, Method
• Declining balance, Rates
• Deduction limit, Exception for clean-fuel modifications
• Depreciation, Excepted property
• Depreciation, Methods
• Depreciation, Property lasting more than one year
• Depreciation, Property owned
• Depreciation, Property used in business
• Depreciation, Recapture
• Depreciation, Recapture
• Disposition, Before recovery period ends
• Disposition, Section 179 deduction

E

• Election, ADS
• Election, Declining balance (150% DB) method
• Election, Exclusion from MACRS
• Election, General asset account
• Election, Not to claim special (Liberty Zone) depreciation allowance
• Election, Section 179 deduction
• Election, Straight line method
• Employee, Depreciation deduction
• Employee, How to claim depreciation
• Energy property

F

• Farm, Business, defined
• Figuring MACRS, Using percentage tables
• Figuring MACRS, Without using percentage tables
• Franchise ( See Section 197 intangibles )

G

• General asset account, Disposing of property
• General asset account, Grouping property in
• General asset account, Nonrecognition transaction
• Gift ( See Basis, other than cost )
• Glossary

H

• Horticultural structure, defined

I

• Improvements
• Income forecast method
• Indian reservation, Defined
• Indian reservation, Qualified infrastructure property
• Indian reservation, Qualified property
• Indian reservation, Recovery periods for qualified property
• Intangible property, Goodwill
• Intangible property, Trademark, trade name
• Inventory
• Investment use of property, partial
• Involuntary conversion of MACRS property

L

• Land, Not depreciable
• Land, Preparation costs
• Liberty Zone leasehold improvement property, defined
• Life tenant ( See also Term interests )
• Limit on deduction, Section 179
• Listed property, 5% owner
• Listed property, Computer
• Listed property, Condition of employment
• Listed property, Employer convenience
• Listed property, Improvements to
• Listed property, Leased
• Listed property, Qualified business use
• Listed property, Related person
• Listed property, Reporting on Form 4562
• Lodging

M

• Maximum deduction, Electric vehicles
• Modified ACRS (MACRS), Conventions
• Modified ACRS (MACRS), Farm property
• Modified ACRS (MACRS), Percentage tables
• Modified ACRS (MACRS), Recovery periods
• Modified ACRS (MACRS), Short tax year

N

• Nonresidential real property
• Nontaxable transfer of MACRS property

O

• Office in the home
• Office in the home
• Ownership, incidents of

P

• Passenger automobile, Limit on
• Passenger automobile, Maximum depreciation deduction
• Personal property
• Placed in service, Before 1987
• Placed in service, Date
• Placed in service, Rule
• Property, Classes
• Property, Depreciable
• Property, Idle
• Property, Improvements
• Property, Intangible
• Property, Leased
• Property, Leased
• Property, Listed
• Property, Retired from service
• Property, Term interest

Q

• Qualified leasehold improvement property, defined
• Qualified Liberty Zone property, special Liberty Zone depreciation allowance
• Qualified property, special depreciation allowance

R

• Real property
• Recapture, General asset account, abusive transaction
• Recapture, Special depreciation allowance, Special Liberty Zone depreciation allowance
• Recordkeeping, Listed property
• Recovery periods, ADS
• Recovery periods, GDS
• Related persons
• Related persons
• Related persons
• Related persons
• Related persons
• Rent-to-own property, defined
• Rented property, improvements
• Repairs
• Retail motor fuels outlet
• Revoking, ADS election
• Revoking, General asset account election
• Revoking, Section 179 election

S

• Section 179 deduction, Limits, Business (taxable) income
• Section 179 deduction, Limits, Business-use, recapture
• Section 179 deduction, Limits, Dollar
• Section 179 deduction, Limits, Enterprise zone business
• Section 179 deduction, Limits, Liberty Zone property
• Section 179 deduction, Limits, Partial business use
• Section 179 deduction, Limits, Passenger automobile
• Section 179 deduction, Married filing separate returns
• Section 179 deduction, Partnership rules
• Section 179 deduction, Property, Eligible
• Section 179 deduction, Property, Excepted
• Section 179 deduction, Recordkeeping
• Section 179 deduction, S corporation rules
• Settlement fees
• Short tax year, Figuring depreciation
• Short tax year, Figuring placed-in-service date
• Software, computer
• Software, computer
• Sound recording
• Special depreciation allowance, Acquisition date test
• Special depreciation allowance, Original use test
• Special depreciation allowance, Placed in service date test
• Special depreciation allowance, Property, excepted
• Special Liberty Zone depreciation allowance, Acquisition date test
• Special Liberty Zone depreciation allowance, Original use test
• Special Liberty Zone depreciation allowance, Placed in service date test
• Special Liberty Zone depreciation allowance, Property, excepted
• Special Liberty Zone depreciation allowance, Substantial use test
• Stock, constructive ownership of
• Straight line method
• Straight line method
• Subscription list ( See Section 197 intangibles )
• Suggestions for publication

T

• Tangible personal property
• Taxpayer Advocate
• Trade-in of property
• TTY/TDD information

U

• Useful life

V

• Video-recording equipment ( See Listed property )

W

• When to use ADS
• Worksheet, Depreciation
• Worksheet, Leased listed property
• Worksheet, MACRS
• Worksheet, Passenger automobile

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